Subsidiaries to make returns, when.-The fact that a corporation maintains a number of subsidiary corporations for the purpose of protecting brands, trade-marks, and trade names is immaterial. The liability to make returns attaches to each subsidiary company by reason of the fact that it is a separate and distinct entity.

If such subsidiary companies actually have no net income or earnings and no expenses of operation, and the earnings accrue direct to the parent company, which company also pays direct the operating expenses of the subsidiaries, that fact must be clearly set out in the returns of the subsidiaries. In any event, subsidiary corporations can not escape liability to make returns.

If, however, the subsidiary concerns are mere partnerships or branches of the parent company, and not incorporated organizations, then these subsidiary concerns will not be required to make returns of annual net income, but all of their earnings and expenses will be taken up and accounted for in the return of the parent company or corporation.

(T. D. 2162.)

Nontaxability of interest from bonds and dividends on stock of domestic corporations owned by nonresident aliens.

Interest from bonds and dividends on stock of domestic corporations owned by nonresident aliens are not subject to the income tax, whether such bonds or stock are physically located within or without the United States or whether they are in the possession of agents or trustees in some fiduciary capacity in the United States or otherwise.

All rulings and decisions in conflict herewith are hereby superseded and overruled.

(T. D. 2163-See T. D. 2274.)

Revision of T. D. 2048 defining taxable status of dividends paid on the capital stock from the current net earnings or established surplus created from the net earnings of corporations, jointstock companies or associations, and insurance companies taxable upon their net income.

Cash dividends or their equivalent paid from the net earnings or the established surplus or undivided profits of corporations, joint-stock companies or associations, and insurance companies, if declared and paid on or after March 1, 1913, constitute taxable income in the hands of shareholders or beneficiaries when received, and should be returned when the total net income of any individual is in excess of $20,000, inclusive of such dividends, and the additional tax should be paid thereon as on income for the year in which such dividends were received, without regard to the period in which the profits or surplus were earned or the period during which they were carried as surplus or undivided profits in the treasury or on the books of the corporations, etc.

Stock dividends issued as a bona fide and permanent increase of the capital stock of corporations, etc., without intent to evade the imposition of the personal income tax, are held to represent capital, and are not, therefore, subject to the income tax as gains, profits, and income in the hands of the stockholder.

If, however, the dividend stock should be surrendered to the corporation for cash or its equivalent, or if the assets of the corporation in any manner should be distributed by means of the stock dividend, the amount realized will be considered income for the year when so converted or received, and will be returned as income by the corporation or individual receiving the same.

T. D. 2048 of November 12, 1914, is hereby revised, and all rulings or parts of rulings heretofore made which are in conflict herewith are hereby revoked.

(T. D. 2193.)

Compromises.

Minimum amounts which will be accepted in settlement of the specific penalty.

With reference to corporations and individuals who have failed to file returns of annual net income within the prescribed time for the year 1914, you are advised that it has been determined by the Treasury Department to accept offers in compromise of the specific penalties in minimum sums as follows: $10 from corporations and $5 from individuals.

Where such delinquents failed to file returns for 1913 within the prescribed time, offers for 1914 delinquencies will be accepted as follows: $15 from corporations and $7.50 from individuals.

The foregoing applies only to those cases where there was no intention to evade the law or escape taxation.

The minimum sum of $15 also applies to corporations "not organized for profit" which were relieved of the specific penalty for failing to file returns within the prescribed time for 1913.

In preparing compromise cases for transmission to this office, a notation should be made on Form 656 in the case of corporations and individuals also delinquent for 1913, in order that proper consideration can be given the offers in accordance with the above schedule.

In the case of delinquent withholding agents, offers in compromise of not less than $5 in settlement of the specific penalty may be accepted for deposit where it is believed that the delinquency was due simply to oversight or lack of information concerning the requirements of the law. It should be made clear, however, that each case will be decided upon its merits, and where the facts indicate carelessness or disre gard of the law such offers will no doubt be rejected.

Offers in compromise can not receive favorable consideration in cases where the returns for the year in question have not been filed. In such cases the recommendation that the

offer be accepted should be made "subject to the filing of the return," the date of filing to be furnished promptly upon receipt of the return.

(T. D. 2201-See 2224.)

Bad Debts.

Bad debts which, if collected, would constitute income in their entirety, are not deductible in a return of annual net income unless the amount of such items has been entered on the books of the taxpayer as income and such entry has been made within the year for which such amount is sought to be deducted as a bad debt.

Debts on account of unpaid wages, salaries, rents, or items of a similar character which, if collected, would be properly included in gross income in returns of annual net income will not constitute an allowable deduction from gross income as bad debts in ascertaining taxable net income unless the amount representing such debts has been entered on the books of the taxpayer and included as income in his income tax return for the year in which the deduction is claimed, and has also been charged off, as required by law, it being specifically provided that only such debts due to the taxpayer actually ascertained to be worthless and charged off within the year may be deducted as bad debts. An entry of the item on the books and its inclusion in gross income must, therefore, precede the charging off of such item and its deduction as a bad debt.

(T. D. 2224.)

Revising T. D. 2201 of April 28, 1915, relative to bad debts as an allowable deduction under paragraph B of the act of October 3, 1913.

Debts arising from unpaid wages, salaries, rents, and items of similar taxable income due and payable on or after March

1, 1913, will not be allowed as general deductions under paragraph B of the income tax law unless the income which they represent has been included in a return of gross income for the year in which the deduction as a bad debt is sought to be made or in a previous year and the debts themselves have been actually ascertained to be worthless and charged off.

All debts representing amounts that became due and payable prior to March 1, 1913, and not ascertained to be worthless prior to that date, whether representing income or a return of capital, are held to be allowable deductions under paragraph B of the law in a return of income for the year in which they are actually ascertained to be worthless and are charged off.

T. D. 2201 and all other regulations inconsistent herewith are hereby superseded.

(T. D. 2231-See T. D. 2289.)

Amendment of regulations requiring return and payment of tax by fiduciaries under trust estates.

Guardians, trustees, executors, administrators, agents, receivers, conservators, and all persons, corporations, or associations acting in any fiduciary capacity, hereinafter referred to as fiduciary agents, who hold in trust an estate of another person or persons, shall be designated the "source" for the purpose of collecting the income tax, and by filing notice with other debtors or withholding agents said fiduciary shall be exempt from having any income, due to them as such, withheld for any income tax by any other debtor or withholding agent. Other debtors or withholding agents upon receipt of such notice shall not withhold any part of such income from said fiduciary and will not in such case be held liable for normal tax of 1 per cent due thereon. The form of notice