Withholding of the tax by the payer of the income is used only with respect to non-resident aliens and certain corporation bond interest. On the other hand, a system of information at the source requires returns concerning certain payments made by individuals, partnerships, and corporations, with the purpose of enabling the government to see that the recipients of some classes of taxable income report and pay taxes thereon.

All persons making such payments should become familiar with the requirements of the law, as penalties are provided for noncompliance. For example, all payments to individuals for salaries, interest or rent amounting to $1,500 or more must be reported on the appropriate forms; and the farmer who pays a foreman $130 a month should be as careful to observe the law as a corporation which pays its president a salary of $9,000 a month.

Returns of all payments of $1,500 or more, of every nature, would result in the submission of an immense amount of valueless material. The law therefore gives the Commissioner of Internal

Revenue considerable discretion as to the character and form of the information which may be demanded, and the regulations on this subject are full and precise.

Returns of information may be divided for convenience of comment into the following groups:

1. Returns by corporations of dividends paid to stockholders;
2. Returns by brokers of profits or losses of customers;
3. Returns by employers, fiduciaries, lessees, mortgagors or
others of all payments of fixed or determinable income, such
as salaries, rent, mortgage interest, etc.;

4. Ownership certificates, required in the collection of interest
on bonds of corporations and of foreign governments;
5. "Withholding" returns, required in the case of fixed or de-
terminable income paid to non-resident aliens or foreign
corporations.

This chapter deals with the first four of these classes of returns. Withholding returns are discussed in Chapter 11.

Returns of Dividends Paid to Stockholders

LAW. Section 254. Every corporation subject to the tax imposed by this title shall, when required by the Commissioner, render a correct return, duly verified under oath, of its payments of dividends, stating the name and address of each shareholder, the number of shares owned by him, and the amount of dividends paid to him.

REGULATIONS. When directed by the Commissioner, either specially or by general regulation, every domestic or resident foreign corporation shall render a return on Form 1097 of its payments of dividends and distributions to shareholders for such period as may be specified, stating the name and address of each shareholder, the number and class of shares owned by him, the date and amount of each dividend paid him, and when the surplus out of which it was paid was accumulated.

Dividends on the stock of domestic corporations or resident foreign corporations are prima facie the income of the record owner of the stock. The record owner will be liable for any tax based thereon, unless a disclosure to the Commissioner of the actual ownership is made on Form 1087. Returns of information (Form 1097) and ownership certificates (Form 1087) should be forwarded to the Commissioner of Internal Revenue, Sorting Section, Washington, D. C. (Art. 1060.)

Upon receipt of dividends by a record owner, he should immediately execute Form 1087 to disclose the name and address of the actual owner. Form 1087 should be filed with the Commissioner of Internal Revenue, Sorting Section, Washington, D. C. (Art. 1080.)

Such returns are required to be rendered annually as prescribed in the following ruling:

RULING.

every domestic corporation, not specifically exempt from taxation, making payment of dividends and distributions (other than liquidating dividends and stock dividends, or other nontaxable distributions) to any stockholder who is an individual, fiduciary, or partnership, amounting to $500 or more during the calendar year, shall render an information return on Form 1097 for the calendar year 1924 and each calendar year thereafter, stating the names and addresses of the shareholders to whom such payments were made and the amount paid to each. Similar returns of information shall also be rendered by resident foreign corporations to the extent that such dividend payments and distributions are made to citizens or residents of the United States, and domestic partnerships or fiduciaries. These returns shall be filed with the Commissioner of Internal Revenue not later than March 15 of the succeeding year. (C. B. III-2, 321; T. D. 3645.)

Returns of Brokers' Accounts

LAW. Section 255. Every person doing business as a broker shall, when required by the Commissioner, render a correct return duly verified under oath, under such rules and regulations as the Commissioner, with the approval of the Secretary, may prescribe, showing the names of customers for whom such person has transacted any business, with such details as to the profits, losses, or other information which the Commissioner may require, as to each of such customers, as will enable the Commissioner to determine whether all income tax due on profits or gains of such customers has been paid.

REGULATION. When directed by the Commissioner, either specially or by general regulation, every person doing business as a broker shall render a return on Form 1100, showing the names and addresses of customers to whom payments were made or for whom business was transacted during the calendar year or other specified period next preceding, and giving the other information called for by the form. (Art. 1065.)

The Commissioner has never required such returns.

Returns of Fixed or Determinable Income

LAW. Section 256. All persons, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, and employers, making payment to another person, of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than payments described in sections 254 and 255),2 of $1,500 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns

1Payments to corporations need not be reported. (Art. 1073.)

* The exceptions are dividends and transactions by brokers (see sections 254 and 255, quoted above). But see T. D. 3645, above.

in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Commissioner, under such regulations and in such form and manner and to such extent as may be prescribed by him with the approval of the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment.

Such returns may be required, regardless of amounts, (1) in the case of payments of interest upon bonds, mortgages, deeds of trust, or other similar obligations of corporations, and (2) in the case of collections of items (not payable in the United States) of interest upon the bonds of foreign countries and interest upon the bonds of and dividends from foreign corporations by persons undertaking as a matter of business or for profit the collection of foreign payments of such interest or dividends by means of coupons, checks, or bills of exchange.

When necessary to make effective the provisions of this section the name and address of the recipient of income shall be furnished upon demand of the person paying the income.

The provisions of this section shall not apply to the payment of interest on obligations of the United States.

REGULATION. All persons making payment to another person of fixed or determinable income of $1,500 or more in any calendar year must render a return thereof to the Commissioner for such year on or before March 15 of the following year, except as specified in articles 1073-1076 and 1079. .. (Art. 1071.)

...

The minimum where payments are made to a married person is $3,500. See Art. 1073, quoted on page 174.

Meaning of "fixed or determinable."

REGULATIONS. (a) Income is fixed when it is to be paid in amounts definitely predetermined. On the other hand, it is determinable whenever there is a basis of calculation by which the amounts to be paid may be ascertained. . . . . (Art. 362.)

. . Although to make necessary a return of information the income must be fixed or determinable, it need not be annual or periodical. . . . . (Art. 1071.)

It has been held that where a lease provides for a payment of rental in crop shares, the landlord and tenant sharing proportionately the expenses and dividing the proceeds, such payments are not fixed and determinable and need not be reported.5

Payments to lawyers and doctors and other payments for profes

'No returns of information are required for payments made by the United States government to sailors, soldiers, and civilian employees. (Art. 1073.) These returns are required for actual amounts paid or credited and made available during the calendar year equal to or exceeding $1,500. (C. B. 2, 249; O. D. 428.)

Treasury Bulletin "B," page 38; also C. B. 1, 261; O. D. 115.

sional services need not be reported. (Art. 1073.) Commission on account of a single transaction has been held not to be fixed or determinable annual income. (C. B. 4, 232; O. D. 907.) Income credited but not paid is subject to the provisions of article 362. (C. B. 2, 249; O. D. 428.)

It has been held that cash deposits by a tenant to guarantee the carrying out of the provisions of his lease are not necessarily income for the year in which received, but should be reported as income for the years in which they are applicable as rent. (C. B. I-1, 324; I. T. 1291.)

RULINGS. A receiver in partition proceedings is required to file returns of information covering payments of commissions, attorney's fees, and other fixed or determinable income of $1,000 or more made to any person during the taxable year. (C. B. 5, 252; O. D. 1149.)

The income derived from the sale in the United States of securities by a nonresident alien individual is not fixed or determinable annual or periodical income. (C. B. II-1, 140; I. T. 1679.)

Banks are held to be the payers and responsible for the reporting of deposits of coupons from bonds which do not contain a tax-free covenant clause. If the bank has reason to believe such payments or deposits will, during the calendar year, amount to $1,500 or more, a record should be maintained. It is not required that an extensive record be kept, but ordinary business care must be exercised. (C. B. III-1, 369; I. T. 1928.)

However, banks cashing or accepting for deposit registered interest on bonds not containing a tax-free covenant clause, issued by a domestic or resident corporation, are not required to file returns of information. The responsibility for filing such returns falls upon the obligor who makes payment of the interest by check. (C. B. II-2, 252; I. T. 1876.)

7

RULING. you are advised that returns of information, Forms 1099 and 1096 will be required in case a citizen of the United States is paid $1,000.00 or more during the calendar year, representing interest on bonds not containing a tax-free covenant clause. (Letter to The Corporation Trust Company, signed by Deputy Commissioner J. G. Bright, and dated September 17, 1923.)

All payments by partnerships and fiduciaries to employees must be reported if such payments equal or exceed the statutory minimum, but no reports are required with respect to distributable in

$1,500 under the 1926 act. *$1,500 under the 1926 act.