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profits are not transferred to the United States. The conditions are, briefly, that 80% or more of the income from all sources are derived from sources within the possession, and that 50% or more of the income from all sources comes from the active conduct of a business within the possession, or, if an individual, from business in his own name or as an employee or agent of another (Art. 1135-7).

Income from sources within the United States received by a foreign ruler in his individual capacity was subject to income tax regardless of whether the income belonged to the Crown (O. D. 483). A ship in port two weeks for repairs was a reasonable length of time and amounts paid the non-resident seamen for the period were taxable (O. D. 559). Wages earned by a non-resident alien on an occasional coastwise voyage is income from sources within the United States and subject to withholding, but if he is in United States ports only while transacting business, his wages are from sources without the United States (O. D. 245). An insurance broker solicited insurance for foreign corporations. He was required to make a return as their agent (O. D. 586). But profits from sales subject to approval in a foreign country, where title passes at the point of shipment, i. e., the foreign country, are not profits from sources within the United States (I. T. 1569). An alien who comes to this country with merchandise which he sells here, is subject to tax on the profits of such activities, even though he is in the country less than 30 days (O. D. 291). Mere selling of raw materials here by a foreign corporation by mail or through unsolicited orders does not constitute transacting business within the United States and income from such sales is not subject to tax (O. D. 294). Income arose to shipping companies to the extent that such shipments originated and were paid for in the United States (O. D. 1024). Gains from the sale in the United States of securities purchased within or without this country were required to be reported as income, and losses on those sold within the United States could be deducted (O. D. 890, I. T. 1204). If a non-resident alien purchases British Government Treasury Bills here at a discount and holds them till maturity, no taxable gain arises. But if he should sell such bills here at a profit, a tax would result (O. D. 534). A foreign estate bought and sold foreign securities in the United States through a firm of American brokers. This is income from sources within the United States and taxable (O. D. 863). A non-resident alien could not claim a deduction for income taxes paid

abroad on income from sources within the United States which was non-taxable (I. T. 1403). Discounts on acceptances purchased in this country represented gain from sources within the United States but not such income as was subject to withholding (I. T. 1398). The wages of a non-resident alien employed here permanently in the purchasing office of a foreign railroad are taxable even if paid from funds sent directly from the foreign country (O. D. 638). The place of purchase of property which is disposed of in the United States does not effect the determination of the source of the profits (O. D. 890), nor is the place of payment the determining factor (O. D. 651). Interest on bonds and notes of foreign countries held by non-resident aliens is not subject to tax, nor is a profit realized on foreign exchange from such payment taxable (O. D. 35).

A non-resident partner was not required to report amounts paid to him as salary if such were reasonable (I. T. 1425). A statement under oath by a partnership, individual, or corporation to the effect that it does no business and has no agent in the United States was considered sufficient evidence of a foreign depositor's non-liability for taxes (I. T. 1443). The sale of novels and the rights to publish, consummated within the United States, were held to be transactions in the United States and the profits from such were taxable to the author as income from sources within the United States (I. T. 1231). Profit arising from a sale within the United States by a non-resident alien partnership to a domestic corporation, of a United States patent, was taxable income (I. T. 1232). One-half of the compensation received by a non-resident alien employed on a ferry between the United States and Canada was considered income from within the United States (I. T. 1449). The $1,000 credit could be split or taken either by the alien or his wife if living together at the end of the year. If not living together each was entitled to a $1,000 credit (I. T. 1390). All non-resident aliens were allowed the $1,000 credit whether their country met the requirement of this country or not (I. T. 1266).

Where foreign income taxes were paid by a partnership (whose members were United States citizens) in one sum, an affidavit by each member of the firm, setting forth the amount of the income on which each tax was based, and a copy of the tax receipt, was required as proof of payment. (I. T. 1345). A steamship company having an agency here transports freight originating in Canada abroad and sells the coal which has been used as ballast for the return voyage. Both the freight and coal

receipts are income from sources within the United States (O. D. 596). Expenses of foreign vessels are to be calculated on the basis of the number of miles within the territorial waters of the United States to total mileage; repairs while lying up and expenses between voyages (i. e., between times of readiness to receive passengers or freight and their discharge) are to be prorated likewise on a mileage basis (I. T. 1570). Agencies owned in the United States by foreign governments operating vessels were not liable for tax (O. D. 515). Regardless of the fact that 51% of the stock of a foreign corporation was owned by a foreign government the company was subject to tax (O. D. 958).

Interest credited by a domestic bank to the account of a foreign bank, part of whose stock was owned by a foreign government, was not exempt from tax (O. D. 448), but if entirely owned by a foreign government was exempt (O. D. 628). Corporations which derived income from contracts with the United States Government but maintained no office in this country and transacted all the business at home were not required to report such income (A. R. M. 133; O. D. 1100, 988). Amounts received as damages by a foreign corporation were subject to income tax (Op. A. G. 5). A United States citizen residing abroad received commissions as an agent of a domestic corporation which he assigned to a non-resident alien corporation. The foreign corporation was not liable for income tax on the amounts received unless they represented profits on business done in this country. The agent should include the commissions in his returns as income, even though assigned (O. D. 109). A domestic corporation which received dividends from a foreign holding corporation which, in turn, derived its entire income from a domestic corporation was not required to pay taxes on the amount (O. D. 130). A domestic corporation owning the majority of the stock of a foreign corporation should have included the amount of interest debited to the foreign company and withheld a tax of 10% (now 122%) on the amounts credited (O. D. 330). A corporation doing business in the United States and Porto Rico was not required to pay income taxes on amounts derived in Porto Rico (O. 976). Insurance taken outside the United States and paid a foreign corporation was non-taxable to the foreign corporation but a deductible expense to the agency taking it out in this country, as it was a requirement of the selling agency (A. R. R. 723). A foreign corporation engaged in buying only was engaged in business in the United States and was required to pay taxes on bank deposits here (I. T. 1406). Dividends received by a non-resident alien from a corporation chartered in

the United States but not operating nor owning property here were taxable, as the corporation was domestic. (L. O. 1069; L. O. 397 and 908 revoked.) Interest on treasury certificate of indebtedness, matured December 15, 1921, was exempt from income tax when the corporation was not engaged in business in the United States, but the loss was not deductible from income from sources within the United States (I. T. 1415). Local insurance brokers acting for clients purchasing foreign insurance were not considered agents of the foreign brokers (I. T. 1359). Upon receipt of part payment of a long-term contract a foreign corporation was required to file an income tax return even though it derived no net income (I. T. 1170). Corporations and citizens of Costa Rica operating boats between there and the United States were required to pay tax on the entire amount because that country did not satisfy the exempt tax (Sec. 213(b) (8), I. T. 1485).

Servants of a diplomatic representation of a foreign country should not be examined for income tax purposes when leaving if accompanied by the representative (O. D. 812). Income derived by a family of a foreign diplomatic officer or by himself from investment was exempt (O. D. 1115); this was also true of the funds of foreign legations (O. D. 710), ministers, ambassadors or others representing foreign countries or their staffs (O. D. 336). But residents of the United States (O. D. 196) or alien employees (I. T. 1472) rendering service to them were taxed on their compensation received. Delegates to the United States, representing a foreign government, in connection with an agreement with the Food Administration exchanged raw materials for flour. They were not subject to tax on any profits thus derived (O. D. 182). Fees received by a foreign consul, as administrator of the estate of a countryman by appointment of a domestic court, were not consular fees and not exempt from tax (I. T. 1259).

XXIX

ORGANIZATIONS SUBJECT TO THE CORPORATE TAX-INSURANCE COMPANIES

CONSOLIDATED RETURNS

Powers of a corporation determine its exemption. Agricultural and horticultural organizations, mutual savings banks, fraternal beneficiary organizations, building and loan associations, cemetery companies, community chests, funds and foundations for religious, charitable, scientific, literary, and educational purposes. Business leagues, civic leagues and social clubs. Mutual insurance companies, cooperative associations. Insurance companies divided into three groups for tax purposes. Requirements for consolidated returns. Retroactive provision of 1921 act.

CERTAIN corporations, enumerated in Section 231, are exempt from income taxes. Excepting personal service corporations they possess a characteristic in common of being organized for some purpose other than that of making profits and paying dividends to private stockholders or other individuals. The 1921 act clarified in certain cases the status of particular corporations, the principal addition to the exemptions being community chests, funds, foundations and the like, devoted to "religious, charitable, scientific, literary or educational purposes." Proof of exemption must be furnished the local collector by every exempt corporation as outlined in Article 511.

The character of a corporation must be judged by its articles of incorporation, constitution, and by-laws rather than the declaration of its officers or by the methods under which it conducts, or has conducted, its business. Accordingly, if the activities of a corporation are confined to cooperative selling for the benefit of its patrons, but is granted additional powers by its charter, it will nevertheless be required to file a return and pay taxes (O. D. 190). An organization which otherwise would be exempt from taxation is not exempt if it operates in a non-exempt manner, owns property in excess of its needs, or carries on indus

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