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rule is the withholding of a tax equal to 2% on interest paid on obligations of corporations containing a tax-exempt covenant. In such cases the tax is in theory withheld, but not in actual fact, since the paying corporation assumes the burden of the tax, paying the interest in full to its bondholder. Although the fiduciary may be a corporation, in its capacity as fiduciary, it is subject to the provisions of law applicable to individuals and not to corporations; hence on payments of such interest as that referred to in the preceding sentence, the paying corporation will be required to treat the corporation fiduciary as an individual and assume the burden of the 2% tax.87
Withholding at the Source by Fiduciaries. A fiduciary is expressly required to withhold the tax at the source in the same cases in which individuals, corporations and partnerships are required so to do; that is, the tax must be withheld at the source by a fiduciary upon all annual or periodical payments of fixed and determinable income to non-resident aliens and non-resident foreign corporations.88
Information at the Source. The fiduciary is expressly subject to all the provisions of the law requiring information at the source. These requirements are discussed in full in a subsequent chapter 89
Penalties. The Revenue Act of 1918 provides that fiduciaries required to make returns shall be subject to all the provisions which apply to individuals.90 Fiduciaries are liable to the same penalties, so far as they are applicable, as those which may attach to individuals and which are discussed at length in another chapter.91
87 See Chapter 40 on Collection of the Tax at the Source.
88 Revenue Act of 1918, $8 221 and 237. See Chapter 40 on Collection of the Tax at the Source.
89 See Chapter 39 on Information at the Source.
The Revenue Act of 1918 requires every fiduciary (with the exception of receivers in possession of part only of the property of an individual) to make a return for the individual, estate or trust for which he acts (1) if the net income of such individual is $1,000 or over, if single, or of married and not living with hubsand or wife, or $2,000 or over if married and living with husband or wife, or (2) if the net income of such estate or trust is $1,000 or over, or if any beneficiary of such estate or trust is a nonresident alien. It is further provided a that "fiduciaries required to make returns under this Act shall be subject to all the provisions of this Act which apply to individuals.” The law implies that foreign fiduciaries shall be subject to its provisions to the same extent as non-resident alien individuals. The term “foreign fiduciaries” is defined, for the purpose of this book, as fiduciaries who neither reside in this country nor have an office or place of business here, that is, those who are not within the jurisdiction of this Government.3 The preceding chapter contains the general rules relating to fiduciaries. This chapter treats of the application of those rules to foreign fiduciaries.
Trust Estates. The trust estate under the control of a foreign fiduciary is subject to tax on net income derived from sources within this country. Net income from sources within this country is determined under the same rules as apply to non-resident aliens. The deductions claimed by the foreign fiduciary are governed by the rules relating to fiduciaries in general, except so far as they are limited by rules relating to the deductions allowed to nonresident aliens.
1 Revenue Act of 1918, $ 225. 2 Revenue Act of 1918, $ 225.
3 As to who are fiduciaries and who are beneficiaries within the meaning of the law, and as to the special duties of executors, administrators and receivers, see the preceding chapter.
Distribution of Income of Trust Estates. A foreign fiduciary having charge of an estate or trust the income of which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, or a non-resident alien guardian of an infant where income is collected and held or distributed as the court may direct, is required to execute the same annual return as is required of domestic or resident fiduciaries, that is, they will include in their returns a statement of every beneficiary's distributable share of the net income of the trust estate from sources in the United States.5 Under the 1916 Law such fiduciaries were also required to file a personal return on behalf of each non-resident alien beneficiary 6 and if there was only one beneficiary who was a non-resident alien and to whom all of the income was distributed annually, it was only necessary to file the personal return on behalf of the beneficiary and not also a fiduciary's return for the trust estate. If the foreign fiduciary acts for beneficiaries who are citizens or residents of this country no personal return need be filed on behalf of such beneficiaries, but a fiduciary's return must be filed and in this return must be included a statement of each beneficiary's distributable share of the net income.7 The discussion in the preceding chapter on the subject of distribution of income of trust estates should be read in this connection.
Undistributed Income of Trust Estates. The term "undistributed income" of trust estates is discussed in the preceding chapter. In the case of (1) income received by estates of deceased persons during the period of administration or settlement of the estate; (2) income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests; or (3) income held for future distribution under the terms of the will or trust, the foreign fiduciary having charge of such estates will be responsible for making the return of such income and the tax will be imposed upon the estate or trust and will be paid by the foreign fiduciary, except that in the case of the estate of any deceased person during the period of administration or settlement the tax is imposed on the beneficiary with respect to the amount of any income properly paid or credited to any legatee, heir or other beneficiary and on the executor or administrator only with respect to the remainder.8 For the purposes of the normal tax the estate or trust will be allowed the same credits as are allowed to single persons. Under the 1916 Law, the foreign fiduciary might claim the specific exemption allowed to single persons only if the estate was created by a citizen or resident of this country, but under the Revenue Act of 1918 it seems that the specific exemption of $1,000 may be claimed for the estate irrespective of whether or not the person creating the estate was a citizen or resident or non-resident alien 10
4 See Chapter 5 on Non-Resident Aliens. 5 Revenue Act of 1918, $ 219 (b).
6 Letter from Treasury Department dated December 28, 1916; I. T. S. 1918, 1 115.
7 Revenue Act of 1918, 8219 (b).
Returns. Under the Revenue Act of 1918, a foreign fiduciary is required to make under oath a return for the individual, estate or trust for which he acts, stating specifically the items of the gross income received from sources within this country, and the deductions and credits allowed by the law, and the respective shares distributable to beneficiaries. The fiduciary is required to make oath that he has sufficient knowledge of the affairs of the individual, estate or trust for which he acts to enable him to make the return, and that the same is, to the best of his knowledge and belief, true and correct.11
8 Revenue Act of 1918, $ 219. 9 Revenue Act of 1916, $ 7. 10 Revenue Act of 1918, $ 219 (c).
By Whom FILED. The return is filed by the fiduciary having charge of the trust estate. In making the return he should comply with the law and regulations respecting returns by non-resident aliens. The Revenue Act of 1918 provides that a return may be made by one of two or more joint fiduciaries, under such regulations as the Commissioner with the approval of the Secretary may prescribe.
WHEN A RETURN IS REQUIRED. The Revenue Act of 1918 requires a return to be made by a fiduciary for the individual, estate or trust for which he acts (1) if the net income of such individual is $1,000 or over if single or if married and not living with husband or wife, or $2,000 or over if married and living with husband or wife, (2) if the net income of such estate or trust is $1,000 or over, or if any beneficiary of such estate or trust is a nonresident alien.12 In the case of foreign fiduciaries the law is silent, but seemingly a return will be required by the Treasury Department if the foreign fiduciary has received any net income from sources within the United States during the taxable year.
WHERE FILED. In the case of foreign fiduciaries the return should be filed with the Collector at Baltimore, Maryland. 13
WHEN FILED. The annual return must be filed on or before March 15, or on or before the fifteenth day of the third month following the close of a fiscal year accordingly as net income is computed on the basis of the calendar year or a fiscal year.14 The same general rules are applicable to the filing of returns by non-resident aliens and by foreign fiduciaries. The same extension of time
11 Revenue Act of 1918, $ 225. 12 Revenue Act of 1918, $ 225. 13 Revenue Act of 1918, $ 227 (b). 14 Revenue Act of 1918, $ 227 (a).