only of insurance is paid by the policyholders. Such returns of parts of the premiums paid with interest are merely periodic refunds of excess amounts paid in.27

Returns of Insurance Companies. Insurance companies transacting business in the United States or deriving an income from sources therein are required to file returns of income. The return shall be on Form 1120. The returns of insurance companies must be rendered in conformity with the reports made for the same period to State insurance departments. As an aid in auditing the returns, wherever possible a copy of the report to the State insurance department should be submitted with the return. Otherwise a schedule should be attached thereto showing the federal, State, and municipal obligations from which the interest omitted from gross income was derived.28

Foreign Insurance Companies. Foreign insurance companies are required to report as gross income only the gross income from all sources within the United States. Under the present law it seems income from the possessions of the United States need not be included. Income from business transacted by a United States branch or agency of a foreign insurance company which relates to a foreign country must be returned as gross income.29

Mutual Employers' Liability Insurance Companies. The 1916 Law included companies of this class in the same class as mutual fire insurance companies and the statement in the preceding paragraphs regarding mutual insurance companies applies to this class of companies, both under the 1916 Law and the Revenue Act of 1918.

Mutual Workmen's Compensation Companies. The 1916 Law included companies of this class in the same class as mutual fire insurance companies and the statement in the preceding paragraphs regarding mutual insurance companies applies equally to this class of companies, both under the 1916 Law and the Revenue Act of 1918.

27 Penn. Mut. Life Ins. Co. v. Lederer, 247 Fed. 559.

28 Reg. 45, Art. 623.

29 Revenue Act of 1918, § 233 (b); Reg. 33 Rev., Art. 244.

Mutual Casualty Insurance Companies. The 1916 Law included companies of this class in the same class as mutual fire insurance companies and the statement in the preceding paragraphs regarding mutual insurance companies applies equally to this class of companies, both under the 1916 Law and the Revenue Act of 1918.

CHAPTER 14

FOREIGN CORPORATIONS

The Revenue Act of 1918 provides that the income tax shall be levied, collected and paid for each taxable year upon the net income received from sources within the United States by every corporation created or organized outside of the United States, including (1) interest on bonds, notes or other interest-bearing obligations of residents, corporate or otherwise, (2) dividends from resident corporations and (3) all amounts received (although paid under a contract for the sale of goods or otherwise) representing profits on the manufacture and disposition of goods within the United States. The deductions per

1 Revenue Act of 1918, §§ 230 (a), 233 (b), 200. The 1916 law provided that the income tax should be levied, assessed, collected and paid annually upon the total net income received in the preceding calendar year from all sources within the United States by every corporation, joint-stock company or association or insurance company, organized, authorized or existing under the laws of any foreign country including interest on bonds, notes or other interestbearing obligations of residents, corporate or otherwise, and including the income derived from dividends on capital stock or from net earnings of resident corporations, joint-stock companies or associations, or insurance companies, whose net income was taxable for income tax purposes (Revenue Act of 1916, § 10 (a)). Under the 1913 law foreign corporations were taxable only upon the income accruing from business transacted and capital invested within the United States. Interest and dividends received by foreign corporations were held to be income from capital invested in this country. Although at first it was held under that law that interest and dividends received by non-resident alien individuals were not subject to tax, after the decision in the case of Brushaber v. Union Pacific Railway Company, 240 U. S. 1, the Treasury Department

mitted to foreign corporations are in general the same as those permitted to domestic corporations, but, with the exception of interest and taxes paid or accrued within the taxable year, are allowed only if and to the extent that they are connected with income arising from a source within the United States; and the proper apportionment and allocation of the deductions with respect to sources of income within and without the United States are determined under rules and regulations prescribed by the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury.2 It will be noted that the Revenue Act of 1918 expressly includes amounts received representing profits on the manufacture and disposition of goods within the United States. Income from rentals and royalties from property, income from business carried on in the United States, income from isolated transactions or activities directly resulting in gain carried on within the Unted States by a foreign corporation or its representative, interest on deposits in banks located within the United States and income from capital otherwise invested in the United States and from services rendered or labor performed within the United States is also included within the term "sources within the United States."

Definitions. As used in this chapter, the term "foreign corporation" means a corporation, association, joint-stock company or insurance company created or organized outside the United States 3 including only the states, the territories of Alaska and Hawaii and the District of Columbia. Foreign corporations are divisible into four classes, designated as follows: (1) "non-resident foreign corporations" are those which have no office or place of business in the United States; (2) "non-resident foreign cor

changed its rulings and held that interest and dividends so received were subject to the tax, whether the recipient was an individual or a corporation. (T. D. 2313.)

2 Revenue Act of 1918, § 234 (b).

3 See Revenue Act of 1918, § 1; Reg. 45, Art. 1508.

porations with a branch in the United States," are those which have their principal or head business office in a foreign country but incidentally have branch offices or places of business in the United States; (3) "resident foreign corporations" are those which have their principal or head business office in the United States and do business solely in this country, and (4) "resident foreign corporations having branches outside the United States" are those which have their principal or head business office in the United States, but incidentally have branch offices or places of business outside the United States. In this chapter, however, a foreign corporation engaged in trade or business within the United States or having an office or place of business therein will be referred to as a resident foreign corporation and a foreign corporation not engaged in trade or business within the United States and not having any office or place of business therein will be referred to as a non-resident foreign corporation.5 The term "source,' as used in this chapter, means the place of origin of income. The term "taxable year," as used in this chapter, means the calendar year or the fiscal year ending during such calendar year upon the basis of which the net income is computed.7

Corporations Exempt from the Tax. The corporations enumerated in the law as exempt include foreign corporations as well as domestic corporations, except as stated in the chapter on exempt organizations.9

Corporations Subject to the Tax. All foreign corporations receiving income from sources within this country and not specifically exempt, as indicated in the preceding paragraph, are subject to the tax. It is not necessary

4 See T. D. 2401; Reg. 33 Rev., Art. 200.

5 Reg. 45, Art. 1508.

6 Reg. 33 Rev., Art. 66.

7 Revenue Act of 1918, $ 200. For definition and discussion of the term "fiscal year" see Chapter 12 on Corporations and Chapter 34 on Returns.

8 Revenue Act 1918, § 231.

9 See Chapter 15 on Exempt Organizations.