number and amount of such obligations, securities or bonds, and the interest received therefrom in such form and with such information as the Commissioner may require. In the case of obligations of the United States issued after September 1, 1917, and in the case of bonds issued by the War Finance Corporation, the interest is exempt only if and to the extent provided in the Acts authorizing the issue thereof, as amended and supplemented, and will be excluded from gross income only if and to the extent it is wholly exempt from taxation to the taxpayer both under the income and war-profits and excessprofits taxes.12 The 1916 Law expressly exempted the compensation of the present President of the United States, during the term for which he has been elected, and the compensation of the Judges of the Supreme Court and inferior courts of the United States, in office at the time the Act was passed, but the Revenue Act of 1918 expressly taxes the compensation received as such of the President of the United States, the Judges of the Supreme Court and inferior courts of the United States, and all other officers and employees, whether elected or appointed, of the United States, Alaska, Hawaii, or any political subdivision thereof, or the District of Columbia.13 The Revenue Act of 1918 does not expressly exempt "the compensation of all officers and employees of a State, or any political subdivision thereof, except when such compensation is paid by the United States Government, as did the 1916 Law. Officers and employees of a State, City or County, including public school teachers, etc., were exempt under the 1916 Law to the extent that their income was derived from salaries paid by the State, County or City. They enjoyed, however, no exemption from tax on income from taxable sources merely because of their position as employees of a

14

12 Revenue Act of 1918, §§ 213 (b) 4, 233.

13 Revenue Act of 1918, § 213 (a). The constitutional question involved in taxing such salaries is discussed in Chapter 17 on Income from Personal Services.

14 Revenue Act of 1916, § 4.

State. It seems to have been the intent of Congress in the present statute to tax such salaries and to leave the constitutional question involved in levying such a tax to the courts, 15 but the Treasury Department has ruled that compensation paid to its officers and employees by a state or any political subdivision thereof, will not be taxed.16 Exempt income is omitted from the returns of individuals and corporations, 17 but income exempt for only normal and not surtax, or for income but not profits tax, must be included in the return.

Citizens of the United States. Every person born in the United States subject to its jurisdiction, or naturalized in the United States, is a citizen. An individual born in the United States of citizen or resident alien parents, who has long since moved to a foreign country and established a domicile there, but who never has been naturalized therein or taken an oath of allegiance thereto is still a citizen of the United States.1 18 Citizens are taxable upon their net incomes from all sources whether they reside within this country or not. Married women are considered to have the same citizenship as their husbands. An American woman who marries a foreigner consequently loses her status as an American citizen and is thereafter treated as an alien.1 19 But determination by the State Department of the status of an individual is not conclusive upon the Treasury Department in fixing citizenship for income tax purposes.2

.20

15 Revenue Act of 1918, § 213 (a). The constitutional question involved in taxing such salaries is discussed in Chapter 17 on Income from Personal Services.

16 Reg. 45, Art. 71. This subject is more fully discussed in Chapter 17 on Income from Personal Services.

17 Exempt interest, however, is included as above indicated. Under the 1916 Law corporations were at first required to report exempt income in a supplementary statement, but this requirement was omitted in later forms.

18 Reg. 45, Art. 4. 19 T. D. 2092.

20 T. D. 2135,

RESIDING IN THE UNITED STATES. Citizens residing in the United States report and pay the tax in the district in which they legally reside or have their principal place of business, regardless of where the income may arise.21

RESIDING ABROAD. If a citizen residing abroad has no office or place of business in this country, he files his return and pays his tax to the Collector at Baltimore, Maryland.22 He is, of course, required to report his income from all sources whether within or without the United States. Although the question as to the liability of a nonresident citizen is not determined by the State Department but by the Treasury Department, still, in the case of a naturalized citizen against whom the presumption of expatriation has arisen, the fact that he has paid the income tax will receive due consideration by the State Department in connection with other evidence submitted to overcome such presumption in connection with applications for passports or for registration in a consulate or for actual protection in a foreign country. The payment of the income tax will also be duly considered by the State Department in passing upon rights to the continued protection of this Government in cases of native American citizens who have resided abroad for a period so long that the natural presumption may be held to have arisen that they have abandoned citizenship in this country.23

Aliens Residing in the United States. The question of whether or not an alien resides in this country is sometimes difficult to determine. The Treasury Department holds that "Nonresident alien individual" means an individual (a) whose residence is not within the United States, and (b) who is not a citizen of the United States. Any alien living in the United States who is not a mere transient is a resident of the United States for purposes of the income tax. Whether he is a transient or not is

21 Revenue Act of 1918, § 227 (b); Reg. 45, Art. 445.

22 Revenue Act of 1918, § 227 (b).

23 Letter from Secretary of State to American Diplomatic and Consular Officers, dated March 18, 1914; I. T. S. 1918, ¶ 5.

determined by his intentions with regard to his stay. The best evidence of such intentions is afforded by the conduct, acts, and declarations of the alien. The typical transient is one who stops for a short time in the course of a journey through the United States, sometimes performing labor, sometimes not, or one who enters the United States intending only to stop long enough to carry out some purpose, object, or plan not involving an extended stay. A mere floating intention, indefinite as to time, to return to another country is not sufficient to constitute him a transient. An alien's statements as to his intention with regard to residence are not conclusive, but when unequivocal will determine the question of his intention, unless his conduct, acts, or other surrounding circumstances contradict the statements. It sometimes occurs that an alien who genuinely intends his stay to be transient may put off his departure from time to time by reason of changed conditions, remaining a transient though living in the United States for a considerable time. The fact that an alien's family is abroad does not necessarily indicate that he is a transient rather than a resident. An alien who enters this country intending to make his home in a foreign country as soon as he has accumulated a sum of money sufficient to provide for his journey abroad is to be considered a transient, provided his expectation in this regard may reasonably, considering the rate of his saving, be fulfilled within a comparatively short time. It will be presumed that an alien who has established a residence in the United States, as outlined above, continues to be a resident until he or his family evidence an intention to change their residence to another country by starting to remove. Thus, alien residents who, following the armistice agreement of November, 1918, take steps toward returning to their native countries, as by applying for passports, are to be regarded as residents for that portion of the taxable year which elapsed up to the time such step was taken.24 The Treas24 Reg. 45, Arts. 311, 312, 313. This rule differs from the English

ury Department has adopted the following definition of the word "residence" as used in the income tax laws: "That place where a man has his true, fixed and permanent home and principal establishment, and to which, whenever he is absent, he has the intention of returning; and indicates permanency of occupation as distinct from lodging or boarding, or temporary occupation." 25 Aliens

coming into the United States with the intention of becoming residents and other resident aliens can establish the fact of their residence and acquire the privileges of resident aliens under the statute, by filing a certificate with the withholding agents charged with the duty of withholding the tax on income paid to non-resident aliens.26

Non-Resident Aliens. Non-resident aliens are those individuals who are neither citizens nor residents of this country.27 As stated above, they are taxable only to the extent of the income they receive from sources within the United States, including interest on bonds, notes or other interest-bearing obligations of residents, corporate or otherwise, dividends from resident corporations and including 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.28 If a non-resident alien conducts business through an agent in this country, the agent will be subject to the duty of filing a return for his non-resident rule which provides that a person within the United Kingdom, for some temporary purpose only for less than six months during the year, is not taxable as a resident, but after a residence of six months he becomes chargeable with the duties for the year commencing on April 6th preceding.

25 T. D. 2242.

26 Reg. 45, Art. 362; T. D. 2242. This certificate is known officially as Form No. 1078 (Revised).

27 Reg. 45, Art. 311. Citizens of Porto Rico or the Philippines, who are not residents of the United States, are treated as non-resident aliens as to income derived from sources within the United States. (Revenue Act of 1918, § 260.)

28 Revenue Act of 1918, § 213 (c).