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and depositor 13 and the same has been held where a bank received interest and dividends direct from domestic corporations to be credited to the accounts of non-resident depositors.14 A bank holding, for account of foreign banks and bankers, securities on which it collected interest and disbursed the same to the foreign banks and bankers, was not held to be an agent, 15 but where a bank acted as custodian of securities for non-residents other than banks, the rule seemed to be that it was an agent.16 An individual, partnership or corporation occupying or standing in the ordinary relation of broker toward a non-resident as client was held not to be an agent within the meaning of this chapter, but was required to withhold the tax as a withholding agent. In the hypothetical case upon which this ruling was based, the non-resident client maintained an account with the broker, occasionally buying some securities on margin and selling some from time to time, interest being charged on balances due and dividends as paid on the stocks carried and credited to the account. All dealings were in response to directions from the non-resident.17
DUTIES AND LIABILITIES OF RESIDENT AGENTS. The responsible heads or representatives of non-resident aliens in connection with any sources of net income which said nonresident aliens might have within the United States, were required to make a full and complete return of such income and to pay any and all tax, normal and additional, assessed upon the income received by them in behalf of their non-resident alien principals, in all cases where the income tax on income so in their receipt, custody, or con
18 Banks were not held to be withholding agents with respect to interest paid on deposits. Reg. 33, Art. 67.
14 Letter from Treasury Department dated February 8, 1917; I. T. S. 1918, 1106.
16 Letter from Treasury Department dated April 10, 1916; I. T. S. 1918, 1200.
16 The rulings were not clear or consistent on this point, but it seems that the rulings bore out the conclusions in the text.
17 Letter from Treasury Department dated April 17, 1918; I. T. S. 1918, 13323.
trol was not withheld at the source.18 They were under no duty to inquire into or report any income of the nonresident principal received from other sources in this country, but could, if authorized by the non-resident principal, make a complete return of all income from this country. Where the same non-resident had several agents, none of whom was authorized and enabled to make a return of all the principal's income, each agent reported separately the income coming into his hands, and the Treasury Department took into consideration the aggregate amount of net income, covered by all of the returns, in assessing the tax, giving credit for the amount assessed on each return, and making a further assessment to cover the surtax which might be due on the aggregate income in the case of individuals.19 Of course, if the non-resident principal filed a return of all of his income from sources within this country, the agents were not also required to file returns. Resident agents, therefore, ascertained in due time what their non-resident principals intended to do as to reporting and paying the tax, and governed themselves accordingly.
PROCEDURE IN COLLECTING INCOME FOR NON-RESIDENTS. In collecting income subject to withholding of the tax at the source, the resident agent was required to execute the ownership certificate required of his non-resident principal, signing it with the name of the principal and affixing his own signature as agent.20 In brief, with respect to such income, he was required to proceed as was required of the non-resident principal, in whose place he stood for the purpose of the income tax. The fact that the non-resident had an agent here did not relieve his income from withholding at the source when paid to such agent.
MAKING RETURNS FOR NON-RESIDENT PRINCIPAL. The agent of a non-resident alien was responsible for a correct return of all income accruing to his principal within the purview of the agency, and the agent was held responsible for a complete return of all such income. The agency appointment determined how completely the agent was substituted for the principal for income tax purposes. 21 In making the annual return for his non-resident principal the resident agent was required to use the same form as would be used by the principal 22 and follow the provisions of the law and the regulations relating to non-resident aliens or foreign corporations, as the case might be, in claiming deductions. The same forms were used for residents and non-residents alike, and, when used by or for a non-resident alien, required certain changes in wording, such as a statement at the beginning that the return covered only income from sources within the United States. In the affidavit at the end of the individual's form, to be executed by the agent, a statement was required to be made that the return covered only the income received by the agent, or that it covered all of the income of the principal from sources within the United States, as the case might be. The affidavit on the corporation's form was prepared for execution by two officers of the corporation. When the return was signed by an agent for a foreign corporation, an affidavit that he was the properly authorized agent, and that the report covered income from all sources within the United States, or income passing through his hands, as the case might be, was required to be attached to the return and duly executed. The return might be filed in the district in which the agent resided or had his principal place of business.
18 Reg. 33 Rev., Art. 32.
19 Letter from Treasury Department dated March 6, 1917; I. T. S. 1918, 1114.
20 See Chapter 40 on Collection at the Source.
PAYING THE TAX FOR NON-RESIDENT PRINCIPAL. After filing the return, the agent in due course received a notice of assessment showing the amount of tax assessed on the income reported.23 The tax became due and payable at
21 Reg. 33 Rev., Art. 32.
22 Form 1040, in the case of Individuals; Form 1030 or 1030A, in the case of insurance companies, and Form 1031, in the case of other corporations.
23 A special ruling was made to cover cases in 1916, where the the same time and in the same manner as the tax assessed on the income of a resident, and could be paid in the same way.24 Upon paying the tax, the agent could demand a separate receipt for the amount paid on behalf of his nonresident principal, and such receipt was sufficient evidence to justify the agent in withholding the amount therein expressed from his next payment to the principal, if he had not already withheld a sufficient amount to satisfy the tax. The principal could demand this receipt from the agent upon giving him a full written receipt acknowledging the payment of the tax as a satisfaction of the agent's debt to that extent.25
ABATEMENT AND REFUND. Taxes improperly or illegally assessed or collected might be abated or refunded in the manner indicated in the chapter dealing with that subject.26
agent for a non-resident alien had received income from corporate interest or dividends and paid the same over to his principal prior to September 8. In such cases, if the agent did not have, between September 8 and the end of the year, any income of the non-resident alien from which to pay the tax he was relieved from liability, leaving the tax a charge against the non-resident alien to be collected direct from him by the Treasury Department. (T. D. 2402.) A like special ruling was made to cover cases in 1917 where the agent for a nonresident alien had received income and paid the same over to his principal prior to October 3d. In such cases if the agent did not have, between October 3d and the end of the year, any income of the non-resident alien from which to pay the tax, he was relieved from liability, leaving the tax a charge against the non-resident alien to be collected from him by any means at the disposal of the Commissioner of Internal Revenue; but where the agent received the income of his principal subsequent to Oatober 3d he was obliged to pay the total tax due for the entire year 1917 and subsequent years. (Reg. 33 Rev., Art. 32.)
24 See Chapter 35 on Assessment and Payment of the Tax.
For convenience in handling financial transactions, stock certificates are sometimes issued in the names of others than the actual owners of the stock. The individuals, partnerships or corporations so holding the nominal title to the stock are known as nominal stockholders or stockholders of record. A nominal stockholder is not necessarily an agent for the actual owner, but if the actual owner is a nonresident alien individual, a resident nominal stockholder may be an agent in the sense in which that term is used in the preceding chapter. A nominal stockholder is not a withholding agent, although under the 1916 Law he might have been one if the actual owner was a non-resident foreign corporation. The distinction between a nominal stockholder and a fiduciary lies in the fact that the latter holds legal title to stock (if that is the subject of the trust), while a nominal stockholder may hold no title at all, the stock merely standing in his name on the books of the corporation. Nominal stockholders may acquire their status by arrangement with the actual owners, as where a broker carries in his name the stock of a customer, in which event the name and status of the actual owner is known; but in some cases the names of the actual owners may not be known to the nominal stockholder as, for instance, where the actual ownership is evidenced by bearer certificates, and the procedure under the 1916 Law applicable to such situations is indicated at the end of this
1 They are generally called “owners of record" in the regulations. 2 Reg. 33 Rev., Arts. 32 and 201.