mortgages. The trustees are therefore required to withhold the tax and if the certificates contain a contract or provision by which the obligor agrees to pay any portion of the tax imposed by this title upon the obligee or reimburse the obligee for any portion of the tax, or to pay the interest without deduction for any tax which the obligor may be required to pay, the trustees in such cases, in making interest payments on these certificates, will, in the absence of claims for exemption when interest payments are made to individuals, withhold the normal income tax on such payments regardless of the amount thereof. (Reg. 33 Rev., Art. 188.) [Page 471.] Ownership Certificates. The owners of bonds of domestic and resident corporations shall, when presenting interest coupons for payment, file a certificate of ownership for each issue of bonds, showing the name and address of the debtor corporation, the name and address of the owner of the bonds, whether the payee is married or the head of a family, and the amount of interest. 33 Rev., Art. 43.) [Page 473.] (Reg. Form 1000. Form 1000, revised, shall be used (a) when no personal exemption is claimed against interest on bonds containing a "tax-free" covenant by citizens or residents of the United States; (b) by nonresident alien individuals, foreign corporations having no office or place of business in the United States whether or not such bonds contain a "tax-free" covenant; and (c) in the case where coupons are received not accompanied by certificates of ownership. The first bank receiving coupons not accompanied by ownership certificates will make a certificate crossing out "owner" and inserting "payee" and will enter the amount of interest on line 4. (Reg. 33 Rev., Art. 43.) [Page 473.] Form 1001. Form 1001, revised, shall be used (a) when personal exemption is claimed against interest on bonds containing a "tax-free" covenant by citizens or residents of the United States, also when presenting coupons from bonds not containing a "tax-free" covenant; (b) by domestic partnerships, corporations, or associations; (c) by nonresident alien partnerships; and (d) by foreign corporations having an office or place of business in the United States, whether or not such bonds contain a "tax-free" covenant. In case a citizen or resident individual receives interest on bonds containing a "tax-free" covenant in excess of the amount of personal exemption which the individual may claim, any such excess must be reported on Form 1000, revised. (Reg. 33 Rev., Art. 43.) [Page 473.] Form 1004. This form is superseded by revised Form 1000 referred to above. [Page 473.] Substitute Certificates. Collecting agents, responsible banks and bankers receiving coupons for collection with ownership certificates attached may present the coupons with the original certificates to the debtor corporation or its duly authorized withholding agent for collection or the original certificates may be detached and forwarded direct to the Commissioner of Internal Revenue, provided such collecting agent shall substitute for such certificate its own certificate and shall keep a complete record of each transaction showing 1. Serial number of item received. 2. Date received. 3. Name and address of person from whom received. 4. Name of debtor corporation. 5. Class of bonds from which coupons were cut. 6. Face amount of coupons. For the purpose of identification the substitute certificates shall be numbered consecutively and corresponding numbers given the original certificates of ownership. Substitute certificates by collecting agents, banks and bankers, in lieu of original certificates of ownership accompanying coupons presented for collection shall be discontinued with respect to ownership certificates presented with coupons for collection by non-resident alien individuals, firms, corporations, organizations, etc. In all such cases the original certificates of ownership shall be forwarded to the debtor corporation without substitution. The debtor corporation or its duly authorized withholding agent shall forward all certificates to the Collector of Internal Revenue with its duplicate monthly list returned, Form 1012, revised, and such collector shall forward the original return and the certificates to the commissioner, as heretofore. (Reg. 33 Rev., Art. 43.) [Page 476.] Banks. The long-established rule that banks were not required to withhold the normal tax on interest paid or accruing on deposits has been revoked and banks are now required to withhold a normal tax of 2 per cent on interest paid to non-resident alien individuals. (T. D. 2652.) It seems the word "paid" used in the foregoing ruling is intended to include interest which is actually paid to non-resident alien individuals and also interest credited to their accounts, that is, deduction is to take place when the interest is placed at the disposal of the depositors. [Page 477.] Employers. It is held that salaries, wages and commissions, paid by domestic corporations, resident individuals, or partnerships to non-resident alien employees for services rendered entirely in a foreign country are not subject to deduction and withholding of the normal tax, and such payments of income will not be subject to the income tax in the hands of the recipient as from a source within the United States. (Reg. 33 Rev., Art. 32.) [Page 477.] Lessors. Rent paid by domestic corporations, resident individuals, or partnerships to non-resident aliens as rent for property located in a foreign country is not subject to collection at the source. (Reg. 33 Rev., Art. 32.) [Page 479.] Monthly List Returns. The tax withheld from bond interest will be accounted for monthly on Income-Tax Form 1012 (Revised 1918). [Page 480.] Annual List Returns. Return is to be made for the tax withheld in manner and on a form to be prescribed by the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury. This return is to be made after February 1 and on or before March 1 annually. The return shall show the name and address of the withholding agent, character of income, and the name and address of the recipient or his agent, amount of income, exemption claimed, and the amount of tax at 2 per cent withheld thereon. (Reg. 33, Rev. Art. 46.) The form prescribed as an annual list return for reporting the normal tax withheld on salaries, wages, rent, etc., paid to non-resident alien individuals is Form 1042 (Revised 1918). Separate reports of the payments entered on such form are also required to be made on Form 1098. The form to be used in reporting annually income withheld at the source on payments of interest on corporate bonds and dividends on corporate stock is Form 1013 (Revised 1918). CHAPTER 44 TAX ON UNDISTRIBUTED INCOME OF CORPORATIONS [Page 496.] Undistributed Net Income. In order to determine the amount of such net income subject to this tax, the increase in the surplus balance at the close of the taxable year as compared with the surplus balance at the beginning of such year, shall be analyzed so to account for the disposition thereof in increase in assets, decrease in liabilities or in dividends, and the net increase in current assets over current liabilities shall be subject to the above tax of 10 per cent unless it can be conclusively shown by the corporation that such increase is retained to provide for an actual increase in business or for additions to plant or the reduction of bonded or other fixed liabilities. (Reg. 33, Rev. Art. 238.) |