General Partnerships. If the foreign partnership is a general partnership, not having the characteristics which would require it to pay the tax in the manner of corporations, it is not, itself, subject to the tax on income derived from sources within this country, but each of its individual members is subject to the tax on such part of his distributive share of the partnership profits as is composed of income from this country.3 RESIDENT FOREIGN PARTNERSHIPS. A foreign partnership which is engaged in business or trade within the United States and has an office or place of business herein is a resident foreign partnership. Being within the jurisdiction of this Government the tax is not withheld at the source upon any payments made to it. For the purpose of establishing its identity and status. a form has been provided which may be used to accompany coupons from bearer bonds in order to claim exemption from withholding of the tax at the source. NON-RESIDENT FOREIGN PARTNERSHIPS. A non-resident foreign partnership is defined as a foreign partnership which does not have any office or place of business within the jurisdiction of the United States. Such partnerships are subject to having the tax withheld on interest from investments in the bonds or similiar obligations of domestic and resident corporations.5 A 3 Letter from Treasury Department dated December 6, 1916; I. T. S. 1917, ¶ 554. 4 Form to be used is known as Form 1086; T. D. 2374. 5 Act of September 8, 1916, as amended, § 13, Subdivision (e). Although this provision, as amended, has been held not to require withholding against foreign partnerships, since the tax specified therein is not applicable to partnerships, the subject is discussed here on the assumption that Congress will speedily remedy the strict interpretation of the provision of the act which requires such withholding would seem to make it apply only in cases where a partnership had no office or place of business in this country and the members of the partnership are non-resident aliens. The Treasury Department however has not so construed the language of the law but requires withholding regardless of the status of the partners, if the partnership has no office or place of business here.6 The law does Collection of the Tax at the Source. not require the withholding of the tax on payments of income to non-resident foreign partnerships, except in the case of payment of interest on bonds and similar obligations of domestic corporations." Interest on the defect in the statute and withholding will again be required as formerly under this provision. 6 It is interesting to note in this connection that immediately after the 1913 Law was enacted and before it was held that partnerships were not subject to withholding, the Treasury Department provided for the use of partnerships an ownership certificate which required a statement of the names and addresses of each of the partners. No such disclosure of the names and of the partners of non-resident foreign partnerships is now required, which indicates that the Treasury Department does not consider the individual status of the partners to be essential in determining whether or not withholding is necessary. 7 The language of Subdivision (e) of Section B of the Act of September 8, 1916, as amended, is ambiguous. It provides that the provisions relating to withholding of the tax shall be made applicable to the tax imposed by Subdivision (a) of § 10 upon incomes derived from interest upon bonds and mortgages or deeds of trust or similar obligations of domestic or other resident corporations by non-resident alien firms.'' No tax, as a matter of fact, is imposed upon firms or partnerships by Subdivision (a) of § 10, and consequently it has been ruled that no tax need be withheld. See Note 5, supra. * * * indebtedness of an individual, dividends on the stock of corporations and other income may be paid to a nonresident foreign partnership without deduction. in no case is withholding required on payments to a resident foreign partnership. gents for Foreign Partnerships. A resident of this country may for purpose of the income tax occupy the position of an agent for a foreign partnership and in connection therewith be subject to the duties of resident agents as indicated in the chapter on that subject.8 Nominal Stockholders. If a foreign partnership is the actual owner of stock of domestic or resident corporations, the partners thereof are subject to the supertax (but not the normal tax) to the same extent as other individuals. The Income Tax Law does not require withholding of the tax from dividends, whether paid direct to a non-resident foreign partnership or through a nominal stockholder. Where the non-resident foreign partnership is the actual owner, and a resident of this country is the nominal holder of the stock, the latter should proceed as indicated in the chapter on nominal stockholders. If a non-resident foreign partnership is a nominal stockholder, a certificate disclosing the actual ownership should be executed and forwarded to the Collector of Internal Revenue at Baltimore, Maryland, in order that the members of the partnership may avoid any liability for tax because of the apparent ownership of such stock.10 8 See Chapter 6. 9 See Chapter 7. 10 Telegram from Treasury Department dated June 26, 1917; I. T. S. 1917, ¶ 2278. Procedure in Collecting Income. A resident foreign partnership in collecting income from interest on bonds should make use of the form which certifies that it is a firm having an office or place of business in the United States and therefore not subject to having the income tax withheld at the source.11 A non-resident foreign partnership in collecting similar income is required to use the same certificate as is used by non-resident alien individuals.12 Upon the presentation of this certificate the tax is required to be withheld by the debtor corporation or its paying agent. In collecting any other form of income no prescribed certificate is necessary, but the partnership may be called upon to disclose its name and location for the purpose of supplying the payor of the income with the information which he must transmit to the Government. Duty in Paying Out Income. Resident foreign partnerships are under the same duty in paying out income to others as are domestic partnerships; that is, they are required to withhold on payments made from the office in this country under the same conditions as would require domestic partnerships to withhold. They are also required to report the names of those to whom they pay fixed or determinable income, in the manner required by law of corporations, partnerships and individuals generally.12a Extent to which Taxable. Foreign partnerships, unless they are of the kind taxable as corporations, are not taxable, but the partners are required to pay the tax in all cases on their shares of the profits, gains or 11 The official title of this form is Form 1086. 12 This ruling is temporarily suspended. See page 473, note 51. 12a See Chapters 40 and 41. income arising from sources within the United States. Thus in the case of resident foreign partnerships, the income from the business transacted in the United States and from investments in this country is taxable. In the case of a non-resident foreign partnership, income from investments in this country and gains from the buying and selling of property of any kind in this country are taxable.13 Net income is ascertained under the rules applicable to non-resident alien individuals. Annual Returns. Neither resident nor non-resident foreign partnerships are required to file returns of annual net income. Resident foreign partnerships are required to file annual returns reporting the amounts of tax withheld at the source and also annual returns showing the names and addresses of those to whom fixed and determinable income has been paid in the same manner as is required of domestic partnerships and corporations and individuals. Non-resident foreign partnerships are under no duty to withhold the tax on payments to others and under no duty to report names of persons to whom payments of income are made. Special Returns. Both resident and non-resident foreign partnerships may be called upon by the Commissioner of Internal Revenue to file special returns showing the net income from sources within this country and the distributive shares of the partners in such income, but such returns need not be filed unless the partnership is specifically requested to do so by the Commissioner of Internal Revenue.14 13 Letter from Treasury Department dated December 6, 1916; I. T. S. 1917, ¶ 554. 14 Letter from Treasury Department dated December 6, 1916; I. T. S. 1917, ¶ 554. |