Returns by Partners. The partners of foreign partnerships are required to make a return showing their own distributive shares of the income of the partnership from sources in this country on the same form as is used in reporting other income.15 If a partner is a citizen or resident of this country he must, of course, include all of his income from the foreign partnership, but if he is a non-resident alien only so much as has been derived from sources within the United States. In making his personal return the partner will follow the procedure outlined for non-resident aliens or the procedure outlined for citizens and residents, as the case may be.

15 Form 1040.

CHAPTER 12

CORPORATIONS

Corporations are taxed as separate entities apart from their stockholders. They are subject only to the normal tax of 2% under the 1916 Law and 4% under the 1917 Law, making a total of 6%. They are not subject to the surtaxes.1 They are entitled to deduct from their gross income the deductions specified in the law but are not entitled to any specific exemption such as is allowed to individuals. Corporations make returns for the calendar or their fiscal years as they may elect. The mere existence of a corporation during any part of the year is sufficient to require it to make a return.2 The mere receipt of net income from any source makes it liable for the tax. Doing business is not a necessary element of taxability.3 The tax is an income tax and not an excise tax.4

1 Reg. 33, Art. 185.

2 T. D. 2090.

3 The numerous cases under the 1909 Law holding certain corporations not to be taxable on the ground that they were not "doing business" have no application to the present income tax laws.

4 The tax assessed on corporations for the months of January and February, 1913, under the 1913 Law, was an excise tax and not an income tax and, therefore, applied only to corporations "doing business," but the exemptions and deductions to which a corporation was entitled were those allowed by the 1913 Law, which law did not permit the deduction of dividends. (Butterick Company v. U. S., 240 Fed. 539.)

Definition. The tax is imposed upon every corporation, joint stock company or association, or insurance company, organized in the United States, no matter how created or organized. The word "corporation" as used in this chapter and elsewhere includes joint stock companies, associations and insurance companies.

JOINT STOCK COMPANIES. There seems to be no constitutional or legal objection to including joint stock companies in the same category with corporations.5 A joint stock company organized under the New York Joint Stock Association Law was held, under the 1909 Law, to be practically a "corporation" by New York law, despite the absence of the important corporate attribute of limited liability, and was held taxable as such.6

ASSOCIATIONS. Associations are treated as corporations and include associates, real estate trusts, or by whatever name known, which carry on or do business in an organized capacity, whether organized under and pursuant to state laws, trust agreements, declarations of trust or otherwise, the net income of which, if any, is distributed among the members or other owners on the basis of the capital stock which each holds, or, where there is no capital stock, on the basis of the proportionate share of capital which each has invested in the business or property of the organization."

Where a

"SYNDICATES" ARE NOT CORPORATIONS. block of securities are purchased in joint account by

5 As to including such organizations in the provisions applicable to corporations, see Spreckels Sugar Refining Co. v. McClain, 192 U. S. 397; Flint v. Stone-Tracy Co., 220 U. S. 107.

6 Roberts v. Anderson, 226 Fed. 7.

7 Reg. 33, Art. 79.

several corporations, partnerships or individuals for the purpose of disposing of them to the public through the syndicate managers, the only obligation of the members of the syndicate being to take and pay for the portion of the securities not disposed of, such temporary combinations of business interests are neither corporations, joint stock companies or associations, nor partnerships, within the meaning of the income tax law and the profits of the syndicate are not taxable in the hands of the syndicate. The several members pay the tax on their respective shares of the profit of the transaction.

TRUSTS TAXABLE AS AN ASSOCIATION. In the case of a trust created to hold certain land and to dispose of the same and distribute the proceeds to the beneficiaries, the title stood in the names of the trustees who received and distributed moneys, and transacted all of the business connected with the management and control of the trust property. The pro-rata interests of the beneficiaries were represented by beneficial certificates issued to them by the trustees. These certificates could be transferred if the transferee executed and became a party to the original declaration of trust and articles of agreement. The purpose of the trust was to dispose of the land from time to time and pay the net proceeds over to the beneficiaries and the trustees had no power to carry on any other business. It was held that this trust partook of the character of an association and was subject to the tax as an entity.9

PRIVATE BANKS.

Private banks which have the form of corporate organizations, elect officers and a board of

Letter from Treasury Department dated February 25, 1914. 9 Letter from Treasury Department dated March 14, 1917.

managers, have a distinctive name and fixed situs, and distribute their net earnings upon the basis of the amount of capital invested by the members or owners, are held to be associations within the meaning of the law and are required to make returns and pay the tax as corporations.10 The net earnings of such organizations are considered as dividends. If, however, the private bank is owned by one man, that is considered as evidence that the bank is not an association. And if a bank does not have the formal organization noted above but transacts business in the names of the individuals who compose the firm, the bank is held to be a partnership.11

Residence. Domestic corporations are considered to be residents of this country whether or not their property and business is located within or without this country, with the one exception noted in the following paragraph. No consideration is given by the law or the regulations to the fact that domestic corporations may derive all of their income from sources outside of the United States. 12 The question assumes importance with respect to non-resident aliens deriving income from the bonds of corporations doing business entirely outside of this country and the question of residence is more fully discussed in the chapter on that subject.

10 T. D. 2137.

11 Mimeograph letter to Collectors, No. 1271.

12 In a case under the 1909 Law payment of the tax was refused, the corporation alleging under advice of counsel that because its business was transacted in a foreign country and it had no assets in this country, its stockholders living in the foreign country and its income being spent and invested there, it was not liable for the tax assessed. The Treasury Department proposed to test the question, but after suit was instituted the Company