CORPORATIONS DOING BUSINESS IN THE PHILIPPINES AND PORTO RICO. Corporations doing business wholly in these possessions, even though incorporated in the United States, are held to be resident corporations of these possessions and will make return and pay the income tax to the collector of internal revenue having jurisdiction therein. If a corporation is resident in the United States but doing a part of its business in these possessions, it is taxable only in the United States. If a corporation is organized under the laws of the United States (i. e the federal laws) or under the local laws of the possessions and resident in the possessions, it is required to pay the tax in the Philippines or in Porto Rico, as the case may be.13

Corporations Formed During the Year. A corporation organized during the year is required to make a return covering that portion of the year during which it was engaged in business or had an income accruing to it.14 If the corporation gives proper notice of its selection of a fiscal year, its first return may be made for the period beginning with the date of incorporation and the close of such year. The fact that a new corporation organized in the year has transacted no business does not excuse it from making a return.15 Corporations which have applied for but not received charters, or corporations which have received charters but have not perfected their organizations, transacted no business and had no income whatever from any source, may upon the pres

receded from its position and made payment covering the tax and penalties and the action was discontinued. (T. D. 1863.)

13 T. D. 2090.

14 Reg. 33, Art. 84.

15 T. D. 2090.

F. I. Tax.-9

entation of these facts to the local collector be relieved from the necessity of making returns so long as they remain in this unorganized condition.16 When a distinct new corporation is organized to take over the property of an old corporation, both corporations will be required to make returns covering the periods of the year during which they were each respectively in charge of the business.17

Corporations Merging During the Year. In case of a merger or consolidation of two or more corporations during the year, each corporation is required to make a return of the income received during the year prior to the date of merger and consolidation. If each or any of the component corporations subsequent to the consolidation collects prior existing debts it must include in its separate return all of such collected debts.18

Change of Name. The mere change of name does not constitute a new corporation. The returns should be made in the name the corporation bears at the end of the year, with a notation to the effect that the name has been changed, giving both the old and new names. 19

Corporations Liquidating During the Year. A corporation going into liquidation during any tax period may at the time of such liquidation prepare a "final return" covering the income received or accrued to it during the fractional part of the fiscal or calendar year during which it was engaged in business, and imme

16 T. D. 2152. 17 T. D. 2137. 18 T. D. 1675. 19 T. D. 2137.

diately file it with the local collector.20 Where a corporation, by affidavit or otherwise, has clearly established the fact and satisfied the collector of internal revenue that it is defunct, dissolved or obsolete and is no longer carrying on business and has no property or income, returns will not be required after such condition has been clearly established. Only one showing of this character is required, unless it appears later that the corporation has income within the meaning of the law 21

LIABILITY FOR TAX AFTER DISSOLUTION. Corporations in receipt of income during any part of the taxable year, but dissolved prior to the end of the year, are liable for the tax on such income. A corporation dissolved in 1917, prior to the passage of the 1917 Law is liable thereunder, since the law is retroactive to January 1, 1917.21a The assets are subject to a lien for the payment of taxes provided the corporation has not been dissolved, and all its assets distributed, prior to the time the list of assessments get into the hands of the collector.

COLLECTION OF TAX FROM ASSETS. Section 3186 of the Revised Statutes, as amended, provides generally with reference to internal revenue taxes that "If any person liable to pay any tax neglects or refuses to pay

20 Reg. 33, Art. 85; T. D. 2090. It was held under the Corporation Excise Tax Law of 1909 that a corporation could not evade liability for the tax by dissolving before the time when it was required to make a return. United States v. General Inspection & Loading Company, 192 Fed. 223.

21 T. D. 2137.

21a Letter from Treasury Department dated November •17, 1917; I. T. S. 1917, ¶ 2496. Brady v. Anderson, 240 Fed. 665.

the same after demand, the amount shall be a lien in favor of the United States from the time when the assessment list was received by the collector, except when otherwise provided, until paid, with the interest, penalties and costs that may accrue in addition thereto, upon all property and rights belonging to such person." The 1916 Law provides (Sec. 22) that "all administrative, special and general provisions of law, including the laws in relation to assessment, remission, collection and refund of internal revenue taxes not heretofore specifically repealed and not inconsistent with the provisions of this title, are hereby extended and made applicable to all the provisions of this title and to the tax herein imposed.". Under the Income Tax Law it is the duty of the Commissioner of Internal Revenue to send to each collector a list of the companies liable for the tax in his district showing the amounts for which they are liable within such time that the collector may give the required notice of assessment on or before the first day of June, and upon such lists the collections are made. Under the provisions of Section 3186 above quoted the lien is fixed upon the assets of the corporation when this list comes into the collector's hands. Therefore, if the corporation has distributed all of its assets and become dissolved, in the manner provided by law, prior to that time there is nothing upon which the lien can attach, and consequently no lien exists to secure the payment of the tax which may be due from the corporation. Notwithstanding this particular provision for collecting the tax, the remedy is not exclusive, and the Government may resort to the common law method of collecting the same.22 The dissolution of a corporation does not extinguish its lia

22 Dollar Savings Bank v. U. S., 19 Wall 227.

bilities and through the courts of equity creditors may pursue its assets into the hands of any person who is not a bona fide purchaser. The sale of the entire capital stock of a corporation and the distribution of the proceeds of the sale among the stockholders will not defeat or impair the remedy of creditors, if any debts remain unpaid, as the creditors in that event may pursue the proceeds of the sale in the hands of the respective stockholders and compel each one to contribute prorata. toward the payment of the debts to the extent of the moneys received on the distribution.23 This remedy is open to the Government in the same manner as it is to any other creditor.24 But if a corporation has gone out of business leaving assets which have been distributed among the stockholders, such assets are not available for collection of the penalty for failure to file returns.25

Income Subject to Tax. Corporations are subject to tax on income received from all sources, except income exempt from the law under the provisions of Section 4 of the 1916 Law, as amended, such as the interest upon obligations of a state or any political subdivision thereof or upon the obligations of the United States or its possessions or securities issued under the provisions of the Federal Farm Loan Act. It would seem also that under the present income tax laws. a corporation is exempt from tax on the value of property acquired by gift

23 Railroad Company v. Howard, 7 Wall 392.

24 28 Op. Atty. Gen. 241. In the case of U. S. v. General Inspection and Loading Company (192 Fed. 223, 204 Fed. 657) judgment was entered for tax, penalty and interest under the 1909 Law, notwithstanding the corporation had been previously dissolved.

25 T. D. 1852.