paid during the tax year to the individual policyholder as exceeds the amount of premiums paid during the same year may not be omitted. Only the actual amount of dividends actually credited or apportioned to a policyholder during the premium-paying period, and not any accretions thereto, can be excluded from gross income. In the cases of whole life or five-year distribution policies, deferred dividends may be excluded from gross income to the extent that they are paid back or credited to the insured or used as an abatement of annual premiums.11 SUPPLEMENTARY POLICY CONTRACTS. Where a life insurance company's policies contain an option to have proceeds paid in annual instalments for a given term of years, or during the lifetime of the beneficiary, instead of in one sum, such policies, if the option is exercised, are styled "supplementary policy contracts." These obligations are protected by reserves, the net additions to which are deductible if such reserves are "required by law." The Commissioners of Insurance of all the states require the establishment of a reserve to cover the obligations of the company on such supplementary policy contracts. This fact of itself tends strongly to show that they are required by law,12 but if the action of a commissioner of insurance is based in such cases upon the practice of his office and not upon an express requirement of law, deduction may not be made.13 PAYMENTS ON POLICIES. Surrender values applied in any manner, consideration for supplementary policy con 11 Reg. 33, Art. 100. 12 Mutual Benefit Life Ins. Co. v. Herold, 198 Fed. 199. 13 See Maryland Casualty Co. v. U. S.. Court of Claims, T. D. tracts, involving and not involving life contingencies, should be included in the income of life insurance companies. Applied surrender values and consideration for supplementary contracts not involving life contingencies included in income are deductible as payments under policy contracts, but for convenience in verifying the returns these items should appear in the return in both gross income and deductions.14 Mutual Life Insurance Companies. Mutual life insurance companies file the same return as stock companies and are governed by same rules with respect to computing net income. 14 Reg. 33, Arts. 101 and 102. CHAPTER 14 FOREIGN CORPORATIONS The 1916 Law provides that the income tax shall be assessed and collected annually upon the total net income received by every corporation, organized, authorized or existing under the laws of a foreign country, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, and including the income derived from dividends of corporations whose net income is taxable under the law.1 The deductions permitted to foreign corporations are in general the same as those permitted to domestic corporations but specifically limited to the business or property in this country. This chapter deals with the special provisions applicable to foreign corporations. The chapter on domestic corporations should be referred to for provisions which have general application to all corporations. 1 Act of September 8, 1916, § 10. Under the 1913 Law foreign corporations were taxable only upon the income accruing from business transacted and capital invested within the United States. Interest and dividends received by foreign corporations were held to be income from capital invested in this country, although at first it was held under that law that interest and dividends received by non-resident alien individuals were not subject to tax, but after the decision in the case of Brushaber v. Union Pacific Railway Company, 240 U. S. 1, the Treasury Department changed its rulings and held that interest and dividends so received were subject to the tax, whether the recipient was an individual or a corporation. (T. D. 2313.) Corporations Exempt from the Tax. The corporations enumerated in the law as exempt include foreign corporations as well as domestic corporations, except as stated in the chapter on exempt corporations.2 Corporations Subject to the Tax. All foreign corporations deriving income from sources within this country and not specifically exempt as indicated above are subject to the tax. Sale of Goods by Correspondence. Where a foreign corporation sells goods in this country by correspondence, or delivers goods so sold to a citizen or resident of this country, no attempt is made to impose the tax on such transactions. The conclusion seems to be that such sales do not create any income from sources within the United States. This seems to be true in all cases where the contract for the sale of goods is made in a foreign jurisdiction whether the title to the goods passes in the foreign jurisdiction or title is retained after the goods arrive in this country until payment therefor has been made. Where, however, a resident of this country pays interest on any deferred payments of purchase price the interest is clearly subject to tax under the express provisions of the law. Traveling Salesmen. The Treasury Department has held as follows: Where a foreign corporation sends a representative to this country to solicit business, the merchandise thus sold to be shipped direct to the consignee, the corporation is transacting business in this country. The fact that the solicitor or representative has only a mailing address in this country is immaterial, as 2 See Chapter 15. F. I. Tax.-12 he is none the less an agent of the foreign corporation. To the extent that he sells in this country goods or merchandise for the foreign corporation, to that extent the foreign corporation is transacting business in the United States and is required to make a return to the collector in the district in which its representative has his mailing address. An agent who is doing business in this country, buying and selling certain products of the foreign corporation, is to all intents and purposes a branch of the foreign corporation as through and by him the foreign corporation is transacting business here. The buying and selling of products in this country through a local agency or branch is clearly transacting business here. Under the 1913 Law it was held that a foreign corporation was subject to the tax on income accruing from business transacted and capital invested within the United States, where (a) it sent agents into the United States to solicit purchasers for its products, hiring desk room in the United States and empowering the salesmen to make written contracts, (b) shipped its product consigned to itself in the United States to different points where it hired storage rooms and stored the product in its own name and at its own risk to insure delivery according to contract, and to meet anticipated demands.5 3 T. D. 2161. 4 T. D. 2137. 5 Laurentide Co. Ltd. v. Durey, 231 Fed. 223. The court said in part: "I think it would be somewhat difficult for the Laurentide Co., Ltd., or its able attorney, to describe what it was doing in the United States, if it was not doing, carrying on and transacting business therein, when there receiving large quantities of newspaper, consigned to itself and storing it, hiring and paying for storage room therefor, delivering it to customers, purchasers thereof, soliciting contract by agents for the purchase and supply |