Such head of a family is entitled to the same personal exemption as married persons. As indicated by the above definition the head of a family may be a single or married person, a widow, widower, brother, sister or other relative by blood, marriage or adoption.

HUSBAND AND WIFE. A husband and wife living together are entitled under the 1916 Law to an exemption of $4,000 only, and under the 1917 Law to an exemption of $2,000 only, from the aggregate net income of both.26 If they live apart each may claim the exemptions allowed to single persons. The personal exemption may be claimed in a separate return of either husband or wife, the other claiming no exemption; or may be prorated between the two.27

STATUS OF CLAIMANT. The status (single, married or head of a family) of the person claiming the personal exemption is determined as of the close of the year.28 Thus where either husband or wife dies during the year, the survivor, in making a return at the end of the year, will be allowed the exemption applicable to single persons or heads of families, and the executor or administrator of the deceased, in making a return for the deceased, may claim the exemption according to the status of the deceased at the time of his death, from the net income received between the first of the year and the date of death no matter how short the period.29 The personal exemption is not prorated where a return is made for a period shorter than the full year.

26 Reg. 33, Art 10.

27 T. D. 2137.

28 Reg. 33, Art. 10.

29 T. D. 2090, T. D. 2135.

NOT APPLICABLE TO SUPERTAX. The personal exemption is not to be deducted from the net income of the individual in assessing the supertax.30

Tax Not Withheld at Source. The tax is not withheld at the source on payments to citizens and residents. A provision of the law requires withholding at the source in the case of corporate bonds and mortgages containing a so-called "tax-free covenant." This, however, is not intended as a provision requiring withholding, but is intended to require the corporation to assume the burden of a part of the tax for the bondholder. Consequently in such cases no tax is actually deducted, but the corporation assumes for the bondholder the payment of one 2% normal tax, which amount the bondholder reports as though the tax had been actually withheld. The other 2% normal tax being reported as not having been withheld. For a further discussion of collection at the source see the chapter on that subject.31

Duty in Making Payment of Income. All citizens and residents are subject to the provisions of law requiring the reporting of names and addresses of individuals to whom fixed and determinable income is paid. For a further discussion of the duties in this connection see the chapter on Information at the Source. If payments of fixed or determinable income are made to nonresident aliens, the normal tax imposed by the 1916 Law is required to be withheld.32

30 Cohen v. Lowe, 234 Fed. 474.

31 See Chapter 41.

32 See Chapters 40 and 41.

CHAPTER 5

NON-RESIDENT ALIENS

The law imposes a tax on the entire net income received from all sources within the United States by every individual a non-resident alien, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise." The term "nonresident alien" as used in several places in the law is not defined therein, but clearly refers to individuals only, and not to partnerships, corporations or associations. Ordinarily it is a simple matter to determine whether an individual is or is not a non-resident alien; he falls into that class if he is neither a citizen nor a resident. Difficulty may arise where a non-resident citizen, naturalized or native, has resided abroad for a period so long as to raise a presumption that he has abandoned his citizenship, and again where an alien has resided in this country for a period so long as to raise a presumption of residence. In either of these cases the intent of the individual is important. The Treasury Department holds that the status of a nonresident native or naturalized citizen remains unchanged until some affirmative action is taken, or the right to

1 Act of September 8, 1916, § 1.

2 The Act of March 2, 1907, provides, briefly, that any American citizen becomes an alien by becoming naturalized in a foreign state or taking an oath of allegiance to any foreign state. A naturalized

citizenship is forfeited by some overt act. The mere fact of continued absence from this country does not, for purpose of income tax, necessarily establish any presumption of expatriation.

On the other hand, an alien coming to the United States with the intention of becoming a resident within the meaning and intent of the income tax statute, may indicate that fact and thereupon will be taxed as a resident, regardless of the length of time he has been here. Where the expectation or intention of an alien is to leave the United States upon the termination of the employment, or accomplishment of the purpose, which necessitates his presence in this country, he will be considered as a non-resident alien although he may temporarily reside here for a season or other similarly definite term.5 The length of residence is in itself no determining factor, and he may under the present regulations remain in this country during an entire

citizen residing for two years in the country from which he came, or for five years in any other foreign country, is presumed to have renounced his American citizenship in the absence of satisfactory evidence to the contrary. A woman assumes the nationality of her husband, but may resume her original citizenship on becoming a widow; she assumes or retains her American citizenship as a widow if, living abroad, she registers with a United States consul, or without formal action if she resides here. Minor children of naturalized citizens are deemed to be citizens from the time they begin to reside permanently in this country. Children born outside of the United States of citizens, and continuing to reside abroad must at the age of 18 declare their intention as to citizenship. Determination of citizenship by the State Department under this Act is not conclusive upon the Treasury Department; other factors may also be considered, as indicated in the text. 3 T. D. 2135.

4 T. D. 2242. See Chapter 2 for status of resident aliens. 5 T. D. 2242.

tax year without necessarily losing his status as a nonresident alien. Should he go to the extent of locating his principal business establishment here or accept occupation or employment of a permanent character in this country he will be held to be a resident, although his domicile may be without the United States.

Extent to which Non-Resident Aliens Are Taxable. The 1916 Law provides that non-resident aliens shall pay the normal tax and supertax thereby imposed on their entire net income received from all sources within the United States, including interest on bonds, notes or other interest-bearing obligations, of residents, corporate or otherwise. The 1917 Law imposes no normal tax on non-resident aliens, but imposes a supertax. At present, therefore, a non-resident alien is subject to a normal tax of 2% and two supertaxes-that of the 1916 Law and that of the 1917 Law-on income received from sources within the United States.

Income from Sources Within the United States. The words "sources within the United States” are not defined

6 T. D. 2242.

7 See Chapter 1 for the rates.

8 The 1913 Law which was repealed by the 1916 Law, imposed a tax on the net income of non-resident aliens "from all property owned and every business, trade or profession carried on in the United States."' This language was held, under two opinions of the Attorney General, not to include interest or dividends received by non-resident alien investors from domestic corporations, but on March 21, 1916 the Treasury Department reversed this holding and thereafter claimed the tax from non-resident aliens on the classes of income in question. T. D. 2313. In DeGanay v. Lederer, 239 Fed. 568, the District Court held a non-resident alien taxable on such income if the stock certificates and bonds were kept in this country, as then they acquired a situs here for purpose of the income tax. The language of the 1916 Law expressly includes such income, regardless of where the securities may be kept.