Procedure in Paying Income. In order that the payor of the income required by the law to be reported, may obtain the necessary information the law expressly provides, except in the case of reports of dividend payments and reports by brokers, that the name and address of the recipient of income shall be furnished upon demand to the person, corporation, or partnership paying income. No form of certificate to be used for this purpose has been prescribed at the present writing. All payers of income should obtain in some form the name and address of the recipient of such payment. It does not seem necessarily that the name of the owner of the income be obtained, as the law merely requires that the payor shall report the amount of the gains, profits and income and the name and address of the recipient of such payment.11

Return of Information at the Source. The law provides, with respect to dividend payments of corporations, that the return made by the corporation shall state the names and addresses of the stockholders, the number of shares owned by each, and, impliedly, the amount of dividend paid to each, during the period covered by the report, together with information as to the tax years and the applicable amounts in which such dividends were earned. With respect to the return to be made by brokers, the law provides that it shall state the names of customers (and impliedly their addresses) for whom such broker has transacted any business, with such details as to profits, losses, or other information which the Commissioner may require, as to each of such customers. In the case of all other payments the law requires the name and address of 11 Id. § 28.

the recipient of the payment and the amount of the gains, profits and income paid to him.

WHEN DUE. The law specifies no time for the filing of this return, but provides that the return shall be made in all cases when required by the Commissioner of Internal Revenue, under such rules and regulations, and in such form and manner as may be prescribed by him, with the approval of the Secretary of the Treasury.

WHERE FILED. The act does not specify where such return shall be filed. Forthcoming regulations on the subject will state whether the return is to be filed with local collector or with the Commissioner of Internal Revenue.

Collection of Foreign Payments. Where foreign payments of interest upon the bonds of foreign countries and interest from the bonds and dividends from the stock of foreign corporations, are made to residents of this country, individuals, partnerships or corporations, the first collection agency in this country is required to report the name and address of the recipient of such payment and the amount thereof. "First collection agency" as used in this chapter means the person, corporation or partnership, undertaking as a matter of business or for profit, the collection of foreign payments of such interest or dividends by means of coupons, checks or bills of exchange.12 The law provides that "all persons, corporations, partnerships, or associations, undertaking as a matter of business or for profit the collection of foreign payments of interest or dividends 12 Id. § 28.

by means of coupons, checks, or bills of exchange shall obtain a license from the Commissioner of Internal Revenue, and shall be subject to such regulations enabling the Government to obtain the information required under this title, as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe; and whoever knowingly undertakes to collect such payments as aforesaid without having obtained a license therefor, or without complying with such regulations, shall be deemed to be guilty of a misdemeanor and for each offense be fined in a sum not exceeding $5,000, or imprisoned for a term not exceeding one year, or both, in the discretion of the court."' 13

License. Application for license for the collection of foreign items should be made to the collector of the district in which the business is to be carried on. Upon the acceptance of such application the collector will issue to the applicant, without cost, a license which will continue in force until revoked or cancelled.14

13 Act of September 8, 1916, §9 (f), as amended by Act of October 3, 1917.

14 Reg. 33, Art. 55.

CHAPTER 41

COLLECTION OF TAX AT THE SOURCE

Before the Amendment of October 3, 1917, the 1916 Law, and the 1913 Law, required collection of the tax at the source on payments of income to citizens and residents of the United States, as well as on payments to non-resident aliens. The Amendment abolished withholding at the source with respect to citizens and residents, except in the case of the payment of interest on corporate bonds containing covenants to pay the tax.1 On the payment of such interest to individuals, 2% is required to be withheld at the source, as more fully explained in the following paragraphs. At the present time withholding at the source is required, (a) on payment of fixed or determinable annual or periodical gains, profits and income (except dividends) of any non-resident alien individual; (b) on payment of income derived from interest upon bonds of domestic or other resident corporations by non-resident foreign corporations not engaged in trade or business in the United States and not having an office or place of business therein; (c) on payment of income derived from dividends on the stock of domestic or other resident corporations by non-resident foreign corporations not engaged in business or trade within the United States and not having an office or place

1 Act of September 8, 1916, § 9 (c) as amended by Act of October 3, 1917.

of business therein and (d) on payment of interest on bonds of corporations to individuals, citizens, residents or aliens, if such bonds, or the mortgages under which they are issued, contain a covenant to pay any portion of the income tax for the bondholder, or to pay the interest without deduction for any tax which the corporation may be required or permitted to pay thereon or retain therefrom under any law of the United States. The Amendment is retroactive to January 1, 1917, and any normal tax withheld from income paid to citizens or residents in 1917, other than interest described in (d) above, is required by the law to be released and paid over to the persons from whose income such tax was withheld.

Definitions. In order to clarify the discussion in this chapter, the following words and phrases will be used in the sense defined, unless otherwise indicated in the text.

FIXED OR DETERMINABLE INCOME. The phrase as used in the law includes interest, rent, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, but expressly excludes income derived from dividends on capital stock, or from the net earnings of a corporation, joint stock company, or association, or insurance company, which is taxable upon its net income.2 Under the 1913 and 1916 Laws, the Treasury Department defined the term in a series of regulations, as follows: 3

2 Id. §9 (b) as amended by Act of October 3, 1917.

3 Although the tax is required to be withheld at the source only on payment of fixed or determinable income of non-resident aliens, the payee of other income may be required to account for the tax as an agent for the non-resident principal. See Chapter 6.