Commissions. Where an individual works on a straight commission basis and, in earning his commissions, incurs and personally pays traveling and other expenses, the amounts paid to him as commissions are not fixed and determinable income. If the agent incurs and pays no necessary business expenses in earning his commissions, the amount paid him is fixed and determinable income.* Profit Sharings. The amount received as a share of the profits of the employer is fixed and determinable income.5

Bonus. A bonus paid in addition to salary is fixed and determinable income 6 unless it is a mere gift or gratuity.

Per Diem salaries paid on a straight basis of compensation for services rendered is fixed and determinable income, unless the employee is required by the terms of his employment or contract to pay therefrom his own travel and other legitimate expenses incident to the business of his employment."

Rent is fixed and determinable income subject to withholding, and this is true whether payment is made in cash or in notes.8 Where permanent improvements are made by a tenant under the terms of a lease the value thereof is considered income to the landlord to be accounted for by the landlord as gain or profit at the termination of the lease, but the amount is not fixed or determinable income.9

4 Letter from Treasury Department dated January 12, 1917, I. T. S. 1917, ¶ 2059

5 T. D. 2090.

6 T. D. 2135.

7 T. D. 2135. 8 T. D. 2090. 9 T. D. 2442.

Partnership Salaries. Salaries stipulated by contract or articles of agreement between partnership members constitute fixed and determinable income. But where, by agreement or otherwise, members of the firm are permitted to draw either stated or unstated sums in advance of an annual or periodic determination of partnership profits, no withholding is required, as these sums do not represent fixed or determinable income within the meaning of the law.10 There is no withholding against the partners on payment of the net distributive shares of the income of the partnership.

When a note is given in payment of fixed and determinable income the duty of withholding the tax is imposed upon the maker of the note.11

Exempt Income. Although exempt income may be fixed and determinable no withholding is required upon the payment thereof.12

Income of an individual which is not fixed or certain and not payable at stated periods, or is indefinite or irregular as to amount or time of accrual, is not subject to withholding at the source, such as incomes of farmers, merchants, agents (unless the compensation is in the form of commissions as indicated above) lawyers (except annual retainers), doctors, authors, inventors, and other professional persons whose income is irregular or indefinite.13

Interest as a general rule is held to be fixed or determinable income and subject to withholding, but interest paid by banks, bankers, trust companies and other bank

10 Memorandum from Treasury Department, I. T. S. 1917, ¶2282.

11 Reg. 33, Art. 68.

12 T. D. 1890.

13 T. D. 1890 and T. D. 2090. See, however, Chapter 6.

ing institutions receiving deposits of money is not subject to withholding.14

Royalties. Where royalties or rentals accrue under the terms of a lease or agreement, as for instance, royalties for the right to mine or produce or remove minerals or oil or other natural deposits, the royalty or rental is not fixed or determinable income if it represents a partial return of capital originally invested in the lands by the lessor.15

DIVIDENDS. The term dividends as used in this chapter means dividends, as defined in the law 16 upon the capital stock or from the net earnings of domestic or other resident corporations, joint-stock companies or associations, and insurance companies.17 The term includes dividends paid in cash, scrip or stock.

BOND INTEREST. The term as used in this chapter means interest upon bonds and mortgages, or deeds of trust or similar obligations of domestic or other resident corporations, joint-stock companies or associations, and insurance companies.18 The term does not include interest payments on ordinary bankable commercial paper of corporations or ordinary promissory notes of corporations not exceeding one year in time.19

14 Reg. 33, Art. 67.

15 Letter from Treasury Department dated March 10, 1916, I. T. S. 1917, ¶ 750.

16 See Chapter 23.

17 Act of September 8, 1916, § 13 (f).

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

19 T. D. 2090.

COVENANTS TO PAY THE TAX. The term as used in this chapter means a covenant, contract or provision in the bonds or the mortgage or other obligations of a corporation by which the obligor agrees to pay any portion of the income tax imposed by the 1916 Law or the 1917 Law upon the obligee, or to reimburse the obligee for any portion of the tax, or to pay the interest without deduction for any tax which the obligor may be required or permitted to pay thereon or to retain therefrom under any law of the United States.20

DOMESTIC CORPORATIONS. The term as used in this chapter means a corporation as defined in Chapter 12 of this book, that is, a corporation, joint-stock company, association or insurance company organized in the United States.

RESIDENT CORPORATIONS. The law refers to domestic "or other resident corporations" 21 but does not define the term. As used in this chapter it means a corporation, joint-stock company, association or insurance company organized under a foreign jurisdiction and having a place of business in this country from which interest on its bonds and dividends on its stock are paid.22

20 Act of September 8, 1916, §9 (c) as amended by Act of October 3, 1917. See Chapter 42.

21 Act of September 8, 1916, § 13, ¶¶ (e) and (f).

22 It seems to have been the intention of Congress to apply the provisions with respect to withholding to such foreign corporations as are within the jurisdiction of the Federal Government. Although a foreign corporation may have one or more branch offices here, if interest on its bonds, or dividends on its stock, are not payable in the United States, it does not seem that the law intends the corporation to withhold the tax at the source.

WITHHOLDING AGENTS. The term as used in this chapter refers to the individual, partnership or corporation required under the provisions of the law to withhold the tax at the source and to report and pay over the amount thereof to the Government. Corporations may appoint withholding and paying agents to act for them in collecting the tax at the source and making the returns of the amounts so collected by filing a notice with the local collector.23

Withholding on Payment of Fixed or Determinable Income. The law provides that the tax shall be withheld at the source upon payments of fixed or determinable annual or periodical gains, profits or income of any nonresident alien. The phrase fixed or determinable income is defined in a preceding paragraph of this chapter. It should be noted that the withholding provisions do not apply unless the income is not only fixed or determinable but also annual or periodic. Although payments of other income to non-resident aliens is not subject to withholding at the source, the resident in this country having receipt, control or custody of such income may be required, as agent for the non-resident principal, to report the amount of such income and to account for the normal tax and the supertax thereon, as indicated in a preceding chapter.24 Persons paying fixed or determinable income to non-resident aliens are authorized and required by the law to deduct and withhold such sums as will be sufficient to pay the normal tax imposed thereon by the 1916 Law.25 No normal tax is imposed on non-resident aliens

23 Reg. 33, Art. 38.

24 See Chapter 6.

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