in the law and their interpretation raises many difficult questions. The term is very broad and was intended to include income of all kinds from sources over which this country has jurisdiction. No cases as yet have arisen in the courts involving construction of the phrase and the Treasury Department has not issued any comprehensive ruling defining "source." The term "income" includes any income, gains or profits from property owned or business, trade or profession carried on in this country, dividends, interest, royalties, income from property held in trust, income from partnership profits, income from profits or gains on the sale of property, and as further defined in the 1916 Law. Nonresident aliens are not taxed on income specified in the law as exempt.9

INCOME FROM BUSINESS BRANCHES. Where a nonresident alien establishes a branch of his business in this country the net income of that branch is subject to tax, and this would seem to be true even though a portion of that income may have been received by the branch from business done in foreign countries, although the precise point is as yet unsettled. If two or more branches are established here, the total net income from all is taken together for purpose of assessment. The income of all branches should be reported by the principal branch in its district, the other branches not being assessable in their respective districts.10

DIVIDENDS. Non-resident aliens are not subject to the normal tax on income in the form of dividends of cor

9 See the Chapters on Income.

10 Generally, the rules applying to foreign corporations as to income from business done in this country apply equally to non

porations taxable under the law on their net incomes, if a return of annual net income is filed, but the amount of such dividends must be reported in the return. If the total income of all kinds from sources within the United States, including dividends, exceeds $5,000 the supertax imposed by the 1917 Law must be paid at the prescribed rates, and if it exceeds $20,000, the supertax imposed by the 1916 Law must also be paid at the prescribed rates.11 The exemption of dividends from the normal tax applies not only to dividends received direct from the corporation, but also to dividends received through the medium of fiduciaries or partnerships.12 Dividends of foreign corporations are not taxable in the hands of non-resident aliens, even though the dividends may be payable in this country.1 13 In two provisions of the 1916 Law 14 non-resident aliens are excepted from the requirements to make reports. of, or pay supertax on, "such income [income derived from dividends on the capital stock or from the net earnings of any corporation] derived from sources without the United States." The language quoted has not been construed by the courts or in any regulation of the Treasury Department. It undoubtedly applies to dividends received from foreign corporations where the earnings of the corporation are derived from sources without the United States even though the dividends

resident alien individuals. See Chapter 14 on Foreign Corporations.

11 See Chapter 2 for rates.

12 See Chapter 23 for further discussion of this subject. 13 T. D. 2012, T. D. 2030, T. D. 2313, T. D. 2325. Letter from Treasury Department dated April 5, 1916; I. T. S. 1917, ¶ 69. Exemption is claimed from withholding of the tax by using Form 1071 (T. D. 2325) or by using Form 1063 (T. D. 2012).

14 §1 (b) and § 8 (f).

are payable in this country, and there seems to be ground for the contention that it applies with equal force whether the corporation be foreign or domestic.15

INTEREST. Non-resident aliens are taxable on all interest on bonds, notes or other interest-bearing obligations of residents in this country whether the debtor is a corporation, partnership, or an individual, citizen or alien. Interest received from a non-resident citizen

is not taxable. a domestic corporation located entirely outside of this country is taxable is a question still before the Treasury Department for determination.16 The extent to which

Whether or not interest received from

15 Whether Congress intended to give the non-resident alien an exemption from tax on dividends to the extent that such dividends are earned by domestic corporations outside the United States, is not clear, but the language quoted above seems open to a broad construction. The English law recognizes the situation where a British company has permanently located its business and seat of management abroad, and taxes it only with respect to the profits of the English shareholders. Relatively few American corporations are formed to operate entirely outside of the United States, but there are cases where not only does the corporation operate entirely abroad, but also all of its stockholders, directors and creditors are non-resident aliens. It seems reasonable to infer in the absence of express language, that Congress did not intend the tax to apply to the stockholders of such corporations.

16 This point involves the question of residence of the corporation. Generally speaking, under the laws of this county a corporation is a resident of the state in which it is incorporated and cannot migrate to another jurisdiction. If however the word "residence" is given its ordinary meaning, a domestic corporation having its business and seat of management permanently located abroad would seem to be a "non-resident." The Treasury Department has defined the term "non-resident alien corporation' with respect to certain requirements of the law, to cover all corporations authorized or existing under the laws of a foreign country and having no office or place of business in the United States,

a non-resident alien is taxable under the law on interest received from a "resident alien corporation," that is, a foreign corporation having a branch office or place of business in this country has not been decided. If the interest is paid by the office in this country from funds earned here it may be taxable, but if paid from the home office in another jurisdiction it does not seem that it would be, even though paid out of funds arising in whole or in part from sources within this country, since this country would have no jurisdiction over the parties or the income. Interest paid by non-residentswhether citizens or aliens, corporations or partnerships, or by foreign governments,-is not taxable by reason. of the fact that the interest may be paid in this country. The residence of the debtor, not the place of payment of the interest, determines its taxability. When interest on the bonds of foreign corporations or governments is payable in this country, the non-resident alien may prevent withholding at the source by filing with the paying agent a certificate prescribed by the Treasury Department for that purpose.17

INTEREST ON BANK DEPOSITS. Where banking houses in this country, carrying deposits for non-resident aliens, credit such accounts with interest thereon, such interest must be included in the recipient's income tax return for the year during which he received the interest, or in which it was credited to an account against which

T. D. 2401, but has made no definition with respect to residence of domestic corporations.

17 T. D. 2325. The official title of this form is Form 1071. It was drafted originally for the use of banks acting as agents, but may be modified to show personal ownership and, thus modified, may be executed by the non-resident alien himself. Letter from Treasury Department dated June 13, 1916; I. T. S. 1917, ¶ 122.

he might draw. The bank, however, is not required to withhold the tax on such interest or to make any return covering the amount of interest paid to any depositor.18

SALARIES PAID BY RESIDENT EMPLOYERS. Under the 1913 Law it was held that compensation paid to nonresident aliens for services rendered in a foreign country, including business and travel expenses, was not taxable.19 The 1916 Law, by imposing a tax on “income from all sources within the United States," raises a question as to the taxability of such compensation, a question which is still before the Treasury Department for decision.20

INCOME RECEIVED FROM TRUSTEES, EXECUTORS OR OTHER FIDUCIARIES. Where a non-resident alien is the beneficiary of a trust, or of the estate of a deceased person, or is the recipient of income from any property held by another, such income is taxable to the extent that it arises from sources within the United States. The intervention of an agent, trustee or other fiduciary between the non-resident alien and the source of the income does not make income subject to taxation, which

18 Letter from Treasury Department dated June 29, 1917; I. T. S. 1917, ¶ 2256.

19 T. D. 2152.

20 The Treasury Department has indicated an intention to hold the non-resident alien, to be not taxable if the employer derives all his income from the foreign jurisdiction, but to hold him taxable if the major or principal part of the business is carried on in this country and the non-resident alien is employed in foreign jurisdictions as incident to the main business in this country. This distinction is artificial and will lead to many difficulties. A fair rule would seem to be to hold that the source of the income of non-resident alien employees is in the country where the services are performed even though payment is made from this country.