country. What constitutes losses not incurred in trade is explained in another chapter.37

BAD DEBTS. Debts, arising in the course of business or trade conducted by him within the United States, due to the taxpayer, actually ascertained to be worthless and charged off within the year, may be deducted.38

DEPRECIATION. A reasonable allowance for the exhaustion, wear and tear of property within the United States, arising out of its use or employment, is granted under the same rules and regulations as apply to residents.39

DEPLETION OF NATURAL RESOURCES. A reasonable allowance is permitted for the depletion of oil and mineral deposits, if the property is within the United States. This depletion allowance is granted under certain rules and restrictions more fully discussed in the chapters dealing with that subject.40

DIVIDENDS. Taxable dividends received from this country must be reported. They are excluded from the net income for the purpose of computing the normal tax, but included for the purpose of computing the supertaxes.

TAX WITHHELD AT THE SOURCE. As the law requires the normal tax to be withheld by the one in this country

37 See Chapter 4 for definition of losses not incurred in trade. 38 See Chapter 31 for general discussion of deduction of bad debts.

39 See Chapter 32 on depreciation.

40 See Chapter 33 and Chapter 34 on depletion.

41

who pays fixed or determinable income to a non-resident alien,11 a due credit for the amount so withheld is allowed to be claimed in filing the annual return. The nonresident alien should therefore keep a record of the amount of tax withheld at the source from time to time on payments made to him, and should report the aggregate sum so withheld in his annual return, in order that the normal tax may not be twice collected with respect to the same income.

PERSONAL EXEMPTION. Under the 1916 Law, nonresident aliens were entitled to claim the same amount of personal exemption as residents or citizens, provided they filed the annual return, but by the amendment of October, 1917, this privilege was revoked.42 The tax is now assessed upon all of the non-resident alien's net income from sources within this country.

Return of Annual Net Income. A non-resident alien, either personally or through his agents in this country, is required to file a return of annual net income on or before March 1 in each year, if his net income from sources within the United States is $1,000 or over during the year.43 He may file the return, although his net

41 See Chapter 41 on collection at the source.

42 The privilege did not exist under the 1913 Law, as construed by the Treasury Department, so permission to claim the personal exemption was extended to non-resident aliens only in the year 1916.

43 The law is obscure on this point. The 1916 Law, § 8 (b), requires a return by every person having a net income of $3,000 or over for the taxable year; the 1917 Law, § 3, requires a return from unmarried persons if the net income is $1,000 or over, and from married persons if the net income is $2,000 or over. These amounts are predicated on the personal exemption allowed to unmarried and married persons, respectively, an exemption to which

income is less than $1,000, if he desires to claim the deductions and credits allowed him under the law.44 Thus, a non-resident alien may have had the tax on all his income from this country withheld at the source, although he may be taxable on a lesser amount by reason of deductions for expenses, interest, losses, etc. Only by filing a return may he claim those deductions, and upon so doing, the amount withheld, in excess of his tax liability, will be returned to him. For the purpose of obtaining such refund, he should attach to his return a statement giving the names and post-office addresses of all persons, firms or corporations who have withheld the tax on income paid to him during the year, and the amount of tax withheld by each respectively. The Treasury Department will thereupon order the withholding agents to release the excess withheld.45 Non-resident aliens are entitled to extensions of time for filing returns, and are subject to penalties for failure to file returns, under the same provisions of law as apply to citizens.46 In case a non-resident alien fails to file a return, the

non-resident aliens are not entitled. However, it seems clear that the law does not require a return of individuals in any case where the income for the year is less than $1,000, and it would seem that Congress did not intend to allow a married non-resident alien any greater exemption because of his married status.

44 The same form (Form 1040) is prescribed for use of all individuals, residents and non-residents. A non-resident alien preparing the return on this form should bear in mind that it covers in his case only income from sources in this country, and make such changes as are necessary to indicate that fact. The additional information required in order to compute the amount of deductible interest should be made on a supplementary statement attached to the return.

45 Telegram from Treasury Department dated January 25, 1917; I. T. S. 1917, ¶ 1997.

46 See Chapter 35 and Chapter 37.

collector may assess the tax on information from other sources, and all property of such alien in this country will be liable to distraint for the tax.47 The return is filed in the district in which the non-resident alien has his principal place of business in this country, or if he has none, then with the Collector of Internal Revenue at Baltimore, Maryland. If the return is filed by an agent in this country, the place of filing may be either the district in which the agent resides or the district in which he has his principal place of business. It should be borne in mind that a non-resident alien may have an agent in this country, for the purpose of the income tax, without having appointed one. The fact that $1,000 or more of income of a non-resident alien is in the custody or control of a resident of this country, makes that resident an agent, charged with the duty of making an annual return and collecting the tax. A non-resident alien may, therefore, have several agents in this country, each responsible for the income passing through his hands. To avoid having a return filed by each, the non-resident alien may make one return covering all of his income, or designate one of the agents to make such return, in which case he must inform the agent so designated of all his taxable income from sources within this country. The other agents should also be notified of the action taken and instructed not to file returns. The duties and responsibilities of such agents are more fully discussed in a subsequent chapter.48

Paying the Tax. The tax is due on June 15 following the filing of the annual return, and penalties accrue if

47 Act of September 8, 1916, § 6 (c), as amended by Act of October 3, 1917.

48 See Chapter 6 on Resident Agents.

it is not paid within ten days after notice and demand therefor.4 .49 If the return is not filed on time, the tax is due immediately upon assessment, and penalties accrue if not paid within ten days after notice and demand. Penalty and interest for delay in payment are added, as in the case of delinquent residents or citizens.50 As to the form in which to make payment see the chapter on assessment and payment of the tax.51

Abatement and Refund of the Tax. If upon the filing of the annual return, it appears that the nonresident alien is liable for less tax than the amount which has been withheld at the source, the Treasury Department will issue instructions to the withholding agents (whose names and addresses should be given by the nonresident alien on his return) to release at once the proper amounts.52 After the tax has been assessed against the withholding agents by the Government, abatement may be claimed, and after the tax has been paid, refund may be claimed, in the manner outlined in a later chapter.53

49 See Chapter 36.

50 Id.

51 Id.

52 Telegram from Treasury Department dated January 25, 1917; I. T. S. 1917, ¶ 1997.

53 See Chapter 39 on Abatement and Refund.