countries on all or part of his income does not relieve him from tax liability on the same income in this country, although he is entitled under the Revenue Act of 1918 to a credit in certain cases against his tax liability in this country by reason of the payment of taxes to foreign countries.5 Persons Exempt from the Tax. Individuals may enjoy exemption from the tax by reason of the amount or character of their income. EXEMPTION BASED ON AMOUNT OF INCOME. Citizens and residents receiving less than $1,000 of net income during the year, if single, or less than $2,000, if the head of a family or a married person living with husband or wife, are exempt from the tax. Such persons are not required to file returns of annual income, but on demand of the Commissioner a statement sufficient to satisfy him that they are not liable. Non-resident aliens are allowed the same personal exemptions on income received from sources within the United States of $1,000 and $2,000 if they file the required returns," and provided the country of which they are citizens or subjects, if it imposes an income tax, allows similar credits to citizens of the United States not residing in such foreign country.8 Citizens of possessions of the United States (but not otherwise citizens of the United States), who are not residents of the United States, are subject to taxation by the United States under the Revenue Act of 1918 only as to income derived from sources within this country.9 EXEMPTION BASED ON CHARACTER OF INCOME. Individuals may also enjoy an exemption from the tax because of the character of their income, since the law expressly pro 4 T. D. 2152. 5 Revenue Act of 1918, §§ 222, 238. This credit against a person's tax should not be confused with the deduction of taxes in order to determine net income. 6 Revenue Act of 1918, §§ 223, 1305. 7 Reg. 45, Art. 315. 8 Revenue Act of 1918, §§ 216 (e), 217. 9 Revenue Act of 1918, § 260. F. T.-3 vides that certain kinds of income shall not be included in gross income and are exempt from the tax. Among the items of income so exempt 10 are: (a) the proceeds of life insurance policies paid upon the death of the insured, to individual beneficiaries, or to the estate of the insured, (b) the amount received by the insured as return of premiums paid by him under life insurance, endowment or annuity contracts, (c) property acquired by gift, bequest, devise or descent (but the income from such property is taxable), (d) amounts received through accident or health insurance or under Workmen's Compensation Acts as compensation for personal injuries or sickness and the amount of any damages received whether by suit or agreement, on account of such injuries or sickness, (e) so much of the amount received during the war with Germany by a person in the military or naval forces, as salary or compensation in any form from the United States, for active services in such forces, as does not exceed $3,500.11 Income derived from the operation of a public utility acquired, constructed, operated or maintained under a contract made with a State, Territory, District of Columbia, or any political subdivision of the State or Territory, prior to September 8, 1916, is not taxed to the extent that the tax will impose a loss or burden on such State, Territory, District or political subdivision. Interest upon (1) the obligations of a State, Territory or any political subdivision thereof, the District of Columbia, or any possession of the United States, (2) securities issued under the provisions of the Federal Farm Loan Act, (3) the obligations of the United States, issued prior to September 1, 1917, is exempt. But every person owning any such obligations, securities or bonds, is required to submit a statement in his return, showing the 10 Revenue Act of 1918, § 213. 11 The term "active services" is probably used in the sense of services in all military and naval branches at home or abroad, as contradistinguished from the retired list. The term "military or naval forces" includes the Marine Corps, the Coast Guard, the Army Nurse Corps, Female, and the Navy Nurse Corps, Female. number and amount of such obligations, securities or bonds, and the interest received therefrom in such form and with such information as the Commissioner may require. In the case of obligations of the United States issued after September 1, 1917, and in the case of bonds issued by the War Finance Corporation, the interest is exempt only if and to the extent provided in the Acts authorizing the issue thereof, as amended and supplemented, and will be excluded from gross income only if and to the extent it is wholly exempt from taxation to the taxpayer both under the income and war-profits and excessprofits taxes.12 The 1916 Law expressly exempted the compensation of the present President of the United States, during the term for which he has been elected, and the compensation of the Judges of the Supreme Court and inferior courts of the United States, in office at the time the Act was passed, but the Revenue Act of 1918 expressly taxes the compensation received as such of the President of the United States, the Judges of the Supreme Court and inferior courts of the United States, and all other officers and employees, whether elected or appointed, of the United States, Alaska, Hawaii, or any political subdivision thereof, or the District of Columbia.13 The Revenue Act of 1918 does not expressly exempt "the compensation of all officers and employees of a State, or any political subdivision thereof, except when such compensation is paid by the United States Government," 14 as did the 1916 Law. Officers and employees of a State, City or County, including public school teachers, etc., were exempt under the 1916 Law to the extent that their income was derived from salaries paid by the State, County or City. They enjoyed, however, no exemption from tax on income from taxable sources merely because of their position as employees of a 12 Revenue Act of 1918, §§ 213 (b) 4, 233. 13 Revenue Act of 1918, § 213 (a). The constitutional question involved in taxing such salaries is discussed in Chapter 17 on Income from Personal Services. 14 Revenue Act of 1916, § 4. State. It seems to have been the intent of Congress in the present statute to tax such salaries and to leave the constitutional question involved in levying such a tax to the courts, 15 but the Treasury Department has ruled that compensation paid to its officers and employees by a state or any political subdivision thereof, will not be taxed.16 Exempt income is omitted from the returns of individuals and corporations,17 but income exempt for only normal and not surtax, or for income but not profits tax, must be included in the return. Citizens of the United States. Every person born in the United States subject to its jurisdiction, or naturalized in the United States, is a citizen. An individual born in the United States of citizen or resident alien parents, who has long since moved to a foreign country and established a domicile there, but who never has been naturalized therein or taken an oath of allegiance thereto is still a citizen of the United States.1 18 Citizens are taxable upon their net incomes from all sources whether they reside within this country or not. Married women are considered to have the same citizenship as their husbands. An American woman who marries a foreigner consequently loses her status as an American citizen and is thereafter treated as an alien.19 But determination by the State Department of the status of an individual is not conclusive upon the Treasury Department in fixing citizenship for income tax purposes.20 15 Revenue Act of 1918, § 213 (a). The constitutional question involved in taxing such salaries is discussed in Chapter 17 on Income from Personal Services. 16 Reg. 45, Art. 71. This subject is more fully discussed in Chapter 17 on Income from Personal Services. 17 Exempt interest, however, is included as above indicated. Under the 1916 Law corporations were at first required to report exempt income in a supplementary statement, but this requirement was omitted in later forms. 18 Reg. 45, Art. 4. 19 T. D. 2092. 20 T. D. 2135. RESIDING IN THE UNITED STATES. Citizens residing in the United States report and pay the tax in the district. in which they legally reside or have their principal place of business, regardless of where the income may arise.21 RESIDING ABROAD. If a citizen residing abroad has no office or place of business in this country, he files his return and pays his tax to the Collector at Baltimore, Maryland.22 He is, of course, required to report his income from all sources whether within or without the United States. Although the question as to the liability of a nonresident citizen is not determined by the State Department but by the Treasury Department, still, in the case of a naturalized citizen against whom the presumption of expatriation has arisen, the fact that he has paid the income tax will receive due consideration by the State Department in connection with other evidence submitted to overcome such presumption in connection with applications for passports or for registration in a consulate or for actual protection in a foreign country. The payment of the income tax will also be duly considered by the State Department in passing upon rights to the continued protection of this Government in cases of native American citizens who have resided abroad for a period so long that the natural presumption may be held to have arisen that they have abandoned citizenship in this country.23 Aliens Residing in the United States. The question of whether or not an alien resides in this country is sometimes difficult to determine. The Treasury Department holds that "Nonresident alien individual" means an individual (a) whose residence is not within the United States, and (b) who is not a citizen of the United States. Any alien living in the United States who is not a mere transient is a resident of the United States for purposes of the income tax. Whether he is a transient or not is 21 Revenue Act of 1918, § 227 (b); Reg. 45, Art. 445. 22 Revenue Act of 1918, § 227 (b). 23 Letter from Secretary of State to American Diplomatic and Consular Officers, dated March 18, 1914; I. T. S. 1918, ¶ 5, |