amount the bondholder reports as though the tax had been actually withheld, the remainder of the normal tax being reported as not having been withheld. A further discussion of collection at the source is contained in the chapter on that subject.77 Duty to Withhold Tax at Source. A citizen or resident paying fixed or determinable gains, profits or income (a) to non-resident alien individuals or (b) to foreign corporations not engaged in trade or business within the United States and not having any office or place of business in this country, is required to withhold 8% in the case of payments under (a) and 10% in case of payments under (b) as set forth in a subsequent chapter.78 Collection of Foreign Items. Citizens or residents undertaking as a matter of business or for profit, the collection of foreign items, are required to obtain a license from the Commissioner of Internal Revenue as indicated in a later chapter.79 77 See Chapter 40. 78 Revenue Act of 1918, §§ 221 and 237. See Chapter 40. 79 See Chapter 39. CHAPTER 5 NON-RESIDENT ALIENS The law imposes a tax upon the net income received by non-resident alien individuals "from sources within the United States, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, dividends from resident corporations, and including all amounts received (although paid under a contract for the sale of goods or otherwise) representing profits on the manufacture and disposition of goods within the United States.” The term "non-resident aliens, as used in several places in the 1916 Law, was not defined therein, but clearly referred to individuals only and not to partnerships, corporations, or associations. The Revenue Act of 1918, however, removes all doubt by using the expression "non-resident alien individuals."1 The expression "non-resident aliens" is used in this chapter to mean only non-resident alien individuals. Ordinarily it is a simple matter to determine whether an individual is or is not a non-resident alien; he falls into this class if he is neither a citizen nor a resident. Any individual who is a citizen of any possession of the United States (but not otherwise a citizen of United States) and who is not a resident of the United States is subject to taxation for income tax purposes, as to income derived from sources within the United States, and his tax is computed and paid in the same manner and subject to the same conditions as non-resident aliens who are citizens or subjects of foreign countries.2 The term "non 1 Revenue Act of 1918, §§ 210 and 213 (c); Reg. 45, Art. 3. 2 Revenue Act of 1918, § 260. Income of citizens and residents of Porto Rico or the Philippines is taxed in those jurisdictions in ac resident alien," therefore, is used in this chapter to include any non-resident citizens of any possession of the United States. Difficulty may arise in determining whether an individual is or is not a non-resident alien, where a non-resident citizen naturalized or native has resided abroad for a period sufficient to raise a presumption that he has abandoned his citizenship,3 and again where an alien has resided in this country for a period so long as to raise a presumption of residence. In either of these cases the intent of the individual is important. The Treasury Department holds that the status of a non-resident native or naturalized citizen remains unchanged until some affirmative action is taken, or the right to citizenship is forfeited by some overt act. When any naturalized citizen has left the United States and resided for two years in the foreign country from which he came, or for five years in any other foreign country, he is presumed to have lost his American citizenship; but this pre cordance with the provisions of the Revenue Act of 1916, as amended, the legislatures of Porto Rico and the Philippines having power to amend, alter, modify or repeal that law in their respective jurisdictions (Revenue Act of 1918, § 261). 3 The Act of March 2, 1907, provides, briefly, that any American citizen becomes an alien by becoming naturalized in a foreign state or taking an oath of allegiance to any foreign state. A naturalized eitizen residing for two years in the country from which he came or for five years in any other foreign country, is presumed to have renounced his American citizenship in the absence of satisfactory evidence to the contrary. A woman assumes the nationality of her husband, but may resume her original citizenship on becoming a widow; she assumes or retains her American citizenship as a widow if, living abroad, she registers with a United States consul, or without formal action if she resides here. Minor children of naturalized citizens are deemed to be citizens from the time they begin to reside permanently in this country. Children born outside of the United States of citizens, and continuing to reside abroad must at the age of 18 declare their intention as to citizenship. Determination of citizenship by the State Department under this Act is not conclusive upon the Treasury Department; other factors may also be considered, as indicated in the text. 4 T. D. 2135. F. T.--5 sumption does not apply to residence abroad while the United States is at war. An Italian, who has come to the United States and filed his declaration of intention of becoming a citizen, but who has not yet received his final citizenship papers, is an alien. A Swede, who, after having come to the United States and become naturalized here, returned to Sweden and resided there for two years prior to April 6, 1917, is presumed to be once more an alien.5 On the other hand, an alien, coming to the United States with the intention of becoming a resident within the meaning and intent of the income tax statute, may indicate that fact and thereupon will be taxed as a resident, regardless of the length of time he has been here. The tests as to the residence of aliens located within this country have been set forth in another chapter.7 Extent to which Non-Resident Aliens Are Taxable. Non-resident aliens are subject to the normal tax and the surtax imposed by the Revenue Act of 1918, upon their net income received from all sources within the United States, including interest on bonds, notes or other interest-bearing obligations of residents, corporate or otherwise, dividends received from resident corporations, and including all amounts received (although paid under a contract for the sale of goods or otherwise) representing profits on the manufacture and disposition of goods within the United States. Non-resident aliens are not taxed at 5 Reg. 45, Art. 4. 6 Reg. 45, Art. 362; T. D. 2242. See Chapter 4 on Citizens and Residents for status of resident aliens. 7 See Chapter 3 on Individuals to Whom the Law is Applicable. 8 Revenue Act of 1918, §§ 210 and 213 (c); Reg. 45, Art. 3. The 1913 Law, which was repealed by the 1916 Law, imposed a tax on the net income of non-resident aliens "from all property owned and of every business, trade, or profession carried on in the United States." This language was held, under two opinions of the Attorney General, not to include interest or dividends received by non-resident alien investors from domestic corporations, but on March 21, 1916, the Treasury Department reversed this holding and thereafter claimed the tax from non-resident aliens on the classes of income in question. (T. D. 2313.) In DeGanay v. Lederer, 239 Fed. 568, the the lower rate of normal tax upon the first $4,000 of their taxable net income as are citizens or residents, but their entire taxable net income is subject to a normal tax of 12% for the taxable year 1918 and 8% in succeeding years.9 Income from Sources Within the United States. The words "sources within the United States" are not defined 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. The most comprehensive ruling defining gross income from sources within the United States includes in the term, in addition to the items specified in the statute, rentals, and royalties from property and income from business carried on in the United States, income from isolated transactions or activities directly resulting in gain, carried on within the United States by a non-resident or his representative in person, interest on deposits in banks located within the United States, income from capital otherwise invested in the United States, and income from services rendered or labor performed within the United States.10 The tax does not apply to charter money received by a foreign owner for a vessel operated between the United States and foreign ports, if the making of the charter contract grows out of no solicitation or similar commercial activity by the owner or his representative in person within the United States.11 A corporation located at Singapore, incorporated under the laws of India, having no office or agent in the United States, was engaged in the commission business, District Court held a non-resident alien taxable on such income if the stock certificates and bonds were kept in this country, as then they acquired a situs here for purpose of the income tax. (This case is now No. 319 on the docket of the Supreme Court.) The language of the 1916 Law and the present law expressly included regardless of where the securities might be kept. 9 Revenue Act of 1918, § 210 (a); Reg. 45, Art. 2. 10 Reg. 45, Art. 91. 11 Reg. 45, Art. 92. such income, |