as mutual fire insurance companies and the statement in the preceding paragraphs regarding such companies applies equally to this class of companies.

Mutual Marine Insurance Companies. Mutual marine insurance companies are required to include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but are entitled to include in the deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them, together with interest upon such amounts between the ascertainment thereof and the payment thereof. In other respects the companies of this class proceed in the same manner as insurance companies generally.

Life Insurance Companies. Life insurance companies, including stock and mutual companies, do not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder or treated as an abatement of premium within the year.10 In so far as "deferred dividends" payable at a stated period represent "a portion of any actual premium received," they may be omitted from gross income for the year in which they were actually paid back, except that so much of any deferred dividends

9 Act of September 8, 1916, § 12; Reg. 33, Art. 99.

10 Under the 1909 Law there was much litigation as to whether so-called dividends paid by insurance companies to policyholders as a return of a part of the premium were properly deductible. The courts held that the so-called dividends awarded annually to policyholders did not constitute income (Herold v. Mutual Benefit Life Insurance Company, 201 Fed. 918) and at the time of the enactment of the 1913 Law the point was expressly covered by the same language as in the present law.

paid during the tax year to the individual policyholder as exceeds the amount of premiums paid during the same year may not be omitted. Only the actual amount of dividends actually credited or apportioned to a policyholder during the premium-paying period, and not any accretions thereto, can be excluded from gross income. In the cases of whole life or five-year distribution policies, deferred dividends may be excluded from gross income to the extent that they are paid back or credited to the insured or used as an abatement of annual premiums.11

SUPPLEMENTARY POLICY CONTRACTS. Where a life insurance company's policies contain an option to have proceeds paid in annual instalments for a given term of years, or during the lifetime of the beneficiary, instead of in one sum, such policies, if the option is exercised, are styled "supplementary policy contracts." These obligations are protected by reserves, the net additions to which are deductible if such reserves are "required by law." The Commissioners of Insurance of all the states require the establishment of a reserve to cover the obligations of the company on such supplementary policy contracts. This fact of itself tends strongly to show that they are required by law,12 but if the action of a commissioner of insurance is based in such cases upon the practice of his office and not upon an express requirement of law, deduction may not be made.13

PAYMENTS ON POLICIES. Surrender values applied in any manner, consideration for supplementary policy con

11 Reg. 33, Art. 100.

12 Mutual Benefit Life Ins. Co. v. Herold, 198 Fed. 199.

13 See Maryland Casualty Co. v. U. S.. Court of Claims, T. D.

tracts, involving and not involving life contingencies, should be included in the income of life insurance companies. Applied surrender values and consideration for supplementary contracts not involving life contingencies included in income are deductible as payments under policy contracts, but for convenience in verifying the returns these items should appear in the return in both gross income and deductions.14

Mutual Life Insurance Companies. Mutual life insurance companies file the same return as stock companies and are governed by same rules with respect to computing net income.

14 Reg. 33, Arts. 101 and 102.

CHAPTER 14

FOREIGN CORPORATIONS

The 1916 Law provides that the income tax shall be assessed and collected annually upon the total net income received by every corporation, organized, authorized or existing under the laws of a foreign country, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, and including the income derived from dividends of corporations whose net income is taxable under the law.1 The deductions permitted to foreign corporations are in general the same as those permitted to domestic corporations but specifically limited to the business or property in this country. This chapter deals with the special provisions applicable to foreign corporations. The chapter on domestic corporations should be referred to for provisions which have general application to all corporations.

1 Act of September 8, 1916, § 10. Under the 1913 Law foreign corporations were taxable only upon the income accruing from business transacted and capital invested within the United States. Interest and dividends received by foreign corporations were held to be income from capital invested in this country, although at first it was held under that law that interest and dividends received by non-resident alien individuals were not subject to tax, but after the decision in the case of Brushaber v. Union Pacific Railway Company, 240 U. S. 1, the Treasury Department changed its rulings and held that interest and dividends so received were subject to the tax, whether the recipient was an individual or a corporation. (T. D. 2313.)

Corporations Exempt from the Tax.

The corpora

tions enumerated in the law as exempt include foreign corporations as well as domestic corporations, except as stated in the chapter on exempt corporations.2

Corporations Subject to the Tax. All foreign corporations deriving income from sources within this country and not specifically exempt as indicated above are subject to the tax.

Sale of Goods by Correspondence. Where a foreign corporation sells goods in this country by correspondence, or delivers goods so sold to a citizen or resident of this country, no attempt is made to impose the tax on such transactions. The conclusion seems to be that such sales do not create any income from sources within the United States. This seems to be true in all cases where the contract for the sale of goods is made in a foreign jurisdiction whether the title to the goods passes in the foreign jurisdiction or title is retained after the goods arrive in this country until payment therefor has been made. Where, however, a resident of this country pays interest on any deferred payments of purchase price the interest is clearly subject to tax under the express provisions of the law.

Traveling Salesmen. The Treasury Department has held as follows: Where a foreign corporation sends a representative to this country to solicit business, the merchandise thus sold to be shipped direct to the consignee, the corporation is transacting business in this country. The fact that the solicitor or representative has only a mailing address in this country is immaterial, as 2 See Chapter 15.

F. I. Tax.-12