withholding should take place is $11,000. While the value of permanent improvements made on the property by the tenant is income to the landlord, no withholding need be made with respect thereto since such income is not fixed or determinable.67

OFFICERS AND EMPLOYEES OF THE UNITED STATES. Officers and employees of the United States are required to withhold the tax on amounts of fixed or determinable income paid to non-resident aliens.

Duties of Withholding Agents. If the withholding agent knows that the one to whom he pays fixed or determinable incomes is a person or corporation against whom the tax is required to be withheld, an ownership certificate is not necessarily required from the payee, but the requisite amount is withheld without notice from or to the payee. Where payment is made to persons not known to the payee, as in the case of interest on bearer bonds, an ownership certificate is required from each payee disclosing his or its status and if the payee is one against whom withholding should take place the tax is withheld. If, in such cases, no ownership certificate is presented the payee is not required to make payment until the name and address of the recipient of the income is furnished.68

ON PAYMENT OF REGISTERED INTEREST. Corporations paying interest to registered owners of bonds are not required to obtain certificates of ownership, but will

67 See Page 459.

68 Act of September 8, 1916, § 28 added by Act of October 3,

withhold the tax in such cases where the records of the company disclose the fact that the owner of the bonds is a person or corporation against whom the tax is withheld.69 The tax is withheld before sending out orders or checks for such interest to the registered owners, and the interest order or check is endorsed with the words "income tax withheld by debtor." An interest order or check bearing such indorsement may be presented for payment or collection without an ownership certificate being attached.70

ON PAYMENT OF DIVIDENDS. Corporations paying dividends to non-resident foreign corporations, against which the tax is required to be withheld, are not required to obtain ownership certificates, but should withhold the tax in all cases where the records of the corporation show the stockholder to be a foreign corporation not engaged in business or trade in the United States and not having an office or place of business therein. If the corporation has knowledge of who is the actual owner of the stock, it is required to disregard the status of the stockholder of record and to withhold the tax in cases where the status of the actual owner requires withholding.

MONTHLY LIST RETURNS. It has heretofore been the practice of the Treasury Department to require monthly returns of the amounts withheld by (a) banks or collecting agencies receiving coupons and interest orders not accompanied by certificates of owners and (b) by banks and by corporations on payments of interest and

69 T. D. 1974. 70 T. D. 1974.

dividends. This practice will be continued unless and until the Treasury Department rules otherwise.71

ANNUAL LIST RETURNS. The law requires an annual return to be made on or before March 1st of each year of the amounts withheld during the preceding calendar year.72

DISPOSITION OF OWNERSHIP CERTIFICATES. The ownership certificates received by the withholding agents are filed with the local collector at the time of filing the list returns. Withholding agents filing monthly list returns are required to file the ownership certificates monthly and those filing annual list returns are required to file

71 The monthly list return to be filed by corporations with respect to payment of interest and dividends is known as Form 1012. When the form is used for reporting tax withheld on dividends there should be stamped across the printed declaration at the top of the form, in large letters, "monthy return of income tax withheld from dividend paid to non-resident alien corporations, etc."' (T. D. 2388.) The form used by banks and collecting agencies, receiving coupons not accompanied by certificates of the owners, is Form 1044.

72 Act of September 8, 1916, § 9 (b) as amended by Act of October 3, 1917. Heretofore the annual list return of amounts withheld on payments of bond interest and dividends has been made on Form 1013. (Being a summary of the monthly list returns); the annual list return of amounts withheld on salaries, wages and rent, interest or other fixed or determinable annual income has been made on Form 1042; the annual list return of amounts of tax withheld on foreign income by licensed banks or collection agencies on Form 1043a, and the annual list return of amounts withheld by banks or collecting agencies on payments of interest where coupons and interest orders were not accompanied by certificates of owners, on Form 1044a. The use of these forms will be continued, where necessary, until others are prescribed.

such certificates annually, in each case accompanying the return.

PAYMENT OF AMOUNTS WITHHELD AT THE SOURCE. The withholding agent is required to pay to the local collector the amounts withheld at the source, on or before June 15 of the year following the year in which the amounts were withheld. The usual notice of assessment, and notice and demand, is sent to the withholding agent and payment is made in the same manner as payment of the tax. 73

Penalty for Failure to Withhold the Tax. The statute expressly provides that withholding agents are personally liable for the tax which they are required to withhold at the source.74 When a withholding agent, through ignorance of his duties, or for any other reason, has failed to withhold the tax and to make return, a return may be filed, upon discovery of his neglect, accompanied by a claim for the abatement of such items of tax as can be shown to have been paid by the taxpayers against .whom the tax should have been withheld.75

73 See Chapter 36.

74 Act of September 8, 1916, § 9 (b) as amended by Act of October 3, 1917.

75 Mimeograph letter No. 1265 to Collectors.

F.I.Tax.-31

CHAPTER 42

COVENANTS TO PAY TAXES

Covenants to pay taxes are contained in bonds, mortgages, notes, leases and similar instruments whereby it is stipulated that the interest, rent, or other income payable thereon, shall be paid without deduction for taxes. Many such covenants became operative under the 1913 and 1916 Laws by reason of the requirement in those laws that the normal tax should be withheld at the source. They are operative under the present law only in cases (a) where the payee of the income is a nonresident alien individual, (b) in the case of payments of interest, on the bonds, mortgages or other obligations of corporations, to foreign corporations not engaged in business or trade in the United States and not having an office or place of business therein, and (c) in the case of payments of such interest to citizens and residents, to the extent that one 2% normal tax is required to be withheld.1

Since there is a requirement in the law that the tax be withheld on payments to citizens or residents in cases where the interest paid is upon bonds and mortgages, or deeds of trust or other similar obligations of corporations containing a contract or provision by which the obligor agrees to pay any portion of the tax imposed by the law upon the obligee, or to reimburse the obligee 1 See Chapter 41.