CHAPTER 9

FOREIGN FIDUCIARIES

1

The law provides that "guardians, trustees, executors, administrators, receivers, conservators, and all persons, corporations, or associations, acting in any fiduciary capacity, shall make and render a return of the income of the person, trust, or estate for whom or which they act, and be subject to all the provisions of this title which apply to individuals." The law implies that foreign fiduciaries shall be subject to its provisions to the same extent as non-resident alien individuals. The term "foreign fiduciaries" is defined, for the purpose of this book, as fiduciaries who neither reside in this country nor have an office or place of business here, that is, those who are not within the jurisdiction of this Government. The preceding chapter contains the general rules relating 'to fiduciaries. This chapter treats of the application of those rules to foreign fiduciaries. As to who are fiduciaries and who are beneficiaries within the meaning of the law, and as to the special duties of executors, administrators and receivers see the preceding chapter.

Trust Estates. The trust estate under the control of a foreign fiduciary is subject to tax on net income derived from sources within this country. Net income from

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

sources within this country is determined under the same rules as apply to non-resident aliens.2 The deductions claimed by the foreign fiduciary are governed by the rules relating to fiduciaries in general, except so far as they are limited by rules relating to deductions of non-resident aliens.

Distribution of Income of Trust Estates. A foreign fiduciary having charge of an estate or trust, the net income of which is distributed annually or periodically among non-resident alien beneficiaries, is required to execute the same annual return 3 as is required of domestic or resident fiduciaries and a personal return 4 on behalf of each non-resident alien beneficiary.5 If the foreign fiduciary has only one beneficiary who is a nonresident alien to whom all of the income is distributed annually it is necessary to file only the personal return on behalf of the beneficiary and not a return for the trust estate. If the foreign fiduciary acts for beneficiaries who are citizens or residents of this country no personal return need be filed on behalf of such beneficiaries, but a return of the trust estate must be filed, showing the names of such beneficiaries, among others, and amounts of income distributed to them during the year. The discussion in the preceding paragraph on the subject of distribution of income of trust estates should be read in this connection.

Undistributed Income of Trust Estates. For the meaning of the term undistributed income of trust estates 2 See Chapter 5.

3 Form 1041.

4 Form 1040.

5 Letter from Treasury Department dated December 28, 1916; I. T. S. 1917, ¶ 1963.

see the discussion in the preceding chapter. If a foreign fiduciary has charge of an estate in process of administration or settlement, or a trust estate in which net income from sources within the United States remains undistributed at the close of the calendar year, a return is required listing the estate as beneficiary of such undistributed net income. The tax will thereupon be assessed on the undistributed income against the estate as an entity and the fiduciary will be required to pay both normal and supertaxes thereon. If the estate was created by a citizen or resident of this country, the nonresident alien may claim a specific exemption from the net income thereof, as indicated in the preceding chapter, but if created by anyone not a citizen or resident, no such exemption may be deducted.

Return of Annual Net Income. Foreign fiduciaries are required to make a return of the annual net income of the estate from sources within this country, on or before March 1 in each year covering the income received by the trust estate during the preceding calendar year. This return is required to state the total amount of income received from sources within this country (except exempt income,) the deductions claimed against such income, the net income, and the respective amounts distributed to the beneficiaries or retained by the estate as undistributed income.

BY WHOM FILED. The return is filed by the fiduciary having charge of the trust estate. In making the return he should comply with the law and regulations

6 Letter from Treasury Department dated December 28, 1916; I. T. S. 1917, ¶ 1963.

7 See Chapter 10 on undistributed income of trust estates.

respecting returns by non-resident aliens. Where there are two or more joint fiduciaries of a trust estate the return may be made by one of the fiduciaries.8

WHEN A RETURN IS REQUIRED. It seems that the law requires a return whenever the net income from sources within this country payable to any beneficiary, or remaining undistributed at the end of the year is $1,000 or over.9

WHERE FILED. In the case of foreign beneficiaries the return should be filed with the Collector of Internal Revenue at Baltimore, Maryland.

WHEN FILED. The annual return must in all cases be filed on or before March 1 in the year following that for which the income is reported. The same general rules are applicable to the filing of returns by non-resident aliens and by foreign fiduciaries. The same extension of time may be granted and the same penalties are imposed for neglect or failure to file.10

Withholding at the Source Against Foreign Fiduciaries. The provisions with respect to withholding the tax at the source apply, in the case of payments to foreign fiduciaries, in the same manner as in the case of payments to non-resident aliens. A foreign fiduciary cannot claim exemption from withholding of the tax at the source,11 but may claim the benefit of deductions.

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

9 See the discussion under this heading in Chapter 5.

10 See Chapter 35 on return of annual net income.

11 Letter from Treasury Department dated December 28, 1916; I. T. S. 1917, ¶ 1963.

and credits, and obtain a refund of any amounts withheld in excess of the tax liability of the estate, in the same manner as is prescribed with respect to non-resident alien individuals.12

Withholding at the Source by Foreign Fiduciaries. Since a foreign fiduciary is not personally within the jurisdiction of this Government it seems that the requirements imposed upon others to withhold the tax in paying net income to non-resident aliens, do not apply to such fiduciaries. A foreign fiduciary is required to report the names of the beneficiaries of the trust estate upon which information the Government will collect the tax from the beneficiary.

Information at the Source. It does not seem that a foreign fiduciary is under any duty to supply the Government with information at the source as to payments made to others, except so far as information is supplied with respect to beneficiaries by the return of annual net income. In any event there is no duty imposed upon the foreign fiduciary until demand is made by the Commissioner of Internal Revenue for such information.

12 See Chapter 5.