resident foreign partnerships and non-resident foreign corporations, (c) payments of dividends to non-resident foreign corporations and (d) payments of interest on bonds and similar obligations of corporations, if such bonds contain a so-called "tax-free covenant" which requires the corporation to assume the burden of the tax which it may be required to withhold or deduct from the interest paid to its bondholders.33 In the last of the aforementioned cases deduction applies whether the recipient of the income is a citizen or alien, resident or non-resident. With this exception no withholding is required against citizens and residents of this country. of Information at the Source. For the purpose checking up the returns of taxpayers the law provides for a system of information at the source whereby every corporation may be required to report to the Commissioner of Internal Revenue the names and addresses of its stockholders and the amount of dividends paid to each; stockbrokers may also be required, when called upon, to report the names and addresses of customers and information as to the profits and losses of each, and all persons, corporations or partnerships may be required to report the names and addresses of any persons to whom they pay fixed or determinable gains, profits or income of $800 or more in any taxable year. In the case of payments of interest to the bondholders of corporations the names and addresses of such bondholders are required to be reported regardless of the amount paid during the year as is also the rule in the case of collection of foreign items of interest and dividends.34 33 See Chapter 41 on Collection at the Source. 34 For a further discussion of this subject see the chapter on Information at the Source. Tax Due. The income tax is due and payable ordinarily on the 15th day of June following the filing of the return of annual net income, but may be paid without penalty within ten days after demand for payment has been made by the local collector. Since demand for payment cannot be made before the due date, the tax may be paid without penalty within ten days thereafter, and this period of grace is extended if the collector fails to make a prompt demand. In the case of corporations reporting for their fiscal year the tax is due and payable one hundred and five days after the date on which the return is required to be filed, that is, within one hundred and sixty-five days after the close of the fiscal year, with a like period of grace of ten days after demand for the tax has been made. The tax may be paid in advance in instalments if the taxpayer chooses to do so, and in such cases the Secretary of the Treasury may allow a discount at a rate not exceeding 3% per annum.3 35 Abatement and Refund. The collection of the income tax cannot be restrained by injunction, but if taxes have been erroneously or illegally assessed or collected, the Commissioner of Internal Revenue is authorized to remit and pay back the amount to the taxpayer. The importance of collecting revenue is so great that the law permits no taxpayer to interpose a hindrance to the orderly assessment of the tax. He must allow the assessment to be made and may thereafter claim abatement or refund by filing a claim with the local collector.36 35 For a further discussion of this subject see Chapter 36 on assessment and payment of the tax. 36 See Chapter 39 for procedure as to abatement and refund. CHAPTER 2 THE INDIVIDUAL TAX RATES As indicated in the foregoing chapter the income tax is at present assessed and collected under two laws. The amount of tax to which each individual is liable is computed separately under each law and the two amounts are added together to determine his total liability. Each law prescribes a fixed rate, known as the normal tax, and a series of graduated rates, known as the additional tax, supertax or surtax. In the case of corporations no supertax is imposed, the rate being uniform on all amounts of net income. Normal Tax. Under the 1916 Law a normal tax of 2% is imposed upon the entire net income received during the taxable year from all sources by every individual a citizen or resident of the United States, and upon the entire net income received during the taxable year from all sources within the United States by every individual, a non-resident alien, including interest on bonds, notes and other interest-bearing obligations of residents, corporate or otherwise. Under the 1917 Law a normal tax of 2% is imposed upon the net income of every individual, a citizen or resident of the United States, received in the calendar year 1917 and every calendar year thereafter. A citizen of the United States, wherever he may reside, is subject to both normal taxes. An alien is subject to both normal taxes if he resides in this country, but only to the 2% normal tax under the 1916 Law if he resides outside this country. In assessing the normal tax under the 1916 Law, the personal exemption allowed under that law is first deducted from the net income, and similarly in assessing the normal tax under the 1917 Law the personal exemption allowed under that law is first deducted. On all the net income in excess of the exemptions the normal rate applies. Supertax. In addition to the normal tax a supertax, called in the law "the additional tax" is imposed at various rates under the 1916 Law and the 1917 Law. For the purpose of assessing the supertax the personal exemptions are not deducted. The rates are as follows: On the amount by which the total net income |