Under Non-resident Taxable gage or other indenture executed by them. As a consequence it has not been unusual for corporations since the enactment of the Nineteen Thirteen Act to agree to pay the income tax subject to deduction at the source as and to the extent that they might lawfully do so. The new Statute has now repealed the old Law including the above quoted provision, and contains no prohibition against the inclusion of any tax free covenant in corporate mortgages. Some of the early prints of the Bill, including that originally passed by the Senate, prohibited such agreements in new mortgages, but no prohibition appeared in the House Bill or in the Law as finally passed. By definition in the Act, income accruing to non-resident aliens from "sources within the United States" shall include interest on bonds, notes and other interest-bearing obligations of residents of the United States, corporate or otherwise; and as a consequence such income is declared to be taxable. As a practical matter, however, in view of the tax free covenant in most American corporate mortgages, it appears that the interest on a very large proportion of such American corporate bonds and similar obligations may be exempt from our income tax in the hands of practically all non-resident aliens, corporate and individual. Relatively few individual non-resident aliens derive incomes of more than $20,000 a year from taxable Ameri can sources, and thus the very large percentage of such individuals would be subject only to the normal tax, which, under the tax free covenants, is now being generally paid by the corporations. Non-resident corporations and similar organizations are subject only to the two per cent. corporation tax referred to hereinafter, and as the system of deduction at the source now applies to income paid to them in the form of interest on American corporate bonds, it would seem that the entire income tax thereon would be paid by those American corporations which assume such tax as is subject to deduction at the source. As a practical matter, it seems also that dividends of American corporations received by non-resident alien individuals would be free of tax in respect to those individuals not subject to the additional tax hereunder. Subject to the same qualifications which apply in the case of citizens and residents, dividends as well as interest are taxable in the hands of a non-resident alien, and according to the Statute are to be included in his return, except only if dividends are derived from "sources without the United States." Obviously this phrase excludes in the case of the non-resident alien those dividends from corporations of other countries which are not subject to our corporate income tax provisions; but the Treasury Department may need to rule on Certain Bonds Tax Free Dividends When Agents May Act for Non-resident Aliens Collection of Foreign Payments the extent of his liability, if any, in respect to dividends of a foreign corporation which receives a portion of its gross income from sources within the United States. The Department may feel that such income may not be traced behind the source of the corporation itself which is "without the United States"; and such a view might be in line with the ruling under the old Law that members of a partnership could have no benefit of the exemption extended to municipal bond interest, etc., because that income had accrued to the partnership as such and could not be traced behind that source. Under any rulings by the Treasury Department as to the new Law, it is to be presumed that properly authorized agents within the United States may execute the certificates required in the collection of bond interest on behalf of non-resident alien owners. Such representatives will need to observe carefully any new regulations by the Department as to the extent of their duties; under the old Law they are charged with many responsibilities, such as the reporting of profits from sales of personal property within their charge. The Act lays special stress upon deducting the normal tax at the source on coupons, checks, or bills of exchange in payment of dividends on the stock of foreign corporations, interest upon the obligations of foreign mort gages, foreign corporations, foreign countries, (a) Any banker or person who shall sell or (b) Any person who shall obtain payment not (c) Any dealer "in such coupons" who shall Under penalty of fine or imprisonment or both, The income tax is computed for the calendar year; and on or before March first in the year thereafter a return of income with deductions authorized shall be made by each person of lawful age, except as otherwise provided herein, who has a net income of $3,000 or over for the calendar year. This return shall be filed with the Collector of Internal Revenue for the district in which such person has his legal residence or his principal place of business, or if he License for Foreign Collections Annual Return of Income Dividends Returns by Agents have no legal residence or place of business in the United States, then with the Collector of Internal Revenue at Baltimore, Maryland. The revised Law provides that all returns shall include income derived from dividends of every corporation, association, etc., except that non-resident aliens as mentioned hereinbefore need not report income derived from "sources without the United States." Under the previous Law it was held by the Treasury Department that an individual was not required to report dividends of domestic or other corporations subject to the Statute if he had a total net income of less than $20,000, and less than $3,000 of net income from sources other than such dividends. Apparently it was considered a convenience by some individuals to have income in the form of dividends as it was possible to have up to $20,000 net income without making report thereon, but any such advantage now appears to have been destroyed by the new Law which requires individual returns to include dividends. This will increase the number of individuals who are required to make annual return of their income hereunder even though they are not liable for the payment of any in come tax. A person who is unable to make his annual return of income on account of illness, absence, or non-residence may have such return made by an agent on his behalf, but the agent must |