ceeds of policies when paid at maturity or upon the death of the insured are required to be returned by such corporations as income for the year in which such proceeds were received. The Statute provides a separate list of deductions for foreign organizations authorized, organized, or existing under the laws of any foreign country. Generally speaking the difference between the deductions allowed foreign organizations and those granted to similar domestic organizations as above discussed is that the foreign organization shall deduct only those items which have arisen in respect to its business or interests in the United States; for example, the only taxes deductible in the case of a foreign organization are such as have been authorized by the United States or a sub-division thereof, whereas a domestic organization may generally deduct taxes wherever paid. A foreign organization shall compute the amount of interest paid on its indebtedness along the same lines laid down in respect to domestic organizations, but the foreign organization is allowed deduction of only such a proportion of that interest as the gross amount of its income on business transacted and capital invested within the United States bears to the gross amount of its income derived from all sources within and without the United States. It may be noted also that no provision has been made for foreign organizations, as was Deductions Deduction at the Source When Becomes made in the case of domestic organizations, for the deduction of the entire amount of interest in the case of indebtedness wholly secured by collateral which is the subject of sale or hypothecation by an organization dealing only in the property constituting such collateral. The system of deducting the tax at the source was not applied under the previous Statute to any form of income paid to corporations or other organizations whether foreign or domestic. The revised Statute, however, extends this system to foreign organizations in respect to dividends on the stock and interest on the bonds and similar obligations of American corporations. There is a slightly different classification of the foreign organizations from whose income the tax shall be deducted at the source, the difference depending upon whether the income is in the form of interest or dividends. The tax shall be deducted from domestic interest paid to "nonresident alien firms, co-partnerships, companies, corporations, joint stock companies or associations, and insurance companies," and from domestic dividends paid to "non-resident alien companies, corporations, joint stock companies or associations, and insurance companies." There may be some doubt as to when withholding agents shall begin to deduct the appropriate tax from domestic corporate in terest and dividends paid to foreign organizations. If it should be deemed proper to deduct this tax immediately and not wait until January 1, 1917, probably only the one per cent. tax should be deducted. In respect to this entire subject, however, it seems likely that there may be comprehensive instructions issued by the Treasury Department. As has been pointed out hereinbefore, foreign organizations are taxable on American dividends and corporate interest. As a practical matter, however, it appears that income accruing to foreign organizations in the form of interest on a very large proportion of American bonds may be actually exempt rather than taxable. To explain-all organizations hereunder are liable to only the two per cent. tax and that tax is now made subject to deduction at the source in respect to domestic corporate interest paid to foreign organizations; but, under the tax free covenants which appear in substantially all of the existing mortgages of American corporations, it appears likely that any such tax deducted at the source will be paid by the American debtor corporation. It may be noted in this connection that inasmuch as the tax is not to be deducted at the source in respect to income paid to domestic organizations, the usual tax free covenant in American corporate bonds is of no practical benefit to American organizations receiving Benefit of Foreign Organizations Domestic Basis of Fiscal Corporate When Filed interest from such bonds. In other words, the debtor corporation under the usual tax free covenant assumes only such a tax as may be liable to deduction at the source. Corporations and other organizations are given wide latitude in the keeping of their accounts, the law definitely providing that the corporation's books may be kept on some other basis than that of actual receipts and disbursements. The Commissioner of Internal Revenue is given wide discretion in deciding whether or not the basis used clearly reflects the corporate net income. The calendar year is made the tax year for corporations as well as for individuals, but the revised Statute, like the previous Law, authorizes a corporation to designate the last day of any month as the close of its fiscal year which shall then be considered its tax year. A corporation which has a fiscal year different from the calendar year shall pay the two per cent. tax imposed by this Statute on the proportion of its net income which the period between January first and the end of its fiscal year bears to an entire year. Every corporation or other organization subject to tax hereunder shall file its return in an appropriate form on or before March first following the calendar year in respect to which the tax is to be paid. Should the corporation have a fiscal year other than the calendar year, its return shall be filed within sixty days after the close of its fiscal year as chosen. The return shall be sworn to by the President, Vice-President, or other principal officer, and by the Treasurer or Assistant Treasurer, and shall be filed with the Collector of the district in which is located the principal office of the organization. In the case of a foreign organization, its return shall be filed with the Collector of the district in which its principal place of business is located in the United States; or, if it has no such place of business or agency in the United States, then with the Collector of Internal Revenue at Baltimore, Maryland. The Commissioner of Internal Revenue is given authority to grant a reasonable extension of time for the filing of returns of corporations in such cases as appear to him to be meritorious. Under the previous law it was ruled by the Treasury Department that upon proper application in the case of sickness or absence of an officer whose signature to a return was required, the Collector of Internal Revenue might grant an extension of not more than thirty days of the time for filing the return. The Treasury Department ruled under the previous Law that in cases where foreign corporations, or domestic corporations doing business in foreign countries, were unable to assemble their data in time to make their returns Where Filed Extension of Time |