ernment with information with which the annual returns of stockholders may be compared, and is more fully discussed in another chapter.114 REPORT OF INCOME PAYMENTS. All corporations, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries 115 and employers, making payment to any individual, corporation or partnership of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits and income (other than dividends and the payments described in the following paragraph) of $1,000 or more in any taxable year, are required to make returns in regard thereto to the Commissioner, setting forth the amount of such payments and the names and addresses of the recipients. In the case of payments of interest upon its bonds, mortgages or deeds or trust or other similar obligations, such return is required from a corporation regardless of the amount paid.116 This return is for the purpose of supplying the Treasury Department with information to be used in auditing the returns of the taxpayers to whom the income is paid, and is more fully discussed in a later chapter.117 REPORTS BY BROKERS. Every corporation doing business as a broker 118 is required, when called upon by the Commissioner, to make a return showing the names of its customers with such details as to the profits, losses or other information which the Commissioner may require, as to each of such customers, as will enable the Commissioner to determine whether all income tax due on the profits or gains of such customer has been paid.119 This report is for the purpose of information at the source and is more fully discussed in a later chapter.120 or in stock.'' 1918, § 201. See the definition of the term "dividend" in Revenue Act of 114 See Chapter 39. It will be noted in this provision the Commissioner is given discretion to require or not to require such returns. 115 See the definition of the term "fiduciary" in Chapter 6. 116 Revenue Act of 1918, § 256. 117 See Chapter 39. 118 The Revenue Act of 1918 omits the clause defining brokers, "on any exchange or board of trade or other similar place of business," which appeared in the 1916 Law. 119 Revenue Act of 1918, § 255. 120 See Chapter 39. It will be noted that under this provision the Commissioner is given discretion to require or not to require such returns. Payment of the Tax. Ordinarily the tax of corporations is paid in the same manner and subject to the same rules as the tax of individuals.121 Certain special rules applicable to the payment of the tax by corporations are set forth in the following paragraphs. LIABILITY FOR TAX AFTER DISSOLUTION. When a corporation is dissolved its affairs are usually wound up by a receiver or trustees in dissolution. The corporate existence is continued for the purpose of liquidating the assets and paying the debts, and such receiver or trustees stand in the stead of the corporation for such purposes. Any sales of property by them are to be treated as if made by the corporation, for the purpose of ascertaining the gain or loss. Any profit or loss resulting from the sale of capital assets by the trustees or receiver during the process of liquidation is to be merged with the profit or loss resulting from the regular business of the corporation during the same taxable year prior to the taking over of the affairs of the corporation by the trustees or by the receiver.122 No gain or loss is realized by a corporation from the mere distribution of its assets in kind upon dissolution, however they may have appreciated or depreciated in value since their acquisition.123 The assets of a corporation are 121 See Chapter 35. 122 Letter from Treasury Department dated October 24, 1919; I. T. S. 1919, ¶3633. 123 Reg. 45, Art. 547; In re Heller Hirsh & Co., 258 Fed. 208. See also Reg. 33 Rev., Art. 205; Reg. 33, Art. 85; T. D. 2209; T D. 2090. Where the officers and directors (being all the stockholders) of a manufacturing company had for many years fraudulently converted to their own use as dividends sums which should have been paid to the government as taxes, and where the company had become insolvent and a sale of the company's property did not satisfy the government's lien, it was held that there is jurisdiction in equity, on the ground of inadequacy of remedy at law, for the appointment of a receiver and for impounding the company's tangible and intangible assets, wrongfully in the hands of the stockholders, and applying them to the payment of the company's obligations to the government. It was not necessary that the government first obtain a judgment. (United States v. Capital City Dairy Co., 252 Fed. 900.) It was held on demurrer under the Corporation Excise Tax Law of 1909 that a corporation could not evade liability for the tax by dissolving before the time when it was required to make a return. (U. S. v. General Inspection & Loading Co., 192 Fed. 223.) When the same case came before the court for trial, it was held that notice addressed to the defendant at the place of its principal office at the time of its dissolution, presumptively subject to a lien for the payment of taxes, provided the corporation has not been dissolved, and all its assets distributed, prior to the time the list of assessments gets into the hands of the collector. COLLECTION OF TAX FROM ASSETS. The Revised Statutes,124 as amended, provide generally with reference to internal revenue taxes that: "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the United States from the time when the assessment list was received by the collector, except when otherwise provided, until paid, with the interest, penalties and costs that may accrue in addition thereto, upon all property and rights belonging to such person." The Revenue Act of 1918 provides 125 that "all administrative, special, or stamp provisions of law, including the law relating to the assessment of taxes, so far as applicable, are hereby extended to and made a part of this Act." Under the 1916 Law it was the duty of the Commissioner to send to each collector a list of the companies liable for tax in his district. showing the amounts for which they were liable, within such time that the collector might give the required notice of assessment on or before June first and upon such lists the collections were made. Under the provision of the Revised Statutes above quoted the lien was fixed upon the assets of the corporation when this list came into the collector's hands. Therefore, if the corporation had dis-. tributed all of its assets and become dissolved, in the manner provided by law, prior to that time, there was nothing upon which the lien could attach, and consequently no lien existed to secure received, was sufficient to warrant the collection of penaltics (204 Fed 657). Corporations which were dissolved in 1917, prior to the passage of the 1917 Law, were held subject to tax under the 1916 Law, as amended, and also under the 1917 Law. A corporation so situated was required to make a return covering the period in 1917 during which it was in business prior to its dissolution. If it should previously have made a return covering this period and paid any excess-profits tax under the act of March 3, 1917, it credited the amount of such tax against any excess-profits tax assessable against it under Title II of the act of October 3, 1917. (Reg. 33 Rev., Art. 61.) This ruling was made on authority of Brady v. Anderson, 240 Fed. 665, writ of certiorari denied, 244 U. S. 654. (See letter from Treasury Department dated November 17, 1917; I. T. S. 1918, ¶ 1085.) 124 R. S., § 3186. 125 Revenue Act of 1918, § 1305. the payment of the tax which might be due from the corporation. The Revenue Act of 1918 changes the system of assessment and collection of the tax and the time when the lien attaches is uncertain. Although the statutes provide for a lien, this particular remedy for collecting the tax is not exclusive, and the Government may resort to the common law method of collecting the same.126 The dissolution of a corporation does not extinguish its liabilities and through the courts of equity creditors may pursue its assets into the hands of any person who is not a bona fide purchaser. The sale of the entire capital stock of a corporation and the distribution of the proceeds of the sale among the stockholders will not defeat or impair the remedy of creditors, if any debts remain unpaid, as the creditors in that event may pursue the proceeds of the sale in the hands of the respective stockholders and compel each one to contribute pro rata toward the payment of the debts to the extent of the moneys received on the distribution.127 This remedy is open to the Government in the same manner as it is to any other creditor for the collection of the tax,128 but not for collection of the penalty for failure to file returns.129 Withholding the Tax at the Source. No withholding takes place on payment of income to domestic corporations. Such corporations are required to withhold the tax on payments of fixed or determinable and annual or periodical gains, profits and income to non-resident aliens, and non-resident foreign corporations and on payment of bond interest as indicated in another chapter 130 Foreign Items. Corporations undertaking as a matter of business and for profit the collection of foreign items are required 126 Dollar Savings Bank v. U. S., 19 Wall. 227. 127 Railroad Co. v. Howard, 7 Wall. 392. 128 28 Op. Atty. Gen. 241. See U. S. v. Capital City Dairy Co., 252 Fed. 900 and Note 123. 129 T. D. 1852. In the case of U. S. v. General Inspection and Loading Co., 192 Fed. 223, 204 Fed. 657, judgment was entered for tax, penalty for delay in the payment of the tax, and interest, under the 1909 Law, notwithstanding the fact that the corporation had been previously dissolved. But in this case the assets had not been distributed. 130 See Chapter 40. Under the 1916 Law, as amended, corporations were required to withhold the tax on dividend payments to non-resident foreign corporations, but this is no longer required. to obtain a license in the manner more particularly set forth in another chapter.131 Examination of Corporate Records. All corporate books. papers, records or memoranda are subject to examination by any revenue agents or inspectors designated by the Commissioner for the purpose of ascertaining the correctness of returns which have been made, or making a return where none has been made, in accordance with and subject to certain rules which are discussed at length in another chapter.132 Penalties. Corporations or their officers or employees are subject in certain cases to penalties, both specific and ad valorem, for failing or refusing to make returns, supply information, pay or collect any tax or for willfully attempting in any manner to defeat or evade the tax. Such penalties are more particularly discussed in another chapter.133 Personal Service Corporations. Personal service corporations,134 as such, are not subject to the income tax, but their individual stockholders are taxed in the same manner as the members of partnerships. All provisions of the income tax law relating to partnerships and the members thereof apply so far as practicable to personal service corporations and their stockholders.135 Transportation Systems. For the purpose of the recent act 136 providing for the operation of transportation systems while under Federal control four-fifths of the tax-or a tax of 8%-on the net income of corporations in excess of credits for the calendar year 1919 and each calendar year thereafter, is treated as levied by an act in amendment of Title I of the Revenue Act of 1917.137 The act providing for the operation of transportation systems while under Federal control and for the just compensation of their owners provided that every agreement entered into pursuant thereto between the President and the transportation sys 131 Revenue Act of 1918, § 259. See Chapter 40. 132 See Chapter 38. 133 See Chapter 36. 134 The subject of personal service corporations is treated in full in Chapter 9. 135 Revenue Act of 1918, § 218 (e). 136 Act of March 21, 1918. 137 Revenue Act of 1918, § 230 (b). For the calendar year 1918 five-sixths of the tax-or a tax of 10%-was so treated. |