FAILURE TO FILE RETURN. In general, non-resident aliens are subject to the same penalties for failure to file returns as are citizens and residents.66 In case of failure to file a return the collector will collect the tax on the income of a non-resident alien and all property in the United States belonging to such non-resident alien will be liable to distraint for the tax.6 67 Paying the Tax. Except in so far as the income tax payable by a non-resident alien is collected at the source 68 the general provisions in regard to the payment of income taxes apply to non-resident aliens as well as to citizens and residents. The tax is payable in four installments, the first installment being paid at the time the return is filed; the second installment on the 15th day of the third month; the third installment on the 15th day of the sixth month; and the fourth installment on the 15th day of the ninth month, after filing the return. This subject is discussed more fully in another chapter.69 Abatement and Refund. If upon the filing of the annual return it appears that the non-resident alien is liable for less tax than the amount which has been withheld at the source, the Treasury Department will issue instructions to the withholding agents (whose names and addresses should be given by the non-resident alien in his return) to release at once the proper amounts.70 After the tax has been assessed against the withholding agents by the Government, abatement may be claimed, and after the tax has been paid, refund may be claimed, in the manner outlined in a later chapter.71 66 See Chapter 36. 67 Revenue Act of 1918, § 217. 68 See Chapter 40. 69 See Chapter 35. 70 Revenue Act of 1918, § 221 (d); Reg. 45, Art. 369. Telegram from Treasury Department dated January 25, 1917; I. T. S. 1918, ¶ 91. 71 See Chapter 37. CHAPTER 5 RESIDENT AGENTS FOR NON-RESIDENT ALIENS AND FOREIGN CORPORATIONS-NOMINAL STOCKHOLDERS The Revenue Act of 1918 expressly provides for the collection of the tax at the source on payment of certain specified forms of income to non-resident aliens and non-resident foreign corporations.1 The persons required to withhold and account for the tax are designated in the law as withholding agents.2 The Treasury Department, in addition, has followed under the present law a method of collecting the tax on income liable to pass out of its jurisdiction, which it evolved under the 1916 law and which consists in impressing upon residents, under certain circumstances, the duty of filing returns and paying the normal tax and the surtax on any and all income of non-resident aliens and non-resident foreign corporations over which they have custody or control. Such persons are held to be agents of the non-residents and to stand in the place of their principals. A withholding agent may or may not, depending on the circumstances, be an agent within the meaning of this chapter.5 Lack of Authority Under Present Law. The Revenue Act of 1918 does not contain any provision expressly making an agent liable for the surtax-or the normal tax upon income which is not both fixed or determinable and annual or periodical imposed upon his principal with respect to income passing through the hands of such agent. The Commissioner has nevertheless ruled 1 Revenue Act of 1918, §§ 221, 237. Under the 1916 Law agents for foreign partnerships were not required to make any returns or pay any taxes for the foreign partnerships unless and until they were so instructed by the Commissioner. (T. D. 2401). This was because a partnership was not itself subject to tax or required to make returns. 2 Revenue Act of 1918, § 200. See Chapter 40. 3 Reg. 45, Art. 404. 4 Reg. 45, Art. 404; T. D. 2135. 5 See p. 57 for a discussion of this distinction. 6 Revenue Act of 1916, § 9 (g). The Treasury Department evidently based that the responsible representatives of non-resident aliens in connection with any sources of income which such non-resident aliens may have within the United States, must make a return of such income, and must pay any and all tax, normal and additional, assessed upon the income received by them in behalf of their non-resident alien principals, in all cases where the tax on income so in their receipt, custody or control shall not have been withheld at the source. The agent of a non-resident alien is responsible for a correct return of all income accruing to his principal within the purview of the agency. The agency appointment will determine how completely the agent is substituted for the principal for tax purposes.7 Distinction Between Withholding and Resident Agents. The distinction between withholding agents and resident agents may be indicated from two angles: (a) their respective services in securing to the government the payment of the income tax of non-resident alien individuals and non-resident foreign corporations and (b) the character of their respective relationships to the taxpayer for whose tax they are responsible. As appears more fully in a subsequent chapter, the provisions for the collection of the tax at the source apply only to the normal tax and then only in the case of income which is both (1) fixed or determinable and (2) annual or periodical. Obviously, a large part of the income accruing to non-resident aliens and non-resident foreign corporations from sources within the United States is not both fixed or determinable and annual or periodical, and a large part would, because of its amount (combined or not with other items of income to the same recipient from sources within its authority to impose upon resident agents the duties discussed in this chapter upon this section of the 1916 Law (T. D. 2452). * * 7 It may be argued that the Commissioner has authority under § 223 of the Revenue Act of 1918 which provides that "if a taxpayer is unable to make his own return, the return shall be made by a duly authorized agent or other person charged with the care of the person or property of such taxpayer" to compel resident agents to file returns on behalf of their non-resident principals, but this section certainly gives no authority for imposing the duty to pay any tax. It seems clear that this deficiency of authority in the present law should be remedied by prompt amendment, since otherwise large sums of just taxes payable by non-resident aliens and non-resident foreign corporations may be lost to the government. 8 Reg. 45, Art. 362. See Chapter 40. the United States) be liable to the surtax provided by the Revenue Act of 1918. The ordinary withholding provisions of the present law therefore provide insufficient security for the collection of the normal tax upon the income of non-resident aliens and non-resident foreign corporations from sources within the United States and no security whatever for the collection of the surtax upon such income. The placing of a responsibility upon socalled resident agents fills this deficiency. Withholding agents insure the collection of the normal tax upon income which is both fixed or determinable and annual or periodical; resident agents insure the collection of the normal tax upon income not falling within these rigid classifications and of the surtax upon income without regard to any classification. The distinction between withholding agents and resident agents from the viewpoint of their respective relationships with the taxpayer is not so clear. A withholding agent is defined in the law 10 as "any person required to deduct and withhold any tax." In brief, a person is required to deduct and withhold the normal tax, in the case of non-resident aliens and non-resident foreign corporations, upon the payment of fixed or determinable and annual or periodical income. The relationship of the withholding agent to the taxpayer whose tax is withheld is an artificial relationship and arises in all cases where the relationship of debtor and creditor exists and the parties contemplate payment in a certain manner. As a matter of fact, a withholding agent is primarily an agent. of the government, not the taxpayer. On the other hand, a resident agent's status depends neither on the relationship of debtor and creditor nor on the manner of payment contemplated for the debt. Thus, a bank is not a resident agent for its nonresident depositors where the relationship is merely that of bank and depositor 12 (i. e. ordinarily debtor and creditor), but a bank acting as the custodian of securities on which it collects and disburses interest would be a resident agent. 13 In other words, 9 Revenue Act of 1918, §§ 221, 237. 10 Revenue Act of 1918, § 200. 11 Revenue Act of 1918, §§ 221, 237. 12 Reg. 33, Art. 67; letter from Treasury Department dated February 8, 1917; I. T. S. 1918, ¶ 106. 13 Letter from Treasury Department dated April 10, 1916; I. T. S. 1919, ¶ 560. a resident agent is at least to some degree an agent of the taxpayer as well as of the government; and being an agent of the taxpayer, he must derive his appointment and authority from some act or conduct of the principal such as a power of attorney, or fiduciary status existing between himself and the taxpayer.14 Definition. In order to simplify the discussion in the following pages of this chapter the term "non-residents" will be used to include non-resident alien individuals and non-resident foreign corporations, i. e. foreign corporations having no office or place of business in this country. Who are Resident Agents. A resident corporation, partnership or individual may be an agent within the meaning of this chapter. The following have been held to be such resident agents: (a) residents acting by power of attorney for non-residents; (b) responsible heads or representatives in charge of property owned or business carried on by non-residents in this country; 15 (c) resident nominal stockholders holding stock in their names for non-resident actual owners; 16 (d) residents having custody of securities of non-residents on which they collect the income, both with respect to the income and with respect to any profits made from the sale of the securities; 17 (e) residents purchasing patent rights from non-residents and paying royalty thereon; 18 (f) realestate agents managing buildings owned by non-residents.19 Who are not Resident Agents. The following have been held not to be resident agents within the meaning of this chapter: (a) Corporations paying interest on their own bonds or dividends. on their own stock to non-residents, bondholders or stockholders, although they are withholding agents for the purpose of collec 14 The following language of Reg. 45, Art. 404 should be noted in this connection: "The agency appointment will determine how completely the agent is substituted for the principal for tax purposes.' (See also Reg. 33, Rev., Art. 32.) 15 Reg. 33, Art. 8; T. D. 2313. 16 See p. 62. 17 Letter from Treasury Department dated May 31, 1916; I. T. S. 1918, 105. For the purpose of reporting profits made from the sale of the securities such agents are required to obtain all facts necessary to ascertain the profit in any transaction. 18 T. D. 2137. 19 Letter from Treasury Department dated January 19, 1915; I. T. S. 1918, |