section 238, applicable to domestic corporations, provide that taxes paid to any foreign country shall be credited against income taxes due this country. Thus some relief against double taxation of American citizens and corporations by this country was secured by direct legislation. But this was only a part of the relief which Congress obviously intended to accomplish. What of our citizens residing abroad and engaged in the highly competitive foreign trade? How could they, so situated, be relieved of the burden of double taxation at the hands of foreign countries? The only answer was, by encouraging these foreign countries to provide this desired relief by our proposed reciprocity. In the case of Burnet v. Chicago Portrait Co., supra, the Supreme Court referred to section 222 (a) (3) as a reciprocal provision.

The stipulation of the parties, and the Commissioner's Regulations 65 and 69, art. 385, with which it is identical, pro tanto, merely sets out two conditions wherein certain countries meet the "similar credit" requirement of this section, namely, that those countries, including Newfoundland, allow to American citizens resident there a credit for income taxes paid to this country, or exempt from tax income derived from this country. In the case of a foreign country whose tax laws contain either one of those two provisions and whose citizen or subject is resident in this country, section 222 (a) (3), supra, and the Commissioner's regulations allow such resident alien a credit for taxes paid to such country. Either of the two provisions will suffice, for, while the type of credit or exemption may not be identical with that allowed by this country, the credits allowed by the two countries would be "similar," as above defined, and the result would be, practically, the corresponding and reciprocal relief from double taxation the legislation was intended to effect.

The instant case goes far beyond the provisions of the regulations, and the stipulation. The credit sought is not for taxes paid Newfoundland, which would fall squarely within the regulations and the stipulation, but is for taxes paid to Great Britain. Petitioner contends that "similar credit" in this section means that, if either type of credit above described is allowed to American citizens residing in Newfoundland, for instance a credit for taxes paid to this country, then the Newfoundland subject residing here may take credit for any income taxes paid, not only to Newfoundland, but also to any foreign country. We have held that a resident alien is entitled to credit for income taxes paid to any foreign country, provided the other conditions of the subsection are met. We have also stated that the provision is reciprocal. It was not enacted primarily for the benefit of aliens residing here, but as a means of inducing foreign countries to relieve American citizens residing abroad from

double taxation. The clear intendment of the subsection, read as a whole, is that the credit must be a corresponding one. Applied here, petitioner must show that Newfoundland allows our citizens resident there a credit for taxes paid to Great Britain or exempts from taxation income arising there. If we should construe this clause as petitioner contends, Congress would have accomplished the protection of the resident alien against double taxation, to a much greater extent than American citizens, and not only the intended purpose of the legislation would be largely thwarted, but the revenues of the Government would be depleted without justification or consideration. This is apparent in the instant case in the fact that petitioner's income tax paid to Newfoundland is insignificant, in the words of petitioner's counsel, whereas the British income taxes he seeks to credit are very substantial.

Petitioner has rested his case upon the stipulation that Newfoundland satisfies the similar credit provision in certain particulars and has argued strenuously that this is sufficient to entitle him to the credit sought. The petitioner, having failed to establish as a fact that Newfoundland allows to American citizens resident there a credit for income taxes paid to Great Britain, or an exemption from income tax of income arising there, we hold that he is not entitled to credit British income taxes against such taxes due the United States.

The parties having stipulated the correct amount of the deficiencies in the event the credits sought are not allowed in this proceeding, the deficiencies are redetermined to be in the amounts of $23,674.34, $4,055.35, and $3,942.59 for the years 1924, 1925, and 1927, respectively.

Reviewed by the Board.

Judgment will be entered accordingly.

MATTHEWS, dissenting: I agree with so much of the majority opinion as holds that the petitioner is a citizen of Newfoundland, but dissent from that portion of the opinion which denies petitioner the right to a credit for taxes paid to Great Britain.

Under all of the revenue acts, from 1913 to date, citizens of the United States and resident aliens have been subject to tax on total income from all sources and have been granted the same deductions and personal exemptions. When the Revenue Act of 1918 first introduced into the income tax system the principle of allowing a credit for taxes paid to foreign countries, the credit allowed was the amount of taxes paid to foreign countries on income from sources therein, and in the case of an alien resident of the United States the credit was limited to the amount of any income taxes paid to the country of

which such alien was a citizen or subject, upon income derived from sources therein, but only if such country allowed a similar credit to citizens of the United States residing in such country. The effect of the 1918 credit for tax provision was in many instances to wipe out all tax liability due to the United States, notwithstanding the fact that such taxpayers had income from sources within the United States. This was because the rates imposed by foreign countries were higher than rates imposed by the United States. Consequently, a change was made in the 1921 Act which based the credit on the amount of any income and profits taxes paid to any foreign country, whether on income from sources therein or not, but limited the credit to an amount not in excess of the same proportion of the tax due the United States against which the credit was claimed, which the foreign net income bore to total net income. This limitation in the credit provision had the effect of relieving American citizens of only the amount of the United States tax on foreign income, or so much of such tax as was equal to the foreign tax paid. It did not relieve Americans of paying taxes to the United States on income from United States sources. An alien resident of the United States was granted the same credit for taxes paid to foreign countries as was allowed to a citizen if the country of which the alien was a citizen or subject, in imposing such taxes, allowed a similar credit to citizens of the United States residing therein. The same provision was contained in the Revenue Acts of 1924, 1926, and 1928, with only slight changes not material to the question in issue.

The amount of the credit allowable to a resident alien under the provisions of section 222 (a) (3) can not be determined without taking into consideration paragraph (a) (5). Reading these two subsections together, it is clear that any income or profits taxes paid to any foreign country, regardless of the source of the income on which such taxes are computed, form the basis in determining the amount of credit allowable, such credit being limited to an amount not in excess of the same proportion of the tax due the United States against which the credit is claimed, which foreign net income is to total net income.

Under the credit provision, in so far as it is granted to a resident alien on the basis of a similar credit being granted by the country of which such alien is a citizen or subject, the United States is primarily interested in obtaining an exemption of United States income. from foreign income taxes imposed on such income received by the citizens or residents of the foreign country. The United States has the primary right to income tax on income from United States sources, whether it goes to a citizen, resident, or nonresident alien. The right of the Government to tax the nonresident citizen on his

income from sources without the United States is based solely on his relation to the Government of the United States, and the right to tax the resident alien on his income from sources without the United States is based on the right to demand that all residents bear their share of the necessary expenses of government. In the case of the citizen and resident alien, the United States recognizes the primary right of the foreign government to tax income from sources therein and accordingly grants a credit, which, in effect, relieves the American taxpayer, whether a citizen or resident alien, of United States taxes on such foreign income. Secondarily, the purpose of the provision is to secure relief to United States citizens residing in foreign countries from paying income tax to the country of residence on income from sources in another foreign country which has also taxed such income. The nonresident alien must look to the country of residence for any relief from double taxation on income from United States sources.

Article 385 of Regulations 62, issued in February, 1922, under the 1921 Act, entitled "Countries which do or do not satisfy the similar credit requirement," as well as the corresponding article in the regulations issued under the 1924, 1926 and 1928 Acts, have all contained Newfoundland in the "incomplete list of countries which satisfy the similar credit requirement of section 222 (a) (3), * * either by allowing to citizens of the United States residing in such countries a credit for the amount of income taxes paid to the United States, or in imposing such taxes, by exempting from taxation the incomes received from sources within the United States by citizens residing in such countries." This same article, in all the regulations, also contains an incomplete list of the countries which do not satisfy the similar credit requirement, and further provides: "A resident of the United States, who is a citizen or subject of any country in the first list, is entitled, for the purpose of the total tax due the United States for 1921 [1924, 1926, and 1928, in regulations under later acts] and subsequent years, to a credit for the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country. If he is a citizen or subject of any country in the second list, he is not entitled to such credit. If he is a citizen or subject of a country which is in either list, then to secure the desired credit, he must prove to the satisfaction of the Commissioner that his country satisfies the similar credit requirement of the statute."

The only difference between the article in the regulations issued under the 1921 Act and that in regulations issued under later acts is that more countries were added to each list in the later regulations.

Petitioner came to the trial of this case relying on the provision of the regulations that Newfoundland was a country which satisfied the similar credit requirement, and that income taxes paid by a citizen of Newfoundland residing in the United States to any foreign country could be used as a basis for the credit. In my opinion, the Commissioner, by the statement made in the latter part of the article in question, has in substance said that any citizen of a country named in the first list need not introduce any evidence to show what the taxing statutes of his country provide.

The effect of the majority decision is to hold that, inasmuch as Newfoundland allows a credit for taxes paid to the United States, or exempts income from sources within the United States when received by a citizen of the United States residing in Newfoundland, therefore, Newfoundland taxes an American citizen residing therein on income from sources in Great Britain. I do not think this conclusion

can or should be drawn from the first sentence of article 385.

I agree with the majority opinion that the credit which a foreign country must grant to United States citizens residing therein must be similar to the credit which the United States grants to its citizens wherever resident. If Newfoundland, in imposing income and profits taxes on its residents, (1) requires total income from all sources to be reported and, by means of deductions of foreign income or credits against Newfoundland tax of foreign taxes paid on foreign income, collects a tax only on income from Newfoundland sources, or, (2) imposes such taxes only on income from sources in Newfoundland, it certainly meets the similar credit requirement of section 222 (a) (3). And it would be true not only that Newfoundland allows "citizens of the United States residing in such country a credit for the amount of income taxes paid to the United States, or in imposing such taxes exempts from taxation the income received from sources in the United States by citizens residing therein," but would also be true that Newfoundland allows a credit for taxes paid to all foreign countries or exempts from tax income from all foreign countries.

It is wholly improbable that any country would, in its general income tax statutes, refer to citizens of the United States, resident therein, or income from sources in the United States, or taxes paid to the United States, or refer to any foreign country by name. In our income tax statutes we carefully refrain from so doing. We refer to aliens and classify them as resident and nonresident; to income as from sources within and without the United States, and classify income from without the United States as from sources within possessions of the United States and from sources within foreign countries. In the credit provision here under consideration, the reference is to income taxes paid to any foreign country and the