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Q. How should unidentified goods be valued?

A. If goods are so intermingled that they cannot be identified with specific invoices, they are deemed to be the goods which have been most recently purchased.

NON-RESIDENT ALIENS, PARTNERSHIPS AND
CORPORATIONS

Q. Who is a non-resident alien?

A. An individual (a) whose residence is not within the United States, and (b) who is not a citizen of the United States.

Q. What is a non-resident foreign corporation or partnership? A. It is a corporation or a partnership organized outside the United States, not engaged in trade or business in the United States and having no office or place of business therein.

Q. Are foreign partnerships subject to tax?

A. A foreign partnership is not taxable as such, but its members are subject to tax individually on their share of profits derived by the partnership from sources in the United States.

Q. What income of non-resident alien individuals and nonresident foreign corporations is taxable?

A. Briefly, items of taxable income are:

(a) Interest, including interest on bonds and other obligations of resident individuals and domestic and resident corporations, with certain exceptions (see Section 234 (b), page 84) but not interest on bank balances maintained in the United States if the non-resident recipient is not engaged in business within the United States and has no office or place of business therein.

(b) Dividends from domestic corporations, except those entitled to the benefits of Section 262 or 264 (see pages 97 and 98).

(c) Dividends from a foreign corporation, except when less than 50 per cent of its gross income for the three-year period ending with the close of its taxable year before the dividends were declared was derived from sources in the United States.

(d) Compensation for personal services performed in the United States.

(e) Rentals from property in the United States and royalties from rights exercised here.

(f) Gains, profits and income from the sale of real property which is in the United States.

Q. Is the interest on obligations of the United States taxable to non-resident alien individuals, partnerships or corporations?

A. No. The interest on bonds, notes and certificates of indebtedness of the United States and bonds of the War Finance Corporation, owned by a non-resident alien individual, or by a foreign corporation, partnership or association, not engaged in business in the United States, is exempt from tax.

Q. What deductions are allowed non-resident alien individuals and foreign corporations?

A. (1) All expenses, losses and other items which may be definitely charged to some item of the taxable income from sources in the United States.

(2) A proportionate part of such expenses, losses, etc., which cannot be definitely charged to some item of gross income from sources in the United States. If the gross income is derived from sources partly within and partly outside of the United States, income, expenses, losses and other deductions must be allocated under regulations and formulae prescribed by the Commissioner. Gains, profits and income from export and import trade are deemed income attributable to the country where the goods are sold.

Q. What credits are allowed non-resident alien individuals and foreign corporations?

A. In computing the normal tax, these credits are allowed: To individuals—(1) A personal exemption of $1,000; (2) dividends from a domestic corporation, except one entitled to the benefits of Sections 262 or 264; (3) dividends from a foreign corporation when more than 50 per cent of its gross income for the three-year period ending with the close of its taxable year before the dividends were declared, was derived from sources in the United States.

To corporations (1) Dividends from a domestic corporation except one entitled to the benefits of Sections 262 or 264; (2) dividends from a foreign corporation when more than 50 per cent of its gross income for the three-year period ending with the close of its taxable year before the dividends were declared, was derived from sources in the United States.

Credits and deductions are allowed only if an accurate return of total income from all sources in the United States is filed. A return is required, even though the entire amount of tax has

been withheld at the source. If a return is not filed, the Collector is empowered to levy the tax against any property of the taxpayer in the United States.

In computing the tax in the return, any tax withheld at the source may be deducted from the total tax.

Q. When must returns be filed by non-resident alien individuals, partnerships and corporations?

A. Returns are due June 15, unless based on a fiscal year, when they are due the 15th day of the sixth month after the fiscal year closes.

Q. Where must these returns be filed?

A. With the Collector of Internal Revenue at Baltimore, Maryland, U. S. A.

Q. On what income is tax withheld at the source?

A. All income of a fixed or determinable nature, such as rents, salaries, interest, etc. (not including bank interest) of nonresident aliens, foreign partnerships and foreign corporations, who are not engaged in business within the United States and have no office or place of business therein, is subject to withholding for the calendar year 1922 at the rate of 8 per cent on individuals and partnerships, and 121⁄2 per cent on corporations.

A tax of 2 per cent, instead of these rates, is withheld on interest on so-called "tax-free covenant bonds." (Provisions for the payment of tax at the source are contained in Sections 221 and 237 of the Act. See pages 76 and 85. See also page 35.)

ESTATES AND TRUSTS

Q. When are income returns required?

A. Every fiduciary, or at least one of two or more joint fiduciaries, must make a return for the individual, estate or trust for which they act:

(1) If the individual's net income is $1,000 or more, if single or if married and not living with spouse; or $2,000 or over, if married and living with spouse, or

(2) If the individual's gross income is $5,000 or more, regardless of net income.

(3) If the net income of the estate or trust is $1,000 or more, or

(4) If any beneficiary of the estate or trust is a nonresident alien.

Q. How is the net income of an estate or trust computed?

A. On the same basis as that applying to individuals, except that a deduction is allowed (in lieu of the 15 per cent deduction for charitable contributions allowed to individuals) of any part of the gross income, which, under the terms of the will or deed creating the trust, is, during the taxable year, paid to or permanently set aside for the United States, any State, Territory, political subdivision or the District of Columbia for exclusively public purposes or to a corporation or other body organized and operated exclusively for religious, charitable, scientific, literary or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual.

Q. Who pays the tax of an estate or trust?

A. The fiduciary is responsible for the tax where the income is: (1) Received by estates during the period of administration or settlement.

(2) Accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests.

(3) Held for future distribution under the will or trust. For normal tax purposes, estates and trusts of the above character are allowed the same personal exemptions and credits as unmarried individuals.

In determining the net income of an estate during the period of administration or settlement, the fiduciary may deduct any income which is properly paid or credited to any legatee or other beneficiary under the will or by an order of the court. This income, even though not all of it may actually be received, must be included in the return of the beneficiary.

The beneficiary is responsible for the tax when the income of the estate or trust (actually distributed or not) is to be distributed periodically, whether or not at regular intervals; and also when the net income collected by a guardian of an infant is to be held or distributed as the court directs.

Q. Should the executor file a return for the deceased up to the time of death, in addition to the return for the estate?

A. Yes. As soon as possible after he has qualified, without waiting for the close of the taxable year, the executor or administrator should file a return of income from the beginning of the decedent's taxable period to the date of death.

Q. How is the tax computed where the return covers a frac tion of a year?

A. The return is first placed on an annual basis by multi plying the net income by twelve and dividing by the number o months included in the period covered. The amount of tax du is that part of the tax computed on an annual basis which the number of months in the period included bears to twelve months For example: John Smith, a married man living with his wife died May 1, 1922. Between January 1, 1922, and the date o his death, his net income was $5,000. The executor of th estate in making return for John Smith covering the perio January 1, 1922, to May 1, 1922, computes the tax as follows: Net income raised to annual basis

($5,000 x 12 = $60,000 divided by 4)...... $15,000 Less personal exemption..

Amount subject to normal tax.

2,000

13,000

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$353-3

Amount of tax payable upon net income for period of 4 months covered by return (4/12 x $1,060). . . . .

PARTNERSHIPS

Q. Must partnerships file income tax returns?

A. Every partnership must make a return for each taxabl year, reporting specifically the items of its gross income and th deductions allowed. The return must include the names and ad dresses of the individual partners and the amount of the distribu tive shares of each, and must be sworn to by one of the partners

Q. Does a partnership as such pay an income tax?

A. No. The partners are taxable as individuals and mus include in their individual returns their shares in the partner ship's net income, whether divided and distributed or not.

Q. I am a member of a partnership which makes its retur on a fiscal year basis. How shall I report my partnership incom in my individual return, which is based on the calendar year 1922

A. Your return should include your distributive share of th net income of the partnership for the accounting period of the partnership ending in the calendar year 1922.

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