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tributive share in that part of the partnership's net income, whether distributed or not, which is derived from sources within the United States.

A non-resident alien is permitted to deduct from the tax computed in his return the amount of any Federal income tax withheld at the source from income received by him individually and, if he is a member of a foreign partnership, his proportionate share of tax withheld from the gross income of the partnership. If the amount of tax withheld is greater than his Federal tax liability, as disclosed by his return, he may file a claim for refund of the excess on Form 843.

Q. Are foreign partnerships subject to tax?

A. A foreign partnership as such does not pay a Federal income tax, but the members of the partnership are subject to tax individually on their shares of profits derived by the partnership from sources within the United States. A foreign partnership is required to file a return on Form 1065 (1065 A for fiscal years) of its income from sources within the United States, regardless of amount. The return must include the name and address of each partner and the distributive share of each.

Q. Must non-resident foreign corporations file returns?

A. Yes. Non-resident foreign corporations are required to file returns on Form 1120 (1120 A for fiscal years) reporting income derived from sources within the United States regardless of amount. The income of non-resident foreign corporations is computed in the same manner as that of non-resident alien individuals (see Section 217, page 70).

The tax rate is 121/2 per cent. Similarly to individuals, corporations are permitted to deduct from the tax computed in their returns the amount of Federal income tax withheld at the source. If the tax withheld is greater than the corporation's tax liability, it may claim refund of the excess on Form 843.

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, notes and other obligations of resident individuals and domestic and resident corporations, with certain exceptions (see Section 217, page 70), 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 263 (see pages 89 and 90).

(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 in the United States.

(g) Gains and profits from the sale of personal property within the United States to the extent shown in Section 217 (e) of the Law. (See page 71.)

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 the United States, income, expenses, losses and other deductions must be allocated under regulations and formulæ prescribed by the Commissioner.

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 263 (see pages 89 and 90); (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.

In addition, a citizen or resident of Canada or Mexico is allowed a credit of $400 for each person (other than husband or wife) receiving his chief support from the taxpayer, if such a person is less than eighteen years old or is mentally or physically unable to earn his own living. (See Section 216 (d) and (e) of the Law, pages 69 and 70.)

To corporations—(1) Dividends from a domestic corporation except one entitled to the benefits of Sections 262 or 263 (see pages 89 and 90); (2) dividends from a foreign corporation when more than 50 per cent of its gross income for the threeyear 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.

Any tax withheld at the source may be deducted from the total tax as computed in the return.

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.

ESTATES AND TRUSTS

more.

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 $2,500 or more, 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

(4) If the gross income of the estate or trust is $5,000 or more, regardless of net income, or

(5) If any beneficiary of the estate or trust is a nonresident alien. Q. How is the net income of an estate or trust determined?

A. The net income of an estate or trust is computed in the same way as that of an individual except that a deduction is allowed for all the gross income which, under the terms of the will or deed of trust, is paid or permanently set aside during the taxable year for charitable, religious, etc., purposes.

In addition there may be deducted the amount of the income of the estate or trust which is to be distributed currently by the fiduciary to the beneficiary and that part of the income collected by the guardian of an infant which is to be held or distributed as the court may direct. The amounts so allowed as a deduction must be included in computing the net income of the beneficiaries whether distributed to them or not.

When income is received by estates of deceased persons during the period of administration or settlement of the estate, and when income, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated, an additional deduction in computing the net income of the estate or trust is allowed of that part of the income which is properly paid or credited to a legatee, heir or beneficiary. The amount so allowed as a deduction must be included in computing the net income of the legatee, heir or beneficiary.

For normal tax purposes, the same personal exemption and credits are allowed to estates and trusts as are allowed to unmarried individuals.

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

A. The fiduciary is responsible for the tax on the net income of the estate or trust for which he acts except that the income of a trust which is revocable by the grantor, and the income of a trust which may be distributed to the grantor or used to pay the premiums upon policies of insurance on his life, must be reported in the tax return of and the tax paid by the grantor of the trust, whether or not the income actually is distributed or so. used. (See Section 219 (g) and (h), page 73.)

The beneficiary pays the tax on that part of the income of an estate or trust (actually distributed or not) which (1) is to be distributed currently by the fiduciary to the beneficiary; (2) is to be held or distributed by the guardian of an infant as the court directs; (3) is properly paid or credited to a legatee, heir or beneficiary in the case (a) of income received by estates of deceased persons during the period of administration or settlement, or (b) of income which, in the discretion of the fiduciary, may be distributed to the beneficiary or accumulated.

PARTNERSHIPS

Q. Must partnerships file income tax returns?

A. Every partnership must make a return for each taxable year, reporting specifically the items of its gross income and the deductions allowed. The return must include the names and addresses of the individual partners and the amount of the distributive 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 must include in their individual returns their shares in the partnership's net income, whether divided and distributed or not.

Q. I am a member of a partnership which makes its return on a fiscal year basis. How shall I report my partnership income in my individual return, which is based on the calendar year 1924?

A. Your return should include your distributive share of the net income of the partnership for the accounting period of the partnership ending in the calendar year 1924.

Q. My partnership received dividends from a domestic corporation and interest on United States Government bonds. Is a credit for these items allowed in my individual return?

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