enable the Commissioner to determine whether all income tax due on profits or gains of such customers has been paid." Art. 1065, Regulations 62: "When directed by the Commissioner, either specially or by general regulation, every person doing business as a broker shall render a return on form 1100, showing the names and addresses of customers to whom payments were made or for whom business was transacted during the calendar year or other specified period next preceding and giving the other information called for by the form." PROBLEM 271 Illustrating Returns of Information at the Source-Payments of Salaries, etc., over $1,000 FACTS: The Wasserman Company, organized under the laws of the State of New York, employs a great many salesmen to whom it paid salaries and commissions during 1921 in sums ranging from $4,000 to $20,000. QUESTION: Is the company required to make any report of these payments? ANSWER: Yes. It should make information returns on the proper forms on or before March 15, 1922. These returns will give (in addition to other information as required) the name and address of each individual to whom the company paid during 1921 on account of salaries and commissions as above-mentioned, amounts of $1,000 or over. REFERENCES: Sec. 256: "That all individuals, corporations, and partnerships, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, and employers, making payment to another 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 payments described in sections 254 and 255), of $1,000 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Commissioner, under such regulations and in such form and manner and to such extent as may be prescribed by him with the approval of the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment... "" Art. 1072, Regulations 62: "The names of all employees to whom payments of $1,000 or over a year are made, whether such total sum is made up of wages, salaries, commissions, or compensation in any other form, must be reported. Heads of branch offices and subcontractors employing labor, who keep the only complete record of payments therefor, should file returns of information in regard to such payments directly with the Commissioner. When both main office and branch office have adequate records, the return should be filed by the main office. In case an employer has a large number of employees and the computation of exact amounts paid during the calendar year will result in an undue hardship, careful estimates may be made on the basis of any representative month, and unless the yearly payment based on this estimate in the case of any employee amounts to $1,000 or more, no return of payments to such employee is required." PROBLEM 272 Illustrating Returns of Information at the Source-Payments of Interest and Dividends on Foreign Items. FACTS: The Rothschild Bank, organized under the laws of the State of New York, is a private banking institution dealing in foreign exchange. It also collects, for its depositors, interest that is not payable in the United States on bonds of foreign corporations and governments. QUESTION: Would the bank be required to report all such collections or only those over $1,000? ANSWER: The Commissioner may require returns with respect to all such items collected, regardless of amount. REFERENCE: 66 Sec. 256: '... Such returns may be required, regardless of amounts, (1) in the case of payments of interest upon bonds, mortgages, deeds of trust, or other similar obligations of corporations, and (2) in the case of collections of items (not payable in the United States) of interest upon the bonds of foreign countries and interest upon the bonds of and dividends from foreign corporations by individuals, corporations, or partnerships, undertaking as a matter of business or for profit the collection of foreign payments of such interest or dividends by means of coupons, checks or bills of exchange. . . ." NOTE: The first paragraph of section 256, gives the requirement with respect to the filing of information returns in the case of certain payments of $1,000 or over in any taxable year. See Problem 271. PROBLEM 273 Illustrating Availability of Returns Filed by Corporation to Stockholders Thereof FACTS: John Rawlins owns 5% of the stock of the Long Island Foundry Company, which has paid no dividends for four years. He wants to know if the company has been prosperous and is in a position to disburse part of its surplus. He therefore desires to examine the tax returns filed by the company. QUESTION: Can he have access to the returns of the company? ANSWER: Yes. All bona fide stockholders of record of a corporation owning 1% or more of its stock may examine the returns of the corporation upon request to the Commissioner. It should be noted that a severe penalty is imposed for divulging the information contained in the returns in any manner contrary to law. REFERENCE: Sec. 257: "That returns upon which the tax has been determined by the Commissioner shall constitute public records; but they shall be open to inspection only upon order of the President and under rules and regulations prescribed by the Secretary and approved by the President: Provided, That the proper officers of any State imposing an income tax may, upon the request of the governor thereof, have access to the returns of any corporation, or to an abstract thereof showing the name and income of the corporation, at such times and in such manner as the Secretary may prescribe: Provided further, That all bona fide stockholders of record owning 1 per centum or more of the outstanding stock of any corporation shall, upon making request of the Commissioner, be allowed to examine the annual income returns of such corporation and of its subsidiaries. Any stockholder who pursuant to the provisions of this section is allowed to examine the return of any corporation, and who makes known in any manner whatever not provided by law the amount or source of income, profits, losses, expenditures, or any particular thereof, set forth or disclosed in any such return, shall be guilty of a misdemeanor and be punished by a fine not exceeding $1,000, or by imprisonment not exceeding one year, or both . . ." PROBLEM 274 Illustrating the Availability of Statistics with Respect to the Operation of the Tax Laws FACTS: Professor Swathmore of Holyoke University, in preparing several papers for subjects he intended lecturing on, was desirous of obtaining general information with respect to the incomes of individuals and corporations in various parts of the country. QUESTION: Was such information available? ANSWER: REFERENCE: Sec. 258: "That the Commissioner, with the approval of the Secretary, shall prepare and publish annually statistics reasonably available with respect to the operation of the income, war profits and ex cess-profits tax laws, including classifications of taxpayers and of income, the amounts allowed as deductions, exemptions, and credits, and any other facts deemed pertinent and valuable." FACTS: PROBLEM 275 Illustrating Collection of Foreign Items The Swedish Bank of Christiania, Norway, opened a branch office in New York City for the purpose of carrying on a banking business for its customers who had accounts in the United States and for such other business as it might acquire by having such office. A part of such business consisted of the collection of foreign payments of interest or dividends by means of coupons, checks or bills of exchange. QUESTION: What procedure is necessary to comply with the income tax law? ANSWER: The bank should obtain a license from the Commissioner enabling it to collect foreign payments of interest or dividends by means of coupons, checks or bills of exchange. It is subject to such regulations as the Government may promulgate to enable it to obtain the information required. REFERENCE: Sec. 259: "That all individuals, corporations, or partnerships undertaking as a matter of business or for profit the collection of foreign payments of interest or dividends by means of coupons, checks, or bills of exchange shall obtain a license from the Commissioner and shall be subject to such regulations enabling the Government to obtain the information required under this title as the Commissioner, with the approval of the Secretary, shall prescribe; and whoever knowingly undertakes to collect such payments without having obtained a license therefor, or without complying with such regulations, shall be guilty of a misdemeanor and shall be fined not more than $5,000, or imprisoned for not more than one year, or both." |