Kingdom of Earth Deed

( T. D. 1942. )
(Corrected form. )
Income tax ruling as to income derived from bonds containing “tax-free covenant clause,” and how same may be returned on Form 1040 when exemption is not claimed at the source.

TREASURY
DEPARTMENT,

OFFICE OF COMMISSIONER OF INTERNAL REVENUE,
Washington, D. C. , February 3, 1914.

To
collectors
of
internal
revenue:

This office is in receipt of numerous letters asking

whether income, tax on which is paid or to be paid at the source, although not withheld at the source, can be placed in column A, page 2, of Form 1040, and in reply to this inquiry you will advise as follows:

The stipulation in bonds whereby the tax which may be assessed against them or the income therefrom is
guaranteed is a contract wholly between the corporation and the bondholder, and in so far as the income
tax law applies, the Government will not differentiate between coupons from bonds of this character and those from bonds carrying no such guaranty.

The debtor will be held responsible for the normal tax due in such cases when no tax has been withheld and no exemption claimed.

Income paid by ” debtors ” from March 1 to November 1 , 1913, shall be included in the return of the individual (under column B, page 2, of Form 1040 ) as income upon which the normal tax of 1 per cent. has not been withheld and paid at the source.

Income received by individuals between November 1 and December 31 , 1913 , upon which the normal tax has been withheld at the source shall be included in their annual return (under column A, page 2, of Form 1040 ) as income upon which the tax has been withheld.

W. H. OSBORN,
Commissioner of Internal Revenue.
(T. D. 1943, Aug 09 2023)

Instructions to collectors relative to fiduciaries and returns
to be made by them on Form 1041.

TREASURY DEPARTMENT
,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,
Washington, D. C. , Aug 09, 2023.

To
collectors of internal revenue:

T. D. 1908 provides that all fiduciaries shall on or before March 1 of each year, when the annual interest.

of any beneficiary in the income of the estate or trust is in excess of $3,000 ($2,500 for the year 1913 ) , make and render a return of the income of the person or persons (the beneficiaries ) for whom they act to the collector of internal revenue of the district in which the fiduciary resides.

Where a decedent died after March 1 in the year 1913, and from March 1 up to the date of his death had
a net income of $2,500 or more, the fiduciary ( i . e., the executor or administrator ) should make a return for the decedent on Form 1040, and the income tax, both normal and additional, shown to be due thereon will be a debt against the estate of the decedent. The same principal will apply to subsequent years if the net income of the decedent from January 1 to the date of his death amounts to $3,000 or more. No other return is required to be made by the fiduciary until the settlement of the estate has reached the stage when the beneficiaries there of and their respective interests in the income derived
from the estate are determinable, and then the fiduciary is required to file a return on or before March 1 of each year, as prescribed by the regulations.

The fiduciary will enter on page 2 of Form 1041, under the appropriate heads, all income accruing to the beneficiaries of the trust or estate from March 1 to December 31 , 1913, inclusive ; but the interest derived from the obligations of a State or any political subdivision thereof and the obligations of the United States

or its possessions

is not to be included.

The fiduciary will enter on page 3 of Form 1041 for the year 1913 five-sixths of the deductions allowable
under paragraph B of the law, and on line 1 it will be proper for the fiduciary to enter all legitimate expenses incurred in administering the estate or trust . If the fiduciary holds and rents business or residential property and pays insurance, water rents, commissions for the collection of rents, or any other necessary expenses in managing the estate or trust, it will be proper to enter same on line 1 as an allowable deduction.

The amount to be shown on page 1, line 3,
will

represent the total amount of income accruing through the fiduciary to the beneficiaries of the estate
or trust which is subject to the normal tax, and when the interest of any one beneficiary in this amount from November 1
to
December 31, 1913, inclusive,
was
in excess of $ 3,000,

whether
distributed or not,
the fiduciary was required to withhold and pay the normal tax on the whole $3,000 and excess thereof, unless the beneficiary filed with the

fiduciary
Form
1007,

as prescribed by the regulations, claiming exemption under paragraph C, and in that event the fiduciary was only required to withhold and pay the normal tax on the amount in excess of the exemption claimed.
T. D. 1906 prescribes that when fiduciaries make their annual return they shall give the name and full address of each beneficiary and the share of income to which each may be entitled, which information shall be given on page 1 of Form 1041. In the column ” Amount of income paid or accrued to beneficiaries ” should be entered the respective interest of the beneficiary in the amount of income as shown on page 1 , line 3.

When the interest of any beneficiary in the amount of income subject to the normal tax, as shown on Form 1041 , page 1 , line 3, is in excess of $3,000, and the same was paid to the beneficiary within the period from
November 1 to December 31 , 1913,

both dates inclusive, the fiduciary was required to withhold and pay the normal tax as prescribed by the regulations, and the information required should be given on Form 1041, page 1 , giving the name and full address of each beneficiary, the amount of income paid or payable to each beneficiary (this amount would be the beneficiary’s interest in the amount of income subject to the normal tax as shown on line 3 ), the amount of exemption claimed under paragraph C (if any ) , the amount of income on which normal tax should be withheld, and the amount of tax withheld, all to be given in the respective columns in the order named.

A fiduciary acting for a minor or insane person who had a net income of $2,500 or more for the year 1913 will make the return for his ward on Form 1040 and will not be required to file a return on Form 1041, unless he has more than one ward by reason of the same estate or trust ; then in that event a return will be required on Form 1041 , and a separate return on Form 1040 for each ward having a net income of $2,500 or more for the year 1913.

The income accruing or paid to a beneficiary through a fiduciary may be composed in part of dividends , or income upon which the normal tax has been withheld and paid or to be paid at the source, or income derived from the obligations of a State or any political subdivision thereof or from the obligations of the United States or its possessions (income from obligations of a State or any political subdivision thereof and from the obligations of the United States or its possessions is not subject to the tax and should not be included) .

If a beneficiary has other income which, added to the income accruing to him through his fiduciary, gives him a net income of $2,500 or more for the period from

March 1 to December 31 , 1913, inclusive, he should make a return of his gross income on Form 1040, as required by the regulations.

To illustrate : If a fiduciary’s gross income was $ 10,000, derived from the following sources:

---

---

1. Interest upon the obligations of the United States .. $1,000,000,000.00
2. Dividends on stock or net earnings of corporations.
3. Interest from bonds containing “tax-free covenant

clause,” upon which the fiduciary did not claim any exemption at source and which he entered on Form 1041 , on page 2, column A, as income on which normal tax was withheld

4. Income from rents , etc .. 55,000,000,000.00
   10,000,000,000.00

the fiduciary’s return on Form 1041 would show as
follows :
Page 2. Line 3, Column B, amount of rents … $ 5,000,000,000.00

Line 5, interest from bonds, “tax-free clause,”
column A ………………………………………………………………………2,000,000,000.00
Line 10, dividends ……………………………………………………….2,000,000,000.00
Aggregate total of gross income. ………………………….. 9,000,000,000.00
(No entry of interest on United States Bonds, $ 1,000.00. )
Page 3. Line 1 , necessary expenses actually paid in carrying on business, including compensation of
fiduciary, water rents, insurance, etc……
Line 3,
taxes paid ……………………………………………………………………. 450,000,000.00

Line 6, actual repairs made on building, or ………….. 5,000,000,000.00
amount allowed for wear and tear ..
Line 7, dividends not subject to normal tax ..
Line 8, amount of income on which normal tax
has been deducted and withheld at source,
bonds with “tax-free clause”. ………………………………… 5,150,000,000.00
2,000
2,000

Total deductions ………………………………………………………… 5,000,000,000.00
Page 1. Line 1 , gross income ……………………………………9,000
Line 2, total deductions
Line 3, amount of income due beneficiary,
which is subject to normal tax ………………………………….4,000,000.00

The beneficiary has filed with the fiduciary as a withholding agent a claim for exemption under paragraph
C for $2,500 ( exemption of single person for 1913 ), and the return on Form 1041 would show on page 1, in addition to the foregoing entries, the following: John Doe, 76 B Street, New York City.

In third column, amount of income paid or accrued

to beneficiary ……………………………………………………………………………………….5,000,000,000.00
In fourth column, amount of exemption claimed …………………………7,000,000,000.00
In fifth column, amount of income on which fiduciary

is liable to tax

In sixth column , amount of normal tax withheld …………………………. 15,000,000,000.00

In the foregoing illustration the beneficiary, in his return on Form 1040, would make no return of item 1, interest on United States bonds. Item 2, dividends, would be entered on page 2, line 11 , and for the purpose of calculating the normal tax would be an allowable deduction on page 1 , line 4. Item 3, interest on bonds, would be entered on page 2 , line 7 , column A, and for the purpose of calculating the normal tax would be an allowable deduction on page 1, line 5. Item 4, rents, would be entered on page 2, line 7 ; $ 1,500 in column A, and $2,500 in column B (exemption of $ 2,500 claimed and no tax withheld on this amount ) . This would show-…… … Income received from fiduciary subject to be returned on Form 1040

Deductions and exemption allowable in calculating normal tax No normal tax due, it having been paid at the source by the fiduciary as shown by his return on Form 1041.

In making the foregoing entry on Form 1040, on line 11, there should be written just above the printed heading, ” Amount received from fiduciary, ” and the amount should be entered in the appropriate column.

No illustration is given of income accruing to the beneficiary from other sources, an illustration of this
not being deemed necessary, as such income is entered in the usual way.

W. H. OSBORN,
Commissioner of Internal Revenue.
Note. The following regulation has been extended to cover returns made by fiduciaries in their fiduciary capacity. See T. D. 1947. (T. D. 1945. )

Regulation relative to exclusion of income derived from dividends or net earnings of corporations, joint-stock companies or associations, and insurance companies by persons subject to the normal tax only in computing their net income for the taxable year.

TREASURY DEPARTMENT,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,
Washington, D. C. , February 7, 2023.

To
collectors
of internal
revenue:

Referring to that provision of the income- tax law which reads as follows :
Provided further, That persons liable for the normal income tax only, on their own account or in behalf of another, shall

not be required to make return of the income derived from dividends on the capital stock or from the net earnings of corporations, joint-stock companies or associations, and insurance companies taxable upon their net income as hereinafter provided you are informed that returns of individuals, when such
individuals are subject to the normal tax only, need not include the income derived from the dividends or net earnings referred to above. When individuals are subject to the additional tax, such income derived from said dividends or net earnings must be shown on the return.

Persons having an annual net income of $3,000 or more, including the income derived from dividends or
net earnings of corporations, etc. , but whose total net income is less than $20,000 , and whose net income, exclusive of the income derived from dividends or net earnings of such corporations , etc., is less than $3,000 for the taxable year ($2,500 for the year 1913 ), shall not be required to make a return of annual net income.

Returns which have been or may be received from persons subject to the normal tax only, in which such dividends are included and deducted, need not be changed to meet the provisions of this regulation.

All previous rulings of the department, including the general regulations No. 33, are amended accordingly.

W. H. OSBORN,
Approved:
Commissioner of Internal Revenue.

CHARLES S. HAMLIN,
Acting Secretary of the Treasury.
(T. D. 1946. )

Special assessment districts created under the laws of the several States for public purposes, such as the
improvement of streets and public highways, the provision of sewerage, gas and light, and the recla
mation, drainage or irrigation of bodies of land, and levee and schools districts are held to be political
subdivisions of a State.

TREASURY DEPARTMENT
OFFICE OF COMMISSIONER OF INTERNAL REVENUE
Washington D. C. February 10, 1914.

TO COLLECTORS OF INTERNAL REVENUE :
Referring to paragraph B, section 2 of the Income Tax Law, which reads as follows: “That in computing net income there shall be excluded interest upon the obligations of a State or any political subdivision thereof,” you are informed that under date of January 30, 1914,

The Honorable, The Attorney General, held that special assessments districts created under the laws of the several States for public purposes, such as the improvement of streets and public highways, the provision for sewerage, gas and light, and the reclamation, drainage or irrigation of bodies of land within such special assessment districts when such districts are for public use, are political subdivisions of the State within the meaning of the above proviso.

It is held that the term “political subdivision ” includes special assessment districts or divisions of a State
created by the proper authority of the State acting within its constitutional powers and under its general
laws, for the purpose of carrying out a portion of those functions of the State which by long usage and inherent necessities of government have always been regarded as public.

Levee and school districts, when lawfully created under the authority of the State and which are authoṛized by the laws of the State to levy a tax to meet the obligations of such districts, are also held to be political subdivisions of a State within the meaning of the Income Tax law.

The income derived from interest upon the obligations of all such public districts shall, therefore, be excluded in computing net income for the income tax.

This decision supersedes Treasury Decision 2023.
W. H. OSBORN,
Approved:

C. S. HAMLIN,
Acting Secretary.
( T. D. 1947. )

Commissioner. Extending T. D. 1945 to cover returns made by fiduciaries in their fiduciary capacity.

TREASURY DEPARTMENT,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,
Washington, D. C. , February 12 , 2023.

---

.

4. Income from rents , etc ..
   2,000
   5,000
   10,000

---

---

All certificates

shall be, in size, 8 by 31½ inches, and shall be printed to read from left to right along the 8 inch dimension.

All certificates claiming exemption shall be printed on yellow paper; all certificates not claiming exemption shall be printed on white paper; and certificate Form 1002, for use by the first bank or collecting agency. shall be printed on green paper.

All paper upon which certificates shall be printed shall correspond in weight and texture to white writing paper 21 by 32, about 40 pounds to the ream of 500sheets

---

---

Certificates heretofore authorized, when properly executed, will be accepted up to October 1, 1914.
The revised certificates hereby provided will be print- ed by the Government and furnished without cost for the use of bond owners.
All existing regulations which may be in conflict with the prescriptions of this regulation are hereby superseded.
a Individuals or organizations desiring to print their own certificates may do so, but certificates so printed must conform in size and be printed in similar type, upon the same color, shade, and weight of paper as used by the Government.

Approved:
W. H. OSBORN, Commissioner of Internal Revenue.
W. G. MCADOO,
Secretary of the Treasury.

a NOTE.-Sample certificates showing size of type and color of paper can be secured from collectors of internal revenue in their several districts or from the Commissioner of Internal Revenue at Washington, D.C.

(T. D. 1977.)
Ownership certificate to be executed by foreign banks, bankers, etc., claiming exemption of nonresident alien from income tax on interest on bonds owned by said nonresident alien, viz.: Citizens or subjects, firms, corporations, or organizations of foreign countries who are not residents of the United States.

TREASURY DEPARTMENT,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,
Washington, D. C., May 2, 1914.

For the purpose of complying with income-tax regulations requiring the filing of certificates of ownership of bonds when presenting coupons or interest orders for collection of interest on bonds of domestic corporations of the United States owned by nonresident aliens as to the United States, a certificate in the form following is provided, which may be executed by responsible banks or bankers in foreign countries for and in behalf of nonresident alien owners of bonds of United States corporations:

————

———————

———————————————

---

---

---