does not exceed the limit fixed by the law, and provided further that the interest paid to the trustees, together with all other earnings on investments of the sinking fund made by the trustees, is included in the income of the corporation. Subsidiaries to make returns, when.-The fact that a corporation maintains a number of subsidiary corporations for the purpose of protecting brands, trade-marks, and trade names is immaterial. The liability to make returns attaches to each subsidiary company by reason of the fact that it is a separate and distinct entity. If such subsidiary companies actually have no net income or earnings and no expenses of operation, and the earnings accrue direct to the parent company, which company also pays direct the operating expenses of the subsidiaries, that fact must be clearly set out in the returns of the subsidiaries. In any event, subsidiary corporations can not escape liability to make returns If, however, the subsidiary concerns are mere partnerships or branches of the parent company, and not incorporated organizations, then these subsidiary concerns will not be required to make returns of annual net income, but all of their earnings and expenses will be taken up and accounted for in the returns of the parent company or corporation. W. H. OSBORN, Commissioner of Internal Revenue. Approved: W. G. McADOO, Secretary of the Treasury. (T. D. 2162.) Income tax. Nontaxability of interest from bonds and dividends on stock of domestic corporations owned by nonresident aliens. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., February 24, 1915. To collectors of internal revenue: Interest from bonds and dividends on stock of domestic corporations owned by nonresident aliens are not subject to the income tax, whether such bonds and stock are physically located within or without the United States or whether they are in the possession of agents or trustees in some fiduciary capacity in the United States or other wise. 78411°-VOL 17-15 All rulings and decisions in conflict herewith are hereby superseded and overruled. Revision of T. D. 2048 defining taxable status of dividends paid on the capital stock from the current net earnings or established surplus created from the net earnings of corporations, joint-stock companies or associations, and insurance companies taxable upon their net income. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., February 18, 1915. To collectors of internal revenue: Cash dividends or their equivalent para from the net earnings or the established surplus or undivided profits of corporations, jointstock companies or associations, and insurance companies, if declared and paid on or after March 1, 1913, constitute taxable income in the hands of shareholders or beneficiaries when received, and should be returned when the total net income of any individual is in excess of $20,000, inclusive of such dividends, and the additional tax should be paid thereon as on income for the year in which such dividends were received, without regard to the period in which the profits or surplus were earned or the period during which they were carried as surplus or undivided profits in the treasury or on the books of the corporations, etc. Stock dividends issued as a bona fide and permanent increase of the capital stock of corporations, etc., without intent to evade the imposition of the personal income tax, are held to represent capital, and are not, therefore, subject to the income tax as gains, profits, and income in the hands of the stockholder. If, however, the dividend stock should be surrendered to the corporation for cash or its equivalent, or if the assets of the corporation in any manner should be distributed by means of the stock dividend, the amount realized will be considered income for the year when so converted or received, and will be returned as income by the corporation or individual receiving the same. T. D. 2048 of November 12, 1914, is hereby revised, and all rulings or parts of rulings heretofore made which are in conflict herewith are hereby revoked. Approved: W. H. OSBORN, Commissioner of Internal Revenue. W. G. MCADOO, Secretary of the Treasury. (T. D. 2164.) Emergency revenue law-Bonds. Stamps may be affixed to mortgage securing the original issue of bonds and notation made on bonds. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., February 20, 1915. SIR: This office is in receipt of your letter of the 22d ultimo relative to the stamping of original issues of bonds under the act of October 22, 1914. You state that it is the custom when temporary bonds are retired to cancel and burn them as soon as possible in order to avoid accumulation of defunct securities, and that to require the stamps denoting the tax to be affixed to the temporary bonds, in cases where such bonds are issued, would necessitate the retention of such temporary securities at least during the entire life of the trust under which the bonds were issued, for the reason that the destruction of the temporary bonds would carry with it the destruction of the stamps affixed thereto-the only evidence of the payment of the tax. To meet this situation, which you state will become more and more burdensome as the retired bonds accumulate in the vaults, you ask whether the stamps may be placed on the indenture under which the bonds are issued, and that an appropriate legend reciting the fact be printed or engraved upon the bonds. In reply you are advised that it is held by this office that upon an original issue of bonds it is a substantial compliance with the law if the stamps denoting the tax are affixed either to the bonds or to the indenture under which the bonds are issued. If the latter method be adopted, a notation of that fact should be printed or engraved upon the bonds. Where temporary bonds are issued, the stamps should be affixed to the indenture and a notation of that fact made on both the temporary and definitive bonds. Respectfully, W. H. OSBORN, Commissioner of Internal Revenue. Mr. (T. D. 2165.) Emergency revenue law-Bonds. Supplementing and construing ruling made in T. D. 2110. Bonds issued by individuals which contain, in addition to the promise to pay money, certain penal conditions and provisions, are taxable as bonds at 50 cents each, and not as promissory notes. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., March 3, 1915. GENTLEMEN: Referring to your letter dated January 27, 1915, with regard to the tax imposed under the act of October 22, 1914, upon bonds and certificates of indebtedness issued by a corporation at the rate of 5 cents for each $100 or fraction thereof upon indemnity and guarantee bonds at the rate of 50 cents, upon promissory notes and on each renewal of same at the rate of 2 cents for each $100 or fraction thereof, the following explanation with respect to the ruling made in T. D. 2110 is submitted for your information. This office is in receipt of numerous inquiries regarding that ruling, because of an erroneous construction placed upon the statement: If, however, they (bonds) are issued simply by an individual, and based either upon his individual credit or property and obligating him to pay a certain sum or sums of money at a specific time or times, with or without coupons, simply marking and indicating interest due thereon and whether or not based upon a mortgage of either personal or real property, they fall within the taxation imposed upon promissory notes; that is to say, 2 cents when promising to pay a sum not exceeding $100 and 2 cents for each additional $100 or fractional part thereof. This decision was based upon a form of promissory note engraved in large and variously colored letters, with the word "bond" placed at the head of the paper as a title, and with interest coupons attached thereto. The instrument accompanied a real estate mortgage, and although designated by the name of bond was in reality a good and valid promissory note and taxable under the act of October 22, 1914, as such. It was not the intention of this office, however, to hold taxable as promissory notes bonds which are issued by individuals accompanying mortgages on property, which contain in addition to the promise to pay a sum of money at a stated time certain penal conditions and provisions, default of any one of which would render forfeitable the mortgagor's rights to the property, stock, or other subject matter. Such bonds are taxable under the above act at 50 cents each and not as promissory notes. The most common form of this bond is the one executed by a shareholder in a building and loan association and given in connection with a mortgage for the loan of money on real estate. With reference to your first two inquiries, you are advised that there is no provision in the act imposing a tax upon the extension or renewal of a bond. If, however, a new bond is executed under an extension agreement, the new bond is taxable at the respective rate. The renewal of a promissory note is taxable at the rate of 2 cents for each $100 or fraction thereof. Respectfully, David A. GATES, Acting Commissioner of Internal Revenue. Messrs. (T. D. 2166.) Corporation tax act-Suit to collect taxes-Decision of court. 1. THE THREE YEARS' LIMITATION. The three years' limitation in section 38, act of August 5, 1909, fifth subdivision, is not a limitation upon the right of the Government to sue for unpaid taxes, but at most is a limitation upon the right of the collecting officers to make assessment and to enforce payment by the summary statutory proceedings. 2. SUIT FOR TAXES. A suit for taxes will lie without an assessment. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., March 4, 1915. The appended decision of the United States District Court for the Western District of Michigan, in the case of the United States, plaintiff, v. Grand Rapids and Indiana Railway Co., defendant, is published for the information of internal-revenue officers and others concerned. DAVID A. GATES, Acting Commissioner of Internal Revenue. DISTRICT COURT OF THE UNITed States, Western District of Michigan, SOUTHERN DIVISION. United States, plaintiff, v. Grand Rapids & Indiana Railway Co., defendant. DEMURRER. SESSIONS, District Judge: A careful study and analysis of the statute here involved and an examination and consideration of the applicable and controlling authorities lead to the following conclusions: (1) The three-year clause of the fifth subdivision of section 38 of the 1909 excise law is not a limitation upon the right of the Government to sue for unpaid taxes, but, at most, is a limitation upon the right of the collecting officers to make assessment and to enforce payment by the summary statutory proceedings; (2) In the collection of the taxes imposed by the statute the Government is not confined to the summary proceedings therein provided, but may resort to a plenary suit; and (3) Where a tax of a fixed percentage (like the one here sought to be recovered) is imposed by the statute on a subject or object which is so definitely described in the statute that its amount or value on which the fixed per centum is to be calculated |