Evening journal., 1913-11-07
NOTE MAKER
PAYING MUST
DEDUCT TAX
As Source" Of InCeme, A.
Debtor for Rent Paper
WithhOIdS Fee
TREASURY EXPLAINS
COLLECTION OF LEVY

WASHINGTON, Nov I'm an i'm
portant treasury decision given by
the commissioner Of internal revenue,
w. H. Osborn, sets forth the method
Of collection of the income tax on
notes given for rents or other income.
Announcement of this decision was
addressed to collectors of internal
.evenue. 1t says
When note shall have been given
IN payment of interest, rents or other
income ascruing after March 1, 1913.
and said note natures on or after
November /, 1913. the maker of the
note, as the debtor and as the
source where the income originates.
Is required in paying such note to
withhold the normal tax of one per
cent on the entire amount of the note
II said note is in excess of 5000. un-
less a claim shall be made of exemp-
ton of $4,000 or $4,000 (as the case
may bel under the provisions of para
graph c, section ?, of the act. and If
such claim for exemption shall be
made Gas provided for on Form 1.OO0
then the said tax shall be withheld
only on the amount of said note in
excess of the exemption claimed in
said certificate.
II any person who has purchased
or discounted any said notes may
nave emitted, in acquiring them from
previous holder. to make a deduction
or allowance for said tax, such pur-
chaser can only look for relief to the
person from whom he shall have got
ten the notes, and the debtor the
maker OF said notes. will be held liza
Die for and be required to deduct,
withhold and pay to the collector of
internal revenue the amount of the
normal tax of one per cent. which
may be due thereon. under the law
and these regulations.
Illustration of New Decisions.
To illustrate: A unmarried. and
who does not claim the $4,000 exemp-
ton provided in paragraph c of sec
ton ?, of the income ttax law) bor-
rows on May 1, 1912, 100000 from
B at per cent. per annum interest
on two years time. and gives B his
bond for S120,O00 for the principal,
and four $4,000 notes, each repre-
senting six months interest, for the
maturing interest, payable May 1 and
November / each year. On October
], 1913, B takes AS interest note for
$500, due November 1. 1913 (which
bears no mark to indicate that Il rep
resents INTEREST," to the Richmond Ma
tional bank; the bank is not inform
ed that the note represents interest,
but being satisfied that A, the maker
of the note, is good without additional
endorsement discounts the note for
B at the rate of six per cent per an
mum and pays to B the proceeds-S3.-
5s2.
"On November 1. 1913. the note ma
lures and the bank calls on A. the
maker, TO pay the note A offers the
bank $3,564, which is equal to $4,000
less the one per cent. tax of S36, in
forming the bank that the note repre-
sents interest which he owes and that
under the federal income tax law he is
required to deduct this tax from the
face of the note in making payment.
The bank claims that it was not
informed that the note represented
interest and therefore subject to this
tax but A is, nevertheless, required
under the law to withhold the tax.
D-scOunter Must Recover.
IF A under his contract with B
had agreed to pay the interest with
out deduction for any income tax
which might be imposed by the gov
ernment he would, of course after
deducting the one per cent. tax for
the government, pay the bank, as hold
er of the note. the full amount of
$4,000. But if the contract between
A and B did not provide that A would
pay the full interest without deduct
ing such income tax as the govern
ment might impose, and If the bank
should. therefore, desire to reimburse
Itself for the amount of the tax thus
deducted by A, the bank can look only
TO B, for whom it discounted the note
and the question as 10 whether this
sS6 deduction should be borne by F
or by the bank is a question which
must be settled mutually between the
bank and B."
Washington bankers are discussing
q nice point with regard to railroad
bonds on which railroads guarantee tc