Harrisburg telegraph. [volume] (Harrisburg, Pa.) 1879-1948, 1919-03-13
.ROM the standpoint of the in

come tax law, bonds may be
divided into four general
groups; CD tax exempt bonds; CD
United States obligations issued
since September l, 1917; CD tax
free covenant bonds; and (D other
bonds. The first of these classes in
cludes bonds issued by any of the
States of the United States, or politi-
cal subdivisions thereof. all United
States Government bonds issued
prior to September 1, 1917. all bonds
of possessions of the United States,
and Federal Farm Loan Bonds. Lib
erty per cent and Az per cent
bonds, certificates of Indebtedness
and war savings stamps make up
the classes of obligations of the
United States issued since Septem-
Der /, 1917. The term "taX-free
covenant bonds" includes bonds,
mortgages. deeds of trust, or any
other similar obligations of a cor
poration' which contain n contract
or provision by which the obligor
agrees to pay any portion of the tax
imposed" under the income tax law"
upon the obligee. or to reimburse
the obligee for any portion of the
tax, or to pay the interest without
deduction for any tax which the
obligor may be required or permit
ted to pay thereon, or to retain
therefrom, under any law of the
United States. "Other bonds in
clude all bonds not falling within
one of the previously mentioned
groups.
Certificates of Ownership
Certificates of ownership are not
required in connection with the col
lection of interest from taX-eXempt
bonds and obligations of the United
States issued since September /,
1917. With all other bond interest
coupons or checks for registered in
terest, certificates of ownership must
be. filed. Whenever a person pre-
sents for collection a coupon from
a bond which does not contain a
taX-free covenant clause, he is re-
quired to file a yellow ownership
certificate, form 1901. Such a GER
tifcate is to be used irrespective of
the amount of the income of the
taxpayer, and irrespective of his
personal exemption. Whenever an
individual presents for collection IN
terest from n taX-free covenant
bond, he should file a white certi-
fcate form 1000, if his income is
in excess of his normal credits. BY
filing such q certificate he gives no.
tice to the corporation and to the
government that he does not claim
to be exempt from the tax and not
being exempt from the tax he looks
to the corporation whose bond he
owns to live up to it's agreement
with him to pay, on his behalf,
the amount of the tax which the
Government requires such corpora
tions to pay over to it. This is. what
is technically known as withhold
ing" If his income is less than his
normal tax credits, he should file
a yellow ownership certificate, even
when presenting for collection an
interest coupon form tax-free COW
enant bond. For by so doing he
gives notice to the corporation and
to the Government that he is not
liable for income tax, and not being
liable he does not desire the cor
poration to pay over to the Govern
ment any tax on the interest on
the bonds he holds.
One of the great difficulties eX-
perienced by individuals is to know
which ownership certificate to use.
This condition arises from the fact
that they have been In the habit of
consid ering the claiming of an ex-
emption to be a benefit. So far as
tax-free covenant bonds are con-
cerned, the claiming of an exemp-
ton by a person subject to the nor
NAL income tax is a detriment to
him since such action relieves the
corporation from paying on behalf
of such bondholder a tax which
otherwise the bondholder himself
will be required to pay.
In all of the cases cited above it
will be seen that the full amount
of the interest is received by the
taxpayer, Irrespective of whether
yellow or white ownership certificate
is filed. On the individuals income
tax return, however. credit against
normal tax is given equal to 2 per
cent of the amount of the interest
received on taX-free covenant bonds
with which white ownership certi-
fica.es were filed during the proceed |
ing year.
Contract Bonds
1t is immaterial to the Govern
ment how much tax a corporation |
has agreed to assure. The Govern
ment will only look to the corpora
ton for the Withholding, of per
cent. There are some bonds which |
contain contract whereby the |
debtor corporation agrees to pay 4 |
per cent normal income tax. The !
Bureau of Internal Revenue, how |
ever, is concerned in such case |
only with the calculation of tax |