the dividend was really paid out of capital and accumulated surplus of former years. Opinion of Mr. Justice Matthews on the question of the taxation of an unearned dividend, in the case of Bailey v. R. R. Co., 106 U. S. 109, quoted with approval. Central National Bank v. United States, 137 U. S. 355.

The tax on the income of insurance companies under the act of June 30, 1864, and the act of July 13, 1866, is not a direct tax, but a duty or excise. or excise. Pacific Insurance Company

v. Soule, 7 Wall. 434.

Bank neglecting to make

dividend or adplus as often

dition to sur

once in six months to make returns on 1st of January and 1st of July.

SEC. 121. And be it further enacted, That any bank legally authorized to issue notes as circulation, which shall neglect or omit to make as dividends or additions to its surplus or contingent fund as often as once in six months, shall make a list or return in duplicate, under oath or affirmation of the president or cashier, to the assessor or assistant assessor of the district in which it is located, on the first day of January and July in each year, or within thirty days thereafter, of the amount of profits which have accrued or been earned and received by said bank during the six months next preceding said first days of January and July; and shall present one of said lists or returns and pay to the collector of the district a duty of five per centum on such profits, and, in case of default to

Duty of five

per cent to

be paid to the collector.

make such list or return and payment within the thirty days as aforesaid, shall be subject to the provisions of the foregoing section of this act: Provided, That when any dividend is made which includes Duty paid on any part of the surplus or contingent fund of tingent fund to any bank, trust company, savings institution, insurance or railroad company, which has been assessed and the duty paid thereon, the amount of duty so paid on that portion of the surplus

surplus or con

be deducted

from duty on

future dividend.

or contingent fund may be deducted from the duty on such dividend.

1866, Sec. 9.

cent on divi

dends and inof railroad, pike, and

terest on bonds

canal, turn

slack-water

SEC. 122. And be it further enacted, That any railroad, canal, turnpike, canal navigation, or Act July 13, slack-water company, indebted for any money Tax of five per for which bonds or other evidence of indebtedness have been issued, payable in one or more years after date, upon which interest is stipulated to be paid, or coupons repre- companies. senting the interest, or any such company that may have declared any dividend in scrip or money due or payable to its stockholders, including non-residents, whether citizens or aliens, as part of the earnings, profits, income, or gains of such company, and all profits of such company carried to the account of any fund, or used for construction, shall be subject to and pay a tax of five per centum on the amount of all such interest, or coupons, dividends, or profits, whenever and wherever the same shall be payable, and to whatsoever party or person the same may be payable, including non-residents, whether citizens or aliens; and said companies are hereby authorized to deduct and withhold from all payments on account of any interest, or coupons, and dividends due and payable as aforesaid, the tax of five per centum; and the payment of the amount Payment to of said tax so deducted from the interest, or coupons, or dividends, and certified by the president or treasurer of said company, shall discharge said company from that amount of the dividend, or interest, or coupon on the bonds or other evidences of their indebtedness so held by any person or party whatever, except where said companies may have contracted otherwise. And a list or return shall be made

Companies to withhold duty

from all pay

ments.

discharge com

panies from indebtedness.

that amount of

and rendered to the assessor or assistant assessor on or before the tenth day of the month following that in which said interest, coupons, or dividends become due and payable, and as

Return to be made to as

sessor on or before the tenth day of

the month fol

which divi

lowing that in often as every six months; and said list or return shall contain a true and faithful ac

dends were

payable, and

every six

months; to be count of the amount of tax, and there shall be

verified by oath

treasurer.

fault in mak

ing return.

of president or annexed thereto a declaration of the president or treasurer of the company, under oath or affirmation in form and manner as may be prescribed by the Commissioner of Internal Revenue, that the same contains a true and faithful account of said Penalty for de- tax. And for any default in making or rendering such list or return, with the declaration annexed, or of the payment of the tax as aforesaid, the company making such default shall forfeit as a penalty the sum of one thousand dollars; and in case of any default in making or rendering said list or return, or of the payment of the tax or any part thereof as aforesaid, the assessment and collection of the tax and penalty shall be made according to the provisions of law in other cases of neglect or refusal : Provided, That whenever any of the companies mentioned in this section shall be unable to pay the interest on their indebtedness, and shall in fact fail to pay such interest, that in such cases the tax levied by this section shall not be paid to the United States until said company resume the payment of interest on their indebtedness.

In case of default in making return, or

payment of the ment and col

tax, assess

lection to be according to

general provi

sions.

Tax on the interest due on mortgage bonds of a railroad under Sec. 122, act June 30, 1864, is a tax on the income of the bondholder. Haight v. Railroad Co., 6 Wall. 15.

(1) Tax on dividends paid by railroad companies, and assessed under the 122d section of the act of June 30, 1864, as amended, is a tax on the corporation and not on the stockholder. (2) A dividend declared January 10, 1870, out of earnings which accrued between July 1, 1869, and the 1st of January following, taxable as income of 1869. Barnes v. The Railroads, 17 Wall. 294.

Under the 122d section of the act of June 30, 1864, the tax upon interest on bonds paid by a railroad corporation is a tax upon the income of the creditor or bondholder, and not upon the corporation. The corporation is made use of as a convenience for collecting the tax. A municipality, like the city of Baltimore, the bondholder in this case, is part of the sovereign power of the State of Maryland, and its municipal revenues cannot be taxed by the United States. United States v. Railroad Company, 17 Wall. 322.

Question whether dividends of corporations earned in 1869 were taxable under the act of July 14, 1870, continuing the income tax, decided in the affirmative. The divergent opinions of the court on the question whether the tax on dividends was a tax on the stockholder or the corporation, as shown in the cases of Barnes v. The Railroads and United States v. Railroad Company, in 17 Wallace's Reports, discussed. Stockdale v. The Insurance Companies, 20 Wall. 323.

Question of the liability of interest coupons, held by nonresident alien bondholders, to taxation under Sec. 122, act June 30, 1864. Held that, as the tax was essentially an excise on the business of the corporation and not a tax on the bondholder, the question of the power of Congress to enforce such a tax on the foreign bondholders was not necessary to the decision of the case. The tax was not laid on the bondholder who received the interest, but on the earnings of the corporation which paid the interest. Railroad Company v. Collector, 10 Otto, 595.

Interest paid to non-resident alien bondholders, without deducting the tax, held to be taxable under Sec. 122 of the act of June 30, 1864, as amended. Case decided on the authority of Railroad Co. v. Collector, 100 U. S. 595, which held that

this tax was a tax on the corporation and not on the bondholder. A rehearing was denied in this case (17 Otto, 1). United States v. Erie Railway Company, 16 Otto, 327. same case in 9 Benedict, 67.

See

Question of the liability of the New York Central & Hudson River Railroad Company to a tax on a dividend in scrip declared in the form of interest certificates, under the act of June 30, 1864, as amended. Scrip dividend defined, and company held liable to the assessment. Bailey v. Railroad Company, 22 Wall. 604. (In the reporter's statement of this case the 122d section of the act of June 30, 1864, is erroneously called the 22d section.) See, also, same case in 16 Otto, 109, where the above definition of scrip dividend is approved, but the tax on the profits represented by it is held to be illegal, partly on the ground that said profits were not earned during the tax period, and partly because the profits taxed had already been returned and paid tax in another form.

The depreciation of assets during a certain period cannot be deducted from profits earned during said period in determining the taxable profits of a railroad corporation under the act of June 30, 1864. United States v. Little Miami, Columbus & Xenia R. R., 1 Fed. Rep. 700.

It is profits carried to the account of any fund or used in construction, and not earnings, that are taxable under Sec. 122, act June 30, 1864, as amended. Where there has been no assessment, and the United States sue to recover such sum as upon an investigation of the accounts of the company it shall appear ought to have been paid, the burden of proof is upon the government, and no more can be recovered than is shown to be due. Little Miami, Columbus & Xenia R. R. Co. v. United States, 108 U. S. 277.

The interest due on mortgage bonds of railroad company to non-resident alien bondholder not taxable under the act of June 30, 1864. (This was before the amendment of July 13, 1866, expressly taxed it.) Railroad Company v. Jackson, 7 Wall. 262.

Question of the taxability of profits used in construction