*12OPINION.
Black:We shall consider the issues m the order of their statement. We think the primary issue is controlled by section 217 (a) (2) (B) of the Revenue Act of 1926, section 119 (a) (2) (B) of the Revenue Acts of 1928, 1932, and 1934, respectively, and by our decision in Lord Forres, 25 B. T. A. 154. The cited statutory provisions being substantially the same, we have set out in the margin only those of the 1934 Act.1 To the extent that petitioner has received “dividends” from the Ross Corporation there can be no question as to the intent of Congress to tax such dividends. Section 211 (a) of the Revenue Act of 1934 provides that “In the case of a nonresident alien individual gross income includes only the gross income from sources within the United States.” To the same effect see section 213 (c), Revenue Act of 1926, and section 212 (a), Revenue Acts of 1928 and 1932, respectively. See also sections 210 (b) and 211 (a), Revenue Act of 1926, and section 4 (d), Revenue Acts of 1928, 1932, and 1934, respectively.
In Lord Forres, supra, we held that such income as is involved in the instant proceeding was not'beyond the taxing power of the United States as a sovereign. . The only difference, which it seems to us is at all substantial, between the facts in the Lord Forres case and the facts in the instant proceeding is that in the Lord Forres case both the nonresident alien and the foreign corporation owned property in the United States, whereas in the instant proceeding, at the time of the hearing, neither the petitioner nor the Ross Corporation owned property of any value in the United States. It is our opinion that the difference in the facts between the two cases is one that concerns the collection of the tax rather than the determination of its legality, and, as we said in Winterbottom Book Cloth Co., Ltd., 43 B. T. A. 572. “The Board is not concerned with the difficulties that may beset the Commissioner in collecting a deficiency in tax after re-determination. Our primary function is to determine the correct deficiency, if any, leaving to the Commissioner the enforcement or *13collection thereof.” In view of our holding in the Lord Forres case, we think this issue must be decided against petitioner.
In Lord Forres, supra, in the concluding paragraph of our opinion, among other things, we said:
Perhaps we should concede the possibility of an opposite view with respect to dividends'paid by the corporation from earnings received from properties situate without the United States whose operations have received no protection and benefit from this country. But that is a matter of proof. The record discloses that the corporation’s earnings from sources within the United States were more than sufficient to provide for the dividends it paid. * * *
As will be seen later on in the course of this opinion, we are holding that petitioner is taxable on dividends received from the Boss Corporation in the amount of $19,911.88 in 1926 and on dividends received in 1935 in the amount of $163,966.57. As to all other years involved we are holding that petitioner did not receive any dividends from the Eoss Corporation, and, therefore, there are no deficiencies and no penalties for those years.
Exhibit K, which is a part of the record in this case and has been incorporated by reference as a part of our findings of fact, shows that at the time the 1926 and 1935 dividends were paid the Eoss Corporation’s earnings from sources within the United States were far in excess of the amounts of the dividends paid. Thus the situation in that respect is the same as it was in the Lord Forres case and what we said there has equal application here.
We shall now consider to what extent petitioner received “dividends” from the Eoss Corporation during the years 1925 to 1935, inclusive. The facts show and petitioner concedes that on March 1, 1926, he received from the Eoss Corporation a dividend in Canadian dollars amounting to $19,996. In addition to this admitted dividend petitioner during the years 1925 to 1935, inclusive, received from the Eoss Corporation payments in Canadian; dollars amounting to $1,452,783.46. Of this amount $900,500 received during 1925 to 1929, inclusive, was treated, by both the petitioner and the Eoss Corporation, together with $60,000 received in 1922, a year not before us, as representing a complete liquidation of the note for $960,500 which the Eoss Corporation issued to petitioner in part consideration for the securities transferred to the corporation by petitioner in accordance with the April 27,1922, agreement. The $386,400 received during 1930 to 1935, inclusive, was treated by both the petitioner and the Eoss Corporation as representing a complete liquidation of the $386,400 purchase price of stocks and bonds transferred to the corporation by petitioner in accordance with the December 18,1922, resolution. Petitioner contends that these two amounts of $900,500 and $386,400 must be held by the Board to constitute repayments of indebtedness by the corporation and *14not the receipt of dividends by petitioner, as the respondent contends. Petitioner concedes that the balance of the $1,452,788.46 payments, amounting to $165,883.46 in Canadian dollars received in 1935, should be regarded as a dividend received by petitioner in that year from the Ross Corporation.
The respondent, in contending that the two amounts of $900,500 and $386,400 must also be regarded as dividends, does not contend that the separate entities of petitioner and the Ross Corporation should be disregarded. In his brief he sums up his argument on this issue as follows:
* * * It is not so much that the separateness of the corporate entity is to be ignored as that the form of the transaction with that corporation must be ignored and its substance given effect. * * * All the evidence in this case points with almost unescapable certainty to the conclusion that Ross Corporation was the petitioner’s alter ego: one of his “two pockets”. The supposed agreements of sale were nothing more than formal devices adopted for the purpose of facilitating shifting from one pocket to another. They should be ignored.
In other words, the respondent would have us hold that the two transactions in 1922 whereby petitioner transferred securities to the corporation in consideration for 20,000 shares of stock, a note for $960,500, and an open account for $386,400 to petitioner’s credit, should be regarded as if petitioner merely transferred the securities in consideration for the shares of stock. We see no justification for such a holding. The facts do not support respondent’s contention that the $960,500 and $386,400 in question represented “Nothing more than formal devices adopted for the purpose of facilitating shifting from one pocket to another.” On the contrary, the evidence fully supports petitioner’s contention that the amounts in question represented bona fide indebtedness owed to petitioner by the Ross Corporation. We think we must so treat it in the disposition of these proceedings.
Petitioner’s counsel, who acted for him in the forming of the Ross Corporation, testified that he was entirely unfamiliar with section 119 (a) (2) (B) of the Revenue Act of 1934 and similar provisions of earlier acts until April 23, 1937, when petitioner was first notified by the respondent of the proposed tax liability. This, it would seem, makes it unlikely that the manner in which petitioner organized the Ross Corporation by transferring securities to it in part consideration for capital stock and in part consideration for a note and an open account, and the later payment by the corporation to the petitioner of the corporation’s indebtedness to petitioner, was in any way done with a view of avoiding any United States tax liability. If any doubt exists as to the correctness of such a statement, it seems that it would be dispelled by the recognition of the fact that if at *15any time petitioner bad known of tbe provisions of section 119 (a) (2) (B) of the Bevenue Act of 1934 or similar provisions of earlier acts be could have avoided their application entirely simply by transferring a sufficient amount of Canadian securities to the Ross Corporation so that tbe latter’s gross income derived from sources within tbe United States would have been less than 50 percent of its gross income from all sources. The evidence shows that the gross income of the Ross Corporation from sources within the United States for all of the periods involved was only slightly over 50 percent, and that petitioner individually owned at all times large amounts of income-producing Canadian securities which he could easily have sold or transferred to the corporation.
After a careful consideration of the entire record, we are of the opinion and have so found as an ultimate fact as to this issue, that all payments received by petitioner from the Ross Corporation during the years 1925 to 1935, inclusive, with the exception of the dividend of $19,996 (Canadian money) in 1926 and payments aggregating $165,883.46 (Canadian money) in 1935, constituted payments in discharge of legal and binding obligations of Ross Corporation to petitioner instead of dividends. Carl G. Fisher, 7 B. T. A. 968; Herff & Dittmar Land Co., 32 B. T. A. 349. Cf. Curran v. Commissioner, 49 Fed. (2d) 129. It follows that there are no deficiencies and no penalties due for the years 1925 and 1927 to 1934, inclusive.
In view of our holding in connection with the previous issue, the remaining issues are material only in so far as they affect the years 1926 and 1935.
To what extent, if any, should the 25 percent delinquency penalties be imposed for the years 1926 and 1935 ?
Since no return was filed for the year 1926, the imposition of the 25 percent penalty for that year is mandatory. Section 3176 of- the Revised Statutes, as amended by section 1103 of the Revenue Act of 1926; Douglas L. Edmonds, Administrator, 31 B. T. A. 962; affd., 90 Fed. (2d) 14; certiorari denied, 302 U. S. 713; Axel Holmstrom, 35 B. T. A. 1092; Theodore R. Plunkett, 41 B. T. A. 700, 710; Vahram Chimchirian, 42 B. T. A. 1437.
The question as to whether the 25 percent penalty should be -added for the year 1935 is presented under somewhat different circumstances, hut we think the result must be the same. The applicable statutory provision is section 291 of the Revenue Act of 1934.2 The respondent *16contends that we should regard the year 1935 as if no return had been filed, in which event the' imposition of the penalty would likewise be mandatory. Petitioner contends, however, that we can not ignore the return filed .on or about January 20, 1940; that this return must be regarded as a delinquent return; that the evidence shows that the failure to file the return on time was due to reasonable cause and not due to willful neglect; and that, therefore, no penalty should attach.
Petitioner’s return for the year 1935 was due to be filed on or before June 15,1936. Sec. 216, Revenue Act of 1934. No return was filed by petitioner for the year 1935 until on or about January 20, 1940, which was after the respondent on August 5,1937, had made his determination of the deficiency for that year and after petitioner had on October 26, 1937, filed his petition with this Board and respondent had filed his answer thereto.. Since January 20, 1940, is more than 150 days after June 15,1936, section 406 of the Revenue Act of 1935 has no application here. On January 26, 1940, petitioner filed a motion for leave to file an amendment to his petition, in which amendment additional facts were alleged relating to the filing of the 1935 return. This motion was granted on January 29,1940. In Taylor Securities, Inc., 40 B. T. A. 696, we held that returns filed after the respondent had made his determination of deficiencies were insufficient to relieve the petitioner there of the mandatory operation of the statutory provisions imposing the 25 percent penalty.
In Theodore R. Plunkett, supra, we said:
* * ⅜ Qijje purported income tax return of tlie petitioner for 1934 mailed by tbe petitioner from Adams, Massachusetts, on March 15, 1935, was not a return required by the statute. It was no return at all. The first return which was filed was filed on October 10, 1938. That return was filed after all,pleadings in this case had been filed and issue joined. It was filed too late to avoid the attachment of the penalty. Taylor Securities, Inc., supra.
The action of the respondent in adding to the tax the 25 percent penalty for delinquency is approved.
Following the foregoing decisions, the Commissioner’s action in determining a delinquency penalty of 25 percent against petitioner for the year 1935 is approved.
Even if we are in error in treating the return filed by petitioner on January 20, 1940, long after issue had been joined by the parties, as “no return” within the meaning of section 291, sufra, and assuming that we should treat the return in question as a “delinquent return” within the meaning of that section, nevertheless, we think the result would be the same. The burden of proof would be on petitioner to show that his failure to file his return for the year 1935 at the time it was required by law was due to reasonable cause and not due to willful neglect. Petitioner has not made such a showing. All that he has proved in that respect, is that he was *17ignorant of the law which imposed such a tax and, therefore, filed no return under it. While that sort of a showing doubtless absolves him from “willful” neglect, it does not constitute “reasonable cause.” See Charles E. Pearsall & Son, 29 B. T. A. 747; Rafael Sabatini, 32 B. T. A. 705; affd., 98 Fed. (2d) 753; Berlin v. Commissioner, 59 Fed. (2d) 996.
Is petitioner entitled to a credit for dividends received in computing his income subject to normal tax for the years 1926 and 1935, respectively? In his■ deficiency notice, the respondent did not determine any “normal tax” liability against petitioner for any year, but confined his determination to one of “surtax” liability. In his third amended answer to the petition as amended, the respondent affirmatively alleged “that in his deficiency notice he allowed as credits against net income for normal tax purposes the amount received as dividends in each of the years involved; the allowance of such credits was erroneous.” Section 216 of the Revenue Act of 1926, in so far as material herein, provides as follows:
Sec. 216. For the purpose oí the normal tax only there shall he allowed the following credits:
(a) The amount received as dividends * * * (2) from a foreign corporation when it is shown to the satisfaction of the Commissioner that more than 50 per centum of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period ás the corporation has been in existence) was derived from sources within the United States as determined under the provisions of section 217.
Section 217 (g) (1) of the Revenue Act of 1926, in so far as material herein, provides as follows:
Except as provided in paragraph (2) a nonresident alien individual * * * shall receive the benefit of the deductions and credits allowed in this title only by filing or causing to be filed with the collector a true and accurate return of his total income received from all sources in the United States, in the manner prescribed in this title; including therein all the information which the Commissioner may deem necessary for the calculation of such deductions and .credits. [Italics supplied.]
Petitioner did not file any return for the year 1926. In view of the plain provisions of section 217 (g) (1), sufra, it follows that, in computing the normal tax for the year 1926, petitioner is not entitled to any credit for dividends received from a foreign corporation which would otherwise be allowable under section 216 (a) (2), supra.
Relative to the year 1935, it is sufficient to note that the Revenue Act of 1934, for the purpose of the normal tax, does not allow any credit for dividends from foreign corporations as does section 216 (a) (2) of the Revenue Act of 1926 and section 25 (a) (2) of the *18Revenue Acts of 1928 and 1932, respectively. See sec. 25, Revenue Act of 1934. It follows that, in computing the normal tax for the year 1935, petitioner is not entitled to any credit for dividends received from a foreign corporation.
The final issue is whether that portion of the amounts received by petitioner from the Ross Corporation in 1926 and 1935, which we have under a previous issue held to be dividends, should be included in petitioner’s income in terms of United States money at the rate of exchange existing at the time of receipt or at the rate existing at the end of the year. The payments which the respondent included in petitioner’s income were included by him in terms of Canadian dollars, which was erroneous. The respondent’s ruling O. D. 419, Cumulative Bulletin No. 2, p. 60, which we think correctly interprets the law, provides in full as follows:
Income returnable for the purpose of Federal taxes should be expressed in terms of United States money. The rate of exchange at the time of receipt governs in making the computation.
We hold as to this issue that the portion of the amounts received in Canadian dollars by petitioner in 1926 and 1935 which we have held to be dividends should be expressed in terms of United1 States money at the rate of exchange in force at the time of receipt. Upon this basis petitioner is taxable on dividends received in 1926 in the amount of $19,911.88 and on dividends received in 1935 in the amount of $163,966.57.
The deficiencies and penalties for the years 1926 and 1935 should be recomputed in accordance with this report. There are no deficiencies and no penalties for the years 1925 and 1927 to 1934, inclusive.
Reviewed by the Board.
Decision will be entered under Bide 60.
SEC. 119. INCOME FROM SOURCES WITHIN UNITED STATES.
(a) Gross Income From Sources in united States.—The following items of gross income shall be treated-as income from sources within the United States:
* ’ * * * # * ⅜
(2) Dividends.—The amount received as dividends—
⅛ , * * , * * ⅞ ⅜
- (B>) from a foreign corporation unless less than 59 per centum of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence) was derived from sources within the United States as determined under the provisions of this section; but dividends from a foreign corporation shall, for the purposes of section 131 (relating to foreign tax cpedit), be treated as income from sourpes without the United States.
SBC. 291. failure TO FILE RETURN.
In case of any failure to make and file a return required by this title, within tbe time prescribed by law or prescribed by tbe Commissioner in pursuance of law, 25 per centum of the tax sbaU be added to tbe tax, except that when a return is filed after such time and it is shown that the failure to file it was due to reasonable cause and not due to willful neglect no such addition shall be made to the tax. * * *
SEC. 119. INCOME FROM SOURCES WITHIN UNITED STATES.
(a) Gross Income erom Sources in United States.—The following Items of gross Income shall be treated as income from sources within the United States:
(2) Dividends.—The amount received as dividends—
(B) from a foreign corporation unless less than 50 per centum of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence) was derived from sources within the United States as determined under the provisions of this section; but dividends from a foreign corporation shall, for the purposes of section 131 (relating to foreign tax credit), be treated as income from sources without the United States ;
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