*766 The taxpayer, now deceased, was a citizen of the United States and resided in the Philippine Islands during the years 1917 and 1918. For 1917 he filed a return of his income with the Philippine Government under the Revenue Act of 1916 and for 1918 he filed with that Government a return of his income under the Revenue Act of 1916, as amended by the Revenue Act of 1917. Most of his income for 1917 consisted of his distributive share of the income of a partnership. The respondent seeks to assess the tax against a transferee of a transferee of the taxpayer. Held, (1) the return which the taxpayer filed for 1918 did not constitute such return as the taxpayer was required to file as a citizen of the United States; (2) the period of limitations applicable to the income tax for 1918, and the excess profits tax for 1917, is contained in section 250 (d) of the 1921 Act, which permits assessment and collection of the taxes at any time if no return is filed; (3) the taxpayer was required to file an excess profits tax return for the year 1917, but his distributive share of partnership income is not includible therein; (4) the taxpayer was not liable to the United States Government for*767 income taxes under Title I of the Revenue Act of 1917.
*1139 The petitioner is the transferee of the transferee of the assets of the taxpayer, who died in 1931. The respondent has determined that petitioner is liable to pay income and excess profits tax deficiencies of the taxpayer as follows:
| Year | Income tax | Excess profits tax |
| 1917 | $1,408.83 | $1,389.01 |
| 1918 | 27,914.38 |
The principal questions presented for our consideration are (1) whether the taxpayer was liable to pay such taxes and (2) whether the statute of limitations is a bar to assessment at this time.
FINDINGS OF FACT.
The taxpayer, Charles C. Cohn, resided in Manila, Philippine Islands, from 1903 until July 1919. He was engaged in the practice of law in the city of Manila and his income as an attorney was derived exclusively from services performed in the Islands. During the years 1917 and 1918 he was a citizen of the United States. He was a married man at that time, the head of a family, and had one child, a minor.
Cohn was a member of successive law partnerships*768 in the Philippines Islands. In 1917 he was a member of the partnership of Cohn & Fisher until November 17, 1917, when Fisher left the firm to serve on the Supreme Court of the Philippine Islands. During 1917 neither the partnership nor Cohn himself was engaged in any other trade or business than the practice of law. Neither Cohn individually nor the partnership had more than a nominal amount of invested capital, which was represented entirely by law books and office equipment in Manila. The law partnership of Cohn & Fisher kept its books on the basis of cash receipts and disbursements. Cohn's distributive share of partnership income for the year 1917 was 34,645.02 pesos, equivalent to $17,322.51 in United States currency. His income from his law practice as an individual in 1917 was $6,040.13, making a total income from the practice of law in 1917 of $23,362.64. In addition, he received income in the form of interest and dividends.
On February 4, 1918, Cohn executed and filed with the collector of internal revenue for the Philippine Islands, at Manila, an income tax return of his income from all sources for the year 1917. The return was provided for by the Revenue Act of*769 1916, approved September 8, 1916. In June 1918 he paid the tax shown to be due upon the return in the amount of 812.94 pesos, equivalent to $406.47 in United States currency.
On February 20, 1919, the taxpayer executed and filed with the collector of internal revenue for the Philippine Islands, at Manila, an income tax return of his income from all sources for the year 1918. *1140 The return for 1918 was provided for by the Revenue Act of 1916, as amended by the Revenue Act of 1917, approved October 3, 1917. In June 1919 Cohn paid the tax shown to be due upon the return in the amount of 3,314.12 pesos, the equivalent of $1,667.06 in United States currency. In September 1920 Cohn paid an additional assessment for the year 1918 in the amount of 3,271.26 pesos, equivalent to $1,635.63 in United States currency.
Cohn filed no excess profits tax return for the year 1917. He filed no tax returns with respect to his income for 1917 and 1918 except as set forth above.
In July 1919 Cohn returned from the Philippine Islands to the United States and thereafter until his death he was a resident of San Francisco, California. He legally changed his name to Charles C. Cole on*770 October 20, 1919. The collector of internal revenue at Baltimore, Maryland, was duly notified of the change of name on or about August 28, 1923.
Charles C. Cole (formerly Cohn) died on September 27, 1931. His son, Creswell C. Cole, received from his estate assets having a value in excess of $30,712.22. Immediately after the final distribution by the executors of the estate of Charles C. Cole to his son the estate had no assets and the executors were duly discharged.
Creswell C. Cole died on September 30, 1935. Final distribution of his estate was made in November 1936. At that time his widow, the petitioner, received assets from his estate having a value in excess of $30,712.22. Immediately after the distribution made to the petitioner the estate of Creswell C. Cole had no remaining assets and the executrix was discharged.
The deficiencies which respondent now proposes to assess against the petitioner were never assessed against Charles C. Cole or Creswell C. Cole or their estates.
OPINION.
SMITH: The respondent contends that the taxpayer, Charles C. Cole, formerly Charles C. Cohn, failed to file any income tax and excess profits tax returns as a citizen of the*771 United States in 1917 and 1918 and has determined deficiencies for those years. He proposes to assess and collect the taxes from the petitioner as transferee of a transferee of the taxpayer, who is now deceased. The petitioner's primary contention is that Charles C. Cole filed all the returns which he was required to file and paid all taxes which he was required to pay in the years in question. Second, the petitioner argues that the returns which Cole did file started the running of the statute of limitations in his favor and that no tax liability of his may now be assessed against the petitioner. The respondent claims that the statute of limitations was tolled by the failure of Cole to file the required returns and that the filing of returns with the Philippine Government is immaterial.
*1141 With respect to the taxable year 1918 it is clear that the respondent's determination must be approved, upon the authority of . The Revenue Act of 1918 imposed an income tax for the calendar year 1918 upon the income of every citizen of the United States. Section 1400 of the 1918 Act expressly repealed the Revenue Act of 1916, *772 as amended by the Revenue Act of 1917, except with respect to any taxes which became due thereunder on or before December 31, 1917, and except with respect to the Philippine Islands. Section 1400(b) of the 1918 Act provides in part as follows:
Title I of the Revenue Act of 1916 as amended by the Revenue Act of 1917 shall remain in force for the assessment and collection of the income tax in Porto Rico and the Philippine Islands, except as may be otherwise provided by their respective legislatures.
In addition to the above exception to the repeal provisions of section 1400, section 261 of the 1918 Act specifically provides in part:
That in Porto Rico and the Philippine Islands the income tax shall be levied, assessed, collected, and paid in accordance with the provisions of the Revenue Act of 1916 as amended.
* * *
The Porto Rican or Philippine Legislature shall have power by due enactment to amend, alter, modify, or repeal the income tax laws in force in Porto Rico or the Philippine Islands, respectively.
Thus, the 1916 Act as amended remained effective in the Philippine Islands as a local income tax law similar to the income tax law enacted by any one of the states*773 in order to tax its citizens or residents, or those having income received from sources within the state. The only return filed by the taxpayer for the calendar year 1918 was that filed under the Revenue Act of 1916 as amended by the 1917 Act and in accordance with the provisions of section 261 of the 1918 Act. The taxpayer was required to file this return because he was a resident of the Philippine Islands. The filing of the return with, and the payment of a tax to, the Philippine Government, however, did not relieve him of his liability under the 1918 Act as a citizen of the United States to pay a tax to the United States Government. ;.
In the Lawrence case the taxpayer was a United States citizen residing in the Philippine Islands during the taxable years in question. He filed a return for the year 1918 with the Philippine Government in accordance with the provisions of the Revenue Act of 1916, as amended, and as required by section 261 of the 1918 Act, and paid the tax to that Government. This return was similar to the one filed by the taxpayer in the instant case. The court*774 held that the payment of the tax to the Philippine Government was a payment made under a local law equivalent to the income tax law of any state and that a tax was also due to the United States Government, against which *1142 tax a credit was allowable for the amount paid in the Islands. We followed the Lawrence case in the Peterson case, which involved precisely parallel facts. The taxpayer in the instant case did not file an income tax return with or pay a tax to the United States Government for the year 1918.
No return having been filed for 1918, the Commissioner would nevertheless be prohibited from attempting to assess and collect the tax if the period of limitation provided in the 1918 Act were effective here. Section 250(d) of the 1918 Act provides that no suit or proceeding for the collection of any tax shall be begun after the expiration of five years after the date the return was due. Section 250(d) of the Revenue Act of 1921, however, contains the period of limitation which is applicable in the instant case. *775 ;; . In the Peterson case it was held that the filing of the return with the Philippine Government did not start the running of the statute of limitations on assessment and collection of the tax due to the United States Government because the limitation period provided in the 1921 Act was applicable. Section 250(d) of the 1921 Act provides in material part as follows:
(d) The amount of income, excess-profits, or war-profits taxes due under any return made under this Act for * * * prior taxable years or under prior income, excess-profits, or war-profits tax Acts, * * * shall be determined and assessed within five years after the return was filed, * * * and no suit or proceeding for the collection of any such taxes due under this Act or under prior income, excess-profits, or war-profits tax Acts, * * * shall be begun, after the expiration of five years after the date when such return was filed, * * * That in the case of a false or fradulent return with intent to evade tax, or of a failure to file a required return, the amount of*776 tax due may be determined, assessed, and collected, and a suit or proceeding for the collection of such amount may be begun, at any time after it becomes due * * *
The respondent's determination with respect to the year 1918 is therefore approved.
Two deficiencies are asserted for the year 1917. One is the deficiency in excess profits tax which was imposed by Title II of the Revenue Act of 1917. The second is the deficiency in income tax for the year 1917.
The taxpayer admittedly did not file an excess profits tax return for the year 1917. Section 250(d) of the Revenue Act of 1921, discussed above, also contains the period of limitation applicable to the excess profits tax of 1917 and, no such return having been filed by the taxpayer, the respondent is not barred by lapse of time from assessing and collecting such tax. The only questions to be considered are whether the taxpayer was liable for the tax and, if so, whether the amount of the tax has been properly computed by the respondent.
*1143 Partnerships and individuals were subject to the excess profits tax upon their net incomes under section 201 of the Revenue Act of 1917. Members of partnerships, although*777 perhaps otherwise taxable as individuals, were not required to include in their excess profits tax net incomes their distributive shares of the partnership income. ; art. 41, Regulations 41. Therefore the taxpayer's distributive share of partnership income should be excluded from his net income in computing the excess profits tax for 1917. His distributive share of the income of the partnership of Cohn & Fisher of which he was a member in 1917 was $17,322.51.
The taxpayer had income during the taxable year in addition to his partnership income, some of which was derived from his individual law practice after the partnership terminated in November 1917 and the balance of which consisted of dividends and interest. The respondent has properly not attempted to include the taxpayer's income from dividends and interest in his excess profits tax net income. such income was not derived from a trade or business and the tax does not apply to it. Income in the amount of $6,040.13 was received by the taxpayer from his individual law practice in 1917. Since the taxpayer had only a nominal amount of invested capital in this business*778 and since he was a citizen of the United States, the excess profits tax is to be imposed in accordance with the provisions of section 209 of the 1917 Act at the rate of 8 percent of the net income in excess of $6,000, the latter amount being the exemption to which the taxpayer was entitled under that section. The petitioner's argument that no tax is due because the act did not extend to the Philippine Islands is without merit. The taxpayer's liability is predicated upon his United States citizenship and not upon his place of business or residence. The excess profits tax deficiency will be recomputed in accordance with the views set forth above.
The final questions are with respect to the taxpayer's liability for income tax for the year 1917 and whether the assessment and collection of any income tax which was due for that year is now barred by the statute of limitations. The questions are apparently ones of first impression here. The respondent treats the problem as being analogous to the question of liability for taxes in the year 1918 and relies upon *779 , and , to support his contention that the taxpayer was required to file a return with and pay a tax to the United States Government for the year 1917. Neither of those cases involved taxes of the year 1917 or any of the revenue acts effective in 1917. Whether or not the reasoning of those cases is pertinent here will depend upon the existence of a parallel between the 1917 and 1918 statutory provisions. We therefore turn to an analysis of the applicable statutes.
*1144 Title I of the Revenue Act of 1916 imposed an income tax upon the net income of every individual a citizen or resident of the United States. Both a normal tax of two percentum and an "additional tax" at graduated rates were provided. Section 8(b) of the 1916 Act provides that each citizen of the United States having a net income of over $3,000 and having no legal residence in the United States shall make a return for each taxable year to the collector of internal revenue at Baltimore, Maryland. Section 23 of the Revenue Act of 1916 provides in part as follows:
SEC. 23. That the provisions of this title shall extend*780 to Porto Rico and the Philippine Islands: Provided, That the administration of the law and the collection of the taxes imposed in Porto Rico and the Philippine Islands shall be by the appropriate internal-revenue officers of those governments, and all revenues collected in Porto Rico and the Philippine Islands thereunder shall accrue intact to the general Governments thereof, respectively: * * *
Title I of the Revenue Act of 1917 provides increased rates for the normal and additional taxes set forth in the 1916 Act. The 1917 Act also provides that the taxes imposed by it shall be "computed, levied, assessed, collected and paid" upon the same basis as the taxes under the 1916 Act, except that the personal exemptions are lowered and that the minimum amount of income on which returns were required is also reduced. Section 5 of the 1917 Act provides:
SEC. 5. That the provisions of this title shall not extend to Porto Rico or the Philippine Islands, and the Porto Rican or Philippine Legislature shall have power by due enactment to amend, alter, modify, or repeal the income tax laws in force in Porto Rico or the Philippine Islands, respectively.
*781 These statutory provisions make it clear that the income tax liability of a United States citizen residing in the Philippine Islands in 1917 was entirely unlike his liability in 1918, as explained in , and Those cases are therefore not in point. The taxpayer in the instant case filed a return and paid a tax for the year 1917 as required by the 1916 Act. The narrow question here is: Was the taxpayer required to file a second return and pay a second tax under the provisions of the Revenue Act of 1917? We hold that he was not required to do so. To reach any other conclusion would be judicially to legislate an exception into the relief provision (section 5) of the 1917 Act so that that section would prohibit the application of Title I of the 1917 Act in the Philippine Islands except against United States citizens residing there.
The 1916 Act, although it generally requires citizens residing abroad to file the returns and pay the tax in Baltimore, Maryland, specifically excepts citizens residing in the Philippine Islands from that requirement. Such citizens were required to file returns and pay*782 taxes in the Islands. Title I of the 1917 Act also imposes taxes upon citizens generally but makes no changes which are now material as to the manner of filing returns and paying the taxes, and, furthermore, specifically *1145 provides that its provisions shall not extend to the Philippines. It is perfectly plain that Congress did not intend that a person such as the taxpayer should be liable to taxation under Title I of the Revenue Act of 1917. The respondent's determination with respect to the income tax liability for 1917 is therefore disapproved. It is not necessary for us to discuss the effect of the statute of limitations. It is pertinent, however, to call attention to section 813(a) of the Revenue Act of 1938 which remits the delinquency penalty and all interest accrued prior to July 1, 1939, in such cases as the present.
Decision will be entered under Rule 50.