*798 1. Where petitioner, a nonresident alien, failed to file individual income tax returns as required by law, the filing of withholding tax returns by his withholding agents and the filing of partnership returns by the said agents in their own behalf, did not start the running of the period of limitations.
2. An additional tax was properly assessed against the taxpayer because of his failure to file required income tax returns.
3. The facts fail to sustain petitioner's contention that his agents were under obligation to file individual income tax returns on his behalf, but, regardless of that fact, failure of the agents so to file did not excuse the taxpayer.
4. The Commissioner properly determined the taxpayer's net income from his gross bank deposits, where over a period of years the taxpayer failed to file returns.
*1092 This proceeding arises on the determination by respondent of deficiencies in petitioner's income tax for the following years and amounts:
| Year | Deficiency | 25% additional tax | Total |
| 1920 | $3,850.30 | $962.58 | $4,812.88 |
| 1921 | 7,480.07 | 1,870.02 | 9,350.09 |
| 1922 | 1,894.09 | 473.52 | 2,367.61 |
| 1923 | 383.37 | 95.84 | 479.21 |
*799 *1093 Deficiencies were also found for the years 1924 to 1926, inclusive, and fraud penalties thereon computed, but since the parties have, by stipulation, agreed on the correct liability of petitioner for those years, they are not here in controversy. By an amended answer respondent reduced the deficiencies for 1921 and 1923 and affirmatively pleaded an increase of deficiencies for the years 1920 to 1922, the deficiencies and additional taxes now claimed being as follows:
| Year | Deficiency | 25% additional tax |
| 1920 | $4,553.78 | $1,138.45 |
| 1921 | 5,411.29 | 1,352.82 |
| 1922 | 2,250.24 | 562.56 |
| 1923 | 370.17 | 92.54 |
Four questions are presented: (1) Whether the statute of limitations has run; (2) whether respondent erred in asserting a 25 percent additional tax for each of the years; (3) whether petitioner can escape liability on the theory that his withholding agents are liable for the taxes determined; and (4) whether the gross bank deposits of petitioner, as determined by respondent, represent petitioner's net income for the years in question. The Revenue Acts of 1918 and 1921 are those involved.
FINDINGS OF FACT.
Petitioner is a nonresident alien, being*800 a subject of Sweden and since 1924 a resident of Monte Carlo, Monaco. He is an engineer, the inventor of an etching machine, and the owner of patents on this invention. By a contract, dated Stockholm, October 29, 1910, petitioner gave to John A. Heitz, Inc., of Philadelphia, the sole sale right of machines made under his American and Canadian patents in the United States and Canada for three years. Under this contract one Hermann Schuessler sold petitioner's machines until the former's death in 1918. Marie C. Gies, who had been a bookkeeper employed by Schuessler since 1916, afterwards carried on the corporation's business for the Schuessler estate for a year, under a contract with Schuessler's executrix. From 1916 to the end of 1919 the machines were sold mostly on the installment basis; and when petitioner came to this country in 1919 there was a balance of accounts receivable resulting from such sales, which were taken over by the Axel Holmstrom strom Etching Machine Co. for collection only. Collection was completed by 1924.
Petitioner came to the United States in December 1919, and remained until April 1920. Three instruments were executed by the petitioner during this*801 period, affecting Gies and one Otto T. Plesser, in respect of petitioner's patent rights, as follows:
*1094 1. The following appointment bearing date of January 2, 1920:
I, Axel Holmstrom, Wiggbyholm, Sweden, hereby appoint Otto T. Plesser and Marie C. Gies known as Axel Holmstrom Etching Machine Co.
in the capacity of sales agents for my Revolving Etching Device, for the United States of America, Canada, Central and South America.
A license fee of $650 for every "Sirius" and $775 for every "Standard" machine is to be paid me by the aforesaid company.
Philadelphia, Pa., January 2, 1920.
[Signed] AXEL HOLMSTROM.
2. The following agreement bearing date of January 2, 1920, which was signed also by Gies and Plesser:
AGREEMENT
between
AXEL HOLMSTROM, Wiggbyholm, Sweden
and
O. T. PLESSER, Philadelphia; M. C. GIES, Philadelphia1. The partnership of O. T. Plesser and M. C. Gies, known as: - Axel Holmstrom Etching Machine Co. is to engage in the business of manufacturing and selling Etching Machines invented by Axel Holmstrom - U.S.A. Patents No. 721,445 and 979,071. They are the sole agents for the U.S. of America, Canada, Central- and South America.
*802 2. The sale of each machine must include a license or royalty payable to the inventor. Said License must be signed by: O. T. Plesser and M. C. Gies together with the facsimile signature of Axel Holmstrom. Until further notice, the license on the "Sirius" machine is $650 (Dollars Six Hundred and Fifty) Payments on account of licenses are to be made to Axel Holmstrom monthly in proportion to cash receipts.
3. The partnership, Axel Holmstrom Etching Machine Co. must restrict its business activities to the manufacture and sale of aforesaid machines. For any other business activity, the consent of Axel Holmstrom is required.
4. This contract will continue for seven years, but is subject to cancellation upon six months notice from either party. Upon expiration, Axel Holmstrom will either take over the business himself, or this contract will be extended under the same or other condition.
Philadelphia, Pa. January 2nd. 1920.
[Signed] O. T. PLESSER
M. C. GIESAXEL HOLMSTROM
3. The following contract, bearing date of February 3, 1920, which was signed also by Gies and Plesser:
Contract
Between Axel Holmstrom, Wiggbyholm, Sweden, owner of the firm Axel Holmstrom*803 Etching Machine Co., Philadelphia, on one side, and Otto Plesser and Marie C. Gies, living in Philadelphia, on the other side, today the following contract has been agreed upon.
1. The firm Axel Holmstrom Etching Machine Co., which was founded in Philadelphia on Jan. 1st 1920, is engaged in sale of licenses for the etching machines *1095 invented by Axel Holmstrom, U.S.A. Patent No. 721,445 and 979,071. December 20th 1910 / inclusively the machines etc. / for the United States of North America, Canada, Central- and South-America.
2. Otto Plesser and Marie Gies receive collective proxy warrant and corresponding bank-powers. All licenses must be signed by Axel Holmstrom himself or by Otto Plesser and Marie C. Gies together with a facsimil- signature of Axel Holmstrom in order to be valid.
3. Otto Plesser and Marie Gies pledge themselves to devote their entire time and activity to the interests of the Axel Holmstrom Etching Machine Co. and to in no way actively participate in any other business enterprise.
4. Otto Plesser and Marie C. Gies furthermore pledge themselves subject to a penalty of Dollar 10.000: - /ten thousand Dollars/ if they manufacture or let manufacture*804 etching machines for themselves or to all etc.
5. As license Dollar 500: - /five hundred Dollars/ are to be paid to Axel Holmstrom for each sold machine. The net profit of the sale is to be divided as follows:
| Axel Holmstrom | 30%, |
| Otto Plesser | 40%, |
| Marie C. Gies | 30% |
With net profit is understood the profit which remains after paying the costs of licenses, manufacture and assembling of the machine-parts, sales commissions, sconto and office-expenses etc.
6. The division of the entire business-profits is to be made every month, beginning with April 1st, 1920, as follows:
The monthly cash-receipts are divided in three parts.
The first third goes to Axel Holmstrom as part payment for sold licenses.
The second third is to be paid as follows:
| to Axel Holmstrom | 30%, |
| Otto Plesser | 40%, |
| Marie C. Gies | 30%, |
and serves as part payment of the in point 5 mentioned net profit-parts, due to the three participants of this contract. The last third shall remain in the bank as a business-fund. When this business-fund /last third/ has reached such a figure that a part-division can be made, the payments shall be made as follows:
50%*805 to Axel Holmstrom as part payment for sold licenses,
15% to Axel Holmstrom as part payment for net profit part,
20% to Otto Plesser as part payment for net profit part,
15% to Marie C. Gies as part payment for net profit part,
7. An exact statement of the sales and the business situation is every month to be sent to Axel Holmstrom together with the signed original licenses.
Fee Kr. 10:
Stamp Kr. 1:
Kr. 11: Axel Holmstrom.
8. Otto Plesser and Marie C. Gies have the right to take a three weeks vacation every year. For a longer absence is the permission of Axel Holmstrom necessary.
9 It is understood that both parties, Axel Holmstrom, on one side, and Otto Plesser and Marie C. Gies, on the other side, have the right to cancel this contract after a written notice given 6 months before. In case of breach of contract no such notice is necessary.
*1096 10. If Otto Plesser or Marie C. Gies through illness, accident or similar conditions should become incapable to work for Axel Holmstrom Etching Machine Co., Axel Holmstrom declares that he will act to their interest, however without being obliged to any indemnity compensations.
11. Through signing*806 of this contract both parties agree accurately to obey and follow all its regulations, which also shall be binding for the possible successors to the Axel Holmstrom Etching Machine Co.
Philadelphia, February 3rd 1920
AXEL HOLMSTROM
OTTO T. PLESSER
MARIE C. GIES
ADDITIONS TO THE CONTRACT
1. In point 3 is the word "active" to be inserted.
2. The sales-price of the "Sirius" - Etching Machine shall be Dollars 1,350/One thousand Three hundred and fifty Dollars/. The sales-price of the "Standard" - Etching Machine, which is in the process of being manufactured, shall be Dollars 1,650 /One thousand six hundred and fifty Dollars/ and are as license for the "Standard" Machine Dollars 600 /Six hundred Dollars/ to be paid. Any changes in the prices are to be made by Axel Holmstrom alone.
3. The place for payment shall always be decided by Axel Holmstrom.
4. The place for court-decisions shall be Berlin-Mitte.
Taxes which in the United States of North America have to be paid on the licenses are to be paid as follows:
| By Axel Holmstrom | 50% |
| Otto Plesser | 25% |
| Marie C. Gies | 25% |
5. Only this contract shall be considered as binding and valid.
*807 Signatures: AXEL HOLMSTROM OTTO PLESSER MARIE C. GIES
Plesser wrote the following undated letter to petitioner in the fall of 1924, the original German text being set out in the margin. 1
*808 *1097 Mr. Axel Holmstrom
Monte Carlo.
Today we received a communication from the tax authorities requesting us to appear within thirty days in order to give explanation of our business circumstances.
We can imagine what the Government wants to know; first: in which relation you stand to our company and second: the people will want to see something in writing about your licenses and the 4% taxes which we have to pay. In our private tax declarations we naturally have deducted our part (your taxes). Now it will be difficult for us to make the authorities understand that we really have to pay taxes for "somebody else." We can not show our contract because you are mentioned as owner of the business and also we can not say that our agreements have been made orally.
We have now written a contract in English for this special purpose and formulated the same so that you are the owner of the patents and the receiver of the licenses, without however mentioning that you [are] owner or part owner of our company.
The addition to the original contract, regarding the taxes which we have to pay, we can not mention in this English contract, as we already have stated that this*809 condition was made by you later after you had determined the price of the licenses.
Please write us a letter, dated April … 1920, on your Swedish stationery and state therein that we have to pay the half of your 8% taxes. (to your service we enclose suggested formulation).
In our common interest we ask you directly upon the receipt to return to us the enclosed contract, with your signature, together with the letter written by you, so that we upon request can present these papers to the tax authorities.
Yours very truly,
A.G.E.M. Co.
This letter was antedated by Plesser and Gies in order to convince the revenue agent of the truth of their returns. In the fall of 1924 petitioner wrote and signed a letter in German, the German text being set out in the margin, 2 dated Wiggbyholm (Sweden), April 1, 1920, as follows:
Wiggbyholm, April 1, 1920.
Axel Holmstrom Etching Machine Co.
I refer to conversation with you while I was there, regarding the 8% income taxes payable on my licenses. When I gave you the license price of $650.00 I had not figured on having to pay taxes out of this amount. As agreed, I will pay 4% and you the other 4%.
Cordially
[Signed] *810 AXEL HOLMSTROM.
Please return the original contract and one copy with your signature.
*1098 At the same time - the fall of 1924 - petitioner also signed the agreement of January 2, 1920, above set out.
Plesser visited petitioner in Europe each year from 1920 to 1923, inclusive, but never spoke of any tax difficulty; nor did Gies when she visited the petitioner in 1927. Petitioner's son visited Plesser every summer, and petitioner received monthly reports of the business.
During the years 1920 to 1926 the Axel Holmstrom Etching Machine Co. carried on business through Gies and Plesser, *811 manufacturing and selling etching machines under petitioner's patents. During this period the money resulting from the sales, including petitioner's license fee, was deposited in the firm's bank account, in 1920 and 1921 in the Girard National Bank and from 1920, also in the Philadelphia Trust Co., which later became consolidated with the Fidelity-Philadelphia Trust Co. These deposits were made by Plesser and Gies in accordance with a power of attorney given to them by petitioner on March 10, 1920, as follows:
KNOW ALL MEN BY THESE PRESENTS THAT I Axel Holmstrom do hereby make constitute and appoint Otto T Plesser and Marie C. Gies my true and lawful attorneys for me and in my name to draw checks against my account in PHILADELPHIA TRUST COMPANY, to endorse all matter for deposit that may be require endorsement, to accept all drafts or bills of exchange that may be drawn upon me, and generally to do all acts necessary for the keeping and conducting the account as fully and completely as I myself could do personally, hereby ratifying and confirming all checks that my said Attorney may draw, and generally all that he may do with reference to the said account, with power also to make*812 and substitute an attorney or attorneys under for that purpose and to do all lawful acts requisite for effecting the premises hereby ratifying and confirming all that the said attorney or substitute or substitutes shall lawfully do by virtue hereof.
IN WITNESS WHEREOF I have hereunto set my hand and seal the 10th day of March in the year of our Lord one thousand nine hundred and twenty.
[Stamp] AXEL HOLMSTROM
SEALED AND DELIVERED in the presence of T. WAYNE MAC DOWELL
No royalties were deposited for petitioner before March 5, 1920.
The withdrawals from petitioner's account with the Fidelity-Philadelphia Trust Co. were made on his order, and monthly statements of such deposits and withdrawals were sent to petitioner by Plesser and Gies, in addition to those sent by the bank.
Petitioner's account with the Girard National Bank shows that the following sums were deposited to his credit in 1920 and 1921:
| Years | Deposits |
| 1919 (Dec. 31) balance | $25,000.00 |
| 1920 | 17,748.93 |
| 1921 | 24,324.62 |
*1099 And the following amounts were withdrawn therefrom:
| Years | Withdrawals |
| 1920 | $17,195.00 |
| 1921 | 31,023.24 |
| 1922 (to June 7) | 19,950.48 |
*813 The following amounts of interest were credited to petitioner's account in these years:
| Years | Interest credited |
| 1920 | $290.48 |
| 1921 | 640.21 |
| 1922 (to June 7) | 164.48 |
There were deposited by petitioner's attorneys, Plesser and Gies, to his account in the Philadelphia Trust Co. from January 14, 1920, to December 31, 1923, inclusive, the following amounts:
| Years | Deposits |
| 1920 | $34,970.38 |
| 1921 | 52,737.51 |
| 1922 | 32,009.05 |
| 1923 | 25,325.55 |
In the same period the following amounts were withdrawn from petitioner's account with this bank:
| Years | Withdrawals |
| 1920 | $32,316.90 |
| 1921 | 45,106.62 |
| 1922 | 27,882.37 |
| 1923 | 21,480.27 |
And the following amounts constitute interest credited by the bank to the petitioner on the same account:
| Years | Interest credited |
| 1920 | $116.41 |
| 1921 | 232.24 |
| 1922 | 343.12 |
| 1923 | 556.38 |
The following amounts constituted royalties of petitioner received from the Axel Holmstrom Etching Machine Co. in the taxable years and from these Plesser and Geis withheld the amount of tax which they were required to do as withholding agents:
| Years | Income |
| 1920 | $19,006.66 |
| 1921 | 37,374.40 |
| 1922 | 30,586.40 |
| 1923 | 23,695.96 |
*814 The sums of the amounts above representing bank interest, royalties from the Schuessler estate, and royalties from the Axel Holmstrom *1100 Etching Machine Co. constitute the known net income of petitioner in the taxable years and are as follows:
| Net income, 1920 | |
| Royalties from Schuessler Estate | $18,523.66 |
| Do from Axel Holmstrom Etching Machine Co | 19,006.66 |
| Interest, Girard National Bank | 290.48 |
| Interest, Philadelphia Trust Co | 116.41 |
| Total income 1920 | 37,937.21 |
| Net income, 1921 | |
| Royalties from Schuessler Estate | $8,123.96 |
| Do from Axel Holmstrom E.M. Co | 37,374.40 |
| Interest, Girard National Bank | 640.21 |
| Interest, Philadelphia Trust Co | 232.24 |
| Total income 1921 | 46,370.81 |
| Net income, 1922 | |
| Royalties from Schuessler Estate | $2,171.15 |
| Do from Axel Holmstrom E.M. Co | 30,586.40 |
| Interest, Philadelphia Trust Co | 343.12 |
| Total income 1922 | 33,100.67 |
| Net income, 1923 | |
| Royalties from Schuessler Estate | $1,531.73 |
| Do from Axel Holmstrom E.M. Co | 23,695.96 |
| Interest, Philadelphia Trust Co | 556.38 |
| Total income 1923 | 25,784.07 |
Plesser and Gies, as agents for petitioner, prepared and filed withholding income tax returns for petitioner in*815 1920, 1921, 1922, and 1923 on form 1040, and paid the tax. Petitioner's income from royalties and bank interest (these being the only sources shown) and the withholding tax paid thereon were shown in these returns for the several years as follows:
| Year | Net income | Withholding tax paid |
| 1920 | $19,006.66 | $1,520.53 |
| 1921 | 37,374.40 | 2,989.95 |
| 1922 | 30,586.40 | 2,446.91 |
| 1923 | 23,695.96 | 1,895.68 |
Petitioner never filed for these years a nonresident alien return, form 1040-B, nor was any such return ever filed for him. The records of the collector's office at Philadelphia and of the collector's office at Baltimore reveal no record of any such return. In 1928 the accounting firm of George K. Watson & Co. sent a representative to the office of Plesser and Gies where he saw Plesser and Gies and petitioner's son, Harry, who said they were representing petitioner, and *1101 at their request he prepared from the firm's books such returns of petitioner's income for the years 1920, 1921, 1922, and 1923. The originals and duplicates were sent to the partnership. But there is nothing to show that petitioner or any one in his behalf ever filed or sought to file the*816 returns so prepared.
For the years 1920, 1921, 1922, and 1923, the Axel Holmstrom Etching Machine Co. filed partnership returns which show Plesser and Gies as the sole partners, the former holding a 57 percent interest, and the latter 43 percent. They also show the gross amounts paid as "first license" and "second license" in 1920 and 1921 and merely as "license" in 1922 and 1923, but do not show to whom they were paid. The net income returned by the partnership in these years represented the partnership's earnings after deduction of the royalties or "licenses."
Petitioner returned to the United States on December 17, 1934, and remained in this country until after the hearing of this case in May 1936.
Assessments of the deficiencies in the several years, determined after allowance of the tax paid for petitioner by petitioner's withholding agents, were duly made by the respondent against petitioner and petitioner was given due notice of such action on June 6, 1935.
OPINION.
MILLER: Respondent claims deficiencies in petitioner's income tax and 25 percent additional taxes for the years 1920, 1921, 1922, and 1923. The additional taxes were imposed because of petitioner's*817 failure to make personal income tax returns for those years. The Revenue Act of 1918 is applicable to the year 1920 and the Revenue Act of 1921 to the remaining years. The applicable sections are set forth in the margin. 3
*818 *1102 Petitioner was a nonresident alien inventor, who received royalties on his patents from a partnership which sold etching machines in Philadelphia during those years. The partnership made agents' withholding returns for the same years.
Every individual receiving income above the statutory exemption is required to make a return of such income, or if unable to do so, to have it done by an authorized agent. Sec. 223, Revenue Act of 1918; sec. 223, Revenue Act of 1921. The petitioner received income in each of the four years sufficient to require the filing of individual returns thereon.
Gross income of nonresident aliens from sources within the United States is defined by section 213 of the Revenue Act of 1918, and by section 217 of the Revenue Act of 1921. No question is raised in the petition that all income included by the respondent was from sources within the United States. In computing net income of a nonresident alien, deductions are limited to those related to income from sources within the United States, sec. 214(b), Revenue Act of 1918, sec. 214(b), Revenue Act of 1921; and a nonresident alien individual is entitled to "receive the benefit of the deductions*819 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 corporate or otherwise in the United States." In case of failure to file a return, the collector is required to collect the tax on such income, and all property belonging to such nonresident alien individual or foreign trader is liable to distraint for the tax. Sec. 217, Revenue Act of 1918; sec. 217(g), Revenue Act of 1921.
(1) The first question is whether the assessments are barred by the statute of limitations.
The period of limitation fixed by the statute for assessing and collecting income taxes for the year 1920 was five years after the filing of the required return; and the period of limitation fixed by the statute relating to taxes for the years 1921, 1922, and 1923 was four years after the filing of the required returns for each year. Revenue Act of 1926, sec. 277(a).
*1103 Section 278(a) of the Revenue Act of 1926 further provided:
In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the*820 collection of such tax may be begun without assessment at any time. [Italics supplied.]
There is no evidence that petitioner ever filed personal income tax returns for the years in question, or that any such returns were filed in his behalf. No allegations to that effect were made in the petition or by petitioner when he was on the witness stand at the hearing. Representatives of the collector's office at Philadelphia and at Baltimore testified that neither of those offices contained any record of such returns. While this evidence is entirely negative, we think it clearly establishes the fact that no returns were ever filed by petitioner for those years, and we have so found as a fact.
The only tax returns filed on behalf of petitioner for the four years in question were the "withholding tax" returns filed by Plesser and Gies. These filings were insufficient to start the running of the periods of limitation. .
What has been said of the withholding returns applies with equal force to the partnership returns filed by the Axel Holmstrom Etching Machine Co. The only parties appearing by name on these returns are*821 Plesser and Gies. The petitioner's name does not appear at all except as it appears in the name of the partnership. These returns were not intended to be the individual returns which petitioner should have filed, and can not be substituted therefor. None of the returns filed by Plesser and Gies, either as withholding agents or for the partnership, purported to reveal or to give "substantial information as to the specific items of the taxpayer's gross income and the deductions and credits to which it (he) was entitled." This is true particularly as it relates to income received from the estate of Schuessler. For the reasons set forth in et seq., they are insufficient, therefore, to satisfy the requirement of the law. The petitioner, as a nonresident alien, failed to file returns at his peril.
Since no individual income tax returns were filed by petitioner or by any agent in his behalf during the taxable years, the statute of limitations raises no bar to the assessments. It is the filing of such returns that starts the running of the statutory period. Sec. 277(a), Revenue Act of 1926; *822 ; ; Updike v.United States, 8 Red.(2d) 913.
The respondent has determined additional taxes of 25 percent of the amount of the deficiencies in the several years because of petitioner's *1104 failure to file individual returns. No question of fraud is raised. The additional taxes are laid under the Revised Statutes, section 3176, which as amended by section 1317 of the Revenue Act of 1918 and reenacted by section 1311 of the Revenue Act of 1921, is set out in the margin. 4 The reasons which require that the deficiencies be sustained, require also that the additional taxes be sustained.
*823 Petitioner seeks to escape liability both for taxes and additional taxes on the theory that his agents Plesser and Gies were under obligation to file returns in his behalf and to pay his taxes. The facts fail to support this theory. Plesser and Gies were neither obligated nor authorized to file individual tax returns for petitioner, disclosing his income from all sources in the United States, and to pay taxes thereon. The evidence was contradictory as to which of these instruments was the one under which petitioner and Gies and Plesser operated in the taxable years; petitioner maintaining that the contract of February 3, 1920, was in force until 1927, and Gies that it was repudiated in the same week made. Petitioner contends that the contract dated February 3, 1920, was the one which determined the relationship of Plesser and Gies to him, and fixed their liability to make returns and pay taxes in his behalf.
The only reference to taxes in that contract is that which is found in the undated and unsigned "Additions to The Contract", attached at the end thereof, as follows:
Taxes which in the United States of North America have to be paid on the licenses are to be paid as follows: *824
| By Axel Holmstrom | 50% |
| Otto Plesser | 25% |
| Marie C. Gies | 25% |
It can hardly be seriously contended that the foregoing was intended to obligate Plesser and Gies to file individual tax returns for petitioner. It could as well be argued therefrom that the petitioner was obligated to make individual tax returns for Plesser and Gies. In fact, it is apparent that this statement was no more than a specification of the percentage which each of the three undertook to pay, of "taxes which * * * have to be paid on the licenses." If there were any doubt as to the meaning of this provision it was *1105 completely removed by the letter written by petitioner in 1924, antedated April 1, 1920:
I refer to conversation with you while I was there, regarding the 8% income taxes payable on my licenses. When I gave you the license price of $650.00 I had not figured on having to pay taxes out of this amount. As agreed, I will pay 4% and you the other 4%. The power of attorney given by petitioner to Plesser and Gies contains no language which can possibly be construed to require the filing of tax returns or to permit the payment of taxes.
Conceding, for the purpose of argument, *825 as petitioner so earnestly contends, that his agents not only failed to fulfill the obligations assumed under their contract of agency, but also intentionally sought to defraud petitioner, still we are not concerned with that question here. We are concerned only with ascertaining whether the taxes were properly laid on petitioner as a nonresident alien, and, if so, whether the Commissioner may collect them directly from petitioner's property without resort to his agents. The statutes clearly confer that power.
The Government is not limited to its remedy against the agent for collection of the tax if the principal has property subject to distraint. This is the language and the clear and obvious intendment of section 217 of the Revenue Act of 1918, and of section 217(g) of the Revenue Act of 1921.
Far from constituting an excuse for a taxpayer's failure to file required returns, willful neglect upon the part of an agent to do so may be imputed to his principal, so as to sustain imposition of additional taxes upon the latter. *826 ; , and cases there cited.
Petitioner returned to the United States on December 17, 1934, and remained until after the hearing of this case in May 1936. For a period of nearly six months prior to the assessments made by the respondent, petitioner failed to file his returns for the years in dispute, although present in this country and in full charge of his own affairs. Had he filed returns during this period he would, perhaps, have been in a position to urge reasonable cause for delay in filing as a reason for nonimposition of additional taxes. This he failed to do and has thus cut off any chance of avoiding such additional taxes. It is only in the case of returns actually filed that a taxpayer can plead reasonable cause for tardiness in filing as a means of avoiding such assessments. ; , and cases there cited.
One further question remains - whether respondent correctly determined petitioner's net income for each of the years*827 in controversy *1106 from the records of his bank deposits, credits, and withdrawals and from the books of the Axel Holmstrom Etching Machine Co. The Commissioner's resort to the taxpayer's bank deposits to establish his income, other evidence being lacking, is not unreasonable. Cf. ; . And here, except for the amount of bank credits on interest received by petitioner on his bank deposits, the bank records are used only to corroborate evidence otherwise obtained. It is argued that none of the amounts received by petitioner from the Schuessler estate constituted income, but instead represented an old debt, dating back to 1913, which was paid to him little by little each month. The evidence is clear that these amounts were petitioner's share of old installment stallment sales made since 1910. Since petitioner was on a cash basis, these installment payments, no matter when earned, constituted income to him in the year of their receipt. *828 ; ; . Cf. .
In the bank deposit accounts it should be noted that a duplication of $30,000 occurs in the year 1921 which should be eliminated from petitioner's deposits in the Philadelphia Trust Co. for that year (August 29, 1921) and also from the withdrawals from the Girard National Bank (August 8, 1921), since this represents merely a transfer from one bank to the other of the same money. It should be noted also, for purposes of recomputation, that the amount received by petitioner from the Axel Holmstrom Machine Co. in 1922 was $30,586.40 instead of $31,386.40 as found by the respondent, making his total income for that year $33,100.67 instead of $33,900.67.
The determination of increased deficiencies is sustained for the years 1920, 1921, 1922, and 1923 in accordance with the facts found, and also additional taxes amounting to 25 percent of the deficiencies for each year involved.
Reviewed by the Board.
Judgment will be entered under Rule 50.
Footnotes
1. Herr Axel Holmstrom
Monte Carlo
Wir erhielten heute von der Steuerbehoerde Nachricht, innerhalb 30 Tagen zu erscheinen, un ueber die Art unseres Geschaefts-Verhaeltnisses Aufklaerung zu geben.
Was die Regierung wissen will, koennen wir uns denken; erstens; in welchem Verhaeltnisse Sie zu unserer Co. stehen, und zweitens wollen die Leute vielleicht etwas Schriftliches seben betreff Ihrer Lizenzen, und der von uns zu sahlenden Steuer von 4%. In unseren privaten Steuer-Erkiaerungen haben wir natuerlich unseren Anteil (Ihrer Steuern), abgezogen. Wir koennen nun der Behoerde schlecht begreiflich machen, dass wir tatsaechlich "fuer jemand anders" steuern zahlen muessen. Unseren Kontrakt koennen wir nicht verzeigen, weil Sie da als Inhaber aufgefuehrt sind, und wir koennen den Leuten auch nicht sagen, dass unsere Abamachungen muendlich gemacht wurden. Wir haben nun einen englischen Kontrakt fuer diesen speciellen Zweck ausgeschrieben, und denselben so geformt, dass Sie der Patent Inhaber und Empfaenger der Lizenzen sind, ehne jedoch zu erwaehnen, dass Sie Inhaber oder Teilhaber unserer Co, sind.
Den Nachsatz im Original Vertrag, betreff der von uns zu zahlenden Steuern, koennen wir nicht in diesem engl, Vertrag anfuehren, da wir bereits angegeben haben, dass diese Bestimmung spaeter von Ihnen gemacht wurde, nachdem die Lizenzen festgesetzt waren.
Bitte schreiben Sie uns einen Brief datiert April … 1920 auf Ihren schwedischen Briefbogen, und sagen Sie darin, dass wir die Haelfte von Ihren 8% Steuren zu zahlen haben. (Zur Ihrer gefl, Bedienung einl, eine Skizze.)
In unserer aller Interesse ersuchen wir Sie, einl, Kontrakt sowie den von Ihnen geschriebenen Brief sofort nach Erhalts, mit Ihrer Unterschrift versehen, an uns zurueckzusenden, damit wir der Steuerbehoerde auf Verlangen diese Papiere varlagen koennen.
Freundschaftlichst ↩
2. Axel Holmstrom Etching Machine Co. Wiggbyholm, den 1 April 1920.
Ich beziehe mich auf die Unterredung, die ich mit Ihnen gelegentlich meines Dortseins hatte, in Betreff der fur meine Lizenzen zu bezahlenden Einkommen Steuern von 8%. Als Ich Ihnen den Lizenz Preis von Dollar 650: anga b, hatte ich nicht damit gerechnet, dass ich von dieser Summe Steuern zahlen muss. Wie abgesprochen, werde ich 4% und Sie die anderen 4% zahlen.
Freundschaftlichst
[Signed] AXEL HOLMSTROM
Retournieren Sie bitte Original↩ Kontrakt und eine Koppie mit Ihren Unterschriften.
3. [Revenue Act of 1918.] SEC. 221. (a) That all individuals, corporations and partnerships, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, employers, and all officers and employees of the United States, having the control, receipt, custody, disposal, or payment, of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income of any nonresident alien individual (other than income received as dividends from a corporation which is taxable under this title upon its net income) shall (except in the cases provided for in subdivision (b) and except as otherwise provided in regulations prescribed by the Commissioner under section 217) deduct and withhold from such annual or periodical gains, profits, and income a tax equal to 8 per centum thereof: Provided: That the Commissioner may authorize such tax to be deducted and withheld from the interest upon any securities the owners of which are not known to the withholding agent.
* * *
(c) Every individual, corporation, or partnership, required to deduct and withhold any tax under this section shall make return thereof on or before March first of each year and shall on or before June fifteenth pay the tax to the official of the United Statrs Government authorized to receive it. Every such individual, corporation, or partnership is hereby made liable for such tax and is hereby indemnified against the claims and demands of any individual, corporation, or partnership for the amount of any payments made in accordance with the provisions of this section.
(d) Income upon which any tax is required to be withheld at the source under this section shall be included in the return of the recipient of such income, but any amount of tax so withheld shall be credited against the amount of income tax as computed in such return.
(e) If any tax required under this section to be deducted and withheld is paid by the recipient of the income, it shall not be re-collected from the withholding agent; nor in cases in which the tax is so paid, shall any penalty be imposed upon or collected from the recipient of the income or the withholding agent for failure to return or pay the same, unless such failure was fraudulent and for the purpose of evading payment.
[The same provisions are repeated by section 221 of the Revenue Act of 1921.] ↩
4. [Section 1317, Revenue Act of 1918 (Rev. stat., sec. 3176.)]
* * *
The Commissioner of Internal Revenue shall determine and assess all taxes, other than stamp taxes, as to which returns or lists are so made under the provisions of this section. In case of any failure to made and file a return or list within the time prescribed by law, or prescribed by the Commissioner of Internal Revenue or the collector in pursuance of law; the Commissioner of Internal Revenue shall add to the tax 25 per centum of its amount, except that when a return is filed after such time and it is shown that the failure to file it was due to a reasonable cause and not to willful neglect, no such addition shall be made to the tax. * * * ↩