Page:United States Statutes at Large Volume 68A.djvu/399

 CH. 3—WITHHOLDING OF TAX

359

Subchapter B—Tax-Free Covenant Bonds Sec. 1451. Tax-free covenant bonds. SEC. 1451. TAX-FREE COVENANT BONDS. (a) REQUIREMENT OF W I T H H O L D I N G. — I n any case where bonds, mortgages, or deeds of trust, or other similar obhgations of a corporation, issued before January 1, 1934, contain a contract or provision by which the obhgor agrees to pay any portion of the tax imposed by this subtitle on 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 permitted to pay thereon, or to retain therefrom under any law of the United States, the obligor shall deduct and withhold a tax equal to 2 percent (regardless of whether the liability assumed by the obligor is less than, equal to, or greater than 2 percent) of the interest on such bonds, mortgages, deeds of trust, or other obligations, whether such interest is payable annually or at shorter or longer periods, if payable to— (1) an individual, (2) a partnership, or (3) a foreign corporation not engaged in trade or business within the United States. (b) PAYMENTS TO FOREIGNERS.—Notwithstanding subsection (a), if the liability assumed by the obligor does not exceed 2 percent of the interest, then the deduction and withholding shall be at the rate of 30 percent in the case of— (1) a nonresident alien individual, (2) any partnership not engaged in trade or business within the United States and composed in whole or in part of nonresident aliens, and (3) a foreign corporation not engaged in trade or business within the United States. (c) O W N E R UNKNOWN.—If the owners of such obligations are not known to the withholding agent, the Secretary or his delegate may authorize such deduction and withholding to be at the rate of 2 percent, or, if the liability assumed by the obligor does not exceed 2 percent of the interest, then at the rate of 30 percent. (d) B E N E F I T OF PERSONAL EXEMPTIONS.—Deduction and withholding under this section shall not be required in the case of a citizen or resident entitled to receive such interest, if he files with the withholding agent on or before February 1 a signed notice in writing claiming the benefit of the deduction for personal exemptions provided in section 151; nor in the case of a nonresident alien individual if so provided for in regulations prescribed by the Secretary or his delegate under section 874. (e) A L I E N RESIDENTS OF PUERTO R I C O. — For purposes of this section, the term "nonresident alien individual" includes an alien resident of Puerto Rico. (f) INCOME OF OBLIGOR AND O B L I G E E. — The obligor shall not be allowed a deduction for the payment of the tax imposed by this subtitle, or any other tax paid pursuant to the tax-free covenant clause, nor shall such tax be included in the gross income of the obligee.

§ 1451(f)

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