New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1872-02-24
INTERNAL REVENUE DECISION.


WASHINGTON, Feb. 23.-The following In
terual Revenue decision has been rendered:
l. Commissioner Douglass decides that the issue Of
teIest certificates to the amount OF s23o6Oo on the
Railroad Company is substantially scrip dividend, and
taxable under the Internal Revenue laws.
certificates issued, that they based on the
earnings Of the road and expenditures Of the Company
equal in amount 10 so per cent OF the stock OF the Com
pany-S23 O3G 900 being tire amount Of the scrip div
dendis binding, and not he dsregarded as against the
dced by the testimony Of the counsel Of the Company
that the Commissioner in the matter OF admissions and
nudge Of and reject the explanatory evidence
That 0oy such earnngs ESQ gains ain o or prots
fl Il income tax law, are liable to taxation.
That the measure OF valuation Ior the tafatiop OF
that where by the admission OF the Company the scrip
actually represents dOaI for dollar OF ts lace then tho
valuation thus sOemnly given Dy the Company VIII DIV
'' That 40 much of the dividend as belongs TO the
perod from September 1852 September, 1863 s 20 be
taxed In this the dividend covering In tlme hitten
years earnings &c. sixheenths OF me w ss 6enE
must be taxed In this case sx-dfteenths amount to
s924iOO Oh which tax OF hye per cent should be col
iected.
The Special Commission appointed some time ago TO
examine the case made report in substance nc follows:
In the opinion OF the undersigned tax is imposed by
the revenue laws upon the issue OF scrip by railroad
company except It is the representative OF
aud substitute for part OF the earnings profits, income or
gains of such company II will not be claimed that changes
in basis Of capitalization afford proper grounds for
Ievying assessments The tax on dividends Is part OF
its scheme for raising revenue from incomes and In
the OF persons provision is made for de-
Quoting the dividends received from corpora
lions which are required to pay the tax
thereon The rules governing the construction OF the
law applicable substantially TO the other
In the individual case, the question Is, What gain on
profit has been received Is receiyabe and IN that OF
corporation What has been divided or Is diyisible
The certificates under consideration amounted nominal
y TO more than $30OOOO while the excess OF revenue
over expenses and dividends from 1852 10 1868 less
than 100000 BY the terms OF the certificate they were
payabe only pleasure OF the Company and out OF its
future earnings They did not profess be- and were not
Ia fact substitutes for any part Of the earnings, profit
income gains of the Company which had therefore
crued They may rightly he styled the certified opinions
Of the directors touching the probable results of their
management Of the property put III covenant form for
discount and sale We conclude therefore, that the
issue these certificates in effect increase OF
capital based wholly prospective increase OF rev.
enue, and not a dividend OF substitute for accrued
profits and that whatever the obligation OF the Com.
pany have been at that time may be for tax
IN respect OF undivided profits accruing during the
whole any part OF the period from 1862 Ia 1861 the
distribution Of these certificates did not create liability
tax and therefore that the Company notiabe 10
the assessment from which il has appealed"