Evening star. [volume] (Washington, D.C.) 1854-1972, 1909-08-17
Corporations Will Fight the
New Tax in Court.
LAWYERS NOW AT WORK
for Line of Attack to
Be Made.
PROTEST TALK NOT DISTURBING
Officials Will Proceed to Apply Levy
and Legal Procedure Will
Have to Follow.

Already the big corporations are begin
ming to squrm over the new corporation
tax law, according to reports coming to
Washington. and they are setting their
attorneys at work picking possible flaws
in its validity. Unquesrionably. il is de-
clared. the law will be promptly hailed to
the bar and lis constitutionality uues-
toned upon some feature. But the flaw
pickers are having hard shedding, it is
said, due 10 the way and by whom the
Law was framed For it is obvious that
the aforesaid law was not the product of
..cornfield lawyers or demagog states
men. In the first place, ii was based upon
Supreme Court decision, upholding the
principle forming the basis of the act;
tho right of Congress to tax corpora
tion for carrying on business. Secondly.
il was more than once admitted to be
constitutional by great lawyers in Con-
gress. 1t was watched also at every stage
Of its preparation by President Taft, who
is reputed to have at least a smattering
of constitutional law.
The mainstay of confidence in the
constitutionality of the law how
ever. is the fact that its provisions
Wickersham. Secretary Knox and Sena-
tor Root, admittedly three of the greatest
corporation lawyers in the United States,
who have had wide experience with cor
poration law from the corporal tions' view
point, a coign OF decided advantage.
Kind of rough on the corporations,
wasn't it, said corporation lawyer to-
day, Ito pick out these men to frame a
law which would be invincible against at
tack. Like 'seething the kid in it's
mothers milk. which is prohibited by the
Koran
One Line of Attack.
The latest suggestion of one line of at
tack which will be made against the law
10 the raising of the point that this law
is not tax on the right to do business,
which has been upheld by the Supreme
court, but tax on profits. Some Of the
corporation lawyers are hoping to draw
a distinction there. They point out that
the law expressly stipulates that no cor
porations shall be taxed except those
that show net annual incomes exceeding
SJ.tsp. which they claim 10 be clear tax
on profits. An enormous amount of earn
ings are deducted before even this $1,000
is reached. and then that sum is to be de-
Quoted before the corporation becomes
liable to taxation.
The talk of contest has no effect upon
the government officials at this time,
however They are going right along
making preparations to apply the tax,
and the constitutional questions will
have to be taken up later. Under the
procedure i'm this country, there is no
way to halt the collection of tax in
advance. You must pay the money
first and then sue TO get it back If you
think 1t is unjust. Uncle Sam gets his
first. and if the law is invalidated by
the courts you take your chances of
getting your money back.
No Income Tax Experience.
1t is true that in the case of the in
come tax levied in the Cleveland admin
istration an adverse decision was reach
ed through motion for d restraining
order, but il has been charged that this
was through a peculiar sort of COM
placency upon the part of one OF the
parties TO the suit. winked at by the
government, to facilitate an unfriendly
decision. II is prophesied there will be
no such proceeding in this case.
The corporation tax is to be paid upon
the earnings of corporations for this cal
endar year. ending December II Mex.
The statement of earnings is to be sub
nitted by corporations TO the collector
OF internal revenue for the district in
which the corporation has its principal
office before March ! next. and the tax
must be paid before June 80 next. Delay
in payment after that date will be highly
penaliZed.
Corporations having net income over
S-,0,U a year shall be taxed l per cent
per annum upon all net income in excess
Of that sum. The feature of the Law
which is OF great interest 70 all corpora
tions and which. il is said. Will afford a
ioophole for many thousand corporations
10 escape taxation is the character of the
deductions from gross income allowable
in ascertaining the net income
The Hoped-for Loophole
These deductions from gross income are
as follows;
First-All the ordinary and necessary
expenses actually paid within the year out
of income in the maintenance and opera
tion Of the corporations business and
properties. including all charges such as
rental or franchise payments. (This
clause. ii is claimed will enable small
corporations TO charge off large sums as
Ssla ries where il Is a case of co-part-
nership personal family. which has
been incorpCra ted
within the year and not compensated by
insurance. including a reasonable allow
ance for depreciation of property.
Third-lnterest actually paid within the
year on bonded or other Indebtedness to an
amount OF such Indebtedness not exceed
ing the paid-up stock of the corporation
In the case of banks. deduction shall be
made OF interest paid on deposits
Four-AiI sums paid for taxes.
Fifth-Al amounts received as dvi-
dends upon stocks of other corporations
Crhis is the exemption Of so-called hold
ing companies.
Special exceptions are made in the case
of insurance companies of sums paid
within the year on policy and annuity
contracts and the net addition required
by law to be made To reserve funds
Provision Is made to tax foreign cor
porations the amount of their busl-
ness done in this country.
Returns Open to Inspection.
After the assessment has been made the
returns of the corporations shall be filed
in the Office of the commissioner of in
ternal revenue. and shall constitute pub.
lie records and be open to inspection as
such This is one OF the features de.
clsred to be Objectionable, as it will give
rival corporations opportunity TO inspec,
the extent of each others business
Chile Unable to Send a Warship.
SANTIAGO. .-usust 1.-THE Chiiear