Newark evening star and Newark advertiser. [volume] (Newark, N.J.) 1909-1916, 1911-01-17
BUILDING LOAN
ASSOCIATIONS IN
ESSEX GET NOTICE
Treasury Department Informs
Them of Amendment to Law
of Special Excise Tax.

More than so per cent. of the H3ild-
ing and loan associations in Esssx
county today received notice of the
amendment to the act Of August s. 1909.
when the treasury department. at
Washington ruled that The associations
which ISSUED prepaid stock were Liable
to the special excise tax on corpora
tions. Since last March the deputy col
lectors have been e~ndeavoring to col
lect the money due the ~goqereinent oy
virtue of the act in 1893. Many of The
officers of the associations contended
that, although they dld issue prepaid
stock to others mar thei" menirefs,
the PREPAID stock was often given to
the members when their SHARES ma
tured, If they desired this instead of
cash.
OF the $50 building and loan associa-
tons ia this county it is believed that
eighty have made a profitable business
OF dealing IN prepaid stock For this
stock the purchaser realized from 4 to
3 per cent. The government insists
that these transactions are not Of the
mutual beneht variety and therefore
not exempt from the excise tax. The
tax is l per cent. of the earnings.
When FL. c. H.. Herold, collector for
this district, notified Internal Revenue
Commissioner r. E. Cabell at Wash
ington, d. c., that a number of the
local associations were issuing prepaid
stock to their BONA fde members when
tier shares matured the commissioner
ruled that in such cases the mutual
benefit agreement was not violated.
The following is a copy OF the letter
which was sent to all the building n
loan associations In the fifth district
of the internal revenue service by Col
lector Herold:
The Collectors Letter.
Gentlemen-Referring to the liability
of your association to taxation under
the act of August 5. 1909, by reason
of the issuance of prepaid stock, | beg
to advise you that l nm in receipt of a
ruling of the commissioner. under date
Of January 10, 1911, in which he states
that where certificates of Indebtedness
bearing a fixed rate of interest are
issued by building and loan associa-
tons, only to bona-fide members of the
association, upon the maturing of their
installment shares, they may be con-
sidered as simple evidence of the as
sociation's Indebtedness to these mem
bers because of the maturing of their
shares. and such action on the part OF
the association does not make it liaple
for special excise tax on corporations.
PREPAID stock issued by the associa-
ton for installment share maturing, on
which a fixed rate of interest was paid
in lieu of profits, and which shares
We're subject to cancellation by the
association at short notice, would be
simple evidence of Indebtedness in ac-
cordance with the decision above re-
ferred to, and such action, therefore,
would not make the association liable
TO special excise tax on corporations.
1t is understood, of course, that such
prepaid stock cannot be issued to n
persons other than those maturing
stock in the association, and only to
such persons for the purpose of giving
evidence of the associations indebted
ness to them because of the maturing
of their stock, without forfeiting its
right to the exemption claimed under
section No. IS of the act of August s,
1909.
If prepaid stock issued by your as
ISOLATION was given only to share
holders whose installment stock had
matured, you should file an affidavit to
that effect, in this office, also stating
in said tildavit that your association
does not loan money to others than
its members, nor receive sums of
money on deposit which is not in pay
ment of stock or which the depositor
receives a fixed rate of interest regard
less of the earnings of the association,
and claiming in said affidavit exemp-
ton from the provisions of h act
above referred to.