New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1914-12-27
NO TAX NOW ON
MORTGAGE INTEREST
Not if Money Is Paid by
Realty Corporation, Says
Treasury Department.
THE OLD RULING
WAS CALLED UNFAIR
Advisory Council Recently Said
II Was Preparing to Test
That Order.

The Advisory Council of Real Estate
Interests calls attention 10 the fact
that the Treasury Department has
again ruled that interest paid on mort
gage Indebtedness on real estate &C
ouired by corporations is deductibie
from income tax returns OF corpora
tions.
A synopsis Of rulings on questions
relating to the income tax was issued
bv the Treasury Department under date
OF December "a and released for pub
hcatjon December Is. Under the head
ing with reference to rulings IN rela-
ton 10 corporation income tax, is the
following: "As used in the act, the
EXPRESSION collateral tho subject OF
sale. etc. refers to physical or tangi-
bic property bound for the perform
snce of certain covenants or payments
Of certain obligations, and which ply
steal or tangible property IS the SUB.
iect of sale in the ordinary business OF
a corporation owning the same. Where
such corporation rs, as matter OF IT'S
ordinary business engaged IN buylng
and selling. or dealing IN such prop
erty, the interest actually paid wlthlh
the year on Indebtedness wholly Sc
cured bv such collateral may be allow
sblv deducted from gross income as an
expense of doing business, without
regard TO the limit or deductible IN
terest as otherwise provided by the
statute.
"The corporation, etc, must be or
gained and operated for the purpose
Of buying, selling and dealing IN the
particular kind Of property which be
comes collateral in question, and the
particular kind Of property pledged Tor
the debt upon which the interest is
paid must be the subject of sale in
the ordinary business of the corpora
ton
"Real estate mortgaged, and the
property Of corporations organized Tor
and engaged in the business Of buy
ing, selling and dealing in real estate;
warehouse receipts representing prop
erty the subject of sale IN the ordl-
nary business Of the corporation own
ing the same, and which warehouse
receipts are pledged as collateral for
such corporations own debt, are eX-
amples where the interest paid will be
deductible as a business expense and
not be subject 70 the statutory limita-
ton as to interest deduction"
Prior TO July Il, 1913, the mortgage
interest in question was deductible
from the income tax returns, adds the
advisory council, provided the mort
gage remained a lien upon the prop
ertv and the debt was not assumed by
the corporation. This original ruling
was modified and superseded by Treas.
htry decision 800. In this decision il
was held in effect that Indebtedness Sc
cured by mortgage upon property tC
which the corporation has taken or is
taking title, or in which 1t has AT
equity, is the indebtedness Of the cor
poration, and that interest payments OF
such indebtedness cannot be deducted
except to the extent that the whole
amount Of interest paid upon bonded Of
other indebtedness does not exceed ar
amount paid upon a sum not in excess
OF the paid up capital stock outstand
ing at the close Of the year.
This latter ruling has worked injus
tice 10 real estate owners, who were
not only required TO thereby pay th'
income tax, but also interest upoI
mortgage indebtedness, adds the coun
Gil. This inequitable condition of al
fairs received the careful attention o
the law and legislative committee o
the council, Walter Lindner, chairman
Every effort was made by this commit
tee TO have the Treasury Department
reverse its ruling, Treasury decision
1866, particularly since this commit
tee had the tax on mortgages eliminat
ed and tax restricted to equities an
not mortgages, in the war tax bill
Briefs were presented upon the merit
of the case and arguments advanced j
Washington. The Treasury Depart
ment was notified that test cas-
would be prepared with reference I
this ruling, and, II necessary, followe
10 the Supreme Court Of the Unite
States.