Evening journal., 1916-02-21
Stockholders Receive Opin-
ion of Company's Lawyers
About New Shares
PROTESTS WILL BE
SENT TO WASHINGTON

copy of the formal protest was printed
IN these columns last week. Along with
it today wgs mailed a legal opinion
signed by j. p. Laley and G.. r. Nudge,
counsel for the company supporting the
contention that the new stock is not
subject to taxation as income.
In an accompanying letter. John J.
Raskob, treasurer Of the company.
says:
Wilmington, Del. Feb. 10, 1916.
ITO the Common Stockholders of T. !.
DUPONT Nemours Powder Company:
Enclosed you will find copy OF an
opinion furnished at my request by
our legal department holding that the
distribution Of two shares of common
stock OF L. l. dupont de Nemours and
Company 10 each share Of common
stock Of our company made IN Octo-
ber 1915, is not taxable income for
the year 1915 under the Federal in
come tax law The legal department
advises. however. that our stockhold-
ers in making their returns should at
tach TO such return a brief statement
showing the facts relatives to our re-
organization and distribution Of stock
and protest against the inclusion OF
this stock as taxable income for the
year 1915 for the reason that the
Treasury Department of the United
States has recently ruled that all
stock dividends are the equivalent of
d cash dividends and. therefore. taxable
income subject TO the surtax and
should be returned as such
This opinion is furnished i'm re-
! sponse to quite a general request on
the part of our stockholders for in
/ formation in this regard.
Respectfully.
JOHN J. RASKOB
Treasurer"
The opinion OF Judge Laffey and
Mr. Nudge sets forth extracts from
the income tax law and rulings Of w.
II. Osborn. Commissioner OF Internal
Revenue, interpreting the law. His
ruling of December %. 1915, would
mike the new stock issued at the
time Of reorganization of the DUPONT
Company subject to income tax
The opinion Of Mr. Laffey and Mr..
Nudge in part says:
Notwithstanding Treasury Decision
2274. It is our opinion that the two
hundred per cent stock dividend un-
der consideration was not taxable in
come. The Supreme Court of the
United States has held that an ordi-
nary stock dividend issued as per-
manent increase OF the capital stock
of the corporation declaring the divi-
dend and representing a capitaliza-
tiOn Of its surplus assets, is not in
come in the hands Of the stockhold-
er; that no distribution could take
place by any STOCK dividend that
such a dividend distributes nothing
but stock which makes the stockhold-
er neither richer or poorer than he
was before it was issued"
The opinion sets forth the facts
surrounding organization of the new
dupont Company and the issuance OF
the new stock. and adds:
The law regards form less than
substance. If, therefore. we regard
substance more than form in consid
ering the distribution of the stock Of
the new company to the stockholders
of the old company. we have all the
essentials Of an ordinary stock divi-
dend-the stock both before and after
the distribution representing the same
proportionate interest in identically
the same assets, leaving the stock
holder after the distribution neither
richer nor poorer than he was before
Treated as an ordinary stock dividend,
we hold the stock received on this
distribution is not taxable income.
? Again, disregarding form and looking
more to substance. the transaction
: amounts to a mere reorganization Of
/ the old company under the Delaware
. law, the stOckholder as a result OF
! such reorganization, receiving GER
tain shares of stock of the new COM
r pany in exchange for his shares in the
p old company, he receiving the equiva-
J lent of two shares common and one
; share debenture stock i'm the new
2 company for each share of the COM
J mon stock in the old company. AS
5. the only assets retained by the old
70 company, pending liquidation of its
bonded Indebtedness and dissolution
Of the company are shares Of the de-
benture stock of the new company,
: and all Of the business and property
of the old company was transferred
! as going concern TO the new COM
pany, after such reorganization the
stockholder simply held new evil
dences of his lroportionate interest
in the business and property so trans
ferred which same can in no proper
sense be said to be income in his
hands.
I'VE advise, therefore. that the new
stock so distributed be not included i'm
the income tax return of the stock
holders receiving it,, but there should
, be attached to the return a statement
! briefly setting forth the fact of the
!, reorganization of the old company and
: the incidental distribution to the
. stockholder according TO his interest
! of shares of stock in the new com
! pany and a protest against the inclu-
i sion Of said stock as taxable income
70 for the year 1915:
\ I'VE rely as supporting the above
conclusions on the following cases:
, Gibbons VS. Mahon Obs L. S. 549)
u in re Osborne 103 y. h. 723). D'Ooge
vs.. Leeds (57 y. =. l025). Mercer VS.
J Buchanan 032 Federal SOD. Society
! VS.. Colegrove (49 Atlantic 902). Gray
VS.. Hemenway (9S ~ f. 1881 Bailey
q VS.. \. Y. c. & II. r. C22 Wall 604) and
: Logan Co. VS.. L. S. (l69 L. $. 256)
S "As a matter Of interest and as indi-
r. eating that the courts do not follow
+ the Treasury decisions, We call atten-
o tion to the case of Coal Co. VS.. Hays
. collector. decided December .. 1915
e by the Circuit Court Of Appeals
r, Fourth Circuit, i'm which that court
h holds that prohts realized from sale
e of property purchased i'm prior years