The sun. [volume] (New York [N.Y.]) 1833-1916, 1916-03-08
THE c o TAX MAZE.
Treasury Rulings That Are Dubious
In Law ana Unreasonable.

To THE EDITOR OF THE SuN--Sir. In
the administration of the income tax
law there have been certain Treasury
rulings which are OF doubtful legality,
II, that they may and frequently do
tax gains which clearly accrued. or
which were received prior to March l.
1919. the date the income tax went into
effect. m such ruling instructs us
that profit from the sale OF property
owned before. but sold since March !.
1918. shall be prorated according to
the proportion which the taxable period
bears to the entire period tho property
is held and the amount thus appor-
toned to the years subsequent TO the
incidence Of h income tax shall bc re-
turned as income for tho year In which
the property Ia sold.
To illustrate how this ruling may
work. indeed must often work.. take an
entirely supposable ease, Property. say
real estate, bought ten years ago.. II
sold to-day at a large profit. This
profit results from "A great appreciation
in value during the early years OF
ownership. To emphasize the point, let
us SUPPOSE there mas been some slight
depreciation In value since March 1.
1918. Here. then. is a case where profit,
which was unquestionably made before
tho Incidence of the income tax. must
be apportioned for taxation. II We sur
pose II a very large transaction II might
easily happen that the whole line Of
~surtaxes would be put to use to reckon
the tax.
To add to the absurdity OF the ruling.
II IL TO be noted that the longer the
property is held the larger will Ia the
part OF tho early profit that will be
taxed. or course II IL true that this
ruling may sometimes work favorsbly
for the taxpayer and against the Gov
eminent. as would happen In the sup
posed case If the appreciation In value
had accrued after. instead % before.
March !. 1913. This. however. Ia not q
satisfactory answer TO the taxpayer who
gets stuck" II only emphasizes the
absurdity Of the ruling.
The Treasury department has also
ruled that stock dividends money
received from sale Of rights are tax
able, M " these have been received
prior 10 March I. 1913. on stock sold
since that date. they must be deducted
from the actual purchase price OF the
stock In reckoning its cost for the pur-
pose OF getting at the profit. In other
words gains, which as a matter Of public
record were received prior to the Incl
dence OF the income tax. must he prorated
and returned for taxation. Imagine .
person selling stock he may have owned
for half "A century. A strict ~intcrpreta-
ton Of this ruling would oblige him to
delve through old books OF account, 20
gather In the 'plums'' in the shape. Of
stock dividends ana money from sale Of
rights. which he had received over this
long period of his ownership. that such
gains may be taxed.
Instructions werc recently asked a.
20 the profit TO he returned az taxable
from sale OF shares Of stock owned for
some years before tho Income tax went
into effect where the original cost OF
the stock was In doubt. The inquirer
tentatively but politely suggested in his
letter TO the department that the differ.
ence between the market price of the
stock on March I. 1918. n tho price
at which II was sold would fairly
measure the taxable proht.
This attempt. however. TO steer the
Government from the prorat!nG. sVpor-
tloning process into the straight and
narrow way Of fairness and reasonable.
ness was futile. The suggestion was
.gnored. Yet this suggestion points to
the only practical and fair rule for get
ting AT the taxable profit from q sale OF
property which was owned before the
incidence OF h income tax. II may be
objected hat under this rule a tax may
oe collected when the Transaction shows
a loss: that IL. when the accrued loss
10 March I. 1913. is more than the profit
since that date. Hut tho answer 70 this
Is that the income tax has no concern
with losses or PROFITS accruine prior 70
March l.. 1918. n.
Boston, March Z.