The Wallace miner. [volume] (Wallace, Idaho) 1907-current, 1917-12-27

properties as OF January !, 1914, with
out regard to the accident OF how
much In par value Of stock was orig
lnally issued for these properties. 1t
may be that regulations following In
principle those promulgated under the
federal capital stock tax law OF 1916
would afford the necessary relief II
may be that relief might be had
through regulations issued under the
provisions of the war excess profits
tax law which permit corporations to
include in invested capital the paid in
or earned surplus used or employed
in the business. For example, regu-
lation which permitted a corporation
to revalue its properties as OF Janu-
airy ], 1914 (either by reference to the
market value of its stock outstanding
or on some other basis which safe
guards the government but is fair to
the corporation) might afford relief. If
legislation should be necessary, the
relief would be readily obtained by
striking out from the definition of in
vested capital the phrase but in no
case to exceed the par value of the
original stock or shares specifically
issued therefor"
The precise manner by which JUS
tice Is to be done to uhdercapitalized
corporations is necessarily to be de-
termined by the treasury department
and it's advisers. There should, of
course, be all proper safeguards to the
government, but we submit that JUS
tice and fair dealing in the distribu-
tion of the burdens of government ex
pense require the discovery of some
method which with such safeguards
will permit every corporation to dem
onstrate to the internal revenue de-
partment the fair value of its property
as of January /, 1914.
Effect on Holding Companies.
We have heretofore discussed the
injustice which would be done four
of these companies If in ascertaining
their invested capital as of January /,
1914, they should be limited as regards
their mining properties to the. par
value of the stock issued therefor. We
purpose now to discuss the effect of
such limitation upon the other two
companies, Chile Exploration company
and Braden Copper company. Both
of these companies own mining prop
critics situated in the republic of Chile
Because of the provision of the Chill
can law which in effect makes it inn
practicable to mortgage mining pro-
perties, the bankers who undertook
the financing and development of these
properties found it necessary to form
In each case two companies, one to
own and operate the mines and the
other to hold the stock Of the operat-
ing company.
With this corporate structure it be-
came possible for the holding COM
pany to issue its bonds and pledge as
collateral security therefor stock OF
the operating company, and thereby
confer upon the bondholders an indi-
rect lien upon the property in Chile
lnasmuch as all Of the stock of the OPP
Grating company was to be held by
another corporation, the amount in par
value of such stock was a matter OF
entire indifference. The stock of the
holding company in each case was to
be held publicly, and the only thought
given by the bankers to the question
OF capitalization concerned the rela
ton between the value of the mining
properties and the stock of the hold
ing company. The bankers engaged in
the formation of these companies were
conservative and substantial people
and in respect to the capitalization of
the holding company they adopted the
conservative policy of an undervalu-
alton rather than an generalization of
the mining properties which furnished
the support for this stock. On this
particular point, however, it is unne-
cessary to add anything to what we
have already said with respect to the
other companies.
The situation in which these two
operating companies find themselves
differs in one important respect from
the situation Of the four other COM
panies. These operating companies
own the mines and receive, in the first
instance, the income which is subject
to tax under the war excess profits tax
law. They are the companies which
must make the returns and include
therein statement of their Invested
capital" If technical construction
were placed upon the definition "in-
vested capital" a construction which
considered the form rather than the
substance Of this corporate situation
and which by so doing limited the in
vested capital of these two operating
companies to the par value of the
stock issued by them, result most
inequitable and unfair to these two
businesses would be reached.
Holding Company capitalization Not
Based on Property Value.
The amount at par of the stock is
sued by these two operating but sub
sldiary companies bore no relation
whatsoever, and was not thought by
any one to bear any relation whatso-
ever to the value of the mineral prop
critics. In the case of Chile Explora-