New-York tribune., 1919-01-24
Stock Issued
As Dividends
Freed of Tax
Mrs. Myrtle III. Macomber
Wins Suit to Get Back
$l9,877Paid Government
No Cash Income Received
Federal Judge Mayer Holds
Levy Should Be Refund
ed; Appeal Is Anticipated

A decision, which, if upheld in the
higher courts, will result in millions
of dollars in income taxes being re-
funded by the government to stock
holders in corporations, was handed
down yesterday by Federal Judge Ju-
lius NJ. Mayer in 81 test case brought
by Mrs. Myrtle II. Macomber, of .
East Fifty-frst Street Similar actions
are now pending throughout the coun-
try, among them suits filed by j. p
Morgan, Herbert l.. Pratt and other
members of the Pratt family.
Mrs. Macomber is the owner of $500
shares Of stock in the Standard Oil
Company OF California. She was
awarded 1900 shares of stock as divi-
dends on her original holdings. Under
the provisions of tho income tax law
Of 1915, the government ruled these
stock dividends to be the same as cash
and assessed Mrs -Macomber $19,S77 as
an income tax.
The assessment was paid by Mrs
Macomher under protest. She then
brought suit against the government
to recover the money. She was repre-
sented by Charles Evans Hughes, who
had George Welwood Murray esso-
ciated with him as counsel.
Hughes Contention Upheld
The contention raised by Mr.. Hughes
and upheld by Judge Mayer was that
stock dividends, as such, did not rep
resent income. Before such stool,
transactions became liable to assess
mcnt under the income tax law, Mr..
Hughes argued, the stock dividends
thmselves must have actually paid
dividends in the form of cash.
Declaring that the proposed aprro-
prlation was not for charity, Senator
Hitchcock urged the Senate to aid
President Wilson and his work at the
peace conference by voting the fund.
Its rejection, he declared would in
volve reputation of Americas repre-.
sentatives.
Food Administrator Hoover, who has
been severely attacked by opponents of
the bill, was highly praised by Senator
HITCHCOCK and also by Senator Smoot.
The Nebraska Senator said attacks or
Mr.. Hoover were "stabs in the back"
ard he Joined Senator Smoot in com
mending the food administrations work
IN fXlng livestock and meat prices. de-
rlarlng both consumers and producers
had been protected.
Appeal Anticipated
In explanation of his contention that
while stock dividend did constitute
something of volue, it did not neccs-
sarlly represent income, Mr.. Hughes
gave as an illustration the fact that a
man might exchange two dollar bill
with money changer for two one dol
lar bills. There, admittedly, he would
receive something of value and still his
property interest would remain entirely
unchapged and no one would contend
that he had received any income.
In the case of the Standard Oil Com
pany OF California, Mr.. Hughes argued.
II was not necessary to show what hap
pened when the stock dividend was de-
ciared; 1t was merely sufficient to show
mat ms client had not received anv-
'hlng Win which to pay the income tax
as assessed.
Mr. Hughes cited number of pre-
Tlous cases, among them the Western
Union Telegraph Company versus Cole
man. He continues:
wv hen It Is argued that in receiving
stock dividend stockholder re-
celVes from the corporation something
OF value which must therefore be in
come there 1s> an inaccuracy in the
terms. If | exchanged a two dollar bill
with the money changer for two one
dollar bills | have, it is true, received
from him something of value, but my
property interest remains entirely un-
changed and ! have surely not re-
ceived any income
ha 7.
that stock dividends shall not be in
Guided within the term income 1t is
nor necessary to show again what hap
rcned when the Standard Oil COMPANY
OK California declared it's stock divi-
dcnd; 1t is merely sufficient to show
that II the plaintiff has not received
anything with which to pay the tax
Sne has received new shares, but her
old shares represented precisely the
same value; In fact, she is no richer
al the end Of the year than at the be-
ginning, and, as in all the cases dis
Sussed above, the one thing necessary
mas not taken Decentralization of
gain. VI
Whether she does or not will do
pend on the ultimate liquidation so
1ar as the shares themselves arc cor
esrned' IL dividends are received on
the new shares, 80 that she docs ro
ceive gain in that way, she vii, ba
taXaole on such dividends. But n,t;I
mat point is reached, the plaintia ;s
immune from taxation under the in,
come tax law All
Will Not Receive Income
She objects to the payment Of tbo
Tax as having received some income
wnen Just the opposite thing has han
pcnedIshe has been definitely assured
that she will not receive it,
IN the suit brought by Mrs. Ma
demurrer to the effect that the nIaintig
had no cause for action. Judge Mayer
oycrruled this contention.
Mrs. Macomber now has the legal
right to get back the money she maid
under protest. 1t is believed. however ,er
snae me government VIII carry the
case TO the Supreme Court Of the iTn;ted
States, in view of its far-reacb;n@ .Id,,"