New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1920-07-17
Intra-OMce Stock
Loans Held To Be
Taxable by u. S.
Ruling Causes Confusion
in Brokerage Circles;
Millions May Be Due in
Back Taxes if Retroactive

A decision by W. M. Williams, Com
missioner of Internal Revenue, on the
taxability of stock borrowed to effect
short sale, made public yesterday
by the Association of Stock Exchange
Firms, has caused much confusion in
brokerage circles, in that 1t would seem
to indicate that the government pro-
poses to put an obstacle to short sell
ing by imposing a tax on what are
termed "lntra- Office" borrowings.
The ruling of Mr.. Williams was is
sued in response to inquiries from
the revenue agent in New York as the
result Of notification given out re-
Gently by W. H. Edwards, Collector
for New York City, that the borrowing
of stock to effect "a short sale"' is
subject to tax.
Uncertainty arises" said the New
York revenue agent in his communica-
tion to Mr.. Williams, whether this
ls confined to short sale and whether
his notice is an authorized interpreted
ton of stamp tax regulation 40, article
IL, clause L. Sales are frequently
made by brokers for customers who
ship the stock sold. but in many cases
intervals of several days intervene be-
tween the date of sale and date of
receipt of shipped stock, with the re-
suit that the broker, in order to COM
plete the sale, must borrow stock. The
customer has really not sold short. On
the other hand, as between the broker
and customer, he is short until the
stock actually reaches the brokers'
hands, and the question arises whether
or not the borrowing Of such stock in
such cases to effect a sale is subject
to tax, and likewise its return to the
holder"
The copy Of the telegram received
by the New York revenue agent in re-
Spouse to his inquiries said:
proposition /. The following are
subject to stamp tax: Sale Of stock
by broker; transfer from the lender
of stock to the person making the
short sale; transfer of stock from the
borrower to the lender of shares to
replace those borrowed.
subject to stamp tax: Transfer of
stock from the broker personally, or
as a broker for q third party, to him
self as broker for the seller; sale of
stock; transfer of stock from the Gus
toner to person lending the stock.
proposition 8. The following are
subject to stamp tax: Sale Of stock
by person making the sale; transfer
from the lender Of stock to the person
manning CuC olOlt odtcy Cu0 purchase
by the borrower of stock. to return to
the lender; transfer from the Dor
rover to the lender of shares to re-
place those borrowed.
"In connection with intra- office Dor
rowing, the following are subject to
stamp tax: Transfer of stock from
broker personally, or as broker for 8
third party, to himself as broker for
the short seller; transfer Of stock from
broker as broker from the short selle,
to the purchaser; transfer Of stock from
the seller to the broker as broker fol
the purchaser to cover; transfer from
the broker as broker for the purchaser
to cover to himself, either personally
or as broker for a third party"
The placing of tax on intra- ice
borrowings of stock, in the opinion Of
Stock Exchange brokers, would worl
great hardship on their business, ane
if made retroactive would result il
the collection of millions of dollars o.
back tax money.