Evening journal., 1920-08-06
TAXABLE STOCK
NOW DEFINED
Regulations Differentiate
Between Dividends of
Corporations
SPECIFIC CASES
ARE CITED

WASHINGTON. Aug. 6.-New regula-
lions defining taxable and non-tax-
able stock dividends under the recent
Supreme Court decision In the case
OF Eisner versus McCOmbcr have been
issued by the Internal Revenue Blu
reau
The new regulations describe in de-
tail the differentiation 10 be drawn
with respect TO such dividends in
application OF the taxing provisions
Of the revenue law Up 10 the time
Of the Supreme Court decision. March
:, the Treasury had held that all stock
dividends were Income and conse-
quently taxable. This way bitterly
contested, but decided adversely To-
the Government In the most impor-
tant decision 10 the financial interests
or the country ever handed down.
lh me new regulations made under
the decision the Treasury still holds
that slock dividends are income and
taxable where any cash distribution
Is involved, either because under state
incorporation laws stock dividends
cannot be distributed directly or be
cause slch a course cannot be fol-
lowed for other reasons.
The following rulings and examples
covering questions that most freduenl-
~ arise, are given.
Where a corporation, being au-
thorized so t0 do by the laws Of the
state In which il Is incorporated,
transfers a portion o. its urplus TO
capital account, issues new stock rep
4, sentng the amount OF the surplus
so transferred and distributes the
stock so issued TO It's stockholders.
! such stock is not income 20 the stock
+ holders and the stockholders incur no
[ liability for income tax by reason Of
; It's receipt
Where a corporation, being thcre-
unto lawfully authorized, increases lis
( capital stock and simultaneously de-
clares cash dividend equal in
amount TO The increase In It's capital
stock and give 90 its stockholders a
/ real option either TO keep the money
I for their own or 10 reinNest 10 In the
II dividend and is income 90 he stock
4 holders whether they reinvest 10 in
the new shares or not.
Where a corporation which Is mol
, permitted under the laws OF On,
/ state In which 10 is incorporated tC
! issue q stock dividend increases It's
( capital stock and al the same tim'
/ declares a cash dividend under Al
} agreement with the stockholders t'
: reinvcst tho money so received IL
} the new ssuo OF capital stock, suci
} dividend is subject to taX as incom
) 10 the stakeholder.
} where going corporation, nav
D ing surplus accumulated in par
D prior 20 March l. 1913. and hein
b ihercunlo lawfully authorized, trans
l fcrs 10 its capital account a nortiol
3 OF It's surplus. issues new slock rep
b rcsenling On. amount so lranstcrrc
o 10 The cap tai amount and then de
o carcs a dividend payable IN lar
0 cash and i'm part In shares OF IN
new issue of stock. that portion q
q Tho q vidcnd paid In cash Will b
q doamcd 10 have been paid ont or N
q surplus accumulated since March
q 1919. and is subject 90 tax, hut IN
n norton of ihe dividend paid in stoc
n wnl mol be subject 10 tax as 'ncom
% "a dividend paid in stock u anoihc
m corporation held as a part or lhe d'
n sets OF thc corporation paying The df'
N idend Is income TO the stockh0lder 8
the time Tho same Is made aNailah
rs for distribution To- the full amount &
H. Tho then market value Of such stool
This ruling is based upon the decisio
N. Of The supreme Court Of The Unite
sc States IN Peabody versus Eisncr >
IN U. :. 3tT. which WAS not mOdi0t
h. by The case of Eisner versus NJ
ln Comber II such stock be subs,
of qucntly sold by the stockholdcr il
NJ. difference between rs market value
~ date of receipt and the price for whie
M il is sold Is additional proni or loss
nd him. as the case may be-
~ The profit derived by a stockhold
~ upon ne sale OF stock received as
IN dividend is income 10 The stockhold
a. and taxable as such even though
Se stock itself was not income al
m time Of It's receipt by a slockhold
~ For the purpose Of determining G
y amount OF gain or loss derived frc