The Washington herald., 1920-03-09
"KILLING"' MADE
IN TAX FINDING
Spectators Reap Harvest
When Court Decision Is
Incorrectly Reported.
CONTINUED FROM PAGE ONE.


by the Supreme Court deoision. Wall
Street traders lost milliona
In Its decision. the Snprems
Court rules that stock dividends are
not liable to taxation as Income un-
der the provisions Of the income tax
law and declares unconstitutional
provisions of the income tax act Of
1919 taxing as income such dlvi-
dends declared by corporations from
earnings and profits accruing after
March !. 1913
The courts ruling means that the
Federal government must refund
millions Of dollars collected In taxes
on stock dividends since the act OF
1916 became operative. Internal
Revenue Bureau officials are unable
to estimate the precise total OF re-
funds at the present time, and state
that this Information will not be
available until all outstanding
puted.
Big Companies Benented.
Stockholders Of such corporations
as the Crucible Steel Company, the
General Motors Corporation, and
many other concerns whose stock Is
listed at high prices. will be vitality
affected by yesterdays ruling. Cru
chile Steel disclosed stock dividends
OF 800 per cent recently, and in
creased its capital from $25,000,000
to 100000. 900. Baldwin Locomo-
tive and American Woolen are also
among the high-priced stocks to be
benefited by the courts decision.
The court divided five to four.
Justice Pitney handing down the
ma jority decision. Justices Day and
Holmes Joined in one dissenting
opinion, and Justices Clark ana
Brandeis held another diverse view.
Suit Filed by Woman.
The suit on which the decision
was rendered, was brought by Myr-
tie II. Macomber against Mark Els
ner, internal revenue collector. The
Standard Oil Company of California
declared a so per cent stock divi-
dend and Myrtle Macomber, who
owned 1900 shares, received 1,lOO
shares more as her dividend. upon
which she paid S1,367 as taxes.
The case was one of n series In
which J. T. Morgan, Herbert l.. Pratt
and others questioned the constitu-
tionality of the act. The financial In
terests were represented by Charles
L. Hughes. himself a former justice
of the Supreme Court.
The court held that stock divi-
dends are capital account. nothing
more than n book adjustment, and
that they show a cOmpany's earn
ings have been capitalized instead
Of divided.
The stockholder has received
nothing out Of the company's as
sets, but, on the contrary, all accre-
tions or accumulations from his
original investment. together with
the principle, remain the property
of the company subject to business
hazards which may result in wip-
ing out the entire investment. the
court held.
Would Tax Capital Increase.
Nothing could more clearly show
that to tax a stock dividend is to
tax a capital increase, and not in
come, than this demonstration that.
in the nature of things, it requires
conversion of capital in order to pay
the tax" the majority opinion read.
Thus, from every point of view,
the opinion concluded. I'VE are
brought irresistibly to the conclus-
ion that neither under the Sixteenth
amendment nor otherwise. has Con-
gress authority to tax without ap-
porticnment a true stock dividend
made lawfully and in good faith, or
the accumulated profits behind it. as
income of the stockholders. The
revenue act of 1916. insofar as it
imposes a tax upon the stockhelder
because of such dividend, violates
the provisions OF article 1. secion 2,
clause ,, and article /. section 3.
clause 4 of the Constitution, and TO
this extent is invalid. notwithstand-
ing the Sixteenth amendment"