Albuquerque morning journal. [volume] (Albuquerque, N.M.) 1903-1926, 1920-03-09
DIVIDENDS FROM !
STOCKS EXEMPT
>>>I:S;,9N E, TAXATION
BY COVE ERNMENT
ySuch Returns Are Not to Be
Taxed As Income, ST.
prerne Court of u, S Holds
In Divided Opinion.
PROVISIONS OF 1916
LAW ARE KNOCKED OUT
Millions of Dollars Must Be
Refunded Exact Amount
viii Not Be Known Until
All Claims Are Filed.

Washington, March Stock
dividends may not be taxed as in
come, the supreme court held to-
the provisions of the 1916 income
tax act taxing as income such divi-
ldcnds declared by corporations out
OF earnings and profits accruing
after March /. 1918.
! The court divided. to 4. JUS
tlce Pitney rendering the major
Iity opinion, Justice Holmes and
| Fay joining in one dissenting opin-
| ion, and Justices Clarke and Bran
deis in another.
Under the courts ruling. the
federal government must refund
Imillions Of dollars in taxes collect
cd on stock dividends since the
1916 law became effective, Inter-
nal revenue bureau officials said
today the exact total Of the refunds
Icould not be estimated at this time
end that II would not be known
until all claims had been filed and
computed.
Justice Pitney. In his majority
opinion, said a stock dividend lis
in essence not a dividend but rath-
or the opposite"
mo part of the assets of the
company Is separated from the
common fund" he said nothing
distributed except paper certifl-
Gates that evidence an antecedent
increase in the value of the stock
holders capital interest resulting
from an accumulation of profits
by the company, but profits so far
absorbed in the business as to rem
der It lmpracticable to separare
them from withdrawal and distri-
button.
Far from being a realization of
profits of the stockholder, 1t tends
rather to postpone such realization,
in that the fund represented by the
new stock has been transferred
from surplus to capital and no
longer is available for actual dis
trlbution.
"The essential and controlling
| fact Is that the stoekholder has re-
ceived nothing out of the COM
pany's assets for his separate use
and benefit; on the contrary. every
dollar of his original Investment
together with whatever accretions
and accumulations have resulted
fl ON employment of his money and
that of the other stockholders In
the business of the company still
remains the property of the com-,
pany, and subject to business risks
which may result in wiping out the
entire investment Having regard
to the very truth of the matter to
substance and not to form. he has
received nothing that answers the
definition of income in the meaning
of the sixteenth amendment. W
1--WE are clear that not only does
stock dividend really take noth-
ling from the property of the cor
poration and add nothing to that
of the shareholder, but that the an,
ltecedent accumulation of profits
Ievldenced thereby, while indicating
that the shareholder Is the richer
because of an increase of his cap
Iltal, at the same time shows he has
| rot realized or received any ips
come In the transaction.
"It is said that a stockholder
may sell the new shares acquired
| in the stock dividend: and so he
may, If he can find buyer. 1t "a
equally true that IL he does sell y
and in doing so realizes a profit.
such profit like any other, is In
come, and so far as 1t may have
erisen since the sixteenth amend
ment is taxable by congress with
out apportionment. The same
would be true were he to sell some
of his original shares at n profit.
| But If a shareholder sells dividend
stock lie necessarily disposes of
part of his capital interest, inst 90
| If he should sell a part of his old
stock. either before or after the
| div ide1 d. What he retains no
| longer entities him to the same
| proportion of s1isure dividends as
| before he sale, Yet. without sell
| ing, the shareholder, unle' ?'s-
sessed Of other resources has not
| the Wherewithal to pay an Incorie
tax pol ths dividend stock.
| Nothing could r,cre clearly show
that to the a stock dividend Is to
| tax .ppital increase and not II
come than this demonstration that
| in the nature of things 1t requires
Iconversion of capital in order to
pay the tax"
New York, March s.--Erroneous
reports issued by financial news
tickers that the United States SUI
preme court had declared stock
| dividends taxable took Wall street
by surprise today and caused heavy
selling of the general list. Reac-
tions of 2 to IL points from the
! high prices of the morning were S
made by all the active issues, nota-
bly, General Motor, Y, S. Rubber.
| Crucible Steel, American Woolen,
Mexican Petroleum, Baldwin Loco
motives and Atlantic Gulf. The
market made full recovery when it
was found that taxation OF stock
dividends as income had been de-
clared unconstitutional.
Trading from noon until 1880 p.
M, when the decision excitement
was at its height, totalled $4,000
shares. 1t took an hour or more
| before distant connections could be
notified of the correction.
Many traders sold stocks short
on the first announcement and
then on the correction bought
them back and then went long on
additional blocks of stock. 1t was
this sort of buying that carried
Crucible Steel up to 212 as COM
pared with an early low of 191.
| Standard Oil of New Jersey sold
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