The Grangeville globe. [volume] (Grangeville, Idaho) 1907-1922, 1920-08-19
STOCK DIVIDENDS

of the United States in recent years
| has been of greater Importance to the
| financial interests of the country
| than that handed down on March 8,
| 1920, in the case of Eisner v. Macon
Der. This decision has given rise to
numerous Inquiries to just what stock
dividends are for the purpose OF the
income tax acts, how they are to be
determined and treated, and distin-
guished from other dividens.
| The following rulings, embodied In
Treasury Decision 3052, cover the
questions which will most frequently
arise and which are Of widest interest
to corporations and taxpayers general
ly.
Where a corporation, being authoriz-
ed SO to do by the laws of the state in
which it is incorporated, transfers a
portion Of its surplus to capital &C
count issues new stock representing
the amount Of the surplus so trans
ferred and distributes the stock SO
issued to its stockholders such stock Is
not income to the stockholders and the
| stockholders incur no liability for In
come tax by reason Of its receipt.
When a corporation, being thereun-
| to lawfully authorized, increases its
capital stock and simultaneously de-
clares a cash dividend equal in amount
to the increase in its capital stock,
and gives to its stockholders a real
| option either to keep the money for
| their own or to reinvest 1t in the new
shares, such dividend is a cash divi-
dend and is income to the stockholders
whether they reinvest 1t in the new
shares or not
Where a corporation which is not
permitted under the laws of tho state
1 in which 1t is incorporated to issue a
stock dividend, increases its capital
stock and at the same time declares a
cash dividend under an agreement
with the stockholders to reinvest the
capital stock, such dividend Is sub
| ject to tax as income to the stock
holder.
Where going corporation having a
surplus accumulated In part prior to
March /, 1918, and being thereunto
lawfully authorized, transfers to its
capital account portion of its sur
plus, issues new stock representing the
amount so transferred to the capital
account and then declares a dividend
payable In part in cash and in part in
shares of the new issue of stock, that
portion of the dividend paid in cash
will be deemed to have been paid out
of the surplus accumulated since
March 1, 1913, and is subject to tax,
but the portion of the dividend paid
in stock will not be subject to tax as
income.
A dividend paid in stock OF another
corporation held as part of the as
sets of the corporation paying the divi
dend, is income to the stakeholder at
the time the same is made available
for distribution to the full amount of
the then market value Of such stock.
This ruling Is based upon the decision
of the Supreme Court Of the United
States in Peabody v. Eisner (247 u.
8. 347) which was not modified by
the case Of Eisner v. Macomber IL
such stock be subsequently sold by the
stakeholder the difference between its
market value at date Of receipt and
the price for which 1t Is sold Is addi-
tional income or loss to him as the
lease may be.
The profit derived by a stakeholder
hpon the sale of stock received as a
dividend is income to the stakeholder
and taxable as such even though the
stock itself was not income at the
time OF its receipt by the stakeholder.
For the purpose of determining the
amount of gain or loss derived from
the sale OF stock received as a divi-
dend or of the stock with respect to
which such dividend was paid, the
cost OF such share of stock (provided
both the dividend stock and the stock
with respect to which it is issued have
the same rights and preferences) is
the quotient of the cost of the old
stock Tor its fair market value as of
March l, 1913, If acquired prior to
that date) divided by the total mum.
Der OF shares of the old and new
stock.
1 LEWIS WILLIAMS.
Collector of Internal Revenue.