The Pensacola journal. (Pensacola, Fla.) 1898-1985, 1920-08-16
Contrary to General Belief Only
Small Portion of Dividends
Are NOn-Taxable.
TREASURY RULINGS CITED
Supreme Court Ruling March s
Gave Rise to General Nation
Wide Understanding.
teY GEORGE 4. MANNlNG.)

Washington, d. c.. Aug. Is. - Con-
trary to the general belief, only n
small portion of stock dividends are
exempt from income tax. When the
supreme court of the United States
handed down its decision on March 8.
1920, in the case of Kiener VS.. Macom-
ber, that in the instance cited stock
dividends were not subject to the in
come tax, it gave rise to the belief
that all stock dividends are not tax
able.
I No decision of the supreme court in
recent years has been of such impor-
tance to the financial interests OF the
country as that of the Kisner vs..
Macomber case. Thousands OF in
quiries have come to the internal reve-
nue. bureau relative to various phases
of this decision.
The following rulings. embodied in
Treasury Decision 3052, cover the
questions which win most frequently
arise and which are of widest inter-
est to corporations and taxpayers gem
orally:
where a corporation, being au-
thorized so to do by the laws of the
state in which it is incorporated
transfers portion of its surplus 10
capital account, issues new stock rep
resenting the amount of surplus so
transferred and distributes the stock
so issues TO it's stockholders, such stock
is not income to the stockholders and
the stockholders incur no liability for
income tax by reason of its receipt.
Where a corporation, being there
unto lawfully authorized, increases its
capital stock and simultaneously de-
clares a cash dividend equal in amount
to the increase in it's capital stock, and
gives to its stockholders a real option
either to keep the money for their own
or to reinvest it in the new shares,
such dividend is a cash dividend and
is income to the stockholders whether
they reinvest it in the new shares or
not.
Where a corporation which is not
permitted under the laws of the state
in which it is incorporated to issue
stock dividend, increases its capt.
tai stock and at the same time de-
clares a cash dividend under an agree
ment with the stockholders to rein
vest the money so received in the
new issue of capital stock, such divi-
dend is subject to tax as income to
the stockholder.
Where a going corporation having
a surplus accumulated in part prior
to March l. 1913, and being thereunto
lawfully authorized, transfers to its
capital account portion of it's 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 /, 1913. and is subject to tax.
but the portion of the dividend maid
in stock viii not be subject to tax as
income.
"A dividend paid in stock of another
corporation held at a part of the
assets of the corporation paying the
dividend, is income to the stockholder
at the time the same is made avail
able 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 VS.. Eisner (247 L.
S. 347) which was not modified by the
case of Eisner VS.. Macomber. II such
stock be subsequently sold by the
stockholder the difference between ifs
market value at date of receipt and
the price for which it is sold is ad-
ditional income or loss to him as the
case may be.
The profit derived by a stockholder
upon the sale of stock received as a
dividend is income to the stockholder
and taxable as such even though the
stock itself was not income at the
time of its receipt by the stockholder
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
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No. f-Continued On Page 3.