The daily star-mirror. (Moscow, Idaho) 1911-1939, 1920-08-20
REVENUE COLLECTOR
ON CORPORATION TAX
LEWIS WILLIAMS, COLLECTOR
FOR IDAHO, INTERPRETS
IT FOR TAXPAYERS.

No decision of the Supreme Court
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 Fisher V. Ma
comber. 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
distinguished from other dividends.
The following ruling, embodied in
Treasury Decision 3053, cover the
questions which will most frequent
| ly arise and which are of widest in
terest to corporations and taxpayers
generally.
Where a corporation, being author
lied so to do by the laws of the
state in which it is Incorporated
transfers a portion of it's surplus to
capital account, issues new stock re-
presenting the amount of the surplus
so transferred and distributes the
stock so issued to it's stockholders such
stock is not income to the stockholders
and the stockholders incur no liability
for income tax by reason of it's re-
ceipt.
Where a corporation, being there
unto lawfully authorized, increases
it's capital stock and simultaneously
declares cash dividend equal in
amount to the increase in its capital
stock, and gives to it's 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 stock
holders 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 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
so received in the new issue of |
capital stock, such dividend is SUBJ |
ject to tax as income to the stock |
holders,
Where going orporation having |
surplus accumulated in part prior to |
March /, 1918, and being thereunto |
lawfully authorized, transfers to it's |
capital account portion of it's sur
plus issues new stock representing |
tn amount so transferred to the cap
ital account and then declares a di- |
vidend 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
accumulated since March 1, 1913, and
is subject to tax, but the portion of
the dividend paid in stock will not be I
subject to tax as income.
A dividend paid in stock of an
other corporation held as part of the
assets of the corporation paying the
is income to the stockholder
at the time the same is made avail
oable for distribution to the full
amount of the then market value of
such stock. This ruling is based upon
The declaration of the Supreme
Court of the United States in Pea
body V. Eisner (247 B. S. 347) which
was not modified by the case of Els
ler V. Macomber. If such stock be
sold by the stockholder
the difference between its market
yalue at date or receipt and the price
'or which it is sold is additional in
come or loss to him as the case may
)e.
The profit derived by stockholder
lpon the sale of stock received as a
dividend is income to the stockholder
md taxable as such even though the
stock itself was not income at the
ime of it's receipt by the stockholder. i
Tor the purpose of determining the
mount of gain or loss derived from n
he sale of stock received as divi- ]
lend or of the stock with respect to
which such dividend was paid, the {
ost of such share of stock (provided
10Th the dividend stock and the stock (
With respect to which it is issued
lave the same rights and prefer 3
noes is the quotient of the cost of I i
he dead stock Tor it's fair market "
alue as of March /, 1913, if ac-
uired prior to that date dividend by C
he total number of shares of the +
Id and new stock.
LEWIS WILLIAMS, r
Collector of Internal Revenue. h