Webster City freeman. [volume] (Webster City, Hamilton County, Iowa) 1884-1946, 1921-03-28
Estimated That Taxes Ag-
gregating a Hundred
Millions Involved
Ruling.
CONSTITUTE ACT 1916
Legal Point Involves Both
individuals and Corpor-
atiOns.
(By The Associa ted Press.)

(By Inc ASSOcla TED PreSS.)
Washington, d. c., March 2S.-In.
crease in the value Of capital invest
ment is taxable as income under the in.
come tax of 1916, the United States
supreme court held today.
Taxes estimated to aggregate up to
S1OO,OOO,OOO are involved in action of
the supreme court in the two cases COW
ering the question of whether aug
mented value Of an investment is "in-
come"
In. one case the court was asked by
counsel whether the revenue act of 1916
was constitutional in SO far as it is
construed to tax as income. capital in
crement realized by the conversion Of
capital investments into cash.
Thousands of individuals who had
invested in securities prior to the world
war and who. on the general advance in
market prices in that period. had sold
their holdings at great profit, were
naturally interested in the outcome. 1t
was common knowledge that the fear of
being compelled to turn over the bulk
OF their profit to the government in
the form Of taxes prevented many
paper millionaires" from realizing on
their holdings. Incidentally, many
were wiped out in the slump which fol
lowed the signing of the Versailles
peace treaty.
Legal Psint.
The legal point involved, however.
concerned not only individuals but cor
porations and partnerships which had
invested surplus of capital in solid
securities and sold them on rising
market.
In the case of David NJ. Goodrich
VS.. William II. Edwards, collector of
internal revenue for the Second n. Y.
District, a tax was assessed on stock
which was sold at loss; but which
was sold ut a price above that quoted
for it on March I, 1913-thc date set
in the statute as that from which
prices would be computed. New York
courts upheld the government.
The second case came from Connect
cut where the federal courts sustained
Frederick +. Brewster in his contention
that an increase in the value Of an in
vestment was not Income" Brewster
made slight actual profit over the
price paid for his securities and n
heavy profit when computed from the
value on March !. 1913
Governments Positions.
In both cases counsel argued tina
"tonds are property without reference
to cost of market value: the bonds
themselves are their owners capital
assets and his capital interest therein
is not limited TO their cost"
The government took the stand thai
Income" must he interpreted as repre-
senting any gain accruing to the tax
payer within the period under cOnsid- |
grafton. Prior to the adoption of the |
10th Amendment, the court was told
income was considered by the govern !
nent branches to include gains and
profits derived from the sale of capital
nsaets
Affirm Revenue Ruling.
The decision Of the supreme court to-
lay affirmed the ruling Of the internal
revenue bureau in the case Of David |;
N. Goodrich, who had been assessed
Dn the increase in the value of stock
purchased prior to 1913.
Corporation Bonds.
The court also held that the i'll
.rcase in the value of corporation
DOnds, acquired and held as invest
nents. were taxable as income under
he income tax of 1918. In this case,
he supreme court reviewed the deci-
sion of the federal court, which held
against the government.