The Washington herald., 1921-03-29
Supreme Court Decides
. Federal Levy on Sales
Is Constitutional.
HUGE SUM SAVED
TO GOVERNMENT
Four Cases Cited in Hold
ing 18th Amendment
Valid.
By ARTHUR SEARS HENNING.

ny cE<h.~c
Important victories were won by
the government yesterday in deci-
sions by the United States Supreme
Court in four tax cases.
The cases involved similar fea-
tures relative to the taxation as
Income of profits derived from the
sale Of corporate stock and bonds
md capital assets. The court held
that profits of this kind are prop
srly taxable as income under the
sixteeAth amendment to the Con-
stitution-
The principal case was that oi
the Merchants Loan and Trust Com
pany of Chicago as trustee OF the
estate of Arthur Ryerson against
Julius Smietanka, formerly collector
of internal revenue for the First
district of Illinois. This case In
volved profits from the sale Of cor
porate stock held in a trust fund
EIdorado Coal Co. Loses Fight.
The second case. that of the Ell
dorado Coal and Mining Company,
an Indiana corporation, against
Harry W. Magee. collector Of in
ternAl revenue of the First district
Of Illinois, involved profits made in
the sale OF che capital assets OF
the company.
The third case was that of David
D. Goodrich against William H. Ed
wards, callector of internal reve-
nue. Of the Second district of New
York. This involved profits from
The sale Of corporation stock. Two
peparate transactions were involved,
IN one of which a decision was given
based on the decision in the Ryer-
Bon case. favorable to the govern
nent, but in the other of which IL
was held that no tax could be levied
where. -the<a---had been no actual
profit on the Investment, even
though there had been an apprecia-
tion in value from March !. 1918.
the effective date of the first in
rome tax law. In respect to this
second transaction the court mere
ly held in accordance with the ad-
mission made recently by Solicitor
General Frierson that an error had
been made in attempting to impose
n tax where an actual loss on the
investment had taken place.
In the Ryerson, Eldorado and
Goodrich cases the decisions of the
lower courts were favorable to the
contention of the government.
Intricate Connecticut Case Won.
The fourth case was one in which
the lower court had decided in
II - rEl
was that of James J. Walsh, collec-
tor of internal revenue in Connec-
ticut. against Frederick F. Brew
ster. 1t involved three different
transactions. The decision fol
the court in the Ryerson and Good
rich cases and in the Eisner stock
dividend decision of March. 100.
Solicitor General Frierson in
commenting on the decisions said
been completely upheld. He re-
garded the cases of an important
nature inasmuch as adverse rulings
would have meant refunds of mill
lions OF dollars of taxes.
The Ryerson case involved 1000
shares of capital stock of an IIli-
nois corporation which was held by
the Merchants Loan and Trust Com
pany of Chicago, as trustee of the
estate of Arthur Ryerson. The
stock was valued on March /, 1913.
at 1861 200. IL was sold on Feb
ruary .. 1917. for s1.2s0.o0O and the
collector of internal revenue i'm
posed Q tax upon the approximate
profit OF 100000.
preted.
In seeking to recover the tax
paid upon this amount the Mer-
chants Loan and Trust Company
eontended that the gain in four
years of over 100000 in an invest
ment Of about s5oo.ooO was not .fn-
come" within the intent of the
Sixteenth amendment to the Con-
stitution.
a second contention made by the
plaintiff in the Ryerson case was
that the word Income" as used in
the Sixteenth amendment and in
the income tax does not include
gain from capital realized by a
single isolated sale Of property but
that only the profits realized from
sales by one engaged in buying
and selling as a business mer-
chant. a real estate agent or a
broker-constitute income which
may be taxed.
In the case of the Eldorado Coal
and Mining Company the company
in 1917 sold its interests and prac-
tically wound up its affairs, On the
basis Of the fair market value as
of March 1, 1913, the sale of the
capital assets resulted in an in
come tax assessment on the profit
from the sale amounting to more
than $1,000. The court held that
the profits were properly taxed.