Omaha daily bee., 1921-05-17

Victorious
max Suits
Amounts Paid States Cannot
Be Deducted From Fed
cral Income Levy--Mil.
lions Hang on Ruling.
Decision On Capital

Washington. May 16.-Througl,
decisions Of the supreme court to-
day the government won two i'm
portant victories in controversies in
volving Interpretation of income pro-
visions of the revenue acts of 1916
and 1917.
Increased value of capital asset
could not be added to invested
capital" the court ruled in the ap-
peal of The La Belle Iron Works,
an Ohio concern, from a ruling by
treasury officials, but on the con-
trary must be considered in conf
putting profits of the corporation on
which the taxes were to be assessed.
In the other decision the court
ruled that inheritance or succession
taxes, paid to state could not be
deducted from the met estate taxed
under the revenue act"
Importance Emphasized.
This suit was characterized by a
high government official as the
most important legal suit affecting
federal finances to arise in several
decades"
The specific point at issue was
whether ore land in the Mesabi
range of Minnesota, purchased for
$4,000 prior to 1904 could be re-
turned by the iron company at
new vaulation of $l0,000,000 in 1917,
the increase being covered by a
stock issue and carried under in
vested capital.
I'VE think the meaning of the act
as to invested capital is clear" said
Justice Pitney in delivering the de-
cision.
at defined this term to mean, Cd
actual cash paid in, (2) actual cash
value at the time of payment of as
sets other than cash paid and (3)
paid in or earned surplus and undi-
vided profits used or employed in the
business but not to include money
or other property borrowed.
Definition Of Invest"
when speaking OF the capital OF
business corporation or partner
ship, to invest imports lying out OF
money or moneys worth with view
TO obtaining income or profit from
the conduct OF a business.
To adhere to this restricted mean
ing and avoid exaggerated valuation
the craftsman OF the act resorted to
the test of including nothing but
money Or moneys worth, actually
contributed or converted i'll ex-
change for shares OF capital stock
or actually acquired through the
business activities OF the corporation
or partnership and coming il abextra
by way of increase over the original
capital stock. How consistently this
was carried out is evident when sec
tior 207 is examined.
1.-THE same controlling thought is
carried into the + -oviso. Every line
shows evidence of a Legislative pur-
pose to confine the account to. such
items as were paid for in stock or
for shares issued for it. and to
their values at time of such pay
Incnt'."
Millions Hang on Ruling.
Hundreds OF millions of dollars in
taxes hung on the decision, there
being but few partnerships or cor
rorations which did not have on
Their books an item showing ma
.erial summarizing from appreciated
yalre of capital assets.
lfc inheritance tax case was
brought to the supreme court by
c..ecutors of the estate OF the late
J. lIarscn Purdy of New York.
No less than FIVE states had col
l.1ted tax on the turnover OF por-
tens Of the estate within their juris-
,'iction and the executors claimed all
these SUMS should be deducted be-
fore federal taxes on the met es-
tate" could be legally computed. Re-
iusal of tax collectors to this con-
tention was upheld by the Treas
Try department and the federal
courts. and today by the supreme