The Redwood gazette. [volume] (Redwood Falls, Minn.) 1873-1940, 1921-01-12
Hollands Letter
on Income Decision
E IECISION WHICH MAY COST GOV
ERNMENT MILLIONS BRINGS
ABOUT MUCH CONFUSION.
(Taken from Wall Street Journal of
December 28.)

(Taken from Wall Street Journal of
December 28.)
If the decision which was handed
down recently by Judge D. j. Thomas
of the United States District Court
of Connecticut be affirmed by the
United States Supreme Court, the re-
suit may be somewhat calamitous to
the United States so far as tax re-
ceipts are concerned. This decision
has not as yet commanded the inter-
est which ultimately it is certain to at
tract. = - -zs--
In brief Judge Thomas decided that
if there be any profit upon transac-
ton which is purely an investment
transaction that profit is not liable to
taxation and he bases his objections
upon constitutional reasons. The case
upon which this decision was handed
down was brought by Frederick F..
Brewster against the United States
Internal Revenue Collector for Con-
necticut, James j. Walsh.
The plaintiff claimed that tax of
nearly $4,000 which was levied upon
him as due the Government for GER
tain profits which he made "as unlaw-
fully collected. Mr.. Brewster paid the
tax under protest causing it thereby
| to be understood that he would sue for
| it's recovery.
It may make the case a little plain
er if there be a hypothetical case re-
ported. If any one invested say $780,
| 900. either in real estate or in securi-
ties or any other property and after
wards sold the property receiving
therefore $150,000, he was liable under
| the present tax law as enforced by the
Government to an assessment upon
that $4,000 profit. This is the pith
of the suit brought by Mr.. Brewster.
The case was ably argued and
strangely enough notwithstanding the
momentous Importance of it, seems to
have escaped public notice. Judge
| Thomas bases his decision, which is in
favor Of Mr.. Brewster, upon his con-
viction that the profit obtained by Mr..
Brewster upon the transactions for
which he was taxed was not income
but really increased capital. Further
more, he was influenced in reaching
this decision by decision made in the
Macomber case, in which Justice Pit
ney of the United States Supreme
Court said, Enrichment through in
crease in value of capital investment
| is not income in any proper meaning
| of the term Furthermore, Judge
Thomas holds that the income tax law
of 1916, so far as it attempts to tax
such profits, is in conflict with the
! constitution because as it is direct
tax it should be apportioned among
the several states according to the
population.
Millions May Have to be Refunded.
Undoubtedly the Government will
appeal from the decision of Judge
Thomas and the issue will ultimately
reach the Supreme Court. Should the
Supreme Court affirm Judge Thomas
decision then many millions must be
refunded by the Government to citi-
zens who paid the tax levied upon in
vestment profit. This decision, how
ever, does not affect the incomes OF
those who made profits in the regular
line Of their business such as brokers,
real estate men and others. 1t applies
only to profits upon investments made
in good faith.
There is however, another point of
view to which some Of the lawyers are
calling attention. Should the Supreme
Court affirm the decision made by
Judge Thomas, then it is reasonable
presumption that ifstaxes levied upon
Investment profit were illegal, it was
not proper to deduct the losses upon
(Continusd % last page.)