New-York tribune., 1921-05-17
u. S. Wins Bii Q 9.
Victory i'm Two
Tax l4itiigationns
Supreme Court Holds That
Increase i'm Values of AS
sets Cannot BE Consid-
cred Invested Capital
Enormous Sum Involved
Ruling Also Made Estates
Include All Inheritance
Levies Paid to States

WASHINGTON, May 16. - Through
decisions Of the Supreme Court to-day
the government won two important vic
tories in controversies involving inter-
probation of income provisions of the
revenue acts of 1916 and 1917.
Increased value Of a capital asset
could not be added to "invested cap
ital," the court ruled in the appeal of
the La Belle Iron Works, an Ohio con-
cern, from a ruling by Treasury off,
cials, but on the contrary must be con-
sidered in computing the profits of the
corporation on which the taxes were to
be assessed
In ,jie other decision the court ruled
that inheritance or succession taxes
paid to a state could not be deducted
from the met estate" taxed under the
revenue act.
The La Belle Iron Works 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 lands in the
Mesaba range of Minnesota, purchased
for $4,000 prior to 1904, could be re-
turned by the iron company at O. new
valuation of $10,000,000 in 1917, the in
crease being covered by stock issue
and carried under invested capital.
Pitney Reads Decision
eve think the meaning of the act as
to invested capital is perfectly clear"
said Justice Pitney, in delivering the
courts decision. at defined
this term to mean % actual cash paid
i,. 1n
time of payment of assets other than
cash paid in, and (3) paid in or earned
surplus and undivided profits used or
employed in the business, but not to
include money or other property Dor
rowed.
when speaking of the capital of
business corporation or partnership,
such as the act deals with, to invest
imports laying out of money or
moneys worth with view to obtain
ing income or profit from the conduct
OF q business.
"In order to adhere to this restricted
meaning and avoid exaggerated valua-
ton the craftsman of the act resorted
to the test of including nothing but
money or moneys worth. actually con-
trlbuted or converted In exchange for
shares of capital stock or actually ac-
quired through the business activities
OF the corporation or partnership, and
coming in alb extra by way of increase
over the original capital stock How
consistently this was carried out be-
comes evident as the section (Section
2OO is examined in detail
The same controlling thought is
carried into the proviso. Every line
shows evidence of a legislative purpose
to confine the account to such items ss
were paid for in stock or shares spe-
ciically issued for it, and to their
values at time Of such payment"
Huge Amount Involved
Hundreds of millions Of dollars in
taxes hung upon the decision, there
being but few partnerships or corpora
tions which did not have on their books
an item showing material sums result
ing from appreciated value of capital
assets.
The Inheritance tax case was brought
to the Supreme Court by executors of
the estate of the late J. Harsen Purdy,
Continued on page thros)