New-York tribune., 1921-03-29
Profits From Sale or
transfer of Capital AS
sets Are Taxable, the
Supreme Court Decides
Trust Fund Cain
Is Also Affected
Three Decisions in Favor
of Government to Clear
Up Tangle in Treasury

WASHINGTON, March 2s.-T,e
government won sweeping victory to-
day when the Supreme Court rul d
unanimously in three cases that in
creases in the value of capital assets.
when such increases are realized hv
sales or transfer, constitute income
and are taxable as such.
More than $100.0oo00o in taxes COL
lected by the government was in
volved in the decisions.
The three specific cases in which de-
clslons were rendered, in all of
which the income tax law vas held tn
be constitutional, affected increases in
value of stocks; corporate bonds
originally acquired and held for in
vestment, and assets of trust fund
Solicitor General Frierson inter
preted the opinions as upholdinp in
every particular the contentious Of the
government. He believed elimination
OF problems involved wo. Id 90 far
toward relieving the Treasury De-
partment Of inconveniences it has
mUItl-anOInH
tax litigation facing it for the last
year. N''
Tax on Increased Value Upheld
The 'key" case selected by the court
lor declslon was the appeal brought by
the merchants Loan and Trust Com
pany, as trustee of the estate Of Ar
cisions of Illinois courts unbold;nr
assessments levied by internal rev
through the sale of certain trust
assets. Included in the trust fund
we're $500 shares Of stock in joseph r.
Ryerson & Son, a corporation, which
were valued at $561,O0O on March /.
1913, but which were sold in 1917 for
;! .2SO,O00. Collection of tax on the
dlnerence an in value between March,
was upheld by the court.
The word "income" was defined NV
the Supreme Court in case under the
corporation excise tax act of 1909. Jns
tice Clark said, as "a gain derived
from capital, from labor or from both
combined"
This definition, frequently approved
by this court" the opinion continued,
received an addition in the latest in
come tax decision (Eisner agt. Macom-
bcr) which is especially sirn;fcant o, in
its application to such a case as we
have here. The definition was then to
read: Income may be defined as a
gain derived from capital, from labor
or from both combined, provided it be
understood to include profits gained
through sale or conversion of capital
assets
Realized Gain Taxable
1T is obvious that unless this def
milton be modified it rules the case at
bar, and notwithstanding the argu-
ments heard in this case we continue
entirely satisfied with that definition.
Since the fund so taxed was the
amount realized from the sale of stock
Of March /, 1913, it is palpable that
it was gain or profit produced by
or derived from that investment, and
thereby became the realized gain
which has been repeatedly declared to
be taxable income within the meaning
of the constitutional amendment and
the acts Of Congress-"
The opinion quickly dismissed con-
tention that the word "income" as
used in the Sixteenth Amendment did
not include the gain realized by a
single transaction, but only profits
realized by one engaged in buying and
selling as business.
"It is sufficient to say of this con-
tention," the court ruled, "that no
such distinction was recognized in the
Civil War income tax acts or in the
income tax act Of 1894. The interest
ing and ingenious argument which is
pressed upon US fails to convince US
that construction should be adopted
which would in large measure defeat
the purpose Of the amendment"
Investment Capital Included
"Plainly the gain we are considering
was derived from the sale of personal
property, and very certainly the com
prehensivc last clause (in Section p,
Gains or profits and income from any
source whatever must also include it,
if the trustee is taxable person with
in the meaning of the act"
The reasoning used in the case of the
Ryerson estate was held to cover fully
the courts decision in the appeal
brought by David M. Goodrich. Of New
York, involving taxation of profits on
investment capital, except that in one
transaction Mr.. Goodrich showed an
actual loss from the price he had paid
for the securities. The ruling of the
tax assessors that the value as of
March /, 1918, which was below the
Continued On page four