Every evening, Wilmington daily commercial., 1921-11-22
ou PoNT CO. STOCK
OWEN IN EXCHANGE
HELD 40 INCOME
Continued from lmse l.

(rVuUVeu Irosu tWue IL
s.ller action In sssS.ssl. hut total
~ nrarly $40 600 900 &c the Rov"rn-
men, ,rom al the litisants In the
DAYS re-,s H. exp" ctcd as result of
N, decision.
NWsrruIw~Mt's Contention.
In tn. rhclliH c,se the government
collected from Mr.. Pheilis sS.sb7 In
com, taxes Tor 1915 upon siia'So. the
value ~ 500 shares ~ common stock
uf III. W. !. du pont de- Ncmours 4 Co.
Delaware corporation. received by
~. His ~ a dividend by reason of the
ownership of sbo shares on common
stock in the r.. /. du pont de N'mours
Powder Co. a new Jersey corporation.
rh.llls Appended 10 the Court OF
Claims and secured Judgment for re-
covcry of the amount of taxes paid
IN government appealed IT. the uni-
ted states supreme Court.
This case involves many milions To
the United States Treasury" said So
lieltor General Bcck In the govern
mcnt brief. "ln it's spplic,tion to the
stockholders Of this and many other
corporations, but the princIple lnvolv-
ci, ~ bearing upon the honest coliec-
,lon Of taxes upon dividends, Ia even
more important"
llc declared he did not believe that
the du ront CO. transaction was a
methej 20 cvade taxes. but said that
~ their contention should prevail, an
easy method had been provided TO en-
able corporations To distribute their
surplus among their stockholders In
q tn. equivalent OF east without the
stockholders paying their fair share
of the burdens OF taxation. n corpora
tlon need only TO transfer it's surplus
60 another corporation and tax In re-
turn lts stock and then distribute II
among It's stockholders.
For example. the Standard OIL Co.
cf New Jersey could transfer the
whole or part of its huge surplus TO
'he Standard on Co. OF California, re-
ccive new issue of the latter COM
yanys stock. and distribute IL as 4
dividend among the former company's
stockholders, and they would be in
the happy position of having securi-
ties that are 0s good a. government
bonds without the necessity OF paying
any taxes and without diminishing
their stoclSholding interests In the
New Jersey company"
In September. 1915. the New Jersey
~ pont Company had stock and fund
81 debt totailng s6o.sai. 200 and assets
with prior accumulationA OF profits
,wlucd at $4,000 600. IL sold the New
ice,y plant and other assets TO the
Now Delaware Company. which had
rn authorized capital ~ seto goo, eco
receiving stock amounting IN par val
nc 90 $4,000. .oo0. as follows Cash
fiisi 100; dcbcnture stock. 3se,66l,
9Nui common stock, saS,ssa. goo. Th'
New Jersey company then paid as a
dN ldund 90 ns common stockholdcrl
Two shares ~ the Delaware company
Dummon stock fof each share held II
iht New JERSEY company, the stock
huldufs Ia the latter company retain
iur hla stock "A that company.
rhsllls reviewed s0o shares OF com.
mon Htork in the Delaware corpora.
tlnn fnr bis ESQ shares In the New
ipfsrN corporation, and held on 20 IN,
latter lie failed 60 include these so
shares IN his income tax return fo'
inlt ana The government assessed
ihe tax ON then value OF sl7s.55o.
"rhe plaintiff and all his fellow
slrUhhci,rs" said Solicitor Genera
,'eck. had resolved IN valuable securi
fi.s immediately convertible into cash
iheit share ~ huge war profits. and 1
would seem uncon~cionable To permi
them merely because their dividend
We're In specie and not cash, TO es
cape their fair share of tho burden
OF taxation"
holds II 10 he Taxable.
In discussing this case Justice Pit
rsN observed;
"rhc act under which the tax nov
N question was imposed, declares tina
Income rhall include. among o,he
things. rains derived from interest
scnt. dividends, securities. or IN
transaction of any lawful bushes
carried on for gain or profit. or gain
O. profits and income derived from an
source whatever Disregarding tn
eight looseness of construction, W
Interpret gains. profits, and income de
rived from dividends etc, rs meanin
not that everything in the form OF
dividend must be treated as incom,
N-lt that income derived in the way c
dividcnds shall be taxed. Hence tn
inquiry must be whether the share
of stock In the new company receive
hy claimant as dividend by rea so
cf his ownership OF stock in the ol
company constituted gain derive
from capital. not a gain accruing I
capital. nor a growth or increment {
value In the investment, but gail
a pront something OF cxchangeabl
value proceeding from the propert,
severed from the capital however in