The New York herald., 1921-05-17
Coveynment Wins in
Ttuo Big Tax Cases.
Special Despatch 10 THE New YORK HERALD
New York Herald RureRu.
Warrington, ID, c., May 16. J

lU0 Big az Cases.
Special Despatch TO THE NEw YORK HERALD.
New York Herald Bureau,
Washington. ID. c., May IL.
The Federal Government to-day by
unanimous decisions of the United States
Supreme Court won two big tax cases.
As a result large sum. variously esti-
mated at from 500. ooo. 900 to 100000
900 will be kept in tho Treasury.
In one decision the court held that
the increa sed value of any property OF
a corporation--sucha as natural resources.
as was the specific point involved in the
case at bar--is profit and therefore tax
able under the income and excess profits
laws. even though this increase Is repre-
sented as invested capital.
The second decision upheld the con-
stitutionality OF the Federal inheritance
act OF 1915. and sustained the Govern
ment's method Of computing this class
Of taxes by refusing to allow, executors
OF estates to deduct the amounts paid
In State inheritance levies.
The two decisions constitute a notable
victory for the Government, the first
case being considered one OF the most
important before the court in the last
decade. Practically every corporation
OF any size was interested in the case.
according to counsel for the La Belle
Iron Works. which brought the test
suit.
Numerous briefs protesting against
the tax were filed with the court. par
ticularly by lumber. coal and iron COM
panies whose natural resource holdings
have greatly increased in value in re-
cent years More than s.. .000, 900 in taxes
were involved in the La Belle Iron case
alone. Secretary OF State Hughes argued
the case for the company before he
assumed office.
Taxed Increase ON Ore Lands.
'"rhe meaning of the law as to in
vested capital is clear said Justice
Pitney in reading the courts opinion.
1T was to recover actual cost OF prop
erty. disregarding any accruetion that
vestment."
The La Belle Iron Works, q West
Virginia corporation, brought suit -
recover taxes OF 81. .0Sl. .1S4. which repre-
sented an excess profits levy on the
| increased value OF ore lands in the
| Mesabe range in Michigan. The COM
pany In its annual return for 1917
claimed invested capital to the extent
Of S26, 81, ,904. In which 1t included $10-
lands. 1t was shown that tho original
cost of the lands was only $4,000. Tho
Commissioner Of Internal Revenue ac-
cordingly deducted $9.915.40O from the
invested capital account, this repre-
senting the increased value OF the lands,
and taxed It, Suit was brought in the
Court Of Claims to recover.
The inheritance tax case was brought
by the New York Trust Company as ex-
ecutors Of the estate of J. Harsen Purdy
of New York The New York Federal
District Court sustained the Government.
The Purdy will left property in tho
States Of New York, New Jersey. Michi-
gan, Wisconsin. Kansas and Colorado,
and in all these States taxes amounting
to 337,7e9 were paid The Federal Gov
ernmcnt then assessed a tax OF S23.910.
q nd refused to allow the heirs to deduct
frc m the amount taxable the payments
to the States. The court to-day held that
the Federal taxes applied before the
property came into actual control Of the
heirs, as a matter of law.
Defines sInvested Capital"
In the opinion in the La Belle iron
case. Justice Whitney said: Reading
the entire language Of section 207 In the
light of the circumstances that surround
meaning as to invested capital is en-
tireiy clear. The great war In Europe
had been in progress since the year 1914,
and the manufacture and export OF war
supplies and other material for the
| belliRercnt Powers had stimulated many
lines OF trade and business in the coun-
try. resulting In large profits as COM
pared with the period before the war,
and as compared with ordinary returns
upon The capital embarked.
"The United States had become
directly involved In the conflict in the
spring OF 1917, necessitating heavy in
crease in taxation: at the same time
manufactures and trade of every descrip
ti,n wre rendered even more active,
and In certain lines more profitable. than
before 80 that the unusual gains derived
thcrefrom formed a natural subject for
1 special taxation
III such capital were to be computed
according to appreciated market values
based upon the estimates OF interested
parties Ton whose returns perforce tho
Government must In great part rely)
exaggerations would he at a premium.
corrections dificult. and the tax easily
evaded. Section 207 shows that Con-
3ress was fully alive 10 this and de-
signediy adopted a term invested capital
and a definition OF IL that would meas
urably guard against inflated valuations
The word invested In itself imports
restrictive qualification.
Apprecfation Not Allowed.