The Fayette falcon. (Somerville, Tenn.) 190?-current, 1921-05-27
GOVERNMENT WINS
TWO BIG TAX CASES
INCREASED VALUE OF CAPITAL
ASSETS INVOLVED IN BIG
CONTROVERSIES.
INHERITANCE TAX RULING
Amount Paid Not Deducted from Fed
eral Return-lncrease Capital
Assets Not Added to In
vested Capital.

Washington.-Th Through decision OF
the supreme court, the government
won two important victories in contro-
versies involving Interpretation of in
come provisions of the revenue acts of
1916 and 1917.
Increased value of a capital asset
could not be added to invested capital,
the court ruled in the appeal of the
LaBelle Iron Works, an Ohio concern,
from a ruling by treasury officials,
but on the contrary must be con-
sidered in computing the profits Of
the corporation Of which the taxes
were to be assessed. In the other de-
cision the court ruled that inheritance
or succession tax paid to a state could
not be'deducted from the met estate"
taxed under the revenue act.
The LaBelle 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
Mesabi range of Minnesota, purchased
for $4,000 prior to 1914, could be re-
turned by the iron company at new
valuation of $1O,OO0,OOO, in 1917, the
increase being covered by stock
issue and carried under invested
capital.
I'VE think the meaning of the act
as to invested capital is perfectly
clear" sadi Justice Pitney, in deliver
ing the courts decision. g. 1t de-
fined this term to mean % actual
cash paid in, (2) the actual cash value
at the time of payment of assets, other
cash paid in, and CO paid in or earned
surplus and undivided profits used or
enjoyed in hte business, but not to
include money or other property Dor
rowed.
when speaking Of the capital Of
business corporation Of partnership,
such as the act deals with to invest
Imports a laying out of money or
moneys worth with a view to obtain
ing income or profit from the conduct
Of business.
"In order to adhere to this restricted
meaning and avoid exaggerated valu-
alton, the craftsman Of the act resort
ed to the test of including nothing but
money, or moneys worth, actually
contributed or converted in exchange
for shares of capital stock, or actually
acquired through the business activi-
ties of the corporation or partnership,
and coming in as extra by way of in
crease over the original capital stock.
How consistently this was carried out
becomes evident as the section (sec.
207) is examined in detail. -.
THE same controlling thought is
carried into the proviso. Every line
shows evidence Of legislative pur-
pose to confine the account to such
items as were paid for in stock or
shares specifically issued for it, and
to their values at time of such pay
mentp
Hundreds of millions of dollars in
taxes hang upon the decision, there
being but few partnerships or corpora
tions which did not have on their
books an item showing material sums
resulting from appreciated value of
capital assets.
The inheritance tax case was
brought to the supreme court by ex-
ecutors of the estate of the late j.
larsen Purdy of New York. No less
than five states had collected taxes on
the turnover of portions of the estate
within their jurisdiction and the ex-
eeutors claimed that all these sums
should be deducted before federal
taxes on the met estate" could be
legally computed. Refusal of tax col
leetors to agree to this contention was
upheld in turn by the Treasury Dc
partment and the federal courts and
by the supreme court.
The met estate" contemplated in the
act, the opinion said, was the entire
residue remaining to be distributed
after the immediate charges. such as
funeral expenses and debts, had been
met. Imposition Of the federal tax did
not interfere with the right OF the
state to control the property within its
borders of decedent, the court ruled.