New-York tribune., 1921-01-09
Income Tax
Law Unfair.
Expert Asserts
Congress Seems to Care Lit
tie About Limitations of
the 10th Amendment,
Prof. Montgomery Ayers
Definitions Are in Doubt
Taxpayers Justified in Rely
Jug ON Supreme Court De-
cisiOns in Making Returns
BY Robert Fl. Montgomery
Professor Of Accountjng, Columbia
Jnirersify


University
Congress and the taxing authorities
seem to care little about the limita
tions OF the Sixteenth Amendment to
the Federal Constitution. and it ha,
required more than one decision Of tho
Supreme Court TO make clear what
should be obvious. VIZ: Congress un-
der the Sixteenth Amendment has the
power to tAN iycome. but has not
power 10 tax property. II a reorsan
zation or an exchange does not yield
"income' to the taxpayer no tax an
lawfully be assessed. even though the
law or the Bureau OF Internal Revenue
calls it closed transaction.
1t is possible that many of the seem
ing difficulties in connection with
organization and so-called closed trans
actions have arisen from an attempt TO
understand and follow the numerous
regulations which have been issued,
amendcd. withdrawn and superseded.
1t is suggested that in any given case
the regulations be temporarily ignored
and considerstion be given to the
suit in the receipt Of income >" If it
does we can proceed to determine the
amount OF the income which has been
realized. Ii it does not, why bother
with the regulations?
Definition Of Income
Any consideration Of these questions
requires a definition of the word in
come" II is, however. unnecessary to
define the word "income" in any Other
way than tha found IN the United
States Supreme Court decisions. If no
definition were found in the decisions
We would consult the dictionaries and
cite commol usage. The mere calling
something "income' on the part Of
Congress or the Bureau Of Internal
Revenue and then taxing it as incon.
does not change something else to in
come if it is not income within the
meaning OF tn Sixteenth Amendment.
Taxpayers are justified in relying on
the foregoing decisions when dctermin
ing income tax liability. AS quoted
above, income is mot a growth or in
crement Of value in the investment;
but gain severed from
and coming in e. that Is income de-
rived from property more I'M
portsnt for the present purposes, en-
richment through increase IN value of
capital investment is not income in
any proper meaning OF the term
Some Of tho court decisions 90 so
far as to say that gains or income must
be realized in cash be orc they can be
taxed. but ii Is not necessary 10 so
that far. Taxpayers Will be contcn.
II actual income and not unrcelizcd IL
come is taxed.
1t is evident that there is Z conflict
between the law and the regulations.
One must therefore discuss the SUBJ
ject on its merits.
Is Present Law Fair?
A discussion Of exchanges and the
closed transaction as related to Fed
eral income and profits taxes requires
consideration Of such points az these:
Is the present law fair? If unfair,
wherein should 1t be changed? II fair
is it being interpreted and administered
ieouitably.
As viii DC developed later, the
present law is the result OF last
| .icult 30 interpret il, but many Of the
I suggestions for amendments arise
rom improper administration rather
than from defects IN the ldw. 1t is
rue That some changes IN the law are
desirable, but 1t is equally true that
more reasonable and logical ad-
m nistration would rlake the present
law less obnoxious am not adyocat-
ing an Illegal admin gtration nor even
an administration which resolves
every doubt n favor OF the taxpayer.
] do advocate an INTERPRETATION of
the law which can be applied TO actual
income and actual gains Deciding a
cou ubtful point i'm favor OF taxpayer
does not forcclose tho governments s
power 20 collect taN cquently-
that is, as soon a the realization of
income or gains becomes q fact, and