The Birmingham age-herald. [volume] (Birmingham, Ala.) 1902-1950, 1921-05-17
TWO VICTORIES WON
BY GOVERNMENT IN
REVENUE DECISION
Supreme Court Rules In
creased Value of Capital AS
set Cannot Be Added to
Invested Capital
nv Associated Press

washington, May 16.-Through dect-
s!ons of the supreme court today, the
government won two important victo-
RES In the controversies involving in
terpretation of income provisions OF
the revenue acts of 1915 and 1917.
Increased value of capital ASST
could not be added to Invested capl-
kal," the court ruled in the appeal or
the La Belle Iron works, an OHIO con-
Germ, from ruling by Treasury orll-
cials, but on the contrary must be
considered in computing tho profits OF
the corporation on which the taxss
were to be assessed. In the other de-
cision, the court ruled that inheritancs
or succession taxes paid to state
could not be deducted from the net
estate" taxed under the revenue act
The La Belle Iron works suit was
characterized by high government Of
ficial as the most important legal suit
affecting the federal finances to arise
in several decades.
The specific point at issue was
whether ore lands in the Mesibi rangs,
purchased for $4,000 prior to 1901
could be returned by the iron COM
Eany at new valuation of $40, O00, 900
in 1917, the increase being covered by
q stock Issue and carried under invest
ed capital.
MEANING CLEAR
I'VE think the meaning of the act
as to invested capital Is perfectly
clear" said Justice Pitner in delivering
the courts decision. "- 1t de-
fined this term to mean 'G), actual
cash paid in, Cd, the actual cash value
at the time of payment of assets other
than cash paid in. and ca, paid N or
earned surplus and undivided profits
Used or employed in the business but
not to include money or other prop
erty borrowed.
When speaking OF the capital of a
business corporation or partnership,
such as the act deals with to invest
imports 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 valua-
tion. the craftsman of the act resorted
to the test of including nothing but
money. or moneys worth, actually con-
tributed or converted In exchange for
shares of capital stock, or actually ae-
Quired through the business activities OF
the corporation or partnership, and com
ing in as extra by way of increase over
the original capital stock. How consis-
tently this was carried out becomes evil
dent as the section (Sec POD is examined
in detail.
PURPOSE CLEARLY SHOWN
THE same controlling thought is car
ried into the proviso. Every line shows
evidence of legislative purpose to con-
fine the account to such items as were
paid for in stock or shares specifically
Issued for it, and to their values al
time OF such payment
Hundreds of millions OF dollars in taxes
hung on the decision, there being but few
partnerships or corporations which did
not have on their books such an outlay
of capital.
The inheritance tax case was brought
to the supreme court by executors OF
the estate of the late J. Carsen Purdy
of New York No less than five states
had collected taxes on the turnover OF
portions Of the estate within their Juris-
diction and the executors claimed that
all these sums should be deducted be-
fore federal taxes on the met estate
could be legally computed. Refusal OF
tax collectors to agree to this contention
was upheld in turn by the treasury de-
partment and the federal courts and to-
day 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, i'm
position Of the federal tax did not inter-
fere with the right of the state to control
the property within its borders OF dece-
dent, the court ruled