The Pensacola journal. (Pensacola, Fla.) 1898-1985, 1921-05-17
GOVERNMENT WINS
TWO VICTORIES
Controversies Involving lnterprsta.
tions of Income Provisions of
Revenue Acts.
fey The Associates Press,

WASHINGTON, May 16.-Through
decisions of the supreme court today
the government won two important
victories in controversies involving in
depreciation OF income provisions OF
the revenue acts of 1915 and 1917.
Increased value of capital asset
could not be added to "invester capt.
tai" the court ruled in the appeal OF
the La Belle iron works, an Ohio con-
Germ, from ruling by treasury Off
Gals, but on the contrary must be con-
sidered in computing the profits of the
corporation on which the taxes were
to be assessed. In the other decision.
the court ruled that inheritance or
succession taxes paid to a state could
not be deducted from the met estate
taxed under the revenue act.
The La Belle iron works suit was
characterized by a high government Of
ficial 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 $3.50, 900 prior to 1904. could be re-
turned by the iron mopany at a new
valuation of $4,000, 900 in 1917. the in
crease being covered by stock issue
and carried under invested capital.
1--WE think the meaning of the act
as to invested capital is perfectly
clear" said Justice Pitney in deliver
ing the courts decision. it de-
fined this term to mean ID actual
cash paid in, CD the actual cash
value at the time of payment of assets
other than cash paid in; and (3) paid
in or earned surplus and undivided
profits used or employed In the bust
ness but not to include money or
other property borrowed.
when speaking Of the capital of
business corporation or 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 valua-.
ton, the craftsman of the act resorted
to the test Of including nothing but
or converted in exchange
for shares of capital stock, or actu-
ally acquired through the business ac-
tivities of the corporation or partner
ship and coming in alb extra by way
Of increase over the original capital
stock. How consistently this was car
ried out becomes evident as the Sec
ton (section 20) is examined in de-
tail -
1.-THE same controlling thought is
carried into the proviso. Every line
shows evidence OF a legislative pur-
pose to confine the account to such
items as We're paid for in stock or
shares specifically issued for 1t and to
their values at the time Of such pay
nent.'"
Hundreds of millions Of dollars in
axes hung upon the decision, there be-
ng but few partnerships or corpora
ions which did not have on their
books an item showing material sums
'esulting from appreciated value of
,apital assets.
The inheritance tax case was
to the supreme court by ex-
scutors of the estate of the late J. |
larsen Purdy, of New York. No less
han five states had collected taxes
IN the turnover of parts OF the estate
Within their jurisdiction and the ex-
'cutors claimed that ~all these sums
hould be deducted before federal tax
IS on the net estate could be legally
Refusal of tax collectors to |
gree to this contention was upheld
n turn by the treasury department
md the federal courts and today by |
he supreme court.
THE net estate' contemplated in the |
ct, the opinion said, Was the entire |
esidue remaining to, be distributed af-
er the immediate charges, such as
uneral expenses and debts, had been /
net. Imposition Of the federal tax did |
lot interfere with the right of the
tate to control the property within
is borders of decedent, the court
uled