Arizona republican., 1922-02-09
Income Tax Facts
You Should Know
Series Of Fifteen Articles Prepared
by the Bureau Of Internal
Rewenue Of informative
Value TO Millions.

No. 10.
The tax on dividends is an import-
ant item in the returns of many taxa
payers.
A dividend" for the purpose OF
the income-tax law is any distribuf
! tion in cash or property made by
corporation to its stockholders or
members (other than certain divi|
dends of a personal service corporal
tion) out of its earnings or profits
accumulated since February 2S, 1913.
Dividends are taxable and are taxed
at the rates for the year in which
the cash is made available. regardless
of when the earnings or profits out
Of which they we're paid were accumar
ulated. Although interest on State
bonds and certain other obligations is
not taxable when received by a corp-1
oration, upon amalgamation with
other funds Of the corporation and
distributed to stockholders in divirn
dends, 1t is taxable to the same ex-
tent as other dividends. p
A dividend is income to the stock Y
holder as of the date when the cash
or property Is unqualifiedly made
subject to his demand. Cash div-
dends while exempt from all normal
tax, are taxable income to the indi-
vidual recipient at the surtax rates
for the year in which received. Ac-
cordingly, dividends must be included
as gross income, but they may be1
deducted as a credit in computing
normal tax. se
Stock Dividends la
The revenue act of 1918 provided 2
for the taxation of stock dividends.
but since the enactment of that law
the Supreme Court Of the United
States has held that stock dividends
do not constitute income within the
meaning Of the sixteenth amendment
to the Constitution, and are accordln
ingly not subject to the income tax,
the revenue, act OF 1921 specifically
provides that such dividends shall not
be taxable when paid In good faith.
but that If, after the payment Of such
a dividend, the corporation proceeds
to cancel or redeem Its stock at suclf
time and in such manner as to make
the distribution and cancellation or
redemption essentially equivalent to
the distribution of a taxable dividend
the amount received in redemption
or cancellation Of the stock shall be
treated as taxable dividend.
If a dividend is paid in the stock
of some other company. or some other
form of property, the fair value OF the
property received is to be taken as
the value of the dividend paid. and
such amount Is taxable to an ipdivid-
ual receiving it. A corporation may
deduct such amount from its gross
income.
Section 262, an entirely new pro-
vision OF the income tax law. places
citizens of the United States and do
nestle corporations whose chief in
come is from sources within Ameri-
can possessions on a more equitable
basis in comparison with competing
aliens and foreign corporations
Special provisions Of the income tax
regulations deal with the taxation
and personal exemption OF dividends
received from such corporations.
Dividends or interest received by
individuals during the years 1922 to
1925, inclusive, from domestic build
ing and loan associations. operated
exclusively for the purpose OF max
ing loans TO members, are exempt
from both normal tax and surtax up
to $500.