Great Falls tribune. [volume] (Great Falls, Mont.) 1921-current, 1922-10-23
BY HARDEN COLFAX
Special Correspondent Of Great Falls Tribune
Copyright. 1922. BY The Great Falls Tribune.


Copyright. 1922. BY The Great Falls Tribune.
Washington, Oct 22.-The outstand-
ing development of the year in industry
and finance rapidly is drawing to
climax at the bureau Of internal rev
enue, the tax collecting arm of the
federal government. 1t concerns the
distribution of the earnings of corpor
ations. 1t is regarded here as being the
prime cause of the spectacular and
erratic course of the New York stock
market for the past week. 1t probably
will result in complete change of
policy by hundreds of great enterprises
which have built up great reserves out
OF earnings, and in the opinion of Of
ficials here will increase income tax
collections by S100,00O,0O0 to $780,
100000 annually.
This remarkable and unexpected sit
uation has been caused by a single sec
ton of the revenue law of 1921. which
apparently had been generally unnoticed
until the past 10 days or two weeks.
AS stated in these dispatches last week,
that section, No. 22O, prescribes a tax
of % per cent upon undistributed prof
its of corporations where such profits
are sum meeting the reasonable re-
quirements of the business involved,
the commissioner of internal revenue
having the power to decide what shall
Recent huge stock dividends declared
by oil and industrial companies are di
rectly traceable to that section. Others
are to come. Until now it had been
assumed that the commissioner of in
ternal revenue would aid corporations
in deciding on a reasonable limit
amount of the undivided profits which
corporation might hold without pay
ing the 25 per cent tax. That belief,
by this corporation, is all wrong.
Corporation Must Decide
The commissioner will not, un
der any circumstances. assist any
corporation in determining what is
profits. That will have to be
decided by the corporation itself. !
The commissioner may sustain or up
set the corporations decision, but the
corporation, having made up its mind
and sent its tax return to the bureau, !
will have to take the consequences
If corporation retains any Of its
earnings in the form of undivided prof
its it is liable to the % per cent pen
atty upon the portion thus retained. |
This applies not only to earnings for |
the current year but for previous years |
The law does not limit the time within !
which such earnings have accumulated. !
1t says the penalty shall be attached |
to corporations permitting their "gains |
or profits to accumulate instead Of be-
ing divided and prescribes that the
25 per cent tax shall be levied and
collected for each taxable year"
Representative Frear's suggestion
that through the undivided profits the
government would receive 5000 900 900 |
more in taxes than it now receives is
regarded as fairly accurate, the esti-
mate of total undivided profits being
placed at two billion dollars.
Great Concern Over Story
Great concern on the part of cor |
porations followed publication of the !
dispatch last week relating to this situ-
alton. For several days the officers |
of the house ways and means com
mittee and the senate committee both |
having sponsored the revenue bill |
through their respective houses, were
besieged by inquiries, many of them |
coming from out of town. The New
York stock exchange responded to the |
situation with the freakiest market of |
years, the chief fluctuations being in
the prices of stock holding great un-
divided profits.
Although the revenue bureau will |
not assist Il corporation in determin-
ing how much of its undivided profits
it may retain with immunity to the |
25 per cent penalty, regulations have
been prepared to guide corporations in
this respect.
IAN account of gains and profits is
unreasonable" say the regulations, "if
it is not required by the business
after considering all the circumstances
of the case
This is interpreted as meaning that
corporations which have invested un-
divided profits in stocks and bonds
which simply pay dividends and are
not used In conducting the business or
as a sinking fund, will have to divest
themselves of such securities and dis