New-York tribune., 1922-10-23
hFear Charges
Mellon Ignores
Law on Income
Ruling Standard Oil Stock
Dividend Is Not Taxable
Declared TO Usurp Func-
iions of Supreme Court
Congress Act Set Aside
Secretary's Action Asserted
TO Have Cost Treasury
Hundreds of Millions

WASHINGTON. Oct, % by The AS
sociated Press).- Secretary Mellon was
charged to-day by Representative
Frear, Republican, of Wisconsin, with
everthrowing the action Of Congress
By his ruling that Section 220 of the
revenue law, designed to reach large
surpluses accumulated by corporations
to prevent the payment Of individual
surtaxes, was not applicable in the
case OF the projected 400 per cent stock
dividend Of the Standard Oil Company
of New Jersey.
The charge was made in letter to
Mr.. Mellon made public by the Wis
consin Representative. The communi-
cation was IN reply to a letter from
Mr.. Mellon in response to one written
by Mr. Frear early in the week calling
attention to- the reported stock divi-
dend and urging that the penalty pro-
visions be invoked. Mr. Mellon wrote
that Section 22o had no relation to
such stock dividends as that proposed
by the New Jersey oil company, but
added that there had been and would
be no laxity on the part of the Treas
ury in eyoking that section "wherever
there Is any basis for so doing
Declares Ruling Sets Law Aside
"Your letter" replied Mr.. Frear un-
der date of to-day, ignores and mis-
apprehends the plain reading and pur-
port OF the statute, and your ruling
assumes the prerogatives of the Su-
preme Court when it sets aside this
law.
II trust that you are not under a
fnisapprehension as to the question
squarely presented to you, because the
press has been filled with announce
Inents that the purpose of the stock
dividends TO be issued by the Standard
Oil Company and the proposed stock
dividend of 100000 900 in United
States Steel. in which you are supposed
to be Interested, is for the purpose of
avoiding the surtaxes which would
apply IL these enormous amounts, ag-
gregating over s1,oo0,0 900, were dis
tributed as cash dividends.
Naturally. as man of great wealth.
interested in sixty or more corpora
tions affected by the ruling on stock
dividends and taxation, you will find
your personal interest involved in any
decision, but | assume in your position
as a public officer you will be governed
by the law and the interests of the
public rather than by any personal con-
sderation.
rs Per Cent Penalty Evaded
"In your letter to me you say the
corporation has paid its full tax. This
refers, take it, to Section $50, but
the penalty Of 25 per cent is imposed
by Congress in order TO reach the un-
warranted surpluses that are held by
corporations and not distributed as
- ....1 l.. l., to
tax payment under the Individual sur
tax law. That is the distinction SO
clearly made by Congress that it can
not fairly be misunderstood. 1t is an
other way Of reaching the tax on un-
distributed profits which is undoubt-
edly permitted under the law and the
decision of the Supreme Court in the
stock dividend case.
"Your efforts to protect the govern
rnent Treasury in the past have not
been directed toward collecting q tax
upon large and lawful corporations. and
ia the present emergency your action
Sn overruling the express act of Con-
gress will result in o loss to the Treas
ury of an amount reaching several hun.
dred million dollars annually.
81 trust that you will reconsider
your ruling"
Adoption of the pending resolution
proposing C0HstltuLlOnal 5aInenuHleHt
putting an end to the issuing of tax
exempt securities will be urged upon
Congress at its short session, it was
said to-day by high riscal officers OF
the Administration. They declared the
question of tax.free bonds was the
most important, alone of the national
tax problem, but IF some of the in
dustrial ones as we'll
1t was indicated that the proposed
legislation would have the full support
of the Administration. President Hard
ing was expected to renew in his an
nual message TO Congress In Decembe
hts recommendations for such change
Secretary Mellon and other Treasur,
officials aiso were prepared to reiter
ate their support of the resolution.
Aside from the proposal to end tn
issuing OF non-taxable securities
recommendations with respect to taxa
tion to be made to Congress by Secre
tary Mellon in his Forthcoming an
nual report were expected to be fe,
and to deal largely with such change
in the existing law as have been foun
TO be desirable through practical ad
1ninistration.