New-York tribune., 1922-10-21
4. S. Not to Put
Special Levy
On Oil Melon
Mellon, Answering Frear,
Holds Tax Not Charge
able Unless Number Of
Shares Held Is Changed
Case Is Fully Explained
Declaration Of Stock Divi-
dend Does Not Affect Ag-
gregaie Assets of Firm

--
rrer sAe ryybase's #ushsaeson Bweaa
WASHINGTON, Oct. 20.--No special
ss ner cent levy will be made by the
Tessury against the 400 per cent stock
: Ny;dend declared by the Standard Oil
Company Of New Jersey. This decision
wss announced to-day by Secretary of
ne Treasury Mellon in answer TO q
letter frora Representative James A..
Frear, Republican. OF Wisconsin, who
oaIed the Treasury Seeretary's atten-
tson to q special clause IN the revenue
ast rh;eh he S4lieved made this melon-
sl,cing subject to Federal taxation. Mr.
usllasE iester said:
ii nave your letter of October 16
caiiine attention TO the fact that the
Standard Oil Company of New Jersey
has declared 400 per cent stock divi-
dend OF it's common stock and that
other companies are declaring various
stock dividends. You refer to section
22o Of the revenue act of 1921, which,
yeii say, provides methods for reach
ing holders Of surplus stock wien FOR
the purpose of escaping taxation and
yea ask whether this statute {section
2201 has been invoked by this depart
ment or considered sin the case of any
cofpofations, and whether it has been
considered IN reaching the surplus
earnings held by the Standard Oil Com
paay.'
Under Misapprehens,on
1T would seem that you are under a
misapprehension concern ng the situa-
ton as to this so-caIled stock aiyi-
dsad. Taking FOR Illustration the Stand
I'D Oil Company of New jersey to
sAeh you refer, the holder of it's stock.
after he has received the new eertifi-
ates or shares, has altogether no more
.san he had before and therefore. so
hr as the holder is concerned, there
% no income to tax. This was aptly
sxrressed by the Supreme Court in
ssner va. Macomber, 252 u. S. IS9, as
iallows
s'This, however fdeclarat;on of q
aock dividendl is merely bookkean;ne.
that does not affect the aggregate as.
sets Of the corporation or its outstand-
ing liabilities; it does not alter the
pre-ex'sting proportionate interest of
any stakeholder or increase the intrin-
&c value of his holding or of the
xgregate holdings of the other stock
@ders as they stood before. The new
Msaicases simply increase the num-
OF tnc shares, with consequent di
Htien OF the value of each share.
Section 22o Does Not Apply
Section 220, to which you refer. does
not apply to tie situation relating TO
these stock increases. 1t provides that
fany corporations is Formed or avaiIed
q fer tne purpose of preventing the
imposltion OF the surtax upon its stock
aoders through the means of permit
ting its gains and profits to accumulate
thsft shall be levied d tax of 25 per
cent of the amount thereof in addi- /
tlon 70 the other taxes imposed upon
corporations, but it further provides
fa&t hs fact that the gains and profits
arc permitted to accumulate and be-
come surplus shall not be considered
evidence of the intent to escape the
Mrtax unless the Commissioner of
Internal Revenue certifies that in his
apnion such accumulation is unrea-
ehable for the purposes of the busi-
ness. In every case, therefore, It is
necessary under the statute that the
Commissioner OF Internal Revenue de-
term'ne that the accumulation of the
surplus is unreasonable for the pur-
poses of the business before it can be
held that the corporation was formed
Or availed ofafor the purpose of evad-
ing the imposition of surtaxes.
"The declaration of a stock dividend
Is not significant in connection with
this section of the statute, nor has it
any relation to determination by the
commissioner under Section 220. The
primary purpose of Section 220 is to
reach those corporations the stock Of
which is usually closely held and the
earnings and profits of which are ac-
eamulated for the purpose of enabling
the shareholders to avoid the payment
oi surtaxes upon their dividends.
Subject to Full Taxes
As to the question Of tha aecumu-
latson of surplus by the Standard Oil /
Sempany of New Jersey out of past
psohss, this company, believe, had
over woo 100000 OF surplus which was
s;ssumalated ;ated before the passage of the
enss' ,some TAX law IN 1918, and the ac-
.amuiations since that time have been
aecresions from earnings in addition
W dlYldends declared from year to |
ysar, but in all of these years the com
psny was subject to full taxes upon it's I
ssaInings, some of it under the excess |
p!ohss and war taxes at the then high |
prevailing rates.
.!s Is not practical in any active |
tpuslhess to distribute all the net earn |
.ngs In dividends to the stockholders.
aac II part of the earnings were not \
" oaek into the business there would 1
no progress or industrial growth. ]
the case OF this company the corn
sMssionef Of internal revenue has
.ound no evidence of the accum,lation
" surplus beyond the reasonable needs
Of the business. ''eeus
. nave gone into this detail as 10
the standard OIL Company of New Ier.
seys as you make that company the sy-
ample, but the same principles apnIv
generally, and so far as this depart.
ment is concerned there will be no lax.
Ivy IN invoking the application Of Sec
ton 220 wherever there is anv bas;s
Tor SO doirig.n