The Birmingham age-herald., 1922-10-22

nue will not. under any cireum- stances. assist any corporation in de- termining what is reasonable al ount of undivided .ofits, That VII. have to be decided by the cor poration itself. The commissioner may sustain or upset the corpora tion's decision, but the corporation. having made up its mind and sent Its tax return to the bureau will have to take the consequences.
 l. corporation retains any of it's earnings in the form of undivided profits it is liable to the 25 per cent penalty upon the portion thus retained. This applies not only to earnings for the current year but for the previous year. he law does not limit the time within which such earnings have accumulated. It says the penalty shall be attached to cor poratio promoting their "grins or profits to Accumulate inst ad of be- ing divided" and prescribes that the % per cent tax shall be levied and collected for each taxable year"
 More Taxes ProbobIe
 Representative Frear's suggestion that through the distribution of un- divided profits the government would receive s2oo.00o 900 more in taxes than 1t nov receives Is re- garded as fairly accurate, the esti- mate of total undivided profits being placed at $2,o0o.00o.o 1000.
 Great concern on the part of the corporations followed publication of the dispatch last week relating to this situation. For several days the offices of the Ways and Means com offices of the ways and means com mittee and the Senate finance com revenue bill through their respec- tive heu- pc were besieged by tele- phone inquiries, many of which came from out of town. The New York stock exchange responded to tho sit uation with the freakiest market of years, tn chief fluctuations being in the prices of stock holding great pc- cumulations of undivided profits.
 Althou h the internal revenue bureau will not assist corpora ton in determining how much of it's undivided profits it may retain with immunity to th- 26 per cent penalty. regulations have been prepared to guide cor orations ir this respect.
 An accumulation of gains and profits is unreasonable 7 the eg ulations. T 1t is not required for th4 purposer of the bu5in s. con- sidering all the circumstance Of the case"
 brpOrati9n Prof.
 It is interpreted here as meaning that corporationss which have tn- vested undivided profits in stocks and bonds which simply pay divi- dends and are not used in conducting the business or as a sinking fund, will have to divest themselves of such securities and distribute the money thus invested. There are hun dreds of corporations falling within this category.
 No attempt" the regulations con tinue. can be made to enumerate all the ways in which gains and profits of a corporation may be ao- cumulated for the reasonable needs of the business. Undistributed in come is property accumulated if in vested in increased inventories or additions to plant reasonably needed by the business.
 Tt is properly accumulated if re- tained for working capital required by the business or in accordance With contract obligations placed to the credit of a sinking fund for the pur- pose of retiring bonds issued by the corporation.
 ''The nature of the investment of gains and profits is immaterial if they are not in fact needed In the business"
 That Is all the commissioner has to say and he says 1t tn his regula tions. Further than that, each cor poration must look to it's own tax and legal specialists and take it's chances.