The Birmingham age-herald. [volume] (Birmingham, Ala.) 1902-1950, 1922-10-21
MELLON REPLIES
TOFREAR'S LETTER
Says Treasury Department
Will Not Be Lax With
Corporations
BY Associated Press


Washington, October 20.-Secre-
tary Mellon, replying tonight to a
letter from Representative Frear of
Wisconsin, republican member of the
House ways and means committee.
declared there had been and will be
no laXity on the part of the treasury
in invoking section 220 of the last
revenue act which Mr.. Frear de-
scrib ed as providing methods for
reaching the holders of surplus stock
when held for the purpose of evad-
ing taxation"
Mr.. Frear referred in his letter to
reports that the Standard Oil COM
pany of New Jersey would issue a
400 per cent dividend and announced
his intention of leading fight to
make income tax returns public in
order. as he said, to close up escape
sluee ways"
Mr.. Mellon declared, however, with
particular reference to the company
mentioned by Mr. Frear, that section
go had no relation to such dividend
declarations. He added that lit
would seem" that Mr.. Frear was
under a Interpretation concern
ing the situation as to this so-called
stock dividend"
In the case of this company
STANDARD Oil company OF Me- Jer-
sey',7 the letter continued, then
commissioner of internal revenue
found no evidence of the accummula-
ton of surplus beyond the reason
able needs of the business.
The treasury secreta. = also stated
that 1t is not practical in any active
business" to divide all of the net
earnings among the stockholders.
y &c ta f,a
back in the business, he declared,
there would be no Industrial growth.
You refer t. section 220 and you
ask" the seeretarys letter adds,
whether this statute has been in
voked by this department or con-
sidered in the case of any corpora
lions and whether it has been con-
sidered in reaching the surplus
earnings held by the Standard OH
company"
IT would seem that you are under
a misapprehension concerning the
! situation as to this so-called stock
| dividend. Taking for illustration the
! Standard oil company of New Jersey,
| to which you refer. the holders of
| its stock, after he has received the
] new certificates or shares, has al
together no more than he had be-
holder is concerned. there is no in
come tax. This was aptly expressed
| by the supreme court in Eisner, NC
| Comber stocks dividend case
Section 220 does not apply to the
1 situation relating to these stock in
creases 1t provides that if any cor
/ poration is formed or awaited of
/ for the purpose of preventing the
! imposition of the surtaX upon it's
| stockholders through the means of
permitting its gains and profits to
| accumulate, there shall be levied a
tax of 25 per cent of the amount
| thereof in addition to tn other taxes
| imposed upon corporations, but it
further provides that the fact that
! the gains and profits are permitted
| to accumulate and become surplus
/ shall not be considered evidence of
| the intent to escape the surtax unles
/ the commissioner OF internal revenue
/ certifies that in his opinion such ac-
! emulation is unreasonable for the
/ purposes of the business. In every
case, therefore, it is necessary under
| the statute that the commissioner of
! internal revenue determine that the
| accumulation of the surplus is un-
! reasonable for the purposes Of the
! business before it can be held that
! the corporation was formed or
availed of for the purpose of evading
the imposition of surtaXes.'