Evening star., 1934-11-15
MELLON COMPANY
SUED FOR TAXES.
Treasury Files Action
Against Union Trust, Charg-
ing False Return.
By the Associated Press.

By the Associated Press.
Demanding a payment Of $2l8,333,
plus a penalty of so per cent, the
Treasury yesterday filed tax action
against the Union Trust Co. Of Pitts
burgh, a Mellon institution, charg-
ing its income tax return for 1880
was false and fraudulept."
The Government cited eight trans
actions in 1891 as evidence that all
were "a part of false and fraudulent
course Of conduct on the p rt OF said
Union Trust Co. Among the 1891
transactions were two SC mmoda-
ton" deals with Andrew -, Mellon.
then Secretary Of the Treasl .ss.som
the Government already ha. !ha.. d
with income tax frauds.
First Action Brought.
Oficials said the Union Trust action
was the first fraud case brought
against an Institution. The fraud
charge was made d an answer yester-
day before the 81 srd Of Tax Appeals
to the trust ce--.oany's denial of an
additional assessment of $218,333
levied against the Pittsburgh concern
during the Hoover administration.
With the addition of the fraud allega-
ton went the Treasury's claim for q
so per cent penalty.
The Treasury, through Robert H.
jackson, counsel for the Internal
Revenue Bureau, said that in 1880,
with a net income approximating s4,-
100000, meaning an income tax of
$4,000, the Union Trust Co. de
vised scheme to conduct a fictitious
sale and repurchase of certain Sc
curities for the purpose of
creating an appearance of a loss
thereon and to report the same to
the Government as real loss for the
purpose Of deceiving the Government
and thereby evading its income tax
liability"
= The scheme referred to was the sale
OF securities to the Union Savings
Bank lin form only" The Treasury
said the savings bank was SO per cent
owned by the trust company, that
H. C. McEldowney. 000-a-year
president Of the Union Trust, served
without added compensation as presi-
dent Of the savings bank, and that
R. B. Mellon was vice president Of
both institutions.
Members of Trust Company.
The Treasury said these 16 directors
OF the savings bank also were direc-
tors OF the trust company: r. B.
Mellon, w. L. Mellon, Richard K.
Mellon, Senator David A. Reed, J..
Frederick Byers. Arthur v. Davis,
Chllds Frick, James H. L. -khart. Lewis
A. Park, William B. Schil er, George
w. Crawford, Henry c. Townes, Roy
A. Hunt, j. Marshall Lc.xhart, Henry
G. McEldowney and George E. Shaw.
1T was devised and arranged and
agreed" the Treasury said, that said
Union Trust Co. would use this wholly
controlled subsidiary, said Union Saw
ings Bank, as sham transferee of said
securities for the purpose Of tax
evasion"
The transaction involved securities
whose market price on November Z,
1880. was s1,793,219, representing q
$1,722 .o82 loss to the Union Trust Co.
The securities included 815 shares Of
American Cyanamid class B, 9,784 of
Bethlehem Steel common, 2,195 of
Firestone Tire & Rubber per cent
preferred, 5.181 of Gimbel Bros COM
mon, 1910 Of Northwest Bancorpora-
ton common and $4,000 of Pennroad
Corp. common.
Transfer Held Accepted.
The Treasury said the savings bank,
not in cash position to pay the ST.
1929 price for the securities, re-
ceived a 81 100000 deposit" from the
trust company and on November 8
did, In form only, accept transfer
of the securities"
ON January and january 3.
1881, said Union Savings Bank in
form only retransferred to said Union
Trust Co. the identical securities -
whereupon it Immediately withdrew
its entire deposit account with said
Union Savings Bank" the Treasury
said. said Union Trust Co. paid for
the transfer stamps used in both Of
these sham transactions.
Said Union Trust Co. in its re-
turn for 1880 falsely, fraudulently and
with intent to evade tax reported the
foregoing pretended transfer as a real
sale of securities on which it claimed
to have sustained an actual loss and
concealed from the Government the
fictitious and fraudulent character OF
the transaction.
- f&I r1lr fv-n, dol ~
with intent to evade tax understated
its net income III the amount Of ST.
1872, ,082 90 and understated and sought
to evade its true tax liability for the
year 1880 in the amount of $2l8,-
333.79."
Transactions Listed.
The Treasury then listed a number
Of 1881 transactions by the Union
Trust Co. as "a scheme and course
of conduct with certain of its large
stockholders, customers and directors
and its aforesaid subsidiary" includ-
ing:
A pretended" purchase from An
drew w. Mellon of 123,622 shares of
Pittsburgh Coal common stock for
"purported consideration" Of $500, 900.
The Treasury charged the stock was
transferred to a family corporation
dominated by the said Andrew w.
Mellon and that the transaction was
not purchase entered into by said
Union Trust Co. in good faith, but
was entered into by it fraudulently
and to enable the said Andrew w.
Mellon to carry out his purpose to
q %