Montana oil and mining journal. [volume] (Great Falls, Mont.) 1931-1953, 1936-08-29

the excess profits tax after allowing for an
exemption OF 10 percent Of the capital stock
I value not in excess OF IS percent Of such
yeiue' Is SlI94Oo. Taking this same $4,000. 90
/ OF taxable net income and deducting there
I from the normal tax Of $4,000. the corpora
ton is advised that the tax on an undis-
tributed surplus OF $43.660-00 would be 50 $50 80
and that the total Of these three taxes would
amount to $17.084s0 Taking this instance.
BY no means unusual. as II It were a personal
matter OF your own, It will at once be
seen that this Is a very important tax that
must be dealt with, and. Immediately Going
back to the situation, tax counsel advised the
corporation that II they paid q dividend Of
Sl14o400 the tax would be reduced Salts. 49,
There were three principal stockholders all
married, so that II was found that, taking
the S500000 salaries each OF them received
from the corporation and deducted In COM
putting the net income OF the corporation, to
which the proportionate distribution was add
ed, their individual taxes would be s5l21s
each. II was also found that II they were
operating under the partnership form. taking
INTO account the salaries drawn by each, the
partnership income would have been $685.
10000 and each would have been entitled TO
receive s2l,666.66 Of net income. individuals
IN partnership are taxable upon their dis
tributable shares, whether distributd or not
hence the tax imposed upon these three in
diyiduals would be, In round numbers, 81 ,901 90
each. and the three would be taxed at s5,703. 90
as against si7.084.30 taxable to the corpora
ton in the event It made no distribution.
This hardly bears out the promises contained /
IN the ways and means committees report
" 70 remove serious inequities and in
equalities between corporate partnership and \
individual forms Of business organization /
80. Under such circumstances, there is but /
one alternative for the corporation with q /
small surplus, that is. to Immediately form q
partnership and take over the corporation
However, II stock was originally obtained for
a small consideration less than par value and
the surplus Is large, it Is doubtful that this
expedient will effect the desired saving in
tax as the transaction would undoubtedly be
treated as hquldating dividend. Where the
corporation has a large number OF stock
surplus, this cannot be done.
Phillips Petroleum corporation and some
others are considering the distribution Of all
their net earnings to stockholders and OBJ
tanning their capital requirements by sales
Of additional stock. In some cases, IL would be
possible to sell stock at a nominal or nom
par value to stockholders and finance the re-
qutrements BY the sale Of notes or debentures,
thus gaining for the corporation a deduction
Tor interest and subjecting the taxpayer 70 as
little tax as possible. 1t is doubtful that any
means used to minimize this tax viii be long
lived for the reason that the government has
been very agile in its tax program, enacting
laws at such rate as to keep the taxpayer
changing from one expedient to
another. This surtax undistributed cor
porate earnings received considerable atten-
ton in the daily press during its initial
stages from the ways and means committee
% the house, in the senate and senate finance
understand the pros and cons OF the matter
Ihould obtain, through his representative or
enator, copies Of the reports Of the majority
md minority Of the committees The ma
ority argued that corporations we're accumu-
ating improper amounts Of surplus and thus
vading the tax on their stockholders who :
we're entitled to the distribution and that 1
ak Of this kind was necessary to stop this {
vasion. Z
In order to be effective. the distribution ;
must be actually paid to the stakeholder and 9
annot be credited TO him and allowed to re- c
main in the corporation. A stock dividend, 3
ven though 1t reduces the surplus Of earn n
ngs is not deductible In computing this sur 7
ak on undistrfbuted earnings. There Is moth c
az, however, to prevent a stakeholder from {
,aning the money back to the corporation b
D that 1t may have funds on which to oper- p
Re. The minority views of Senator Hugo L. e
lack and Robert NJ LaFollette Jr.. and q