Montgomery County sentinel. [volume] (Rockville, Md.) 1855-1974, 1949-02-03

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made during the taxable year, (,
without regard to the amount of
earnings and profits at the time
the distribution was made" So, it
may be generally said that any
distributions made by a corpora
ton to it's stockholders out of it's
profits is to be considered as a
dividend and is, therefore, subject
to the income tax. In this connec-
ton, profits may be derived from
any source whether or not taxable
to the corporation. Thus, income
exempt from taxation would be in
Guided in calculating the earnings
and profits as affecting a dividend
d e C AIRED by that corporation.
There are, however, certain cases
where distributions are made by
corporations and that distribution
is not subject to a tax. For exam
pie, if distribution is made by a
corporation in its stock or the right
to acquire its stock, that distribu-
ton is not taxable to the stock
holder provided that the distribu-
ton made in stock was of the same
nature as that on which the divi-
dend was declared. That is to say,
if a dividend is paid in common
stock on the common stock of a
corporation, that dividend is not
taxable. The Supreme Court in de-
claring this rule said that such a
transaction did not result in in
come within the meaning of the
Sixteenth Amendment to the Con-
stitution because it did not give to
the shareholder anything different
than that which he had before the
distribution was made. Later, the
Supreme Court ruled that if a divi-
dend on preferred stock was paid
in common stock, then that distri-
button did result in income and is
subject to the income tax. 1t is well
settled that dividends paid in prop
erty such as stocks and bonds of
other corporations are subject to
the income tax and are to be con-
sidered as cash dividends. In such
cases, the amount of the dividend
is an amount equal to the fair mar.
ket value of the property. at the
time when the stakeholder became
entitled to the receipt thereof.
Interest
The Code expressly provides
that interest is an item which
must be included in your gross in.
come. Interest from whatever
source derived, except interest OF
certain Federal, State and Munich
pal obligations is usually taxable
This includes interest on corporate
4 bonds, mortgages, notes, bank de
posits, loans, etc. If your books are
kept on the cash basis then youl
interest should be included in your
gross income in the year which il
is received. If your records are
kept on the accrual basis then youl
interest is taxable for the year il
which it was earned even though
you may not receive it until later
Most individual taxpayers main
tain their records on the cash basi.
and in such cases the problem
arises as to how to treat interes
credited on savings accounts. Here
the general rule, under the doc
trine of constructive receipt, il
that interest from savings banks
and bond coupons which is credited
and held subject to call must b,
included in your gross income foI
the year in which it becomes avail
able.
Interest On Federal, State And
Municipal Obligations
Interest on bonds of the States
municipalities and political sub
divisions thereof is entirely exemp
from the Federal income tax ant
should not be included in you
gross income. Interest received OF
Federal obligations obligations O
The United States) is treated diff
ferently. Prior to the Public Deb
Act of 1941 practically all inter
est received on obligations of tn,
United States was tax-exempt. TIL,
1941 act removes the tax-exemp
ton privilege, with some few ex
ceptions, on all obligations of tn,
United States issued subsequent t,
February %, 1941. Interest OF
Treasury and Savings bond!
(known as Baby Bonds) ISSUED
prior to March 1, 1941, is tax
exempt up to the principal value
of $5,000.00. On bonds in excess OF
that amount the interest is exempt
from the normal income tax but j.
subject to the surtax. Interest or
the following Federal Bonds i:
exempt from the income tax: %
/! 80 Conversion Bonds of 1946-47
(2) $50 Panama Canal Loan Of
1861, (3) 21a96 Postal Savings
Bonds (28th to 49th series), ca
Tennessee Valley Authority Bonds
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