16 



HARDWOOD RECORD 



OctohiT 111. 1!)21 



to tho time till' iiK-oiin' t:ix law went into effect, namely Man-li 1, 

 1913. 



The Senate l)ill limits the anidunt uhicli can be thus ilistrilmteil, 

 tax free to the stoekholilers. This amount is limited not by the 

 amount of profits aecumulateil ])rior to tho time the law went into 

 effect (which is the provision of the present law), but to the cost to 

 the shareholder of his stock or sliares. In the case of stock acquired 

 prior to March 1, lOlli, this tax exempt distribution of eariiinys 

 accumulated prior to March 1, 1913, is limited by the valui' of tlie 

 stock on March 1, 1913, in case such value is greater than tlic cost 

 of the stock to the stockholder. 



This provision constitutes a severe limitation upon the tax free 

 ■listribution to stockholders of earned surplus accumulated before 

 tlie law went into effect. Where tho cost or the market value of 

 the stock, as stock, on March 1, 1913, is less than the paid in capital 

 and earned surplus on M.-irch 1, 1913, this provision in the Senate 

 bill would have substantially the effect of taxing the stockholders 

 not on income acquired since the law went into effect, but upon 

 property acquired \tr\OT to March 1, 1913. 



On October 4 tho Senate Finance Committee agreed to a modifi- 

 cation in this provision as applied to the owners of stock of cor- 

 porations where their ownership dates back to a period prior to 

 the time the law went into effect, namely, March 1, 1913. In sub- 

 stance this modification provides that a taxpayer who held stock in 

 a corporation prior-to March 1, 1913, and has continued to hold it 

 since that time, shall be entitled to receive from the corporation 

 free of tax the same amount which the corporation could have dis- 

 tributed to him free of tax immediately prior to the time the law 

 went into effect, had the corporation then chosen to distribute to 

 the stockholders all of its earnings accumulated up to that time. 



If, however, the stock has been acquired since March 1, 1913, 

 this last amendment by the Senate Finance Committee would limit 

 the amounts which may be distributed to the shareholders, free of 

 tax, to the cost of such stock acquired after March 1, 1913. This 

 moans in substance that owners of stock in corporations who acquire 

 the stock prior to March 1, 1913, and have held it continuously 

 since then will as individual taxpayers enjoy the exemption of 

 the full proportionate part of the earnings accumulated prior to 

 March 1, 1913, which their shares represent; but if they sell the 

 stock prior to the time these accumulated earnings are distributed, 

 the person who purchases the stock will lose this exemption, and 

 will be required to pay au income tax upon all receipts in excess of 

 the cost of the stock to him. The substantial effect of this in many 

 cases will 'be that the individual stockholder will be imable to sell 

 his stock acquired before March 1, 1913, at a price which fairly 

 approximates the value to him of the stock. This will be true 

 because of the fact that if he retains the stock himself, he would in 

 many instances enjoy a tax exemption which would be largely lost 

 to the purchaser, who acquired the stock after March 1, 1913. 



This provision is of special interest to owners of stock in the 

 close corporations such as are characteristic of lumber and mining 

 companies organized before March 1, 1913; owning large amounts 

 of tangible assets and ordinarily accumulating a considerable 

 earned surplus before beginning to pay dividends. 



Payment in Installments of Additional Assessments 



The Commissioner of Internal Revenue has issued an order re- 

 (|uiring taxpayers who included appreciation of capital assets in 

 their invested capital to tile amended returns covering the taxable 

 years 1917 to 1920 inclusive, and make on or before November 24, 

 full payment of such additional taxes as may be due on the basis 

 of such recalculation of invested capital. 



On the understanding that strict compliance with this require- 

 ment would, in many instances, constitute a serious and undue 

 hardship to the taxpayer, the Senate Finance Committee bill pro- 

 vides that where it can be satisfactorily shown that undue hard- 

 ship would result, the Commissioner of Internal Bevenue may per- • 

 mit the taxpayer to distribute the payment of back taxes over a 

 period not to exceed eighteen months after the passage of the act. 

 In case of such deferment of pavments either in part or whole, the 



amounts deferred would carry an interest rate of two-thirds of one 

 jiir cent a month. This comparatively high rate is probably im- 

 posed in iinlir to induce the taxpayer to make full payment of his 

 Ijack taxes at the earliest practicable time. 



In general the Senate Finance Committee bill includes the main 

 provision of the Ways and Means Committee bill with, however, 

 a number of important modifications in the adininistrative provi- 

 sions as well as in the substantive provisions defining tax liability. 

 The Finance Committee after reporting the bill to the Senate gave 

 fioticc that it would later submit certain amendments thereto. A 

 minority report has been filed by members of the Finance Com- 

 mittee. There has been sharp discussion of certain features of the 

 Senate bill referred to in the above analysis, and it is not improb- 

 able that certain unequitable and discriminatory provisions herein 

 described may be eliminated or substantially modified. 



The provisions of the Senate Finance Committee bill would 

 impose upon taxpayers in the lumber industry as a rule, a heavier 

 tax liability than would be imposed under the terms of the House 

 bill. Furthermore, it introduces new elements which in substance 

 discriminate against the typical lumber company, and against 

 stockholders in typically situated lumber corporations. It is to be 

 expected, however, that these provisions will either be altered by 

 the Senate itself or will be eliminated or amended by the Confer- 

 ence Committee of the Senate and House after the bill has passed 

 the Senate. 



Lack of vigorous leadership in the Senate has thrown the revenue 

 legislation into confusion. There is now talk of adjournment on 

 November 10. In such an event it is not unlikely that the enact- 

 ment of a complete revenue measure will await the regular session 

 of Congress. In any event a militant Kepublican minority and the 

 Democratic Senators as a whole are obviously planning to make 

 such a fight on some of the provisions of the present bill as will 

 seriously imperil its prompt passage. 



Got Your "No Smoking" Signs? 



The "No Smoking" sign whicla the N'atii)U.il Lumber M.inufacturcrs 

 Inter-Insurance Exch.iuge has issued is attracting a great deal of favor- 

 able attention among the manufacturers of both hard and soft woods. 

 The conipan.v will Ijo pleased to furnish additional copies of this sign 

 til an.v plant that will see that they arc posted in conspicuous places. 



ALLOWED 



ON THESE PREMISES 



By observing this ruie you guard the property 

 against fire and protect YOUR JOB 



CHARLES F. SIMONSON, Manager 



NAIIOKAL LUMBER MANUFACTliREHS' INTER-mSUIIANCE EXCHANGE, CHICAGO, III. 



