What Tax?

Questions of infinite variety, born in the complexity of the Income Tax Law, are posed almost daily to the Supreme Court. No matter how detailed they may be, the Court addresses itself to them.

P:Four questions on which answers are hourly expected:

1) The Republic of Cuba granted a subsidy to the Cuba R. R., a U. S. corporation. Is such subsidy taxable income? (The District Court decision had cost the Railroad $20,239.)

2) E. Palmer Gavit received income from a trust fund whose principle he can never touch. Is it taxable income?

(The District Court previously gave a decision saving him $30,104.70.)

3) Henry C. Frick, ironmaster, left $434,629.52 in insurance policies taken out years before income taxes were in vogue. The U. S. levied a tax of $108,657.38 on this insurance. Had it the right to do so? (A district court has said: "No.")

4) The Phelps-Dodge Corporation made distributions to its stockholders in 1917. Are they taxable at the 1917 rate, or the lower rate of 1916, or at no rate? (The estate of James Douglas, a recipient, regards them as nontaxable distribution of capital. A District Court has held them taxable at the 1916 rate.)

P:Three questions answered last week:

1) If a man inherits an estate, can he deduct his Federal inheritance tax in computing what he owes to the state inheritance-tax collector? "No," said the Court in handing down the decision (Stebbins v. the Controller of the State of California). The Stebbins estate pays $37,699 more to California than it would have if the court had said: "Yes." This decision was taken to be in line with President Coolidge's opinion that inheritance taxes are the special preserve of the state. Forty-eight tax collectors rejoiced.

2) If a business firm rents property under circumstances which make necessary the expenditure of money on upkeep, can such expenditures be deducted from Federal income tax return as operating expenses? "No," said the Court. Such expenditure is really additional rent, claimed the Central R. R. of New Jersey--in vain.

3) If a man bought a share of stock for $100 today and sold it tomorrow for $90 he could, under the present income-tax law, deduct $10 from his current tax return as capital loss. The present law sets Mar. 1, 1913, as the date for computing values of property previously acquired. Question! A man bought a share for $90 in 1912. It is worth $100 in 1913. He sells it in 1919 for $95. Can he deduct $5 as capital loss ? "No," said the Supreme Court, although Justices McReynolds and Sutherland dissented from the unalterable "No." The taxpayer (in this case, Harriet Flannery) had not suffered an actual loss, said the Court.