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_, W, P. G. HARDING, GOYUROR PAUL II, WAIIIUlle. YICI GOVERNOR b•OPFICIO M•NBKRe PRIDIRJC A. DILAllO WJ.LLIAII G, McADOO ADOLPH C. MILLER CHARLES S. HAIILIII &ICIITARY OP THI TRIAIURY CHAIRMAN JOHN SKELTON WILLIAMS FEDERAL RESERVE BOARD COIIIPTROLLIR OF THI CURRINCY WASHINGTON H. PARKER WILLIS, SICRITARY IHIRIIAN P. ALLEN, AliT, IIC. .TARY AND FIICAL A•INT ADDRK8e R•PLY TO FEDERAL. RESERVE IIOARD June 27 1 1918. X-1025. Dear Sir: I hand you herewith for your information copy of a letter written by the COli:IDissioner of Internal Revenue which s-tates the views of his office regarding the application of Internal Revenue laws to certain proposed stock dividends. I also inciose copy of a letter addressed by the Commissioner to the Counsel for t:tle Federa.1 ~serve l3oa.rd 1 holding that the stamp' tax 4oes ~ot apply to dr&fts in eo~eotion with the shipment of articles from the interior to the seaboarli, where such articles have been sold to the United States agent of a foreign purchaser for atport under circw:nstances entitliag,the transportation within the United States to exemption from the transportation tax. Very truly yours., Governor. Federal Reserve Agent. (Two inclosures) X-1025a QQ!:Y. * * * * * * * * * * * * * * * Your letter of June 8~ addressed to Hon. W. F. Ra~~ey, asking certain questions relative to the application of the internal revenue laws to certain proposed stock dividends~ has today been r~ferred to n:e for reply by Hon. M. C. Elliott~ Counsel for the Federal Reserve Board. Incon:e upon which the bank in question has paid incou~ and excess profits taxes does not becorr£ subject to any additional taxes by reason of its use in payii'..ent for ·!,stock issued as a stock dividend. Your conclusion as to the first point dealt with in your letter appears to be correct. · Under the Income Tax Act now in force (Act of September 8, 1916 1 as amended by the Act of October 31 1917) stock dividends, are expressly taxed, as they were not under the Act of October 3, 1913, the Statute under which it was decided in the case of Towne v~ Eisner to which you refer. lG~l On this point, see Section 31 (a) of the Act added by Section of the Act of October 3, 1917, which provides in part as folluNs: "The term 'dividends • as used in this title shall be held to n:ean any distribution rrade or ordered to be rrade by a corporation, joint•stock con:pany association, or insurance company, out of its earnings ~r profits accrued since March first, nineteen hundred and thirtee», and payable to its shareholders, whether in,~ash or in stock of the corporation, joint-stock company, association, or insurance company 1 which stock dividend shall be considered income, to the amount of the earnings or profits so distributed." 1 It has been the ruling of this Departrr~nt in accor.dance with an 1 opinion of the Attorney General J;hat under :this language the tax upon stock dividends is to be collected, notwithstanding the decision to which you refer relating to the ;1.; earlier act, You are, therefore, advised that in so far as the stock dividend is issued against earnings or profits accrued since March 1, 1913, it will be subject to addtional or sup~r-tax in the hands of the individual stockholders. · As t.o the allocation of earnings distributed by rr.eans of such dividends as between different years in which the earnings were received, see Section 3l~(b) of the Act, and Treasury Decisions Nos. 2659 and 2678 1 copie~ of ·Nhich are inclosed. Dividends are not~ however, subject to the excess profits tax against the individual stockholders. Respectfully, Signed - Daniel C. Roper, Comnissioner.
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