INTERNAL REVENUE. (T. D. 2783.) Income tax-Decision of the Supreme Court. 1. TAXABILITY OF DIVIDENDS FROM SUBSIDIARY CORPORATIONS. Where a holding company owns all the stock of its subsidiary corporations except the qualifying shares of the directors, and the subsidiary corporations, together with the holding company, constitute a single enterprise, the accumulated earnings and surplus of the subsidiary corporations used by them as capital prior to January 1, 1913, do not become taxable income of the holding company when formally transferred to it as dividends. 2. EFFECT OF THE DECISION. Though the holding company did not itself do the business of its subsidiaries and have possession of their property, as in Southern Pacific Co. v. Lowe (247 U. S. 330; T. D. 2730), the principle of that case governs. 3. JUDGMENT REVERSED. The judgment of the Circuit Court of Appeals (245 Fed., 1; T. D. 2542) reversed. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C. The appended decision of the United States Supreme Court in the case of the Gulf Oil Corporation, petitioner, v. C. G. Lewellyn, collector of internal revenue for the twenty-third district of Pennsylvania, is published for the information of internal-revenue officers and others concerned. Approved January 7, 1919: DANIEL C. ROPER, Commissioner of Internal Revenue. Secretary of the Treasury. SUPREME COURT OF THE UNITED STATES. No. 310. OCTOBER TERM, 1918. Gulf Oil Corporation, petitioner, v. C. G. Lewellyn, collector of internal revenue for the twenty-third district of Pennsylvania. ON writ of certiorari to the United States Circuit Court of Appeals for the Third Circuit. (December 9, 1918.) Mr. Justice HOLMES delivered the opinion of the court: This is a suit to recover a tax levied upon certain dividends as income under the act of October 3, 1913 (c. 16, section 2, 38 Stat., 114, 166). The District Court gave judgment for the plaintiff (242 Fed., 709), but this judgment was reversed by the Circuit Court of Appeals (245 Fed., 1; 158 C. C. A., 1). 106733°-19-VOL. 21- -1 The facts may be abridged from the findings below as follows: The petitioner was a holding company owning all the stock in the other corporations concerned except the qualifying shares held by directors. These companies with others constituted a single enterprise, carried on by the petitioner of producing, buying, transporting, refining, and selling oil. The subsidiary companies had retained their earnings, although making some loans inter se, and all their funds were invested in properties or actually required to carry on the business, so that the debtor companies had no money available to pay their debts. In January, 1913, the petitioner decided to take over the previously accumulated earnings and surplus and did so in that year by votes of the companies that it controlled. But, disregarding the forms gone through, the result was merely that the petitioner became the holder of the debts previously due from one of its companies to another. It was no richer than before, but its property now was represented by stock in and debts due from its subsidiaries, whereas formerly it was represented by the stock alone, the change being effected by entries upon the respective companies' books. The earnings thus transferred had been accumulated and had been used as capital before the taxing year. Lynch v. Turrish (247 U. S., 221, 228). We are of opinion that the decision of the District Court was right. It is true that the petitioner and its subsidiaries were distinct beings in contemplation of law, but the facts that they were related as parts of one enterprise, all owned by the petitioner, that the debts were all enterprise debts due to members, and that the dividends represented earnings that had been made in former years and that practically had been converted into capital, unite to convince us that the transaction should be regarded as bookkeeping rather than as "dividends declared and paid in the ordinary course by a corporation." Lynch v. Hornby (247 U. S., 339, 346). The petitioner did not itself do the business of its subsidiaries and have possession of their property as in Southern Pacific Co. v. Lowe (247 U. S., 330), but the principle of that case must be taken to cover this. By section 2, G (c) (38 Stat., 174) and S (Id., 202), the tax from January 1 to February 28, 1913, is levied as a special excise tax, but in view of our decision that the dividends here concerned were not income, it is unnecessary to discuss the further question that has been raised under the latter clause as to the effect of the fact that excise taxes upon the subsidiary corporations had been paid. Judgment reversed. (T. D. 2784.) Distilled spirits. Persons selling warehouse receipts representing spirits in storage held liable to special tax as they would be on account of the sale of the spirits themselves. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, To collectors of internal revenue and others concerned: does not operate to pass an unconditional title to the spirits covered thereby. However, in the case of Taney v. Penn National Bank (T. D. 1959), the Supreme Court stated its understanding to be that it is "the unbroken custom of the trade to treat storage receipts for spirits as completely equivalent to the spirits themselves, and to sell or pledge them freely without question," and concluded that spirits held in store, under Government control, "are transferred by the delivery of such documents." T. D. 1278 is accordingly now believed to have been in error and is hereby revoked. Persons selling warehouse receipts representing spirits in storage will hereafter be held liable to special tax as they would on account of the sale of the spirits themselves. In view of the provisions of section 3244, Revised Statutes, as amended, such liability will not attach to persons selling warehouse certificates received as security for or in payment of a debt, provided the certificates or the spirits represented thereby are sold in one lot, or the spirits are sold at public auction in lots of not less than twenty gallons each. Approved January 23, 1919: CARTER GLASS, DANIEL C. ROPER, Commissioner of Internal Revenue. Secretary of the Treasury. (T. D. 2785.) Synopsis of decisions on questions arising under the act of October 3, 1917. TREASURY Department, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C. To collectors of internal revenue, revenue agents, and others concerned: The following synopsis of rulings of the Commissioner of Internal Revenue on questions arising under the war-revenue act of October 3, 1917, is published for the information of revenue officers and others concerned. DANIEL C. ROPER, Commissioner of Internal Revenue. Approved January 23, 1919: Secretary of the Treasury. ADMINISTRATIVE PROVISIONS. Supplies for Government use (sec. 3464, R. S.). Since the law only extends the exemption to cases covered by the regulations, if the regulations are not complied with and goods are delivered without regard thereto, the tax must be paid, and having been paid, can not be refunded. EXCISE TAXES. (1) Sight-seeing motor boats.-Motor boats operated by a company engaged in the business of taking parties on trips to enjoy the trip and the scenery, are not used exclusively for trade and their use is subject to the excise tax on boats. (2) Advice to manufacturer how to pass tax on to purchaser.-The "passing on" to the purchaser of the excise tax on sales is not a collection of the tax for the Government but a private transaction between the manufacturer and the purchaser. The department can not undertake to advise the manufacturer as to the method of securing his reimbursement. The only interest of the Government is that the amount of tax should not be misrepresented to the purchaser. (3) Jewelry; gold pencil with ring to hang by.-On a pencil made or plated with precious metal, the presence of a ring or loop by which the pencil may be hung on a chain indicates that the pencil is designed for personal adornment and requires it to be classified as jewelry for purposes of the excise tax on sales. (4) Medicinal preparations sold under trade-mark; held out as proprietary; held out as remedy; sold only to physicians, etc.-(1) Coined name used for a particular medicinal preparation, to distinguish it from same or like preparations of other manufacturers: (a) is a "trade-mark" under section 600 (h); (b) amounts to a holding out of that preparation as proprietary. (2) Autographic name of the manufacturer of medicinal preparation printed across middle of label: (a) is not a "trade-mark" under section 600 (h); (b) does not amount to a holding out of that preparation as proprietary. (3) Name, initials, or monogram of manufacturer printed on label of medicinal preparation, so as to be practically a part of the name of the preparation: (a) is not of itself a "trade-mark" under section. 600 (h); (b) amounts to a holding out of that preparation as proprietary. (4) Medicinal preparation held out or recommended as proprietary or as a remedy or specific for disease is taxable: (a) even if sold, in first instance, only to physicians and druggists; (b) even if a "bacterin"; and (c) even if an uncompounded natural substance merely dried or refined. Necessary evidence in support of claims for refunding of tax paid on goods sold in foreign commerce or to the Philippines or Porto Rico.An affidavit containing an itemized list of articles sold in foreign commerce upon which tax has been paid, giving names of consignees, destination, amount of tax, month in which paid, and statement |