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U.S. Federal Income Tax

Subjugation by taxation

1909 Tax Act Income is Gain or Increase from Corporate Activities

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Doyle v. Mitchell Bros. Co., 247 U.S. 179 (1918)

This was an action to recover from the Collector additional taxes assessed against the respondent under the Corporation Excise Tax Act of August 5, 1909.
...
The act became effective January 1, 1909, and provided for the annual payment by every domestic corporation 'organized for profit and having a capital stock represented by shares' of an excise tax 'equivalent to one per centum upon the entire net income over and above five thousand dollars received by it from all sources during such year,' with exceptions not now material.

        If you have read the previous pages in this chapter, the above italicized words should be getting a little boring by now.

The suggestion that the entire proceeds of the conversion should be still treated as the same capital, changed only in form and containing no element of income although including an increment of value, we reject at once as inconsistent with the general purpose of the act. Selling for profit is too familiar a business transaction to permit us to suppose that it was intended to be omitted from consideration in an act for taxing the doing of business in corporate form upon the basis of the income received 'from all sources.'

        Parse:
Selling for profit is too familiar a [corporate] business transaction to permit us to suppose that it was intended to be omitted from consideration in an act for taxing the doing of business in corporate form upon the basis of the [corporate net] income received 'from all sources.'

Yet it is plain, we think, that by the true intent and meaning of the act the entire proceeds of a mere conversion of capital assets were not to be treated as income. Whatever difficulty there may be about a precise and scientific definition of 'income,' it imports, as used here, something entirely distinct from principal or capital either as a subject of taxation or as a measure of the tax; conveying rather the idea of gain or increase arising from corporate activities. As was said in Stratton's Independence v. Howbert: 'Income may be defined as the gain derived from capital, from labor, or from both combined.'

        Parse of Doyle:
Whatever difficulty there may be about a precise and scientific definition of [corporate net] 'income,' it imports, ... the idea of gain or increase arising from corporate activities.

        Parse of Stratton citation from last page:
[Corporate net] 'income' may be defined as the [corporate] gain derived from capital, from labor, or from both combined, and here we have combined operations of capital and labor.


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