Show B C B C OF FINANCE I j TAX EXEMPT TAX BONDS i By HAROLD F. F GREENE l Ma er Bond Guaranty T Trust Co of New York 11 Is of oC vital l that th i In I of oC the fact 1 their Is Isan rom not flOt Increase o with InIn Ine In- In an docs doC cost of ot living 1 In tho the theet e In IA the Investors the percent- percent et of wealthY investment after Of f net e ct profit Is 8 very on email and It Is Isrl t r rl essential for or such in- in fora almost tax exempt sete se- se te uIS to purchase selection of oC investments IU lies 1111 c Is often a aIt asit ault er such iner therefore It is I sit matter with to consult I hen elUS In thoroughly familiar I Is tOne who hO of or the tle revenue r law Jaw th th tho P pro exemption In the fol- fol lining lining- to tax ax or of the features of oC l c Ire outlined It must alI alv al- al ere are remembered m however howe that a aIon aIon I v be to toe tS Investments to the proper Ion toB M as in each ench instance e will depend circumstances of oC ofer the partI particular i ale revenue 1 law Jaw aw thereat thet the tho er our federal domestic railroad pu public bile reat t on industrial bonds Is subject lit and whether owned by uy rest resi- fD come me t t tX The Interest on II 11 or countries or cor- cor f foreign ot such tax subjeCt to L. i Is s also citizens are owned by bOnds e SQ United States How How- the of oC ot of the pre alling high r ri he the net nt return to j I ot Of such securities is Investors on thY small emall and In conse- conse rathel demand for tor tora forI Is a large ce there from Crom which Is ext ex- ex I a the Income Income t from taxation K What hat Are re l securities among or of states territories tIe the subdivision thereof or LOT liT political political sub sub- of District ns as dod ded do- do territory or of a l state or or of commissioner d by bT the dis- dis Include special assessment sue noe road water sewer gas ns uch as U Li I t. t reclamation drainage Irrigation r harbor port Improvement o U Ce or of n n. divIsIons te I. t r t territory districts The and Interest rua on bonds districts Is 18 exempt such such guch i ed b bY any under the federal laws municipal bond bona is It state or t I if a the amount In Inh Ino at discount R. R received when h o of the price paid Is old fold or retired at maturitY profIt ConverselY Con It if such lh tiu Is bought at a premium ference ond betl the S amount raId and au nm amount moUnt received Is as ns I ain it a itIn In the Income tax return of oC the Liberty the flotation It Ir to of oC S t tL the Interest on all obligatIOnS United rotted States government o vaa wa exP ext ex- ex tuition taxation except estate or t from P liance taxes tao The first Liberty Libert Issued on onit ont bonds were vere 0 n 21 i per cent but bul In view of or the large it t t. t but basIs WIt tint of oC government go war financing t appeared Inevitable it was real- real 4 that it would bo be Impossible to Use Issuing tax exempt bonds In- In therefore Issues of at govern govern- at t bonds binds after September 1 1 1917 from taxation govern I In it only exempted rom amounts and for periods o of two 1 five fife years as provided pro in the laws s the various Issues These make Is possible for Cor an nn Inor inor in- in or to own o a maximum principal oat of or of or the and Us apt from rom all income and excess fit flu taxes wn The Victory 3 31 per cent tel Its tain In an any amount like the first LibI Lib Lib- f I 2 Jl p per r cent bonds are exempt from Crom taxation except estate or InherIt InherIt- i i Land Dank flanks ong the other Issues that are arc ta tax Pt P. under the federal revenue law w bo bonds a J issued d b by federal land banks Joint Block land banks which are aro from all taxation t except te ite 0 or inheritance taxes because r I are ITS re instrumentalities n of ot the Unit Unit- States Kites The object of or federal farm loan Joan act was to Ie s. s 6 the development c nt of agriculture to t provide pro the farmer with funds funds a alow low lov rate ute of or Interest If IC bonds la laid Is- Is id d to obtain such funds had been lect to taxation it would h have ve be been n ch eh more mote difficult t to sell them and andi i Colt coit lit of or the mone money to the f farmer have been much greater Donds e ed d by hy the war finance nc corporation Ion i partially exempt from Crom taxation the thc rest Crest on an any amount of ot these theBe b bonds r g exempt from normal federal In- In tax but subject to surtaxes and few LI profits POUts taxes The Tho Interest on a 0 3 amount not exceeding II however exempt from nil federal I t tion except estate or inheritance u. u ere tre Is II a hi big demand for tor tax exempt tItles miles b because e of ot the tho decided adl ad- ad tl tage g. g l e to wealthy Investors of owning The el i ad advantage however Is not nol ame me In ir r. r all a cases owing to our suited ra rates 8 of of surtax For Instance investor having g a present taxable ine ne It of U v per annum would In 10 as 11 good i a r 1 turn from an add 1 J II I l hi investment e in 10 per cent tax- tax bonds as he e would from 4 H per UK t pt bonds an ln in- in tar tor having a taxable Income o of rv Per er annum would have to ro- ro M ed ll pr tent cent on an nn additional in- in tm meat In I taxable e bonds to give him 1 nie ane me n net yield after taxes as ns he ho sid aId ob obtain f from rom 41 per cent tl tax tax- To Investors with InCI In- In U CI OYe over U o 0 per annum an ad- ad In 41 H per cent tax- tax apt bonds IB Is equivalent hllen t to tax- tax 1 In J yielding I c ng about per perthe OlLer Iii n f a the ne t Case caso of the tho small small Investor it Si 0 ore x pr J r a I to invest In the high bonds Donds th that at can be obtained at present l tI time m than In ln tax exempt lei and e even en In ln th the tho case of ot large L II a c certain Proportion of oC tax- tax tag taCt r. r ran rari n b bc be owne owned to ad- ad ln view lew of oC tn th IO ent iu appreciation In value alue If It Irany rates Decline e. e it t might be desirable any ky Cases cales to own taxable a lo e r net return at pres- pres Any redu reduction p on of or tax rates would 01 ra e e of le tend lo to 0 Increase Q the market S taxable le securities but not that tempt exempt SeCurities Iny r co i g e invested d in I. I bonds because oCt of oC exemption f from taxatIon of the tho InI In- In t L I thereon freon Under tl tho o cx- cx th the i ta law a however stocks t I income 0 from which ls Is om tax taxation I other thai UnIted UnIt UnIt- t bonds ed on s are cone conCe con- con inadmissible e RB assets for the e Ce l e o the Thet com Computing tl Invested capie caul- caul f e r 1 result U t ls ng S at a n. corporation uch luch rh I Iut ut C has to reduce e p tar at l n as R Provided In In law C capit l A a reduction In In ln x ft uces the amount of or l m 98 Profits tax lither r rate l the Amount taxable atI at I t Ur tu b bv by I a n corporation pays pa s 's reason tn of or owning state municipal i r of ot the bonds If a lar large lario ro perr per per- LOII ns n's are arc y amOunt securities the tho additional t to more mor than tn the tho In in- on te tho bonds ax lax ih the bonds Previously referred f the th Je el o or only Securities that have I I there nr are so Called Cd tax free give th the holder th the bone bone- t to the 1 federal eral I incent in in- fl 2 her Jer cent Paid for tor him hIn Corporation Such ch bond e raIlroads rl P public QiU lIy Contain aln covenant re read about 1 a a and a 11 tn inter as a follows Allows st of or this boat bouc will Ill hI b e paid without deduction for any taxes that tho the co corporation ma may be re required re- re d to withhold or retain under any present or future law of or tho the United States It will be observed eJ that a n corporation cor cor- only agrees to pa pay Its bondholder bondholder bondholder bond bond- holder whatever tax it is required to withhold or retain To protect the tho rights of ot holders of ot euch bonds the I revenue act was framed so that withholdIng withholding with with- holding holding- of or tho tue tax is required In the tho case caso of ot bonds containing a tax free covenant The amount that th has to bo be withheld In such cases Is Is however only 2 2 per POl cent Instead ad of or the tha 4 or 8 S percent percent per por cent normal tax ta that has to be lie paid by b the bond holder for Cor tho reason that if It debtor corporations were required to lo topa pa pay the higher rate it would involve a considerable hardship which was not cont contemplated when the bond was Is Issued Issued Is- Is sued and the tho holder bond-holder would oo be obtaining obtaining ob ob- ob- ob tamIng a benefit that he had not paid for tor Under a recent ruling of or the treasury treas treas- ur ury department however the bondholder bondholder bond bond- holder d does docs es not obtain the benefit that he formerly did lId as he is required to report ns as income the tho amount of or tax paid for him hint by debtor corporations and as os taxes paid are not allowable deductions under the federal Income tax law no deduction can be bo taken for tor this tax The tax paid for bondholders hold bond ers era in such cases is however allowed as ns a 3 credit against n tho the amount of ot tax payable to the United States I S. 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