Tax Relief for Du Pont

The most intricate and contentious antitrust struggle of modern times involves a great American dynastic fortune and more than 1,000,000 U.S. investors. When, last May, the U.S. Supreme Court ordered the Du Pont company to unload its 23% interest in General Motors, investors in both companies braced for a financial shellacking. It seemed certain that the disputed 63 million shares of G.M. would be distributed as "dividends" to Du Pont's 211,000 common stockholders, who then would have to pay full income taxes on them. Du Pont estimated that its stockholders, many of whom are in the higher tax brackets, would have to sell about half the distributed shares to meet their tax bills, gravely depressing the market for G.M. stock, and in turn hurting G.M.'s 850,000 shareholders.

Last week, overriding the opposition of some liberal Democrats, the U.S. Senate surprisingly shouted through a tax-relief bill for Du Pont stockholders. Under the complicated measure, which was passed by the House last September and is now expected to be approved by President Kennedy, the distributed G.M. shares will be treated as a "return of capital," much as if Du Pont stock had split. The effects will be to postpone many of the tax payments and put the payments under a capital gains maximum of 25%.*

Still at issue is what will happen to the G.M. shares that normally would be distributed to the Du Pont-family-controlled Christiana Securities Co.. which owns 29% of the common shares in Du Pont. The Justice Department charges that such a distribution to Christiana would simply preserve the Du Pont influence in G.M. Trustbusters are fighting to force Christiana to sell off any G.M. stock that it gets. That issue is expected to be decided this spring by Chicago's Federal District Judge Walter J. La Buy, 72, who has wrestled with the Du Pont antitrust case for more than a decade.

*How much tax a Du Pont shareholder will have to pay--and when he pays it--will depend upon the price he paid for his Du Pont stock. If, for example, an investor had paid $400 for his Du Pont shares and now gets $600 worth of G.M. stock, he will have to pay an immediate capital gains tax on the $200 difference. But if he bought his Du Pont shares for, say, $1,000 and now gets $600 worth of G.M. stock, he will pay no tax immediately, but the "cost basis" of his Du Pont shares will drop to $400. If he sells either stock, he will then--and only then--have to pay capital gains taxes on any amount he receives above $600 for his G.M. shares or above $400 for his Du Pont shares.

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