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There is also a plan in the bill to tax the amount of gain, or to determine the amount of the gain, by reference to the period during which the property was held. In the case of property that is held 2 years or more, they would tax 60 percent of the gain and allow 60 percent of the loss. Our organization takes the position that that would unduly tax property held just over 2 years and would serve to prevent sales, thereby permitting security prices. We feel that the present plan of making the dividing date 2 years, 122 percent of the gain, when the property is held more than that, is preferable to the plan as contained in the bill as it passed the House.

Senator REED. You realize that the present plan gives no relief to the smaller taxpayer, do you not?

Mr. GASKILL. No; I don't understand that it gives no relief to him. He gets a benefit from his gain. It is true he does not get as much relief as the more wealthy taxpayer.

Second. Personal holding companies, section 102. The bill, as passed by the House, contains a provision to tax the undistributed, adjusted net income of personal holding companies.

The CHAIRMAN. I hope the experts will make a note of these objections, so the committee can get the benefit of them. Then we can give them consideration.

Senator REED. As to personal holdings?

Mr. GASKILL. As to personal holding; yes, sir.
Senator REED. What is your point about that?

Mr. GASKILL. That while in its endeavor the plan is all right, if personal holding companies are used to escape taxation, some reasonable measure to prevent it is satisfactory, but the provision as passed by the House would seem to place a burden upon companies that I do not think the House ever intended to punish. For example, if a coal-mining company which had leased its property, and therefore had its income from royalties of debts, or a bond issue, it might be subjected to that penalty.

The CHAIRMAN. You would not apply that to future loans, would you, but just on past-due obligations?

Mr. GASKILL. I think it should be made to apply to past loans, sir.
The CHAIRMAN. To past loans?

Mr. GASKILL. Yes. An office building which was required to rehabilitate its building, to use earnings for capital repairs or replacements, might be subjected to the provisions of it. A number of companies, I understand, in these times, have debenture issues outstanding, or bond issues, which deprives them of the right to pay out dividends until they have paid their debts. It would make those companies subject to this provision.

The CHAIRMAN. I may say to you that the committee is giving that consideration. Those suggestions have already been made. Mr. GASKILL. Thank you, sir.

The next, as to exchanges and reorganizations: The bill, as passed by the House, took out the so-called "parenthetical clause ", and limits the definition to statutory mergers and consolidations. We take the position that with that eliminated, the bill is now indefinite.

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and a substantial amount of litigation will be necessary in order to find out just what is and what is not a statutory consolidation or

merger.

The CHAIRMAN. You do not think this simplifies any proportion of reorganization?

Mr. GASKILL. I do not, sir. If the present provision is objectionable and I do not think it is; but if it is-I think they should attempt to substitute the omission. When you are planning a reorganization-and reorganizations are quite necessary in these days-it is necessary, as far as possible, to know in advance what your tax liability is going to be, and I am afraid that lawyers and accountants and business men will have great difficulty in finding out whether their reorganization is going to be taxable or nontaxable, under the bill as drawn.

Second, the House has taken out the provision permitting a taxfree distribution of stock in connection with a reorganization. That may be necessary and feasible in a few instances to prevent tax avoidance, and that is the reason it was taken out. However, it will unduly interfere in a great number of legitimate business transactions. For example, it is sometimes necessary to split off a branch of the business into a separate corporation and to give the stock of the new corporation to the stockholders of the old corporation. That is what that provision was in there for. It is quite often necessary to employ just such a reorganization. Clearly, in such a case as that. that is, the ordinary instance--there is no element of tax avoidance. There should be no tax upon the stockholders because of the receipt of their stock, as they get no cash out of which they may pay a tax. We also question whether there has been as much avoidance, by virtue of the provision, as is claimed in the report of the Ways and Means Committee. The report that was submitted by the Subcommittee of the Ways and Means Committee contains certain examples. There are three of them, and they relate to those. Example no. 7 on this, in our opinion, is not correct. It states that there is no tax in that case. We think that there is a tax in that case. The other two are cases where we do not think there should be any tax anyway-simply paper profits, where you have no money with which to pay a tax; and we take the position in that case, no tax should be paid. The brief that I will leave with the committee discusses that at greater length.

Next, "Consolidated returns." Our organization takes the position that the additional 1-percent premium for filing consolidated returns is not justified.

The CHAIRMAN. They would rather have that than the prevention of consolidated returns, though, would they not?

Mr. GASKILL. Well, we haven't regarded it as a trading proposition. The CHAIRMAN. If the two propositions were put up to you, as to whether you were going to accept that provision and were willing to carry out that provision, or one abolishing consolidated returns, which do you think would be preferable?

Mr. GASKILL. We should rather have it as it is now, sir. But at the same time we feel that the provision to abolish consolidated. returns would not be fair either to the Government or to the taxpayer.

Distributions in liquidation, section 115 (c). The bill, as passed by the House, provides that distributions in liquidations, if they result in a gain, shall be taxed at the full normal and surtax rate without regard to the time when the stock is held. Our organization takes the position that in a distribution in liquidation you have the essential equivalent of an exchange. It resembles that more than anything else, and we feel that there is no justification for taxing it at the full rates. However, the bill provides that in case a loss is realized upon a reorganization, that is subject to the percentage arrangements, as in the case of gains. In other words, if a man held stocks in 2 corporations for 5 years, and he had a gain on one and a loss on the other, in his same return and for the same year he would be required to pay 100 percent on the one-that is, the full tax-and the other he could only deduct from that gain 40 percent of it. That, I think, is obviously unfair, and if you are going to treat gains from realizations from liquidations in one way, losses from realizations from liquidations should be treated the same..

The bill as passed by the House extends the statute of limitations on assessments from 2 years to 3. Our organization takes the position it should be 2 years; that the uncertainties of tax liabilities are difficult and a regretable incident of our income-tax laws, and that they should not be further extended. They seem to be auditing returns and getting along very well on the 2 years. They are caught up with them after a fashion. There is some delay, of course, but we think that after a year it would be all just the same as if it were 2 years. If it is true that sometimes it is necessary to execute a waiver and extend a case beyond the 2-year period, that is not a hardship upon the taxpayer or the Government in particular cases. I think that it takes care of that situation very nicely.

The same is true of refunds. We agree with the provision that the period of limitations upon refunds should be the same as limitations upon additional assessments. We would make this suggestion, however, that that same principle be extended further and that a taxpayer be given the right to file a claim for a refund during the period where the Government has an additional period in which to make additional assessments: for example, where it is necessary to give a waiver and I think those waivers are more often really at the suggestion of the Treasury, rather than at the suggestion of the taxpayer-but during the period where the statute of limitations is still in force, by reason of a waiver, we think a taxpayer should have a right during that period to file a claim for refund. The same thing is true during the period that follows the issuance of a 60-day letter. where the Treasury has an additional 60 days within which to make an assessment. During that period the Treasury could send out a letter at the last moment, just before the statute of limitations expired, and during that period could make an additional assessment, and the taxpayer could not obtain a refund of these though he filed a petition with the board, because the filing of the petition under the new bill would be after the date when he might claim a refund.

On the tax-rate structure we take the position that the new plan of decreasing the normal tax and increasing the surtax, or, rather, extending it to the lower brackets, is unjustified. Admittedly, it will

produce more revenue. We think that the income, having once been taxed to the corporation, is deserving of a higher exemption than 4 percent when again taxed in the hands of the shareholders.

Interest on money borrowed to purchase tax-exempt securities, section 23 (b). That affects banking institutions and denies them the right to deduct interest paid on deposits when the deposits are used in carrying tax-free securities. We draw attention to the fact that it is difficult or impossible to ascertain whether particular moneys are used, whether it is the capital of the bank, or whether it is the deposits that are used for the purchase of these taxable securities. Senator WALSH. Hasn't that subject been dealt with by the committee?

The CHAIRMAN. The committee has not finally passed on it, but that matter has been presented, and we are giving it consideration. We will be glad to get your brief on that Mr. Gaskill.

Mr. GASKILL. This allowance of losses between members of a family: We think that the definition of a "family ", as contained in the bill passed by the House, is too broad. It would interfere with legitimate transactions between members of the same family, at most I think it should be limited to a man and his wife, or perhaps to a man and his son or daughter, but not to brothers and sisters, ancestors and lineal descendants, as covered by the bill which passed the House.

I have other points, but I will make only one more. The rest will be covered in the brief, because I do not want to encroach upon the time of the others here, "Federal estate taxes, prior taxed property." That is an extremely technical point. The bill contains an entirely worthy endeavor to prevent the exemption of property from taxation where the death of one decedent occurs more than 5 years after another. It has been the plan of estate tax laws to exempt from taxation a property which would otherwise be taxed in the estates of two decedents within a period of 5 years. In the way the present law is drawn it is possible for one decedent to die, then another decedent, and the third decedent might die 9 years after the first, and yet his property would be exempt from taxation. It is entirely proper to prevent that, and to limit it to 5 years. However, the way the bill is drawn, as it passed the House, it is possible for the third decedent to die within, say 3 years or even 2 years from the time of the death of the first one, and you would tax it again. It is a matter of draftsmanship.

Senator CONNALLY. It would be inherited again, would it not? Someone else would get it, wouldn't he?

Mr. GASKILL. Yes, sir; but the property would be taxed more than once.

Senator CONNALLY. We are not taxing the property. taxing the person that gets it.

We are

Mr. GASKILL. You levy a tax on the decedent's estate.
Senator CONNALLY. Surely. He takes it, charged with that.

Mr. GASKILL. But the point I am making is that under certain conditions, the way it is now, it is possible for the same property to be taxed, or the tax computed upon the same property more than once within 5 years.

Senator CONNALLY. Why not? If there is more than one death in 5 years, why should we not tax it more than once?

Mr. GASKILL. That, of course, would represent practical confiscation of property.

Senator CONNALLY. We are not dealing with confiscation.

Senator CLARK. We are taking the property inherited.

Senator CONNALLY. That is the trouble with a lot of you tax fellows. You look on a dollar as the only thing in the bill. We are taxing the man's right to inherit it or to transmit it, which is a privilege. If it vests 2 or 3 times, we should tax it 2 or 3 different times. Senator REED. It is a very unusual case, is it not, when two successive inheritances occur within the 5-year period.

Mr. GASKILL. I do not think it is, sir. For instance, there may be an elderly couple. The man dies, then the wife; and when the wife dies, it would be inherited by the son. Then, if the son should die there would be a double imposition of the Federal estate tax within a period of a few years. It is not often, but our organization thought that the bill, as it passed the House, had no intention of assessing two taxes in the event of the contingency stated.

Senator REED. The committee hasn't reached that, however, in its study of the bill. In fact, what the House does is to permit only one tax-free inheritance; isn't that so?

Mr. GASKILL. Within 5 years.

Senator REED. Within 5 years?

Mr. GASKILL. That is right, sir, I have a report of our committee which I desire to present at this time for the record.

The CHAIRMAN. Thank you very much, Mr. Gaskill. (The report referred to is as follows:)

To the Board of Directors the Cleveland Chamber of Commerce:

GENTLEMEN: Your committee on Federal taxation has given consideration to the revenue bill of 1934, H.R. 7835, as passed by the House of Representatives on February 21, 1934.

The report of the Committee on Ways and Means accompanying H.R. 7835, states that the "primary purpose of the bill is to increase revenue by prevention of tax avoidance." Your committee is in favor of any changes in the Federal tax laws which will serve to prevent unjust avoidance of the tax. It is thought, however, that the Committee on Ways and Means, under the guise of preventing tax avoidance", has endeavored to raise more money from the income tax by means unjust to American taxpayers.

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The yield of the income tax necessarily varies with the prosperity of the country and the reduction in this yield comes at a time when the need for Government revenue is the greatest. It is thought, however, that the revenue requirements do not justify an unfair and unjust income-tax burden upon certain taxpayers. The report of the Committee on Ways and Means states that the revenue bill and certain changes in administrative practice will produce additional revenue in the amount of $258,000,000. If it is necessary to raise this additional amount to pay for the activities of Government, Congress should have the courage to provide the money from other sources.

The occasion for the views so stated will be apparent from the comments made below concerning certain of the proposals now contained in the revenue bill of 1934.

1. TAXATION OF GAINS AND LOSSES

The congressional committee has recommended that gains from the sale of property be taxed, but that losses from such sales be allowed only to the extent of gains. This proposal would require a payment of tax if a taxpayer's gains exceed his losses; but if the losses exceeded the gains, the taxpayer would not be allowed to deduct the excess losses from his ordinary income. Thus a taxpayer may be called upon to pay a substantial tax upon his ordinary income without receiving any deduction for genuine losses he has sustained from the sale of property. If Congress has been correct in its assumption that gains

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