Section 6001. Notice or regulations requiring records, statements,
and special returns
This section contains no material change from existing law.
Section 6011. General requirement of return, statement, or list
This section contains no material change from existing law.
Section 6012. Persons required to make returns of income
Subsection (a)(1) of this section differs from existing law in that
it provides that any taxpayer who has attained the age of 65 before the
close of his taxable year shall be required to make a return only if he
has for the taxable year a gross income of $1,200 or more. As under
existing law, all other individuals are required to file income-tax
returns if they have gross income of $600 or more for the taxable year.
Subsection (a)(4) of this section conforms the filing requirement for
trusts to the new exemption of $300 granted certain trusts under
subtitle A. A clarifying change from the wording of existing law has
been made in subsection (b)(3), relating to the filing of corporation
returns by receivers or other fiduciaries.
Section 6013. Joint returns of income tax by husband and wife
There is a substantive change in subsection (b)(2)(A) of this
section. Under present law a joint return may not be filed after
separate returns are filed unless all the tax shown on the separate
returns, plus any other amounts assessed or any deficiency asserted with
respect to such returns, are paid in full. This section permits a joint
return to be filed after separate returns have been filed if the total
tax shown on the joint return is paid.
Section 6014. Income tax return -- Tax not computed by taxpayer
If the taxpayer files Form 1040A, he does not compute the tax but the
Internal Revenue Service computes the tax and sends the taxpayer notice
of the amount payable. This section provides that in determining such
amount the credit against tax for dividends received, provided by
section 34, or the credit for retirement income, provided by section 38,
shall not be allowed. Such taxpayer, however, receives the benefit of
the partial exclusion of dividends from gross income provided by section
116.
Section 6015. Declaration of estimated income tax by individuals
This section and sections 6073, 6153, and 6654 deal with the
estimated tax payable by individuals.
(1) Filing requirements: Under existing law, individuals whose
incomes are primarily from wages or salaries are required to file
declarations if their income is expected to be more than $4,500
plus $600 for each exemption. For individuals with over $100 of
income from other sources, declarations must be filed if their
gross income is expected to exceed $600. Section 6015 provides
that, for an individual with no more than $100 of gross income
from sources other than wages or salaries, a declaration is
required if his gross income is expected to be more than $5,000;
however, no declaration is required by a married person if the
gross income of the married person and his spouse is expected to
be not more than $10,000, nor from a head of a family (as defined
in sec. 2(b)) if his gross income is expected to be not more than
$10,000. For an individual with more than $100 of income not
subject to withholding, a declaration is required if his gross
income from all sources is expected to be more than $600 per
exemption plus $400.
(2) Additional charges for failure to comply with requirements:
Section 6654 substitutes, for the charges under existing law for
failure to comply with the provisions relating to the estimated
tax, a single charge of 6 percent per annum, computed for each
installment date on the difference between the amount paid and 70
percent (66 2/3 percent in the case of farmers) of the amount
which should have been paid. The charge would run until the
amount is paid or until the filing date for the tax return,
whichever is earlier. For example, a taxpayer (other than a
farmer) showing a tax liability of $40,000 on his final return has
paid a total of $20,000 in equal installments of $5,000 during the
year through withholding and declarations. Since the amount of
prepaid tax in each quarter is less than one-quarter of 70 percent
of the final tax liability, the charge is applicable for each
quarter and would be computed as follows:
(1) Tax liability $40,000
(2) 70 percent of tax liability 28,000
(3) 1/4 of 70 percent 7,000
(4) Deduct quarterly prepayment 5,000
(5) Basis for computation of charge (line 3 minus
line 4) 2,000
(6) Additional charge:
(a) 1st quarter -- 6 percent of $2,000 for 365 days 120.00
(b) 2d quarter -- 6 percent of $2,000 for 304 days 99.95
(c) 3d quarter -- 6 percent of $2,000 for 212 days 69.70
(d) 4th quarter -- 6 percent of $2,000 for 90 days 29.59
Total 319.24
If, in the above example, the taxpayer had prepaid only $1,000 by the
first installment date instead of $5,000, and had subsequently paid the
difference of $4,000 during the taxable year, a charge of 6 percent on
this $4,000 would be imposed for the period the $4,000 remained unpaid.
However, section 6654 further provides that no additional charge
shall be applied with respect to any installment where the total amount
of tax paid by that date is not less than an amount based on --
(a) The previous year's tax; or
(b) A tax based on the previous year's income, computed at
current rates and current exemptions; or
(c) 70 percent (66 2/3 percent in the case of farmers) of the
tax computed on the actual income of the months of the taxable
year preceding the installment date placed on an annual basis in a
manner corresponding to that provided by section 47(c)(1) of
existing law.
Section 145 of existing law makes it a crime to willfully fail
to file a declaration of estimated tax. In sections 7201 and 7203
there is no penalty for failure to file a declaration. The
penalty provided by section 7203 for willful failure to pay
estimated tax is not changed from existing law.
Section 6015 also provides that February 15 is the final date
on which a farmer may file a tax return which will be considered
his declaration for the year. Under existing law the final date
is January 31.
Section 6016. Declarations of estimated income tax by corporations
This section and sections 6074, 6154, and 6655 contain the principal
provisions relating to a new system for advance payments of corporation
income tax. This system contemplates that advance payments be made
during the 9th and 12th months of the taxable year and that the system
become effective with respect to taxable years ending on or after
December 31, 1955. The amount of the tax to be paid at each installment
date will rise from 5 percent of the amount due for the entire year in
1955 to 25 percent in 1959 and later years.
Only corporations subject to taxation under section 11 or 1201, or
subchapter L of chapter 1, whose tax liability for the taxable year can
reasonably be expected to exceed $50,000 are required to file
declarations. The addition to the tax in the case of an underpayment of
any installment is the same as that provided in the case of declarations
of individual income tax and, as in the case of declarations by
individuals, this addition to the tax may be avoided if the amount paid
is less than would be required under three methods of computation
similar to those provided for individuals.
Under the provisions relating to estimated tax payments by
corporations, the estimated tax is the estimated income tax for the
taxable year computed after deducting the estimated credits against tax
allowable to the corporation and after deducting the $50,000 exemption.
Similarly, the taxes referred to in the three methods of computation for
determining whether the 6 percent addition to the tax for underpayments
shall be imposed (the previous year's tax, the tax based on the previous
year's income but otherwise computed at current rates, and 70 percent of
the tax computed on the actual income of the months of the taxable year
preceding the installment date, which tax is placed on an annual basis
in a manner corresponding to that provided by section 47(c)(1) of
existing law) are each determined after subtracting the $50,000
exemption and after giving effect to the applicable credits against tax.
For such purpose, if the previous year's tax is used, the applicable
credits are those allowed for the previous year. If the previous year's
income is used, the applicable credits are determined on the basis of
such income and under the law applicable to the previous year, except
that the rate used in determining the amount of the credit is the rate
applicable to the current taxable year. If the income for the current
year, placed on an annual basis, is used, the rates applicable to the
current taxable year are used.
Section 6017. Self-employment tax returns
This section contains no material change from existing law.
Section 6018. Estate tax returns
This section contains no material change from existing law, except
that the requirement that a duplicate copy of the return be filed has
been eliminated.
Section 6019. Gift tax returns
This section contains no material change from existing law.
Section 6020. Returns prepared for or executed by Secretary
This section contains no material change from existing law.
Section 6021. Listing by Secretary of taxable objects owned by
nonresidents of internal revenue districts
This section contains no material change from existing law.
Section 6031. Return of partnership income
This section contains no material change from existing law.
Section 6032. Returns of banks with respect to common-trust funds
This section contains no material change from existing law.
Section 6033. Returns by exempt organizations
This section contains no material change from existing law.
Section 6034. Returns by trusts claiming charitable deductions under
section 642(c)
This section contains no material change from existing law.
Section 6035. Returns of officers, directors, and shareholders of
foreign personal holding companies
This section contains no material change from existing law.
Section 6036. Notice of qualification as executor or receiver.
The present estate-tax law requires every executor after qualifying
as such to give the Internal Revenue Service notice thereof. Trustees
in bankruptcy, receivers, and other persons similarly situated are also
required by this section to give notice of the proceedings. Since such
notice is necessary only where matters affecting the revenue are
involved, this section authorizes the Secretary by regulations to
relieve from this requirement any executor or any other person otherwise
required to file a notice. It is contemplated that no second notice
will be required in cases where trustees in bankruptcy or the court are
now required under the Bankruptcy Act to notify the Secretary of such
proceedings.
Section 6041. Collection of foreign items and payments by
corporations of interest
This section continues in effect the provisions of section 147(b) of
existing law with respect to information returns (1) by persons in the
business of collecting (or who collect for profit) foreign items and (2)
by corporations with respect to payments of interest. The provisions of
section 147(a) of existing law which require information returns by
individuals (other than those who collect foreign items for profit or in
their business) are not continued in effect, and the provisions of
section 147(a) which require corporations to file information returns as
to rent, wages (other than information returns required in connection
with the employment taxes), etc., are not continued in effect.
Section 6042. Returns regarding corporate dividends, earnings, and
profits
This section contains no material change from existing law.
Section 6043. Return regarding corporate dissolution or liquidation
This section contains no material change from existing law.
Section 6044. Returns regarding patronage dividends
This section contains no material change from existing law.
Section 6045. Returns of brokers
This section contains no material change from existing law.
Section 6046. Returns as to formation or reorganization of foreign
corporations
This section contains no material change from existing law.
Section 6051. Receipts for employees
This section contains no material change from existing law, except
that it makes it clear in the law that the duplicate copy of the form
W-2 must be filed with the Internal Revenue Service when required by
regulations.
Section 6061. Signing of returns and other documents
This section contains no material change from existing law.
Section 6062. Signing of corporation returns
Present law requires two corporate officers to sign the return. This
section permits any one of the officers now named in the law to sign the
return, and also permits the corporation to designate any other
corporate officer as the one authorized to sign a return. Furthermore,
it is provided that the fact that an individual's name is signed on the
return shall be prima facie evidence that such individual is authorized
to sign the return on behalf of the corporation. It is also
specifically required that a receiver or other fiduciary sign any return
which he is required to make for a corporation.
Section 6063. Signing of partnership returns
This section makes no material change from existing law, except that
it specifically provides that the signature of one of the partners shall
be prima facie evidence that he is authorized by the partnership to sign
the return.
Section 6064. Signature presumed authentic
This section contains no material change from existing law.
Section 6065. Verification of returns
The present code in numerous places requires returns, etc., to be
made under oath, and then in section 3809 permits the Secretary to allow
the return, etc., to be made under a declaration under penalties of
perjury instead of under oath. Under section 6065, all returns, etc.,
are to be made under penalties of perjury, except that the Secretary may
permit them to be made without such declaration or the Secretary may
exercise his authority under subsection (b) to require them to be made
under oath. However, as under existing law, the Secretary may not
require an oath on individuals' income tax returns and declarations of
estimated tax.
Section 6071. Time for filing returns and other documents.
This section follows the provisions of existing law (see sec.
3310(f)) in that, with the exceptions stated in succeeding sections, it
permits the Secretary to fix by regulations the time for filing returns,
notices, and other documents. Under present law returns for
occupational taxes are required to be filed on or before the last day of
the calendar month in which the special tax liability commences. This
provision will permit the Secretary to require returns for certain
occupational taxes be filed prior to the commencement of business if
that is deemed desirable.
Section 6072. Time for filing income tax returns
Subsection (a) of this section extends by an additional month in the
case of individuals and partnerships the period allowed for filing
income returns. In the case of a calendar year taxpayer, the bill
provides that the return is due on or before the 15th day of April
instead of the 15th day of March as is required by existing law.
Subsection (d) extends the time for filing returns by exempt
cooperatives referred to in section 522 from the 15th day of the third
month to the 15th day of the ninth month following the close of the
taxable year so as to conform with the period referred to in section
522(b)(1)(B).
The provisions of section 3805 of existing law relating to the time
for filing returns by China Trade Act corporations for taxable years
ending before October 1, 1953, are continued in effect in subsection
(e), and are extended to the taxable years ending before October 1,
1956.
Specific provision as to the time for filing returns as to the
formation, etc., of foreign corporations, as to foreign personal holding
companies, and as to returns by corporations contemplating dissolution
or liquidation, are not continued in this section. The time for filing
such returns will be prescribed by regulations under section 6071.
Section 6073. Time for filing declarations of estimated income tax
by individuals
In accord with the change made with respect to income tax returns of
individuals, the filing date for declarations of estimated tax has been
changed from March 15 to April 15 in the case of individuals on the
calendar year basis. Furthermore, section 6073 will treat oyster
farming as "farming" for purposes of the estimated tax.
Section 6074. Time for filing declarations of estimated income tax
by corporations
This section provides the time for filing declarations of estimated
tax by corporations. See the discussion of section 6016.
Section 6075. Time for filing estate and gift tax returns
Under existing law the time for filing estate tax returns is fixed by
regulations. This section would fix the time for filing such returns as
15 months after the date of the decedent's death. This conforms to
existing law which requires the estate tax to be paid 15 months after
the date of the decedent's death.
Section 6081. Extension of time for filing returns
This section extends to all taxes the authority of the Secretary to
grant an extension of not more than 6 month for filing returns.
Presently this authority is limited to certain taxes, such as the income
tax, and in the case of certain taxes it is limited to 90 days.
The second change from existing law is to grant corporations an
automatic 3 months extension for filing income tax returns if a proper
form is filed and the tax estimated to be due on the due date for
payment of the tax, or the proper installment thereof, is paid on such
due date. Under this provision, the Secretary may terminate the
automatic extension by giving 10 days' notice.
Section 6091. Place for filing returns or other documents
This section permits the Secretary to determine where returns,
statements, lists, notices or other documents shall be filed. However,
in the case of all tax returns, this section requires such returns to be
filed in the internal revenue district determined generally under the
same rules as are now prescribed in present section 53(b) for income-tax
returns. As to estate tax returns, this provision follows present law
with respect to estates of decedents not domiciled in the United States,
this provision provides for fixing by regulations the place for filing
estate-tax returns, in lieu of the alternative provisions now contained
in section 821(c) of the 1939 Code.
Exceptions to these rules are:
(1) In the case of persons outside of any internal revenue
district, the Secretary may choose the place for the filing of the
return. Under present law, persons outside the United States are
required to file in Baltimore.
(2) The Secretary may permit filing in another district and may
require Treasury officers and employees to file in another
district.
Section 6101. Period covered by returns or other documents
This section contains no material change from existing law.
Section 6102. Computations on returns or other documents.
This section permits the Secetary to allow returns to be filed in
whole dollar amounts instead of requiring the showing of cents. The
Secretary may require either the elimination of the cents, or rounding
to the nearest dollar. However, this section provides that if any
taxpayer does not wish to use whole dollar amounts, he may file on the
same basis as under present law, that is, by showing exact cents.
Furthermore, this provision only applies to the total amount required to
be shown on any line on a return, and does not extend to the computation
of the various items which are aggregated for the purpose of determining
such amount.
Section 6103. Publicity of returns and lists of taxpayers
This section contains no material change from existing law.
Section 6104. Publicity of information required from certain exempt
organizations and certain trusts
This section contains no material change from existing law.
Section 6105. Compilation of relief from excess profits tax cases
This section contains no material change from existing law.
Section 6106. Publicity of unemployment tax returns
This section contains no material change from existing law.
Section 6107. List of special taxpayers for public inspection
This section contains no material change from existing law.
Section 6108. Publication of statistics of income
This section contains no material change from existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 62 -- TIME AND PLACE FOR PAYING TAX
Committee on Ways and Means -- Mr. Reed of New York.
Section 6151. Time and place for paying tax shown on returns
This section provides a uniform rule that in the case of any tax for
which a return is required, the tax shall be paid at the same time and
place as that fixed for the filing of the return. This provision
accomplishes the same result as existing law with respect to income and
gift taxes. In the case of estate taxes existing law provides a
15-month period for paying the tax, but the time for filing the return
is left to regulations. Since section 6075 provides that estate-tax
returns shall be filed within 15 months after the date of the decedent's
death, the uniform rule contained in this provision accomplishes the
same result as existing law for the payment of estate tax.
This section states that payment must be made to the principal
internal revenue officer for the internal revenue district. This is the
officer (formerly known as a collector of internal revenue) who is
subject to suit in the district court for refund.
Section 6152. Installment payments
This section differs from existing law only to the extent necessary
to provide that the amount of corporation tax payable in installments
after the close of the taxable year is the unpaid amount, that is, the
total amount of the tax reduced by that part of the tax paid currently
as estimated tax during the taxable year. For example, if the tax of
Corporation A for the calendar year 1955 is $1 million (computed after
credits against tax), and if during 1955 it paid a total of $95,000 in 2
installments of estimated tax, the remaining $905,000 would be payable
in 2 equal installments of $452,500 each on March 15 and June 15, 1956.
Section 6153. Installment payments of estimated income tax by
individuals
This section contains no material change from existing law except
that the date for filing the declaration and paying the first
installment has been changed from March 15 to April 15 of the taxable
year.
Section 6154. Installment payments of estimated income tax by
corporations
This section is one of a group of provisions relating to a new system
for advance payment of income tax by corporations. See the explanation
of section 6016.
Section 6155. Payment on notice and demand
This section contains no material change from existing law.
Section 6161. Extension of time for paying tax
This section provides a uniform rule permitting the Secretary to
extend the time for payment of any tax shown on a return for a period
which may exceed 6 months only in the case of persons abroad. However,
the 10-year extension period for estate taxes is retained. Existing law
makes no provision for extensions for payment of many taxes, and in the
case of a tax imposed by subchapters B, C, or E of chapter 30 of the
1939 code, the extension is limited to 90 days. Section 6161
accomplishes the same result as existing law in the case of income taxes
under chapter 1, employment taxes under subchapter C of chapter 9, the
estimated tax under chapter 1, and the gift tax under chapter 4, in all
of which cases there are specific provisions permitting a 6 months'
extension.
Section 6162. Extension of time for payment of tax on gain
attributable to liquidation of personal holding companies
This section which permits a 5-year extension, is, under existing
law, applicable only at the request of the taxpayer. In order to permit
more latitude in administering the section, this limitation was removed.
There is a further change from existing law in that section 6162 is
made applicable only to taxable years beginning before January 1, 1956.
Section 6163. Extension of time for payment of estate tax on value
of reversionary or remainder interest in property
This section makes no material change in existing law.
Section 6164. Extension of time for payment of taxes by corporations
expecting carrybacks
This section contains no material changes from existing law.
Section 6165. Bonds where time to pay tax on deficiency has been
extended
This section applies to all taxes the rule that bond may be required
as a condition to an extension of time for payment. This rule is
applicable to the income, estate, and gift taxes under existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 63 -- ASSESSMENT
Committee on Ways and Means -- Mr. Reed of New York.
Section 6201. Assessment authority
This section makes two material changes from existing law. The first
permits the assessment of the amount of any check or money order, given
in payment for stamps, which is not duly paid.
There is also a material change from existing law in subsection
(a)(3) of this section, relating to erroneous credits for prepayment of
income tax (prepayment through credit for tax withheld at source and
payments of estimated tax). Under this new paragraph refunds caused by
erroneous prepayment credits may be recovered by assessment in the same
manner as in the case of a mathematical error on the return. For
example, assume a case in which the tax shown on the return is $100, the
claimed prepayment credit is $125, and refund of $25 is made, and that
it is later determined that the prepayment credits should have been only
$70. Under existing law, $30 (the tax of $100 shown on the return less
the $70 credit) can be immediately assessed as tax shown on the return
which was not paid, but the remaining $25 must be recovered by suit in
court. Under the new provision, the entire $55 can be assessed and
collected.
Section 6202. Establishment by regulations of mode or time of
assessment
This section contains no material change from existing law.
Section 6203. Method of assessment
This section is a substantial clarification of existing law. It
provides that the assessments shall be made by recording the liability
of the taxpayer in accordance with rules or regulations of the
Secretary. This will permit recording of liability, and hence
assessment, through machine operations or through any other modern
procedure. The Secretary is directed to furnish to the taxpayer, upon
request, a copy of the record of the assessment of that taxpayer's
liability.
Section 6204. Supplemental assessments
This section contains no material change from existing law.
Section 6205. Special rules applicable to certain employment taxes
This section contains no material changes from existing law, except
that the adjustment provisions applicable to railroad retirement taxes
have been conformed to the adjustment provisions of the other employment
taxes.
Section 6211. Definition of a deficiency
This section contains no material changes from existing law.
Section 6212. Notice of deficiency
This section contains no material changes from existing law.
Section 6213. Restrictions applicable to deficiencies; petition to
Tax Court
The only material change from existing law is made in subsection
(b)(3) of this section, which contains a new provision providing that
any amount paid as a tax, or in respect of a tax, may be assessed upon
the receipt of such payment notwithstanding the restrictions on
assessment contained in subsection(a). It further provides that if such
payment is made after the mailing of a notice of deficiency, the
assessment shall not deprive the Tax Court of jurisdiction over the
deficiency determined without regard to such assessment.
Section 6214. Determinations by Tax Court
This section contains no material change from existing law.
Section 6215. Assessment of deficiency found by Tax Court
This section contains no material change from existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 64 -- COLLECTION
Committee on Ways and Means -- Mr. Reed of New York.
Section 6301. Collection authority
This section contains no material change from existing law.
Section 6302. Mode or time of collection
This section contains no material change from existing law.
Section 6303. Notice and demand for tax
This section contains two changes from existing law. The first
change is a provision that notice and demand shall be made as soon as
practicable, and within 60 days, after the making of an assessment.
Existing law requires that notice and demand be made within 10 days
after the receipt of the certified list of assessments. The second
change is a new provision which states that, except in case of jeopardy,
payment shall not be demanded prior to the last date prescribed by law
for the payment of the tax. In the case of early returns the tax may be
assessed prior to the last date prescribed by law for paying the tax,
and this provision is designed to give the taxpayer the benefit of the
law which permits him to wait until the last day to pay.
Section 6311. Payment by check or money order
Subsection (a) of this section changes existing law so as to permit
the Secretary, under regulations, to receive any check or money order in
payment for any taxes or stamps. The present law closely limits the
type of checks and money orders which may be received in payment for
stamps.
Subsection (b) of this section, relating to unpaid checks or money
orders, conforms existing law to the change made in subsection (a).
Section 6312. Payment by United States notes and certificates of
indebtedness
This section changes existing law to permit the same rules to apply
with respect to payment for stamps as are now applicable with respect to
payment for other taxes. This change conforms to the change with
respect to checks and money orders.
Section 6313. Fractional parts of a cent
This section contains no material change from existing law.
Section 6314. Receipt for taxes
This section changes existing law to require a receipt to be given
only where there is a request for such receipt.
Section 6315. Payments of estimated income tax
This section contains no material change from existing law.
Section 6321. Lien for taxes
This section clarifies the term "property and rights to property" by
expressly including therein the interest of the delinquent taxpayer in
an estate by the entirety.
Section 6322. Period of lien
This section, which provides that the lien arises at the time the
assessment is made, conforms existing law to the change made in section
6203.
Section 6323. Validity against mortgages, pledgees, purchasers, and
judgment creditors
This section corresponds to section 3672 of the 1939 code. Subsection
(b) makes it clear that the notice of lien shall be valid,
notwithstanding any law of the State or Territory regarding the form or
content of a notice of lien, if the notice is in such form as would be
valid if filed with the clerk of the United States district court
pursuant to subection (a)(2) of this section. The Treasury Department
has consistently taken the position that section 3672 of the 1939 code
and the corresponding provisions of prior law authorize the State or
Territory only to designate the local office for the filing of the
notice of the lien. Subsection (b) is designed to eliminate any
question as to the validity of the lien as against mortgagees, pledgees,
purchasers, and judgment creditors, where notice thereof is filed in the
office designated by the law of the appropriate State of Territory, even
though the notice does not comply with other requirements of the law of
the State or Territory as to the form or content of the notice. For
example, the omission from the notice of lien of a description of the
property subject to the lien would not affect the validity thereof, even
though the law of the State or Territory requires that the notice of
lien contain a description of the property subject to the lien.
Subsection (b) of this section is declaratory of the existing procedure
and in accordance with the long-continued practice of the Treasury
Department.
Subsection (c) makes it clear that the protection of subsection (a)
of this section is not extended to a mortgagee, pledgee, or purchaser
who takes with notice or knowledge of the existence of the Federal lien;
and that such protection is not extended to a judgment creditor who
does not have a valid judgment obtained in a court of record and of
competent jurisdiction or to a judgment creditor who does not have a
lien which has been properly pefected under such a judgment. This
subsection is not designed to extend the protection of subsection (a) of
this section to categories of persons now denied protection by existing
court decisions (under section 3672(a) of the 1939 code) which determine
who is a mortgagee, pledgee, purchaser, or judgment creditor by
reference to the realities and the facts in a given case rather than to
the technical form or terminology used to designate such person.
Paragraph (1) of subsection (c) provides that the lien shall be valid,
without the filing of notice thereof, as against any mortgagee, pledgee
or purchaser, if such mortgagee, pledgee, or purchaser had notice or
knowledge of the existence of the lien at the time the mortgage, pledge,
or purchase, was made. A dual requirement is set forth in paragraphs
(2) and (3) of this subsection which a judgment creditor must meet to be
entitled to the protection of the notice provisions of subsection (a) of
this section. One requirement is that the judgment creditor must have
actually obtained a valid judgment in a court of record and of competent
jurisdiction for the recovery of specifically designated property or for
a certain sum of money; and the other requirement is that the judgment
creditor, in the case of a valid judgment for the recovery of a certain
sum of money, must have a perfected lien under such judgment on the
property as to which the claims of the contesting parties relate.
Furthermore, subsection (c) makes clear that particular persons shall
not be treated as judgment creditors because State or Federal law
artificially provides or concedes such persons rights or privileges of
judgment creditors, or even designates them as such, when they have not
actually obtained a judgment in the conventional sense.
Subsection (d) of this section is in all material respects the same
as existing law.
Subsection (e) of this section makes it clear that the Secretary may,
after a notice of lien has been filed (and such notice discloses the
amount of the outstanding liability as of the time of filing), disclose
the extent to which the original obligation has been reduced by
subsequent payments. This is necessary for the protection of persons
dealing with property subject to the lien who have a legitimate interest
in determining the amount of the outstanding obligation, as well as to
aid reestablishment of the taxpayer's credit.
Section 6324. Special liens for estate and gift taxes
With certain exceptions this section continues in effect the
provisions of existing law with respect to personal liability and the
liens for estate and gift taxes. Provisions of present law imposing
personal liability for the taxes have been continued, except that a
trustee of an employee's trust which meets the requirements of section
501(e) is relieved of personal liability for the estate tax. Present
law regarding the divestment of the estate and gift tax liens has been
broadened to include transfers of property to a bona fide mortgagee or
pledgee for adequate and full consideration, including transfers by
transferees of a transferee. In addition, existing law has been
modified to provide that the estate or gift tax lien shall not be valid
as against a purchaser, mortgagee, or pledgee of a security (as defined
in section 6323(c)(2)) for full and adequate consideration and without
notice or knowledge of the existence of such lien.
Section 6325. Release of lien or partial discharge of property
This section contains no material change from existing law.
Section 6331. Levy and distraint
This section continues in effect the provisions of existing law
relating to distraint and levy (see secs. 3692 of the present Internal
Revenue Code).
The section retains the rule of present law which permits seizure
immediately after notice an demand in the case of jeopardy, and in cases
not involving jeopardy permits seizure only after the expiration of the
10-day period following the issuance of notice and demand. However,
existing law provides for immediate seizure only with respect to taxes
other than income, estate, and gift taxes. The section changes present
law with respect to jeopardy cases by permitting seizure immediately
after notice and demand in the case of all taxes, including income,
estate, and gift taxes.
Existing law requires that levy proceedings must be carried on
against personal property and then used against real property. Under
this section real property may be levied upon without first proceeding
against personal property.
Section 6332. Surrender of property subject to levy
Subsection (c) of this section defines the persons who are required
to respond to a levy. Under this definition, when levy is made upon any
amount owed to an employee of the United States, the District of
Columbia, or any agency or instrumentality of either, such amount must
be paid over to the Internal Revenue Service pursuant to the levy. The
provisions as to levy on salaries of Government employees are the same
as those applicable to any other delinquent taxpayer.
Section 6333. Production of books
This section contains no material change from existing law.
Section 6334. Property exempt from levy
This section is a modernization of existing law with respect to
property exempt from levy. The first exemption covers wearing apparel
and schoolbooks necessary for the taxpayer or for members of his
household. No specific value limitation is imposed with respect to this
item since the intent is to prevent seizing the ordinary clothing of the
taxpayer or members of his household. The section is not intended to
exempt from seizure expensive furs and similar items which are luxuries
and not necessities. The second exemption from levy is applicable only
in the case of the head of a household, and applies to only so much of
the fuel, provisions, furniture, and personal effects in the household
as does not exceed $500 in value. The third item in the enumeration is
for so many of the books and tools necessary for the trade, business, or
profession of the taxpayer as does not exceed in the aggregate $250 in
value.
This section provides that the officer making the seizure shall
appraise and set aside to the owner the property declared exempt, and,
if the taxpayer objects to such valuation at the time of the seizure,
the officer making the levy shall summon three disinterested individuals
to make the valuation.
Subsection (c) of this section states that no property or rights to
property, other than the properties specifically made exempt in this
section, shall be exempt from levy by reason of any other law of the
United States. Provisions of State law cannot grant an exemption from
levy, and this subsection makes it clear that no other provision of
Federal law shall exempt property from levy. This section is not
intended to make any change with respect to the status of life insurance
policies insofar as levy thereon is concerned.
Section 6335. Sale of seized property
This section differs from existing law in that it treats real and
personal property together and generally makes no distinction between
the two.
The time of sale has been fixed at not less than 10 days nor more
than 40 days from the time of giving public notice of sale. Under
existing law the rule is from 10 to 20 days after notice to the owner in
the case of personal property, and 20 to 40 days in the case of real
property. This section merges the two periods and makes the period run
from the date of public notice rather than from the date of notice to
the owner.
Subsection (a) of this section continues the provision of existing
law for the giving of notice of seizure to a person whose property is
seized. A new provision added in this subsection permits the Secretary
to mail a notice to the last known address of the delinquent person
whenever he cannot be readily located or has no dwelling or place of
business within the internal revenue district.
Section (b) of this section provides for the giving of notice of sale
to the owner. Under existing law, this notice of sale is incorporated
with the notice of seizure. Under this provision, notice of seizure and
sale may be given simultaneously but the provision also permits the
notice of sale to be given at a later time. This change is intended to
permit a person to get notice of seizure more promptly than would be
possible if the Secretary had to wait until he determined the exact
date, place and conditions of sale.
In the case of the notice of sale, the section further changes
existing law (which requires notice only of the time and place of sale)
to further provide that the notice must stae the manner and condition of
the sale.
Existing law requires that the place of sale must be not more than 5
miles distant from the place of making the distraint, or from the seized
property in the case of real estate. In the case of real estate,
however, the 5-mile rule may be ignored by special order of the
Commissioner. This section changes existing law by providing that the
sale must take place within the county in which the property was seized,
except by special order of the Secretary.
A further change from existing law is contained in subsection (e),
relating to the manner and conditions of the sale. In this subsection
will be found provisions relating to the minimum price at which the sale
shall be made, which provisions correspond to those of existing law.
The first change in existing law is a provision that the Secretary or
his delegate shall by regulations prescribe the manner and other
conditions of the sale of properties. This provision is designed to
give the Internal Revenue Service latitude to provide modern rules for
selling property in the best manner possible. The subsection states
that the regulations shall provide that the sale shall not be conducted
in any manner other than by public auction or by public sale under
sealed bids. Existing law requires all such sales to be public auction.
The subsection also permits the regulations to provide for selling the
property item by item, in groups, in the aggregate, or by both separate
sale and aggregate sale, with whichever sale produces the higher amount
being the final one.
The second change in existing law made by subsection (e) is the
provision which permits the regulations to provide that the announcement
of the minimum price may be deferred until the receipt of the highest
bid. The intent of such a provision is to prevent announcement of the
minimum price from depressing the amount of the bid. The subsection
also specifically refers to authority by regulations to use other
methods for advertising the sale in addition to those required in the
giving of public notice (for example, in trade journals in the case of
special machinery).
Subsection (e) of this section makes a further change in existing law
by providing that the sale may be made for a partial down payment and a
subsequent payment of the balance of the amount bid. Under existing law
the entire amount of the highest bid must be paid at the time of sale.
Since a higher bid might be obtained if the purchaser were permitted a
reasonable time to raise the balance of the bid (in cases where he makes
a reasonable down payment), the section gives the Secretary authority to
provide for such cases by regulations. Under this provision payment of
the balance may be deferred for a period not to exceed 1 month.
Furthermore, if the balance of the amount bid is not paid within the
period allowed, the Secretary may either proceed to sell the property
again (and in such case the part payment shall be forfeited and the
second purchaser shall take free and clear of all claim of the
defaulting purchaser), or the Secretary may at his election bring suit
against the purchaser for the unpaid balance with interest at 6 percent.
Section 6336. Sale of perishable goods
This section is new. Existing law contains provisions to cover the
sale of forfeited perishable property. The principles of those
provisions have been adopted in this section relating to the sale of
perishable goods seized by levy. In addition to perishable goods, the
section also covers property which cannot be kept without great expense.
This section provides that the taxpayer shall be given an immediate
opportunity to pay the appraised value of the property or give
satisfactory bond for such payment, and in such case the property will
be returned to him. If he fails to pay such amount or give bond, the
Secretary may as soon as practicable make public sale of the property in
accordance with regulations. In case a bond is given, the section
specifically permits payments secured by the bond to be made at such
time as the Secretary determines to be appropriate under the
circumstances. This provision will permit the collection officials to
take into account normal commercial practices for the disposal of such
property.
Section 6337. Redemption of property
This section contains no material change from existing law.
Section 6338. Certificate of sale; deed of real property
Existing law requires that a certificate of sale be given to the
United States in cases in which the property is purchased at a minimum
price for the account of the United States. This section eliminates
this provision as being obsolete under modern practice. However, the
provision for giving deed for real property purchased at the minimum
price by the United States is retained, since the recording of such deed
in the local registry is necessary to keep local property titles in
order.
Section 6339. Legal effect of certificate of sale of personal
property and deed of real property
This section changes existing law by the addition of a new provision
with respect to the recording of the transfer of title of motor vehicles
sold after seizure for taxes. These provisions correspond to those now
in the law authorizing the transfer of corporate stocks. The new
provision states that any public official charged with registration of
title to motor vehicles shall make the transfer in his records upon
receiving notice of the certificate of sale in the same manner as if the
certificate of title to the motor vehicle were transferred or assigned
by the party holding it. This new provision will keep the public
records of title to motor vehicles in proper order.
Section 6340. Records of sale
This section contains no material change from existing law.
Section 6341. Expense of levy and sale
This section contains no material changes from existing law.
Section 6342. Application of proceeds of levy
This section continues in effect the existing law which requires the
proceeds of the sale to be applied against the expenses of the levy and
sale, against any specific Federal tax liability on the seized property,
and against the liability of the delinquent taxpayer, and for any
surplus proceeds to be paid over to the person or persons entitled
thereto.
Section 6343. Authority to release levy
This section permits a levy to be lifted, or seized property to be
returned, if the Secretary determines that such action will facilitate
the collection of the tax liability; for example, where the taxpayer
makes a proper agreement with the collecting authorities whereby he
undertakes to pay the liability in installments.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 65 -- ABATEMENTS, CREDITS, AND REFUNDS
Committee on Ways and Means -- Mr. Reed of New York.
Section 6401. Amounts treated as overpayments
This section makes no material change from existing law.
Section 6402. Authority to make credits or refunds
This section changes existing law so as to permit expressly the
crediting of interest on an overpayment against any outstanding
liability for any tax.
Section 6403. Overpayment of installment
This section extends to any tax payable in installments the
provisions of existing law applicable to the income tax.
Section 6404. Abatements
A change from existing law is contained in subsection (c) of this
section. It provides that the Secretary may (but is not required to)
abate the unpaid portion of the assessment of any tax or any liability
in respect thereof, if it is determined that the administration and
collection cost involved would not warrant collection of the amount due.
This section recognizes the practice of a number of years adopted under
the general administrative authority of the Department.
Section 6405. Reports of refunds and credits
This section makes no material change from existing law, except that
the section will apply to refunds and credits in excess of $100,000.
Under existing law it is applicable only to refunds and credits in
excess of $200,000.
Section 6406. Prohibition of administrative review of decisions
This section contains no material change from existing law.
Section 6407. Date of allowance of refund or credit
This section contains no material change from existing law.
Section 6411. Tentative carryback adjustments
This section contains no material change from existing law, except
that the decrease in tax may under this section be applied against any
tax due from the taxpayer. Existing law permits the application only
against income taxes.
Section 6412. Floor stocks refunds
This section contains no material change from existing law.
Section 6413. Special rules applicable to certain employment taxes
This section makes two changes from existing law. The first change
conforms the provisions relating to the adjustment of railroad
retirement taxes to the adjustment provisions of the Federal Insurance
Contributions Act. The second change will treat special refunds of
employee tax under the Federal Insurance Contributions Act in the same
manner as an overpayment of tax.
Section 6414. Income tax withheld
This section contains no material change from existing law.
Section 6415. Credits or refunds to persons who collected certain
taxes
Existing law expressly provides in the case of taxes on
transportation and safe-deposit boxes that credit or refund is made only
upon a showing that the taxpayer has not passed on the tax. This
section makes it clear that this rule applies to taxes on admissions and
club dues.
Section 6416. Certain taxes on sales and services
Subsection (a) of this section extends to the cabaret tax the rule
that credit or refund will be made only if there is a showing that the
tax has not been passed on.
Subsection (b) of this section makes several changes in existing law.
First, the provisions of existing law, treating certain cases in which
payments are considered overpayments by reason of a price adjustment
between the seller and the purchaser, have been extended to the tax on
diesel fuel and the tax on pistols and revolvers. However, under this
section credit or refund shall be made without interest in any case
where the overpayment is caused by price readjustment. This is the rule
of existing law with respect to manufacturers' excise taxes. Existing
law contains a similar provision prohibiting interest in respect of
manufacturers' excise taxes and the tax on disel fuel where the article
is sold for certain specified uses or resale. This section extends this
provision to retailers' excise taxes.
Section 6417. Coconut and palm oil
This section contains no material change from existing law.
Section 6418. Sugar
This section contains no material change from existing law.
Section 6419. Excise tax on wagering
This section contains no material change from existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 66 -- LIMITATIONS
Committee on Ways and Means -- Mr. Reed of New York.
Section 6501. Limitations on assessment and collection
This section changes the existing law in several respects in order to
achieve as much uniformity as possible with respect to all taxes.
Subsection (a) provides a 3-year rule for the assessment of taxes,
commencing with the date the return was filed or, in the case of stamp
taxes, with the date the taxes become due. The period for proceeding in
court without assessment is the same period. This rule is existing law
only with respect to income, estate, gift, social-security taxes, and
income tax withholding on wages.
Subsection (b) of this section extends the existing income-tax rule
that an early return may be deemed filed on the due date for statute of
limitations purposes. The provisions of this subsection extend this
rule to all taxes for which returns are required. This subsection also
changes existing law in that the execution of a return by the Internal
Revenue Service will not constitute the making of a return for the
purpose of starting the running of the statute of limitations on
assessment.
Paragraph (2) of subsection (c) provides that there shall be no
limitation on assessment or proceeding in court in the case of a willful
attempt in any manner to defeat or evade tax. This rule which is
existing law as to all taxes other than income, estate, and gift taxes
has been extended to the latter taxes.
Paragraph (4) of subsection (c) contains the existing provision of
the income-tax law permitting an extension of time for assessment by
written agreement between the taxpayer and the Internal Revenue Service,
and extends this rule to all taxes.
Subsection (d) of this section provides an 18-month period of
limitation where there is a request for prompt assessment by an executor
or other fiduciary representing the estate of a decedent or a
corporation in liquidation. Under existing law this rule is applicable
only to the income taxes of the decedent, the estate, or the
corporation. This subsection extends the rule to all taxes payable by
return other than the estate tax. The subsection includes a new
provision which requires the written request for prompt assessment to be
filed in such manner and such form as may be prescribed by regulations.
Several changes from existing law have been made in subsection (e) of
this section. In paragraph (1), which relates to income tax, the
existing 5-year rule in the case of an omission of 25 percent of gross
income has been extended to 6 years. The term gross income as used in
this paragraph has been redefined to mean the total receipts from the
sale of goods or services prior to diminution by the cost of such sales
or services. A further change from existing law is the provision which
states that any amount as to which adequate information is given on the
return will not be taken into account in determining whether there has
been an omission of 25 percent.
Paragraph (2) of subsection (e) applies to estate and gift taxes a
rule, corresponding to the income-tax rule, for an extended period of
limitation where, in the return, there is a 25 percent omission from the
amount of the gross estate or from the amount of the taxable gifts made
during the year. This paragraph also includes provisions to the effect
that any amount as to which adequate information is given on the return
shall not be taken into account in determining the 25 percent omission.
The provision in existing law for a 7-year period of limitation where
a taxpayer fails to include in gross income his distributive share of
the income of a foreign personal holding company has been changed to 6
years.
Subsection (f) of this ection provides that the personal holding
company tax may be assessed or a proceeding in court for the collection
of such tax may be begun without assessment at any time within 6 years
after the return was filed, in cases where a personal holding company
fails to file with its income tax return for such year a schedule
setting forth certain information as to items of gross income received
or the names and addresses of individuals who own more than 50 percent
in value of the outstanding capital stock of the corporation.
Subsection (g) of this section represents a change designed to
achieve in better fashion the purpose of section 275(g) of exisiting
law. That section provides a 4-year period of limitation where taxable
corporations make no return, but the shareholders include in their
income their distributive share of the net income of the corporation.
Subsection (g) provides that if a trust or partnership return is filed
in good faith by an association taxable as a corporation, such return
shall be deemed the return of the corporation for purposes of measuring
the running of the period of limitation.
Section 6502. Collection after assessment
This section makes one material change from existing law by providing
that an agreement extending the period for collection may be made after
the 6-year period has expired if there is a release of levy under
section 6343 and if made before such release. See the discussion of
section 6343.
Section 6503. Suspension of running of period of limitation
Two changes from existing law are made in subsection (b) and (c) of
this section. Subsection (b) provides that the period of limitation on
collection after assessment shall be suspended for the period that the
assets of the taxpayer are in the control or custody of the court in any
proceeding before any court of the United States, or any State, and for
6 months thereafter. Existing income-tax law provides that in the case
of bankruptcy or receivership, any portion of the claim allowed may be
collected within 6 years after the termination of the proceedings. This
subsection provides a uniform rule applicable to all taxes.
Subsection (c) of this section is a new provision which states that
the period of limitations on collection after assessment shall be
suspended for the period collection is hindered or delayed because
property of the taxpayer is situated or held outside of the United
States, or is removed from the United States. The total suspension of
time under this provision shall not in the aggregate exceed 6 years.
Section 6511. Limitations on credit or refund
Subsection (a) of this section extends to all taxes in respect of
which a taxpayer is required to file a return the provisions of existing
law with respect to the period of limitations for credit or refund of
income taxes. This period is 3 years from the time the return is filed,
or 2 years from the time the tax is paid, whichever of such periods
expires the later, and in cases in which no return is filed the period
is 2 yars. In the case of stamp taxes, subsection (a) provides a period
of 3 years from the time the tax was paid. These provisions are
consistent with the new uniform rule in section 6501, relating to the
period of limitation on assessments. Existing law, except in the case
of income, estate, gifts, and certain employment taxes, provides a
4-year period.
Subsection (c) of this section extends to all taxes the rule, now
applicable to the income tax, that the period of limitation for credit
or refund shall not expire prior to the end of 6 months after any
extension of the period for assessment agreed upon between the taxpayer
and the Internal Revenue Service. The provision authorizing such
extensions of the period for assessment has been made applicable to all
taxes (existing law applies only to the income tax), and this subsection
extends the corresponding rule on refunds to the same taxes.
Paragraph (3) of subsection (d) provides a special 10-year period of
limitation with respect to refunds resulting from foreign taxes paid or
accrued, which may be claimed as a credit against the tax imposed by
chapter 1 in accordance with the provisions of section 901 or the
provisions of any treaty to which the United States is a party.
Subsection (e) corresponds to existing law except for the 2-year
period in paragraph (1), which period is 1 year under existing law.
Section 6512. Limitations in case of petition to Tax Court
This section makes no material changes from existing law.
Section 6513. Time return deemed filed and tax considered paid
Subsection (a) of this section extends to all other taxes, in respect
of which the taxpayer is required to file a return, the existing
income-tax rule as to early returns and advance payment. Under this rule
an early tax return or an advance payment of tax is deemed made, for the
purpose of starting the period of limitation for credit or refund, on
the due date of the return or the payment.
Subsection (b), relating to the credit for withheld income tax on
wages, corresponds to existing law except that the presumptive date of
payment has been changed to conform to the new filing date for
individual income-tax returns, that is, April 15 in the case of
calendar-year returns. Subsection (c), relating to presumptive dates in
the case of returns and payments of social-security taxes and income-tax
withholding, contains a similar change to conform to the new filing
date.
Subsection (d) of this section clarifies the rule applicable in a
case in which an overpayment of income tax is claimed on the return as a
credit against estimated tax for the next year. In many cases the
taxpayer fails to reflect on the estimated tax return the amount so
claimed. This subsection provides that, in such a case, the amount of
the over-payment for the first year shall be treated as a payment for
the second year, that is, the year for which the estimated tax is paid,
and the applicable period of limitations shall be determined with
respect to the second year.
Section 6514. Credits or refunds after period of limitation
This section contains no material change from existing law.
Section 6521. Mitigation of effect of limitation in case of related
taxes under different chapters
This section contains no material change from existing law.
Section 6531. Periods of limitation on criminal prosecutions
This section changes existing law by providing that the 6-year period
of limitation shall apply to the offenses of (1) willfully failing to
pay the tax or make any tax return at the time or times required by law
or regulations; (2) offenses described in sections 7206(1) and 7207,
relating to false statements and fraudulent documents; (3) offense
described in section 7212(a), relating to intimidation of officers and
employees of the United States; and (4) offenses described in section
7214(a) committed by officers and employees of the United States.
This section also changes exisiting law by providing that the period
of limitation shall be suspended during the period the taxpayer is
outside the United States. This provision applies where the taxpayer is
outside the United States as distinguished from the case where the
taxpayer is outside the jurisdiction of the United States. Furthermore,
the running of the period of limitations is suspended in any case where
the taxpayer is a fugitive from justice. This section also provides
that for purposes of the period of limitations on criminal prosecutions
the rules of section 6513 shall be applicable.
This section further provides that if a complaint is instituted
before a commissioner of the United States, within the prescribed period
of limitations, the period of limitations shall not expire prior to the
date which is 9 months after the date of the making of the complaint.
Under existing law, the extension of time is until the discharge of the
grand jury at its next session within the district.
Section 6532. Periods of limitation on suits
This section provides that the 2-year period of limitation for filing
suit may be extended in any case for such period as may be agreed upon
in writing between the taxpayer and the Secretary. Existing law permits
the period to be extended only to the date of final decision in one or
more named cases then pending before the Tax Court or the courts.
This secion contains a new provision which states that if the
taxpayer files a written waiver of the requirement that he be sent a
notice of disallowance of his claim for refund, then the 2-year period
for filing suit for such refund begins to run on the date such waiver is
filed.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 67 -- INTEREST
Committee on Ways and Means -- Mr. Reed of New York.
Section 6601. Interest on underpayment, nonpayment, or extensions of
time for payment, of tax
Subsection (a) of this section provides a general rule that interest
at the rate of 6 percent shall run from the due date to the date paid in
the case of any amount of tax which is not paid on the due date. The
only exception to this general rule is contained in subsection (b),
which subsection retains the provisions of existing law with respect to
the 4-percent rate charged in the case of the estate tax where an
extension is granted because payment would result in undue hardship or
where postponement of payment is permitted in the case of the tax
attributable to the value of reversionary or remainder interests in
property.
Under this section, the due date is determined without regard to any
extension of time, and interest will be collected during the period of
the extension, and for any furthr period during which the tax remains
unpaid. This is true under existing law, except that on the date the
extension ends the interest charged for the period of the extension
begins to bear interest. Under the provisions of this section, there is
no interest on interest. Under existing law, in the case of
deficiencies in income, estate or gift taxes, interest runs from the
date prescribed for payment of the tax to the date of assessment of the
deficiency and then interst on the amount assessed runs from the date of
assessment.
In the case of stamp taxes which are not paid, there is no interest
under existing law until the tax is assessed. Under the provisions of
this section, interest will run from the date the liability for the tax
arises.
This section also provides several rules for determining the last
date prescribed for payment in addition to the rules noted above. One
rule is that in the case of installment payments, interest on any
portion of the tax not shown on the return will run from the due date of
the first installment. In the case of any unpaid installment of tax
shown on the return, interest shall run from the installment date. If
notice and demand for subsequent installments is issued under section
6152(d), interst on such subsequent installment runs from the date of
notice and demand. Another rule is designed to cover those cases where,
by reason of jeopardy, payment is demanded before the due date otherwise
prescribed. In such cases, interest will not begin to run prior to the
due date otherwise prescribed, since the jeopardy procedure is merely
designed to obtain advance payment of the tax.
One exception to these general rules is a continuation (with a minor
variation) of the provision of existing law that, where a waiver of the
restrictions on assessment (Form 870) is filed, interest is not imposed
on income, estate, and gift tax deficiencies during the period beginning
30 days after filing of the waiver and ending with the date of notice
and demand (instead of the date of assessment as under existing law).
Another exception to the general rule makes a minor modification of the
effect of the Seeley Tube & Box Co. decision (338 U.S. 561). Under this
section, interest on a deficiency which is eliminated by a carryback
will run from the original due date of the tax to which the deficiency
relates to the end of the taxable year in which the net operating loss
arises. (A corresponding change has been made in the provisions for
interest on refunds caused by carrybacks.) The 6 percent interest
provisions of this section supersede the provision in section 3779 of
existing law for 3 percent interest in the case of extensions of time to
certain corporations expecting carrybacks.
Section 6602. Interest on erroneous refund recoverable by suit
This section contains no material change from existing law.
Section 6611. Interest on overpayments
This section provides that in determining the date of the overpayment
in order to compute interest on the overpayment, the same rules as to
presumptive dates of payment shall be applied as are applied for the
purpose of measuring the period of limitations on refund or credit.
Subsection (e) of this section provides that if any overpayment of tax
imposed by subtitle A (income taxes) is refunded within 45 days after
the last date prescribed for filing the return of such tax (determined
without regard to any extension of time for filing the return), no
interest shall be allowed on such overpayment.
Existing law denies interest on an overpayment caused by a carryback
for any period prior to the filing of a claim for credit or refund of
such amount (or filing a petition with the Tax Court with respect to
such amount). Under this section, interest is denied only for the
period prior to the close of the taxable year in which the net operating
loss arises. This is consistent with the rule for interest on
underpayments (see the discussion of sec. 6601).
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 68 -- ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE
PENALTIES
Committee on Ways and Means -- Mr. Reed of New York.
Section 6651. Failure to file tax return
Subsection (a) of this section provides a uniform general rule as to
the additions to tax for failure to file a tax return. This rule, which
corresponds to the present rule for income taxes, is applicable to all
taxes in respect of which a taxpayer is required to file a return.
Under this rule, a taxpayer may avoid the addition to the tax for
delinquent filing by showing that the delinquency was due to reasonable
cause regardless of whether a return is ever filed by him. This is
existing law with respect to income taxes. However, with respect to
many other taxes imposed by the present code, existing law requires that
a return be filed by the taxpayer before considertion is given as to
whether or not there was reasonable cause for his failure to file.
Subsection (b) of this section provides that the addition to the tax
will be computed on the net amount due on the return rather than on the
gross amount of tax required to be shown on the return. This provision
is important in the case of the income tax where a large part of the
amount of the tax shown on the return may have been prepaid through
declaration of estimated tax or through income tax withholding on wages.
Section 6652. Failure to file certain information returns
This section provides that there shall be paid $1 for each required
statement of information (such as each Form 1099 required to be filed,
or each copy of Form W-2 required to be attached to Form 941 for the
last quarter of the year) which is not filed, but the total amount to be
paid for any one calendar year in the case of any one person shall not
exceed $1,000.
Section 6653. Failure to pay tax
For all taxes for which returns are required, this section prescribes
additions to the tax, corresponding to those of existing law relating to
the income tax, for underpayments of tax resulting from negligence (5
percent of the underpayment) or fraud (50 percent of the underpayment).
Existing law imposes a 50 percent addition in the case of fraud
applicable to all taxes but, in the case of taxes other than income,
estate, and gift, that addition is based on the total amount of tax
imposed. Another change provided in this section is the substitution,
for the penalty provided in existing law of an amount equal to the
amount of any stamp tax evaded or not paid, of an addition to the tax of
50 percent of the total amount of the underpayment of such tax.
Section 6654. Failure by individuals to pay estimated income tax
This section is a new provision which supersedes the penalties
provided by section 294(d) of existing law. See the explanation of
section 6015.
Section 6655. Failure by corporation to pay estimated income tax
This section is a new provision and its application is discussed in
the explanation of section 6016.
Section 6656. Failure to make deposit of taxes
This section imposes a penalty for the failure, without reasonable
cause, to comply with the depositary receipt system. Depositary
receipts are an important part of the collection procedures with respect
to certain employment and excise taxes. The penalty provided by this
section is 1 percent of the amount of the underpayment of the deposit
for each month or part of a month during which the underpayment
continues, but not to exceed 6 percent in the aggregate. The penalty
will not be imposed for any period after the due date of the return with
respect to which the deposit is required to be made. Under a system of
quarterly returns with monthly deposits the maximum penalty will not
exceed 3 percent, but under an annual return system with monthly
deposits the penalty could reach 6 percent in some cases.
Section 6657. Bad checks
This section is a new provision which provides a specific penalty for
giving the Internal Revenue Service a bad check in payment of any amount
receivable under this title. The penalty will apply to checks which may
be accepted in payment of taxes under existing law and also to personal
checks which may be accepted in payment for stamps under the changes in
the law made by this bill. The penalty does not apply if the person
tendered the check in good faith and with reasonable cause to believe
that it would be paid upon presentment.
Section 6658. Addition to tax in case of jeopardy
This section contains no material changes from existing law.
Section 6659. Applicable rules
This section provides that the additions to the tax, additional
amounts, and penalties provided by chapter 68 shall be assessed,
collected, and paid in the same manner as taxes, except where otherwise
specifically provided in another section of this title. This conforms
to the rules under existing law. By virtue of this section, it is
unnecessary in other parts of the title to specifically refer to these
additions to the tax when providing rules as to collection, assessment,
etc., of taxes. This section also makes clear that the procedures for
the assessment of deficiencies in income, estate, and gift taxes
(including 90-day letters and appeal to the Tax Court) also apply to
additions to those taxes.
Section 6671. Rules for application of assessable penalties
This section contains no material changes from existing law.
Section 6672. Failure to collect and pay over tax, or attempt to
evade or defeat tax
This section is similar to certain sections of existing law which
prescribe a penalty equal to the total amount of the tax evaded, not
collected, or not accounted for and paid over, in the case of willful
failure to collect, or to truthfully account for and pay over, any tax
imposed by this title, or willful attempt in any manner to evade or
defeat such tax. However, the application of this penaly is limited
only to the collected or withheld taxes which are imposed on some person
other than the person who is required to collect, account for and pay
over, the tax. Under existing law this penalty is not applicable in any
case in which the additions to the tax in the case of delinquency or
fraud are applicable. Under this section the additions to the tax
provided by section 6653, relating to negligence or fraud, shall not be
applied for any offense to which this section is applicable.
Section 6673. Damages assessable for instituting proceedings before
the Tax Court merely for delay
This section contains no material changes from existing law.
Section 6674. Fraudulent statement or failure to furnish statement
to employee
This section contains no material changes from existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 69 -- GENERAL PROVISIONS RELATING TO STAMPS
Committee on Ways and Means -- Mr. Reed of New York.
Section 6801. Authority for establishment, alteration, and
distribution
This section contains no material change from existing law.
Section 6802. Supply and distribution
This section contains no material change from existing law.
Section 6803. Accounting and safeguarding
This section contains no material change from existing law.
Section 6804. Attachment and cancellation
This section contains no material change from existing law.
Section 6805. Redemption of stamps
Under existing law, the period of limitation for redemption of stamps
is 4 years. This section changes this period to 3 years. As so
changed, this period corresponds to the period of limitation provided
for refund of overpayments.
Section 6806. Posting occupational tax stamps
Under existing law, the stamps denoting payment of the tax on
coin-operated amusement and gaming devices are required to be posted in
the operator's place of business. This section gives the Secretary
authority to require by regulations that the stamp be posted on each
such amusement or gaming device in such a manner that it will be visible
to any person operating the device.
Section 6807. Stamping, marking, and branding seized goods
This section contains no material change from existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 70 -- JEOPARDY, BANKRUPTCY, AND RECEIVERSHIPS
Committee on Ways and Means -- Mr. Reed of New York.
Section 6851. Termination of taxable year
This section, except subsection (b), makes no material change from
existing law. Subsection (b) is a new provision which permits the
taxable year, once closed by the Secretary, to be reopened. Subsection
(b) will apply, for example, in the case of an alien who departs from
and returns to the United States within the 12-month period which would
otherwise be his taxable year. Under existing law, such a taxpayer
would have more than 1 taxable year in the same 12-month period. This
section provides that the taxable year shall be reopened if the taxpayer
files a true and accurate return of his items of gross income,
deductions, and credits, together with such other information as may be
required by regulations.
Section 6861. Jeopardy assessment of income, estate, and gift taxes
This section contains no material change from existing law.
Section 6862. Jeopardy assessment of taxes other than income,
estate, and gift taxes
This section contains no material change from existing law.
Section 6863. Stay of collection of jeopardy assessments
This section contains no material change from existing law.
Section 6871. Claims for income, estate, and gift taxes in
bankruptcy and receivership proceedings
Sections 274 and 1015, relating to income and gift taxes, provide
that in the case of bankruptcy and receivership proceedings the unpaid
taxes shall be immediately assessed, and provide that claim therefor may
be presented for adjudication in the proceeding. This section makes a
more modern reference to the bankruptcy and receivership proceedings to
which these rules are applicable, and extends these provisions to cover
estate taxes.
Section 6872. Suspension of period on assessment
This section, which corresponds to section 274(a) of the existing
income tax law, provides for the suspension of the period of limitations
on assessment of any unpaid tax during any proceeding under the
Bankruptcy Act or other court proceeding where the fiduciary or receiver
is required to give notice to the Internal Revenue Service of his
appointment. As under section 274, the suspension is for the period
from the date of the institution of the proceeding to a date 30 days
after the receipt of the notice by the Secretary but the suspension may
not exceed 2 years.
Section 6873. Unpaid claims
This section, which corresponds to sections 274 and 1015 of existing
law, relating to the income and gift taxes, requires any unpaid portion
of a claim for any tax allowed in the receivership or Bankruptcy Act
proceeding to be paid on notice and demand. It conforms to section
6872, discussed above. For the period of limitations applicable to such
claim, see section 6503(b).
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 71 -- TRANSFEREES AND FIDUCIARIES
Committee on Ways and Means -- Mr. Reed of New York.
Section 6901. Transferred assets
This section corresponds to existing law in the case of income,
estate, and gift taxes. This section also permits the assessment of the
liability of a transferee for taxes other than income, estate and gift
taxes if the transferee liability arises from the liquidation of a
partnership, or upon the liquidation, merger, consolidation, or any
transaction described in section 359(b), (c), or (d), of a corporation.
With respect to the period of limitation on assessment of transferee
liability, existing provisions of the income-tax law have been made
applicable to estate and gift taxes and to the new cases in which
transferee liability may be assessed for other taxes. The period of
limitation in the existing estate and gift tax law differs from the
income tax law in the case of a transferee of a transferee. Under this
section, as under existing income tax law, the assessment must be made
within 1 year after the expiration of the period of limitation for
assessment against the preceding transferee but not more than 3 years
after the expiration of the period of limitation for assessment against
the initial transferor. This is subject to an exception in the case of
a court proceeding against the initial transferor or the last preceding
transferee; the period of limitation in such case expires 1 year after
the return of execution in the court proceeding.
As under existing law, this section provides that a transferee may
agree to extend the period of limitation for assessment. In such cases,
this section provides that the period for filing claim for credit or
refund is extended for the period of the agreement and 6 months
thereafter, as in the case of a taxpayer who executes an agreement under
section 6511(c). These provisions, which extend the period for filing
claim for credit or refund in case of such an agreement, are also made
applicable to any such agreement by a transferee.
In the case of such an agreement, section 6511(c) limits the amount
of any credit or refund to the amount of tax paid within a period of
time specified in such section.
Subsection (d)(2) of this section relating to the amount of the
credit or refund provides that the period within which amounts paid may
be credited or refunded shall be increased in any case where the
transferee agrees to extend the time for assessment, and such agreement
is made after the period for assessment against the taxpayer has
expired. In such case, the period prescribed in section 6511(b)(2) is
increased by the period which elapsed between the date of expiration of
the period for assessment against the taxpayer and the date of the
agreement.
Section 6902. Provisions of special application to transferees
This section contains no material change from existing law.
Section 6903. Notice of fiduciary relationship
This section imposes a duty upon the fiduciary to act for the
taxpayer whom he represents or for the estate for which he is
responsible. Under existing law, the fiduciary is responsible tax-wise
for such persons in the case of income, estate, and gift taxes. This
section extends this rule to all taxes.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 72 -- LICENSING AND REGISTRATION
Committee on Ways and Means -- Mr. Reed of New York.
Section 7001. Collection of foreign items
This section contains no material change from existing law.
Section 7011. Registration -- Persons paying a special tax
This section contains no material change from existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 73 -- BONDS
Committee on Ways and Means -- Mr. Reed of New York.
Section 7101. Form of bonds
This section contains no material change from existing law. It
merely incorporates, in one place, a rule corresponding to the rules
usually provided in existing law in each section which refers to a
security or bond.
Section 7102. Single bond in lieu of multiple bonds
This section provides a general rule (which supersedes existing
section 3676) to the effect that wherever two or more bonds are
required, the Secretary may accept one bond instead of the several bonds
otherwise required. Existing code section 3676 permits a single bond in
place of 2 bonds where there is an extension of time to pay a deficiency
and also a release of a lien.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 74 -- CLOSING AGREEMENTS AND COMPROMISES
Committee on Ways and Means -- Mr. Reed of New York.
Section 7121. Closing agreements
This section contains no material change from existing law.
Section 7122. Compromises
This section makes no material change from section 3761 of the 1939
code, except that no legal opinion is required with respect to the
compromise by the Secretary or his delegate of a civil case in which the
unpaid amount of tax assessed (plus any interest, additional amount,
addition to the tax, or assessable penalty) is less than $500.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 75 -- CRIMES, OTHER OFFENSES, AND FORFEITURES
Committee on Ways and Means -- Mr. Reed of New York.
Section 7201. Attempt to evade or defeat tax
This section makes it a felony punishable by fine of not more than
$10,000, or imprisonment of not more than 5 years, or both, to attempt
in any manner to evade or defeat any tax imposed by this title or the
payment thereof. This section corresponds to numerous sections in
existing law covering this offense.
Under existing law, it is a misdemeanor (with maximum punishment of
$10,000 fine and 1 year imprisonment) willfully to fail to make a return
at the time required by law or regulations. While this rule is
continued in section 7203 as to returns other than tax returns, this
section differs from existing law in making this offense in the case of
tax returns (that is, any return required under authority of pt. II of
subch. A of ch. 61) punishable to the same extent as an attempt to
defeat or evade the tax. However, this section does not apply to the
willful failure to make a declaration of estimated tax required under
authority of section 6015 or 6016, and no criminal penalty is imposed by
this title for the willful failure to make such a declaration.
Section 7202. Willful failure to collect or pay over tax
This section provides that, in the case of any tax imposed by this
title which any person must collect and pay over to the United States,
it is a felony punishable by a fine of not more than $10,000, or
imprisonment for not more than 5 years, or both, willfully to fail to
collect or truthfully account for and pay over such tax. This provision
corresponds to numerous sections of existing law which cover this
offense.
Section 7203. Willful failure to file a return, supply information,
or pay tax
This section provides that it is a misdemeanor, punishable by a fine
of not more than $10,000, or imprisonment for not more than 1 year, or
both, to willfully fail to pay any tax (including any estimated tax
referred to sec. 6153 or 6154), make any return, keep any records, or
supply any information at the time or times required by law or
regulations. It corresponds to numerous sections of existing law,
including those applicable to the income, estate, gift, and excise
taxes. However, the section differs from existing law in that it does
not apply to tax returns required under part II of subchapter A of
chapter 61. See discussion in the explanation of section 7201, which
section is applicable to tax returns.
Section 7204. Fraudulent statement or failure to make statement to
employees
This section contains no material change from existing law.
Section 7205. Fraudulent withholding exemption certificate or
failure to supply information
This section contains no material change from existing law.
Section 7206. Fraud and false statements
This section collects in one place and makes generally applicable to
taxes imposed by this title the various penal provisions in existing law
relating to fraud and false statements. This section provides that the
offense described therein are felonies to be punished by a fine of not
more than $10,000, or not more than 5 years imprisonment, or both.
The first offense described is that of making a false declaration
under penalty of perjury. This offense corresponds to the offense
described in section 3809(a) of the 1939 code. The penalty provided by
section 3809(a) is a fine of not more than $2,000, or not more than 5
years imprisonment, or both.
The second offense described in this section relates to willfully
aiding or assisting in the preparation or presentation of any return,
affidavit, claim, or other document, which is fraudulent or is false as
to any material matter. This offense corresponds to the offense
described in section 3793(b) of the 1939 code. The penalty imposed by
this section is the same as that imposed by section 3793(b) of the 1939
code.
The third offense described in this section corresponds to the
offense described in section 3793(a) of the 1939 code, which relates to
simulating or falsely or fraudulently executing or signing any bond,
permit, entry or other document required by the internal revenue laws or
procuring the same to be done. Existing law imposes no fine for this
offense but provides that imprisonment for the offense shall not be less
than 1 year nor more than 5 years.
The fourth offense described in this section relates to the offense
of removing, depositing or concealing property in respect of which any
tax is imposed, or upon which levy is authorized, with intent to evade
or defeat the assessment or collection of any tax imposed by this title.
This section differs from section 3321(a) of the 1939 code in that this
section covers such offenses committed in order to avoid levy, and in
that the punishment under section 3321(a) is a fine of not more than
$5,000, or imprisonment for not more than 3 years, or both.
The fifth offense described in this section corresponds to the
offense described in section 3762 of the 1939 code, that is, the offense
of concealing property or withholding, falsifying, or destroying
records, or making any false statement in connection with any
compromise, offer of compromise, closing agreement or offer to enter
into a closing agreement. The punishment under section 3762 is a fine
of not more than $10,000, or not more than 1 year imprisonment, or both.
Section 7207. Fraudulent returns, statements, or other documents
This section contains no material change from existing law.
Section 7208. Offenses relating to stamps
This section brings together into one section, and makes applicable
to all taxes collected by stamps, various offenses described in existing
law relating to stamps. These offenses correspond to the acts,
described in sections 7201 and 7206, of fraud on the revenue or of
attempting to defeat or evade the tax or the payment of tax. The same
punishment is prescribed in this section as in sections 7201 and 7206,
namely, fine of not more than $10,000, or imprisonment for not more than
5 years, or both.
Existing provisions of law to which this section corresponds, except
for the changes noted below, are as follows:
(a) Counterfeiting, which offense is described specifically in
section 1425(b) of the 1939 code, relating to employment taxes. Section
1425(b) provides for a fine of not more than $5,000, or imprisonment for
not more than 5 years, or both.
(b) Mutilation or removal of stamps, which offense is described in
section 1823(a) of the 1939 code. That section provides a fine of not
more than $1,000, or imprisonment for not more than 5 years, or both.
(c) Use of mutilated, insufficient or counterfeited stamps, which
offense is described in section 1823(b) of the 1939 code. The
punishment under section 1823(b) is the same as under section 1823(a),
described in (b) above.
(d) Reuse of stamps, which offense is described in section 1823(c) of
the 1939 code, and which is subject to the same penalty as that
described under (b) and (c) above.
(e) Offenses relating to the disposal or receipt of emptied stamped
packages, which offenses are described in section 3323(a)(3) of the 1939
code. Under section 3323(a)(3) the offense carries a minimum punishment
of $1,000 fine or 6 months imprisonment, and a maxiumum punishment of
$5,000 fine or 5 years imprisonment, or both such fine and imprisonment.
Section 7209. Unauthorized use or sale of stamps
This section contains no material change from existing law.
Section 7210. Failure to obey summons
This section contains no material change from existing law.
Section 7211. False statements to purchasers or lessees relating to
tax
This section makes no material change from existing law.
Section 7212. Attempts to interfere with administration of internal
revenue laws
Subsection (a) of this section, relating to the intimidation or
impeding of any officer or employee of the United States acting in an
official capacity under this title, or by force or threat of force
attempting to obstruct or impede the due administration of this title is
new in part. This section provides for the punishment of threats or
threatening acts against agents of the Internal Revenue Service, or any
other officer or employee of the United States, or members of the
families of such persons, on account of the performance by such agents
or officers or employees of their official duties. This section will
also punish the corrupt solicitation of an internal revenue employee.
This subsection is broader than section 111 of title 18 of the United
States Code, relating to persons assaulting, resisting, or impeding
certain officers or employees of the United States while engaged in the
performance of their official duties, in that it covers threats of force
(including any threatening letter or communication) or corrupt
solicitation.
Subsection (b) of this section, relating to forcible rescue of seized
property, makes no material change from existing law.
Section 7213. Unauthorized disclosure of information
This section contains no material change from existing law except
that the offense by State employees of disclosing information obtained
under section 6103 has been restated in order to cover additional acts
of disclosure which are now offenses in the case of Federal employees.
Section 7214. Offenses by officers and employees of the United
States
Subsection (a) of this section corresponds, with certain changes, to
the provisions of section 4047(e) of the 1939 code. The first change is
that this section will apply to any officer or employee of the United
States acting in connection with any revenue law of the United States.
Section 4047(e) applies to any officer or agent appointed and acting
under the authority of any revenue law of the United States. Section
4047(e)(3) describes, as an offense, the willful neglect to perform any
of the duties enjoined on the officer or agent by law. The
corresponding provision of this section changes existing law to make it
applicable only if the employee "with intent to defeat the application
of any provision of this title, fails to perform any of the duties of
his office or employment." This change makes the offense one involving
misapplication of the revenue laws, as distinguished from the mere
negligent or other improper conduct of an employee, not involving
criminal intent, which could continue to be handled (as under existing
law in the case of employees not covered by sec. 4047(e)) by reprimand
or dismissal or other action under the civil service laws. Section
4047(e)(5) makes it an offense to make opportunity for any person to
defraud the United States. The corresponding provision of this section
makes it an offense to knowingly make opportunity for any person to
defraud the United States. Paragraph (a)(7) of this section corresponds
to existing paragraph (8) of section 4047(e), except in two respects.
Existing law refers to a false entry in any book or the making of any
false certificate or return. This section changes the word "false" to
"fraudulent" to avoid the implication that this provision would apply to
an innocent making of a false entry. This section also expands existing
law to cover not only a "certificate" or "return" but also a
"statement," and to eliminate the limitation of existing law that the
penalty applies only where the employee is required to make the entry,
certificate, or return. Under section 7214 he is subject to punishment
in any case where he makes a fraudlent statement, whether or not he is
required to make the statement. Paragraph (a)(8) of this section
corresponds to existing paragraph (9) of section 4047(e), except in one
respect. Existing law requires the officer or agent to report to his
next superior officer and to the Commissioner. This section strikes the
requirement that he report to his next superior officer, and leaves the
requirement that he shall report to the Secretary or his delegate.
Thus, section 7214 avoids the possibility of the employee being required
to report to his next superior officer any fraud or violation which he
believes was committed by that officer. Such reports instead will be
made to such office, for example, the internal revenue inspection
service, as the Secretary or his delegate may designate.
Subsection (b) of this section is in all material respects the same
as section 4047(b) of the 1939 code, except that the provisions thereof
are made applicable to any internal-revenue officer or employee instead
of, as provided under existing law, to any internal-revenue officer or
internal-revenue agent.
Section 7231. Failure to obtain license for collection of foreign
items
This section contains no material change from existing law.
Section 7232. Failure to register or give bond, or false statement
by manufacturer or producer of gasoline or lubricating oil
This section contains no material change from existing law, except
that the maximum fine has been increased from $5,000 to $10,000. This
fine corresponds to that provided by section 7201 for an attempt to
defeat or evade tax, and to that provided by section 7206 for the
offense of making false statements.
Section 7233. Failure to pay, or attempt to evade payment of, tax on
cotton futures, and other violations
This section contains no material change from existing law.
Section 7234. Violation of laws relating to oleomargarine or
adulterated butter operations
This section contains no material change from existing law.
Section 7235. Violation of laws relating to adulterated butter and
process or renovated butter
This section contains no material change from existing law.
Section 7236. Violation of laws relating to filled cheese
This section contains no material change from existing law.
Section 7237. Violation of laws relating to narcotic drugs and to
marihuana
This section contains no material change from existing law.
Section 7238. Violation of laws relating to opium for smoking
This section contains no material change from existing law.
Section 7239. Violations of laws relating to white phosphorus
matches
This section contains no material changes from existing law.
Section 7240. Officials investing or speculating in sugar
This section contains no material change from existing law, except
that a provision has been added (corresponding to sec. 7214) that the
official committing the offense shall be dismissed from office or
discharged from employment.
Section 7261. Representation that retailers' excise tax is excluded
from price of article
This section contains no material change from existing law.
Section 7262. Violation of occupational tax laws relating to
wagering -- failure to pay special tax
This section contains no material change from existing law.
Section 7263. Penalties relating to cotton futures
This section contains no material change from existing law.
Section 7264. Offenses relating to renovated or adulterated butter
This section contains no material change from existing law.
Section 7265. Other offenses relating to oleomargarine or
adulterated butter operations
This section contains no material change from existing law.
Section 7266. Offenses relating to filled cheese
This section contains no material change from existing law.
Section 7267. Offenses relating to white phosphorus matches
This section contains no material change from existing law.
Section 7268. Possession with intent to sell in fraud of law or to
evade tax
This section contains no material change from existing law.
Section 7269. Failure to produce records
This section contains no material change from existing law.
Section 7270. Insurance policies
This section contains no material change from existing law.
Section 7271. Penalties for offenses relating to stamps
This section contains no material change from existing law, except
that the penalty provided by this section is $50 for each such offense.
The corresponding provisions of existing law provide various different
amounts, such as $100 in sections 1820 and 1822, $50 to $500 in section
3323(a), etc.
Section 7272. Penalty for failure to register
This section contains no material change from existing law, except
that the penalty in existing law for failure to register as a
manufacturer of white phosphorus matches is reduced from $500 to $50.
Section 7273. Penalties for offenses relating to special taxes
This section ccontains no material change from existing law, except
that the reference to costs of prosecution found in existing law has
been eliminated.
Section 7274. Penalty for offenses relating to white phosphorus
matches
This section contains no material change from existing law.
Section 7301. Property subject to tax
This section contains no material change from existing law.
Section 7302. Property used in violation of internal revenue laws
This section contains no material change from existing law. The
language of the section has been changed slightly in order to make clear
that its provisions have general application under this title.
Section 7303. Other property subject to forfeiture
This section contains no material change from existing law.
Section 7304. Penalty for fraudently claiming drawback
This section contains no material change from existing law.
Section 7321. Authority to seize property subject to forfeiture
This section contains no material change from existing law.
Section 7322. Delivery of seized personal property to United States
marshal
This section contains no material change from existing law.
Section 7323. Judicial action to enforce forfeiture
This section contains no material change from existing law.
Section 7324. Special disposition of perishable goods
This section contains no material change from existing law, except
that it provides that, where bond is not filed, the sale shall be public
sale in such manner as may be prescribed by regulations. Under existing
law, the property must be sold at public auction in the same manner as
goods may be sold on final execution in the district.
Section 7325. Personal property valued at $1,000 or less
This section makes several changes in existing law. The first change
extends the application of the section to property valued at $1,000 or
less, in lieu of the $500 amount provided by section 3724 of the 1939
code. The second change is the provision that the Secretary shall be
regulations prescribe the reasonable compensation to be allowed the
appraisers of the property, instead of the existing provision of law
which states that they shall be allowed the sum of $1.50 a day. This
section also changes existing law to permit the property to be disposed
of by sale upon competitive bids in such manner as may be prescribed by
regulations.
Section 7327. Customs laws applicable
This section contains no material change in existing law.
Section 7328. Confiscation of matches exported
This section contains no material change from existing law.
Section 7341. Penalty for sale to evade tax
This section contains no material change from existing law.
Section 7342. Penalty for refusal to permit entry or examination
This section contains no material change from existing law.
Section 7343. Definition of term "person"
This section continues in one place the provision now found in the
various criminal provisions of the existing Internal Revenue Code.
Section 7344. Extended application of penalties relating to officers
of the Treasury Department
This section contains no material change from existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 76 -- JUDICIAL PROCEEDINGS
Committee on Ways and Means -- Mr. Reed of New York.
Section 7401. Authorization
This section contains no material change from existing law.
Section 7402. Jurisdiction of district courts
This section contains no material change from existing law, except
that subsection (c) is applicable to any officer or employee of the
United States, or persons acting under or by authority of such officer
or employee, acting under the authority of this title. The
corresponding provision of existing law applies only to internal-revenue
officers or persons acting under or by authority of any such officer.
Section 7403. Action to enforce lien or to subject property to
payment of tax
This section contains no material change from existing law, except
for the addition of the express provision in subsection (c) that the
assessment of the tax upon which the lien of the United States is based
shall be conclusively presumed to be valid for purposes of the
adjudication in an action to enforce the lien of the United States or to
subject property of the delinquent taxpayer to the payment of the tax.
Section 7404. Authority to bring civil action for estate taxes
This section contains no material change from existing law.
Section 7405. Action for recovery of erroneous refunds
This section contains no material change from existing law.
Section 7406. Disposition of judgments and moneys recovered
This section contains no material change from existing law.
Section 7421. Prohibition of suits to restrain assessment or
collection
This section contains no material change from existing law, except
that subsection (b) is extended to conform to the extended authority, in
section 6901(a)(2), to assess transferee liability.
Section 7422. Civil actions for refund
Subsections (a) to (d), inclusive, of this section contain no
material change from existing law.
Subsection (e) of this section is a new provision to cover the
situation where there is concurrent jurisdiction in the district court
(or Court of Claims) and in the Tax Court over the same case. This may
arise, for example, where the taxpayer files suit for refund in the
district court and, while the suit is pending, a notice of deficiency is
issued and he appeals that notice to the Tax Court. Under subsection
(e), if the notice of deficiency is issued before the case is heard in
the district court (or Court of Claims), the proceeding must be stayed
for the 90-day period of the notice and for 60 days thereafter. If the
taxpayer appeals to the Tax Court then the district court (or the Court
of Claims) shall lose jurisdiction over the refund. If the taxpayer does
not appeal, the United States may then counterclaim in the taxpayer's
suit, or intervene if this is a suit against the district director, even
though the time for filing such counterclaim or petition for
intervention may have otherwise expired, and upon such counterclaim or
intervention the taxpayer will have the same burden of proof as he would
bear if he had appealed the case to the Tax Court.
The result under subsection (e) is to give jurisdiction over the
cause of action to only 1 court (2 courts may acquire jurisdiction under
existing law), and to give the taxpayer the choice of which court shall
have jurisdiction. The taxpayer, by filing a petition in the Tax Court,
would cause that court to have sole jurisdiction, or, by failing to file
a petition in the Tax Court, would cause the district court or the Court
of Claims to have sole jurisdiction.
Subsection (e) does not apply if the case in the district court or
Court of Claims has already proceeded to a hearing, that is, to actual
trial. On the other hand, it will apply to prevent suit in the district
court or Court of Claims after the receipt of a notice of deficiency in
any case where the taxpayer appeals from that notice to the Tax Court.
Section 7423. Repayments to officers or employees
This section contains no material change from existing law.
Section 7424. Civil action to clear title to property
This section corresponds, with one change, to the provisions of
subsections (a), (c), and (d) of section 3679 of the 1939 code. Existing
law refers only to realty, whereas this section covers both real and
personal property. The provisions of subsection (b) of section 3679 of
the 1939 code, relating to service on the United States, have been
eliminated from this bill as being unnecessary, since title 28 of the
United States Code makes adequate provision for service on the United
States.
Section 7441. Status
This section contains no material change from existing law.
Section 7442. Jurisdiction
This section contains no material change from existing law.
Section 7443. Membership
This section contains no material change from existing law.
Section 7444. Organization
This section contains no material change from existing law.
Section 7445. Offices
This section contains no material change from existing law.
Section 7446. Times and places of meetings
This section contains no material change from existing law.
Section 7447. Retirement
This section contains no material change from existing law.
Section 7451. Fee for filing petition
This section contains no material change from existing law.
Section 7452. Representation of parties
This section provides that the Secretary or his delegate shall be
represented by the Assistant General Counsel of the Treasury Department
serving as Chief Counsel of the Internal Revenue Service, or the
delegate of such Chief Counsel, in the same manner before the Tax Court
as he has heretofore been represented in proceedings before such court.
The section further provides that the taxpayer shall continue to be
represented in accordance with the rules of practice prescribed by the
court; and that no qualified person shall be denied admission to
practice before the Tax Court because of his failure to be a member of
any profession or calling.
Section 7453. Rules of practice, procedure, and evidence
Section 1111 of the 1939 code requires the Tax Court to follow the
rules of evidence applicable in the courts of the District of Columbia
in the type of proceedings which prior to September 16, 1938, were
within the jurisdiction of the courts of equity of the District. This
section modernizes the requirement to provide that the Tax Court shall
follow the rules of evidence applicable in trials without a jury in the
United States District Court of the District of Columbia.
Section 7454. Burden of proof in fraud and transferee cases
This section contains no material change from existing law.
Section 7455. Service of process
This section contains no material change from existing law.
Section 7456. Administration of oaths and procurement of testimony
Subsections (a) and (c) of this section contain no material change
from existing law, except that subsection (a) permits a subpoena to be
signed by the clerk of the Tax Court whereas existing law requires that
it be signed by a judge of the Tax Court.
Subsection (b) of this section is a new provision relating to the
production of records in the case of foreign corporations, of foreign
trusts or estates, and of nonresident alien individuals. It provides
that if the Tax Court requires any petitioner which is a foreign
corporation, foreign trust or estate, or nonresident alien individual,
to produce in court any books or records which are relevant to the
issues in the case, and which are in the possession or control of the
petitioner or of any parent or subsidiary corporation or any other
entity controlled by or controlling the petitioner, and if the required
books or records are not produced or made available for inspection or
copying, within a reasonable time, the Tax Court shall upon motion
strike out the pleadings or parts thereof, or dismiss the proceedings or
a part thereof, or render a judgment by default.
Section 7457. Witness fees
This section contains no material change from existing law.
Section 7458. Hearings
This section contains no material change from existing law.
Section 7459. Reports and decisions
This section contains no material change from existing law.
Section 7460. Provisions of special application to divisions
This section contains no material change from existing law.
Section 7461. Publicity of proceedings
This section contains no material change from existing law.
Section 7462. Publication of reports
This section contains no material change from existing law.
Section 7471. Employees
This section contains no material change from existing law.
Section 7472. Expenditures
This section differs from existing law only by providing that
vouchers for expenditures by the court shall be signed by the certifying
officer designated by the chief judge. Existing law requires the chief
judge to sign such vouchers.
Section 7473. Disposition of fees
This section contains no material change from existing law.
Section 7474. Fee for transcript of record
This section contains no material change from existing law.
Section 7481. Date when Tax Court decision becomes final
This section contains no material change from existing law.
Section 7482. Courts of review
This section contains no material change from existing law.
Section 7483. Petition for review
This section changes existing law by providing, in case on party to
the proceeding files a petition for review that the adverse party is
given 1 additional month to file his petition for review.
Section 7484. Change of incumbent in office
This section contains no material change from existing law.
Section 7485. Bond to stay assessment and collection
This section contains no material change from existing law.
Section 7486. Refund, credit, or abatement of amounts disallowed
This section contains no material change from existing law.
Section 7491. Burden of proof of exemptions in the case of marihuana
offenses
This section contains no material changes from existing law.
Section 7492. Enforceability of cotton futures contracts
This section contains no material changes from existing law.
Section 7493. Immunity of witnesses in cases relating to cotton
futures
This section contains no material changes from existing law.
Section 7494. Venue in criminal prosecutions
This section, relating to venue in criminal prosecutions, will apply
in cases where the taxpayer resides in one judicial district while the
internal revenue office where he is required to file his return, pay his
taxx, supply information, etc., is located in another judicial district.
In such case, the taxpayer may use the United States mail to send the
payyment, return, or other document to the internal-revenue office, and,
if he deposits the matter in the United States mail in the judicial
district of his residence, that act will have the same consequence for
purpose of determining the venue as the payment of the tax or filing of
the return or other document in an internal revenue office. Similarly,
the venue is determined as if any failure to do such act, or any
concealmment of property, or withholding, falsifying, or destroying
records, occurred in the judicial district of his residence.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 77 -- MISCELLANEOUS PROVISIONS
Committee on Ways and Means -- Mr. Reed of New York.
Section 7501. Liability for taxes withheld or collected
This section contains no material change from existing law.
Section 7502. Timely mailing treated as timely filing
This new section applies in the case where documents (other than
returns) are mailed to the proper office within the time prescribed by
the internal-revenue laws, as indicated by the postmark on the envelope,
and are received by that office after such time has expired. In such
case, the document is deemed timely filed.
Since it is possible to predate postmarks where mailing machines or
other devices are used, subsection (b) provides that a postmark not made
by the United States post office shall be deemed the date of delivery
only to the extent permitted by regulations. If the document is sent by
registered mail rather than ordinary mail, the registration before the
due date is prima facie evidence that the document was delivered to the
proper officer, and the date of registration is deemed the date of
mailing.
This section does not apply to the filing of a document in any court
other than the Tax Court.
Section 7503. Time for performance of acts where last day falls on
Saturday, Sunday, or legal holiday
This section provides that if any act required under the internal
revenue laws is required to be performed on a Saturday, Sunday, or legal
holiday, the performance of the act on the next succeeding workday will
be deemed timely. It defines a legal holiday as meaning not only a
legal holiday in the District of Columbia but also, in the case of any
document required to be filed or any other act required to be performed
at any office of the United States located outside the District of
Columbia, but within an internal revenue district, a legal holiday at
the place where such office is located.
Section 7504. Fractional parts of a dollar
This section permits the Secretary to round to the nearest dollar any
assessment of a deficiency or underpayment, and similarly to round to
the nearest dollar any amount he allows as a credit or refund.
Section 7505. Sale of personal property purchased by the United
States
This section, which corresponds to section 3695(b) and (c) of the
1939 code, changes existing law to eliminate the concept that sale of
personal property previously purchased by the United States must be made
within the district where the original levy was made.
Section 7506. Administration of real estate acquired by the United
States
This section contains no material change from existing law.
Section 7507. Exemption of insolvent banks from tax
This section contains no material change from existing law.
Section 7508. Time for performing certain acts postponed by reason
of war
This section contain no material change from existing law. It
continues in the law those provisions of section 3804 of the 1939 code
which are made necessary by reason of the continued application of
subsection (f) of that section.
Section 7509. Expenditures incurred by the Post Office Department
This section contains no material change from existing law.
Section 7510. Exemption from tax of domestic goods purchased for the
United States
This section contains no material change from existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 78 -- DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE
Committee on Ways and Means -- Mr. Reed of New York.
Section 7601. Canvass of districts for taxable persons and objects
This section contains no material change from existing law.
Section 7602. Examination of books and witnesses
This section contains no material change from existing law.
Section 7603. Service of summons
This section contains no material change from existing law.
Section 7604. Enforcement of summons
This section contains no material change from existing law, except
that it refers to the district in which the person summoned "resides or
is found," whereas existing law refers only to the district in which he
"resides."
Section 7605. Time and place of examination
This section gives the Secretary authority to fix such time and place
for the examination as are reasonable under the circumstances, but when
appearance and production of books and records under summons is
required, the date fixed for appearance may not be less than 10 days
after the issuance of such summons. This provision supersedes the
provision in section 3615(d) of the 1939 code which provides that when a
summons is served the person summoned must be allowed 1 day for each 25
miles he may be required to travel, computed from the place of service
to the place of examination.
Section 7606. Entry of premises for examination of taxable objects
This section contains no material change from existing law.
Section 7621. Internal revenue districts
This section corresponds to section 3650 of the 1939 code, but the
special provisions of existing law which relate to the Territory of
Hawaii and which further provide that States may be subdivided or may be
united into 1 district (but 1 district cannot include part of 2
different States) have been eliminated as unnecessary detail for the
reason that internal revenue districts now are merely established for
internal administrative convenience.
Section 7622. Authority to administer oaths and certify
This section contains no material change from existing law.
Section 7623. Expenses of detection and punishment of frauds
This section contains no material change from existing law.
Section 7641. Supervision of operations of certain manufacturers
This section contains no material change from existing law.
Section 7651. Administration and collection of taxes in possessions
This section covers the following two matters:
(a) Paragraph (1) extends the collection authority and powers of the
Internal Revenue Service to possessions of the United States so that if
a delinquent taxpayer should remove himself or his property to a
possession of the United States the Internal Revenue Service will have
the same authority and power (such as the right to collect by levy and
sale) to collect the tax from him or to reach his property, in the
possession as it would have within the United States. (It may be noted
that two possessions of the United States are now included within
internal revenue districts; namely, Puerto Rico and the Virgin Islands,
as is the Canal Zone.)
(b) Paragraph (2) corresponds to section 3811 of the 1939 code in the
case of Puerto Rico and the Virgin Islands with respect to
self-employment taxes and social security taxes. Paragraph (2) provides
that if the tax is imposed within a possession (as distinguished from
the case described in paragraph (1) of the section where the tax
liability arises within the United States but the taxpayer or his
property is within the possession), such tax shall be collected by the
Secretary and paid into the Treasury of the United States as internal
revenue collections, and all laws applicable to the administration,
collection, and enforcement of such tax within the United States shall
also be applicable in the possession. This paragraph differs from
section 3811 in that it provides a uniform rule applicable to any
possession and to any tax which may be imposed by the Internal Revenue
Code in the particular possession.
Section 7652. Shipments to the United States
This section corresponds to sections 3350 and 3360 of the 1939 code.
The only material change from existing law has been the expression of
the rules in such terms that they will be applicable if the taxes
involved are collected by methods other than stamps, for example, by
return.
Section 7653. Shipments from the United States
This section contains no material change from existing law.
Section 7654. Payment to Guam and American Samoa of proceeds of tax
on coconut and palm oil
This section contains no material change from existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 79 -- DEFINITIONS
Committee on Ways and Means -- Mr. Reed of New York.
Section 7701. Definitions
Section 7701 corresponds to section 3797 of the 1939 code. However,
several new definitions have been added in this section.
Paragraph (12) of this section defines the term "Secretary or his
delegate" to include any officer, employee, or agency duly authorized by
the Secretary to perform any function mentioned or described in the
context, whether authorized directly or indirectly by one or more
redelegations of authority. The term "or his delegate" when used in
connection with any other official of the United States is to be
similarly construed.
Paragraph (15) of section 3797 of the 1939 code is an obsolete
definition of "military or naval forces of the United States." More
recent legislation has used the term "armed forces of the United
States." Accordingly, paragraph (15) of section 7701 treats the terms as
being identical. The definition in paragraph (15) corresponds to the
definition now included in section 39.3797-11 of Internal Revenue
Regulations 118 (the income tax regulations). Briefly stated, the term
will include all of the uniformed forces of the Departments of Army,
Navy, and Air Force, and will also include the Coast Guard.
Paragraph (21) of this section is new. It defines the term "levy" to
include the power of distraint and seizure by any means.
Paragraph (22) defines the term "Attorney General" to mean the
Attorney General of the United States.
Paragraphs (23), (24), (25), and (26) of this section define the
terms "taxable year," "fiscal year," "paid or incurred" and "paid or
accrued," and "trade or business." These definitions correspond to the
definitions in section 48 of the 1939 code.
Paragraph (27) defines the term "Tax Court" to mean the Tax Court of
the United States.
Paragraph (28) of this section relates to the use in this subtitle of
terms defined in other subtitles. Many parts of subtitle F use, in a
technical sense, terms defined in the basic subtitle levying the tax to
which the administrative provisions relate. For example, the provisions
prescribing the standards and requirements for the filing of returns
will, in the case of the income tax, use a term defined in subtitle A,
such as "gross income," and in the case of the estate tax return will
use a term defined in subtitle B, namely, "gross estate." In order to
make certain that the terms in this subtitle will be given the same
meaning as in the subtitle imposing the tax, paragraph (28) provides
that any term used in this subtitle with respect to the application of,
or in connection with, the provisions of any other subtitle of this
title shall have the same meaning as in such provisions.
Paragraph (29) defines the term "Internal Revenue Code of 1954" to
mean the code enacted by this bill, and defines the term "Internal
Revenue Code of 1939" to mean the code, which has been in effect from
1939 until superseded by the code enacted by this bill.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE F -- PROCEDURE AND ADMINISTRATION
CHAPTER 80 -- APPLICATION OF INTERNAL REVENUE LAWS
Committee on Ways and Means -- Mr. Reed of New York.
Section 7801. Authority of Department of the Treasury
This section deals with the authority of the Department of the
Treasury. Subsection (a), consistent with Reorganization Plans No. 26
of 1950 and No. 1 of 1952, provides that, except as otherwise expressly
provided by law, the administration and enforcement of this title shall
be performed by or under the supervision of the Secretary of the
Treasury.
Subsection (b) provides that there shall be a General Counsel for the
Department to be appointed by the President with the approval of the
Senate. The General Counsel shall be the chief law officer of the
Department and shall perform such duties as may be prescribed by the
Secretary. The subsection further provides that the Secretary may
appoint, and fix the duties of, an Assistant General Counsel to serve as
Chief Counsel of the Internal Revenue Service, and not to exceed five
other Assistant General Counsels. All the Assistant General Counsels
shall be appointed without regard to the civil-service laws. The
Secretary is also authorized to appoint and fix the duties of such other
attorneys as he deems necessary.
Subsection (c) corresponds to section 3932 of the 1939 code, relating
to the functions of the Department of Justice.
Section 7802. Commissioner of Internal Revenue
This section, which corresponds to section 3900 of the 1939 code,
provides for the appointment of the Commissioner who shall have such
duties as may be prescribed by the Secretary. This is existing law by
virtue of Reorganization Plans No. 26 of 1950 and No. 1 of 1952.
Provisions of section 3901 of the 1939 code have been eliminated from
this bill since under the reorganization plans all powers and duties of
the Commissioner and other internal revenue officers and employees have
been placed in the Secretary, subject to his power of delegation.
Section 7803. Other personnel
Subsections (a), (b), and (d) of this section contain no material
changes from existing law.
Subsection (c) of this section changes existing law by authorizing
the Secretary to purchase blanket or schedule bonds and to pay, from the
appropriation for administrative expenses of the Internal Revenue
Service, the premium of any such bonds or of any bonds required from
officers or employees of the Internal Revenue Service.
Section 7804. Effect of Reorganization Plans
Subsection (a) of this section corresponds to section 616 of the
Revenue Act of 1951. It is designed to preserve the Reorganization
Plans (No. 26 of 1950 and No. 1 of 1952). This section provides that
all functions vested by this title in any officer or employee or agency
of the Department of the Treasury shall be subject to the plans. One
important difference between this subsection and section 616 of the
Revenue Act of 1951 is that this subsection provides that the
Reorganization Plans will also apply to any act amending this title,
unless such amending act expressly provides to the contrary.
Subsection (b) of this section, which corresponds to the provisions
of section 3 of Public Law 567, 82d Congress, contains no material
change from existing law.
Section 7805. Rules and regulations
This section contains no material change from existing law.
Section 7806. Construction of title
Subsection (a) of this section corresponds to section 2 of the 1939
code.
Subsection (b) of this section corresponds to provisions which were
included in the enacting clause of the Internal Revenue Code of 1939.
These provisions are to the effect that no inference shall be drawn from
the arrangement and classification of the provisions in the code, or
from the side notes and ancillary tables contained in the various prints
of this act before its enactment into law.
Section 7807. Rules in effect upon enactment of this title
Subsection (a) of this section is an interim provision for
administration of the title until regulations are promulgated under any
provision of this title which depends for its application upon the
promulgation of regulations (or which is to be applied in such manner as
may be prescribed by regulations). Under subsection (a) the present
rules or regulations of the Internal Revenue Service are to be given
effect until the necessary regulations are promulgated. For example,
this subtitle requires property seized by levy to be sold in accordance
with regulations. Until such regulations are issued, the sale shall be
made under existing rules (whether or not published) of the Internal
Revenue Service which would be valid if issued under this title. Thus,
if the time and method for making the sale are covered by instructions
issued to district directors which would be valid under this title if
issued as regulations thereunder, such rules shall continue to apply
until appropriate regulations are issued.
Subsection (b) of this section is designed to preserve the effect
under this title of any election or other act (authorized under this
title) which was in fact made under the corresponding provisions of
prior law. It also provides the applicable rule for those cases where
the provisions of this title refer to the application of this title to
prior periods which were subject to the 1939 code rather than to this
new code. Briefly stated, subsection (b) is designed to handle the
problem of transition from the 1939 code to the 1954 code by providing,
in effect, that the 1954 code shall be applied (insofar as it depends
upon the application of the law to a prior period) as if the new code
were a conntinuation of the 1939 code with the changes in law
incorporated in the new code having been made by amendment (with the
same effective date as the date such change is effective under the 1954
code) to the appropriate sections of the 1939 code.
Sec. 7808. Depositaries for collection
This section contains no material change from existing law.
Sec. 7809. Deposit of collections
This section contains no material change from existing law.
Section 7851. Applicability of revenue laws
Subsection (a) of this section provides effective dates for the
application of the 1954 code and for the repeal of the provisions of the
1939 code. Briefly stated, this subsection provides that the 1954 code
will apply (and the corresponding provisions of the 1939 code are
repealed):
(1) In the case of the income tax, with respect to taxable years
beginning after 1953 (except any short taxable year which does not end
after the date of enactment of the 1954 code);
(2) In the case of the estate tax, with respect to estates of
decedents dying after the date of enactment of this bill; and
(3) In the case of gift taxes, employment taxes, excise taxes, and
alcohol and tobacco taxes, on January 1, 1955.
Paragraph (1) of subsection (a) provides that chapters 1, 2, 4, and 6
of the 1954 code shall apply only with respect to taxable years
beginning after 1953 and ending after the date of enactment of the 1954
code. These chapters relate to normal taxes and surtaxes on income, the
tax on self-employment income, the recovery of excessive profits on
government contracts, and consolidated returns. With respect to taxable
years beginning before 1954, and short taxable years beginning after
1953 and not ending after the date of enactment of the 1954 code,
chapter 1 (except secs. 143 and 144, relating to withholding), chapter
2, and section 3801, of the 1939 code are continued in force. It may be
noted that the provisions of chapter 1, which will apply to taxable
years to which the 1954 code is not applicable, include many
administrative provisions which will remain in effect with respect to
such taxable years, such as the provisions for filing returns, the
provisions with respect to periods of limitation, the provisions with
respect so the determination of deficiencies, the provisions for
additions to the tax in case of delinquency in filing the return, or
negligence or fraud, the provisions for interest on deficiencies, etc.
The provisions of subtitle A of the 1954 code relating to withholding
tax, namely, chapter 3, are made applicable to payments made after the
date of enactment of the 1954 code. The corresponding provisions of
sections 143 and 144 of the 1939 code will remain in effect with respect
to payments made on or before the date of enactment of the 1954 code.
Since return and payment of such taxes are made on a calendar-year
basis, it is contemplated that the taxes for 1954 collected by the
withholding agent under the 1939 code and under the 1954 code may be
reported on the same return required to be filed in 1955. The
provisions of chapter 5 of the 1954 code, relating to transfers to avoid
income tax, will become applicable to transfers made after the date of
enactment of the 1954 code, and the corresponding provision of the 1939
code (ch. 7 thereof) will remain in effect with respect to transfers
made prior to the date on whcih such chapter 5 becomes applicable.
Subparagraph (C) provides that any provision of subtitle A (income
taxes) which contains a provision stating its applicability in terms of
a specific date (occurring after December 31, 1953) or in terms of the
taxable year ending after a specific date (occurring after December 31,
1953), shall apply to taxable years ending after such date. These
provisions are, in the case of taxable years subject to the 1939 code,
to be considered a part of that code, but are to be applicable only to
taxable years ending after the specific date. For example, section 116
of the 1954 code (partial exclusions of dividends received by
individuals) will apply to a fiscal year individual whose fiscal year
ends September 30, 1954, even though such taxable year began before
January 1, 1954, and is therefore subject to the 1939 code.
Paragraph (2) contains the general rule for applicability of subtitle
B (estate and gift tax). Subparagraph (A) provides that chapter 11
(estate tax) shall apply only to estates of decedents dying after the
date of the enactment of the 1954 code, and with respect to such estates
chapter 3 of the 1939 code is repealed. The tax on estates of decedents
dying on or before the date of enaactment of the 1954 code will be
determined under chapter 3 of the 1939 code.
Subparagraph (B) provides that chapter 12 (gift tax) shall apply with
respect to calendar years 1955 and after, and with respect to those
years chapter 4 (gift tax) of the 1939 code is repealed. The tax on
gifts made on or before December 31, 1954, will be governed by the 1939
code.
As in the case of the income tax, the estates subject to the estate
tax imposed by the 1939 code, and the calendar years subject to the gift
tax imposed by that code, will also continue to be subject to the
administrative provisions contained in chapters 3 and 4 of such code,
which chapters are continued in effect with respect to such estates and
such calendar years. Thus, the requirements for the filing of returns
the provisions relating to deficiencies, additions to the tax, interest,
periods of limitation, etc., provided in such chapters 3 and 4 remain in
effect with respect to the taxes to which such chapters are applicable.
Paragraph (3) contains the general rule for applicability of subtitle
C (employment taxes). This subtitle applies only with respect to
remuneration paid after December 31, 1954, except for chapter 22
(Railroad Retirement Tax Act) which shall apply with respect to
remuneration paid after December 31, 1954, for services rendered after
that date. Chapter 9 (employment taxes) of the 1939 code is repealed
with respect to remuneration paid after December 31, 1954, except that
subchapter B (which corresponds to ch. 22 of the 1954 code), and
subchapter E (administrative provisions) to the extent that it relates
to subchapter B will remain applicable with respect to remuneration paid
after December 31, 1954, for services performed on or before that date.
In the case of payments of remuneration to which chapter 9 applies, the
provisions of the 1939 code with respect to the requirements for
collecting and paying over the tax, filing returns, interest, additions
to the tax, and periods of limitation remain applicable. Many of these
provisions are included in chapter 9, which chapter remains in effect
with respect to such remuneration, and other such provisions are
included in chapter 28 and subtitle D of the Internal Revenue Code of
1939. Under paragraph (6) of subsection (a), discussed below, these
provisions of chapter 28 and subtitle D of the 1939 code are continued
in effect with respect to taxes subject to chapter 9 to the same extent
that chapter 9 remains in effect.
Paragraphs (4) and (5) of subsection (a) provide that subtitle D
(relating to miscellaneous excise taxes) and subtitle E (relating to
alcohol, tobacco, and certain other excise taxes) shall apply on and
after January 1, 1955. These paragraphs also provide that subtitles B
and C (except chapters 7, 9, and 28 thereof) of the 1939 code are
repealed effective January 1, 1955. These subtitles of the 1939 code
relate to excise taxes, including alcohol and tobacco taxes. Thus,
excise taxes (including alcohol and tobacco taxes) will be imposed under
the 1939 code until January 1, 1955, and on and after that date they
will be imposed under the 1954 code. As in the case of other taxes, the
administrative provisions of the 1939 code (other than those
specifically made inapplicable after the date of enactment of the 1954
code by paragraph (6) of subsection (a), which is discussed below) will
continue to apply to the taxes and other liabilities imposed under the
1939 code. The requirements with respect to stamps, and the
requirements for the filing of returns, the provisions relating to
deficiencies, additions to the tax, interest, periods of limitation,
etc., provided in the 1939 code will remain in effect with respect to
these excise taxes (including alcohol and tobacco taxes) imposed under
the 1939 code. Although the special occupational tax is paid for
engaging in business during the special tax year beginning July 1 and
ending June 30, the fact that the 1954 code becomes applicable on
January 1 will not interrupt the running of the special tax year so as
to require an additional payment of tax on Janauary 1 solely by reason
of the reenactment in the new code of the same special tax provisions
which are now included in the 1939 code. See section 7807(b)(2),
discussed above.
Paragraph (6) of subsection (a) provides that subtitle F of the 1954
code, relating to procedures and administration, will apply on and after
the day after the enactment of such code to the taxes imposed by the
1954 code. When it becomes applicable as to those taxes, it will be
fully applicable regardless of whether its provisions relate to an event
prior or subsequent to the date on which it becomes applicable. Thus,
for example, the requirement in section 6011 that an income-tax return
be filed for the taxable year if the gross income is $600 or more is
applicable to a taxpayer on the calendar-year basis for the calendar
year 1954, even though he may have received the gross income prior to
the date of enactment of the 1954 code. Although, as indicated above,
many of the administrative provisions of the 1939 code will remain
applicable to the taxes imposed under that code, such as provisions
relating to the requirement for filing returns, additions to the tax,
interest, periods of limitation, etc., paragraph (6) of subsection (a)
specifically makes applicable to such taxes certain of the general
administrative provisions of the 1954 code. These provisions will apply
notwithstanding any contrary provisions of the 1939 code, and therefore
supersede such contrary provisions. The provisions of the 1954 code
which apply to the taxes imposed by the 1939 code are the type which are
not closely related to a particular tax but involve the general
administration of the revenue. For example, after the date of enactment
an assessment of taxes imposed by the 1939 code will be made in the same
manner as an assessment of taxes imposed by the 1954 code. Similarly,
after such date, the provisions of the 1954 code relating to levy and
sale will apply to the collection of taxes imposed by both codes.
Chapter 75 of the 1954 code related to crimes and other offenses which
are punished by proceedings in court. Under paragraph (6) of subsection
(a), this chapter will become applicable, on the day after the date of
enactment of the 1954 code, to offenses therein described committed
after the date of enactment, with respect to taxes under the 1939 code.
If the criminal or civil penalties (collectible by suit) provided in
chapter 75 relate to an offense (committed after the date of enactment
of the 1954 code) with respect to a tax imposed by the 1939 code, any
criminal penalties or civil penalties (collectible by suit) under the
1939 code will not apply, but the penalties under chapter 75 will be the
only penalties of such nature applicable to the offense. Among other
provisions of the 1954 code which will become applicable to taxes
imposed by the 1939 code are the definitions in chapter 79. These
definitions will supersede the definitions in section 3797 of the 1939
code. They, of course, do not supersede any specific definition
included in provisions of a chapter of the 1939 code imposing a tax
under that code.
Paragraph (7) provides that any provision not otherwise provided for
will take effect on the day after enactment of the 1954 code. It also
provides for the repeal of those provisions of the 1939 code not
otherwise provided for, effective on the day after enactment of the 1954
code.
Subsection (b) provides that the repeal of any provision of the 1939
code will not affect acts done or rights accrued or accruing or any suit
or proceeding had or commenced before the repeal, but all rights and
liabilities under the 1939 code will continue and may be enforced as if
the repeal had not been made. For example, the liability for any tax
imposed by the 1939 code prior to its repeal will continue until paid
notwithstanding such repeal. All offices, positions, appointments,
employments, boards or committees authorized by the 1954 code shall not
be abolished by repeal of the provisions of the 1939 code, but shall
continue under the pertinent provisions of the 1954 code.
Subsection (c) provides that offenses committed and penalties or
forfeitures incurred under the provisions of the 1939 code which are
repealed may be prosecuted and punished with the same effect as if the
1954 code had not been enacted.
Subsection (d) provides that all periods of limitation, both civil
and criminal, which are repealed shall continue to apply to all suits,
proceedings, or prosecutions, whether civil or criminal, for causes
arising or acts done or committed before such repeal, as if the 1954
code had not been enacted.
Subsection (e) provides that, for the purpose of applying the 1939
code or the 1954 code to any period, a reference in either the 1939 code
or the 1954 code to a provision of either such code which is not then
applicable shall be deemed a reference to the corresponding provision of
the other code.
Section 7852. Other applicable rules
Subsection (a) provides for the separability of any provision of this
title which is held invalid as to any person or circumstance. Subsection
(b) provides that references in other laws of the United States to any
provision of the Internal Revenue Code of 1939 shall, when appropriate,
be deemed references to the corresponding provision this title unless
otherwise expressed. Subsection (c) prevents a double deduction of, or
a double inclusion in income of, the same item for income tax purposes
under chapter 1 or 2 of the 1939 code and subtitle A of this title
unless specifically provided for. For example, if in 1954 a taxpayer on
the calendar year basis takes a deduction for an embezzlement loss
discovered in that year, the same loss may not be deducted for any prior
year under the 1939 Code, without regard to when the embezzlement
occurred. Subsection (d) provides that no section of this title shall
apply in abrogation of any treaty obligation of the United States.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
SUBTITLE G -- THE JOINT COMMITTEE ON INTERNAL REVENUE TAXATION
Committee on Ways and Means -- Mr. Reed of New York.
This subtitle contains no change from existing law.
HRP
H.R. 8300
1337
83D Congress, 2d Session
March 9, 1954 (540309)
House Report of the Committee on Ways and Means to Accompany H.R.
8300. A Bill to Revise the Internal Revenue Laws of the United States.
Detailed Discussion of the Technical Provisions of the Bill
MINORITY VIEWS
Committee on Ways and Means -- Mr. Reed of New York.
GENERAL STATEMENT
This bill embodies a much-needed revision of the tax laws. Much
obsolete language has been deleted; provisions have been rearranged for
clarity and ease of use, and much simplification has been made. To this
extent, the bill is very commendable.
The bill embodies far more than administrative and technical changes
in our tax laws, however. Many substantive changes have been made, and
in some instances these changes amount to a basic change in tax
philosophy.
Under the guise of removing obsolete language and inequitable
provisions from present tax laws, the bill reduces taxes substantially
for businesses, primarily corporations, and a few selected groups of
individual taxpayers. This makes it much more than a simple reform of
tax laws.
The revenue loss from the tax reductions made is estimated to be
$1.397 billion in the fiscal year 1955, and when fully operative, the
loss may run between $3.5 and $4 billion. The bill does continue for 1
year only the corporate tax at the present 52-percent rate. This would
bring in $1.2 billion for the fiscal year 1955. These amounts have
already been included in the President's budget.
It is our opinion that the revenue loss estimates in many instances
are far too conservative. For example, it was estimated in 1948 that
the elimination of life-insurance proceeds from a decedent's estate
where he paid premiums on the life-insurance policy would eventually
cost $100 million a year. The estimate given us on this same change in
the present bill is $25 million for fiscal year 1955, and no further
estimate of loss is made.
We would like to point out that the estimates for the fiscal year
1955 do not reflect the revenue losses of the reductions when the
provisions are fully operative.
We would also like to point out that the revenue gain from continuing
the corporate rate at 52 percent $1.2 billion, is offset by $619 million
in reductions for corporations who are fortunate enough to come within
some of the reduction provisions. Examples of this are corporations
that have net operating losses to carry back, or in which capital
investment and replacement is high. Many corporations will get no
benefit whatever from these provisions, as they would, for instance,
from an across-the-board reduction in corporate rates. This would be
the fair way to reduce corporate taxes when the revenues permit.
The majority party repeatedly promised during the last campaign not
only to reduce taxes but also to balance the budget. In the face of a
$3 billion deficit in the current fiscal year, they have endorsed the
reductions in this bill. The Republicans are in control of the
administration and the Congress, and it is their decision to engage in
deficit financing.
The tax reductions indulged in by the majority in this bill show a
singular purpose to benefit a small minority of taxpayers at the expense
of a substantial revenue loss, to the almost complete exclusion of the
average taxpayer. The bill exhumes the "trickle-down" theory of
taxation of Alexander Hamilton and, more recently, Andrew Mellon. It
was this theory which contributed greatly to the economic chaos of the
1930's. Under it, the philosophy is that if economic advantage is given
to those taxpayers at the top, the rest of the people will eventually
receive, through a "trickle down," some undefined and unknown economic
advantage.
The long-awaited and long-promised tax relief which the Republicans
have held out to the people generally is not to be found in this bill.
Attempts are being made to hoodwink the public by talking about the
great relief which is being given the average taxpayer and the average
family. We defy anyone to find such relief in this bill. It is nothing
more than an insult to the intelligence of the average person to claim
that he is being benefited by it. The average taxpayers that are
benefited are literally few and far between, and the relief provided in
these few scattered instances is negligible.
TAX REDUCTIONS CONTAINED IN THE BILL
It is claimed that more than half of the relief provided goes to the
average taxpayer. The majority party also takes credit for letting the
automatic Democratic reductions in individual income taxes take place as
scheduled on December 31 of last year.
We would like to point out also that, after a 6-month extension last
year, the excess-profits tax on corporations expired on December 31,
1953. The reduction in individual income taxes amounted to $3 billion
in revenues, and the expiration of the excess-profits tax amounted to a
reduction of $2 billion in revenues.
The only reductions in the bill which we consider as even possibly
benefiting the average wage or salary earner are two: First, the
allowance of deductions for interest charges on installment contracts,
amounting to $10 million; and second, liberalized deductions for
medical and dental expenses, amounting to $80 million. Even in these
cases, the average wage or salary earner would get no benefit unless he
is purchasing an item under an installment contract and his interest
charges are not broken down, or, in the case of medical and dental
expenses, such expenses exceed 3 percent of his adjusted gross income
and he has deductible expenses for these and other items -- such as
interest, charitable contributions, etc. -- amounting to more than 10
percent of his income. Otherwise, such a person would still take the
standard deduction of 10 percent.
A list of the persons who it is claimed will benefit as average
taxpayers under this bill indicates that they are exceptional, rather
than average.
Tax reductions for fiscal year 1955 only 1
Individuals:
Wage and salary earners: Millions
Interest charge on installment contracts $10
Liberalized medical expense deductions 80 $90
Selected categories:
New rule for taxation of annuities 10
Exclusion of $1,200 of retirement income 125
Child care expense deduction 40
New definition and treatment of dependents 85
Heads of families 50 310
Businessmen and farmers:
Depreciation 75
Soil and water conservation expense deduction 10 85
Exceptional categories:
Increased exemption for certain trusts 3
Exemption of life insurance from estate tax where
premiums paid by decedent 25
Dividend exclusion and tax credit 240
Increased charitable deductions 25 293
1 All estimates made by the staff of the Joint Committee on Internal
Revenue Taxation.
Not only can it be seen that the tax relief in the above table is
small, but it can also be seen, upon analysis of the provisions, that
relatively few individuals will benefit. For instance allowing full
income splitting to heads of families will be of no benefit to persons
whose incomes are under $5,000. The deduction for child-care expenses
is limited to widows, widowers, legally separated or divorced persons,
and wives whose husbands are disabled. The deduction, where allowable,
is only $600 a year, or $11.54 a week.
Under "Exceptional categories" in the preceding table, only
well-to-do taxpayers will be benefited, and the tax reductions in these
provisions, when fully operative, are considerably greater than those
for all other individuals put together. The exclusion of life-insurance
proceeds from estates of decedents will benefit only those persons who
leave an estate of $60,000 or over, since there is an estate tax
exemption of $60,000. The exclusion of $100 of dividends from income,
and a credit against tax of 10 percent of the remaining amount, alone,
will result in tax reductions for stockholders, in a full year of
operation, of $814 million.
Corporations would receive tax reductions of about $619 million in
fiscal year 1955, as follows:
Tax reductions for fiscal year 1955 only Millions
Corporations: of dollars
Depreciation 300
Net operating loss deduction 100
Percentage depletion 27
Accounting provisions 45
Treatment of foreign income 147
Total 619
Liberalized deductions for depreciation for corporations and others,
assuming a continuation of present tax rates and rates of investment,
and ignoring the incentive factor, will mean a revenue loss of $22
billion by 1960. These assumptions may not be entirely correct, but
nevertheless a substantial amount of revenue is involved in this
provision for years to come.
The net result of the tax reductions provided in this bill is a mere
pittance of relief to the average taxpayer and substantial relief to
larger businesses and wealthier individual taxpayers.
Increased income as a result of tax savings to businesses can be much
more advantageous than increased gross income. For example, it normally
takes about $10,000 in gross sales to yield as much net profit as a $560
saving in taxes. This is based on the assumption that a business has a
net profit, after taxes, of 5.6 percent on each dollar of sales. A
dollar saving in taxes would be worth about 20 times more than a dollar
earned in sales.
THE BILL PROVIDES THE WRONG KIND OF TAX RELIEF
With a decline in economic activity being an acknowledged fact, the
responsibility for choosing incentives to bolster our economy at this
time is great. The President has admitted that if this decline
continues through the month of March, corrective measures will have to
be taken.
In face of this acknowledged fact, the tax legislation which the
President proposed to Congress and which the majority party has endorsed
in this bill is concentrated on measures which will bring about an
expansion in investment in plant and equipment.
The Secretary of the Treasury emphasized this philosophy when he
stated:
Production is the goose that lays the golden egg.
We share with the majority their desire to offer incentives to
businesses to offset the continued decline in the economy, but it is our
contention that the most effective way to do this is not through tax
reductions for corporations and investors, but tax reductions which will
immediately increase purchasing power in the hands of consumers. The
majority would resurrect the "trickle down" theory of taxation and
discard the present philosophy of taxation, which is that the prosperity
of the country depends not only on the prosperity of larger businesses
and investors, but also on the prosperity of wage and salary earners and
farmers -- the mass of consumers.
It is our contention that the main cause for the decline in economic
activity at the present time is due primarily to a decrease in
consumption of goods, rather than a lack of capacity to produce goods.
The steel industry is operating at only 74 percent of its capacity.
Automobile manufacturers are on a part-time basis, and the
farm-implement industry has been particularly hard hit by a decline in
farm prices and income. Many other instances could be cited in which
there has been a decline.
The Republican administration having decided that tax reductions can
be made logic and the economic evidence at hand dictate that they should
be made in such a way as to spur purchases by consumers in order to sell
what is already being produced, or is capable of being produced. With
all kinds of incentives offered them, businesses will not expand where
they have no markets.
AN INCREASE IN INCOME-TAX EXEMPTIONS IS URGENT
Having in mind the continued prosperity of the Nation, we believe
that the most justifiable tax relief which can be provided at this time
is an increase in individual-income-tax exemptions. We tried
unsuccessfully in committee to provide a $100 increase, but we were
defeated by the solid opposition of all 15 Republicans on the committee.
It is evident that there is immediate need to bolster the economy of
the country, and an increase of at least $100 in individual income-tax
exemptions is a direct and effective way of doing this.
An increase in exemptions by $100 would not only remove 7 million
taxpayers completely from the tax rolls, but would also increase
purchasing power in the hands of consumers by $2.3 billion a year. No
tax reduction bill should be passed by Congress which does not increase
exemptions by at least $100.
The following table shows the effect of an increase in individual
income-tax exemptions from $600 to $700, on selected categories of
taxpayers:
Comparison of the individual income-tax liabilities under present law
rates and exemptions and under $700 per capita exemptions
(Prepared by the staff of the Joint Committee on Internal Revenue
Taxation, Mar. 8, 1954) SINGLE PERSON, NO DEPENDENTS
Amount of Tax Tax decrease
Net income (after Present law $700 per
deductions but capita Amount Percent
before exemptions) exemption
$ 700 $ 20 --- $ 20 100.0
1,000 80 $ 60 20 25.0
2,000 280 260 20 7.1
3,000 488 466 22 4.5
4,000 708 686 22 3.1
5,000 944 918 26 2.8
8,000 1,780 1,750 30 1.7
10,000 2,436 2,402 34 1.4
15,000 4,448 4,401 47 1.1
20,000 6,942 6,889 53 .8
25,000 9,796 9,737 59 .6
50,000 26,388 26,316 72 .3
100,000 66,798 66,711 87 .1
300,000 247,274 247,183 91 (1)
500,000 429,274 429,183 91 (1)
1,000,000 /2/ 870,000 /2/ 870,000 -- ---
MARRIED COUPLE, NO DEPENDENTS
$ 1,400 40 --- 40 100.0
2,000 160 120 40 25.0
3,000 360 320 40 11.1
4,000 560 520 40 7.1
5,000 760 720 40 5.3
8,000 1,416 1,372 44 3.1
10,000 1,888 1,836 52 2.8
15,000 3,260 3,200 60 1.8
20,000 4,872 4,804 68 1.4
25,000 6,724 6,648 76 1.1
50,000 19,592 19,474 118 .6
100,000 52,776 52,632 144 .3
300,000 222,572 222,394 178 .1
500,000 403,548 403,366 182 (1)
1,000,000 858,548 858,366 182 (1)
MARRIED COUPLE, 2 DEPENDENTS
$ 2,800 80 --- 80 100.0
4,000 320 240 80 25.0
5,000 520 440 80 15.4
8,000 1,152 1,064 88 7.6
10,000 1,592 1,504 88 5.5
15,000 2,900 2,780 120 4.1
20,000 4,464 4,328 136 3.0
25,000 6,268 6,116 152 2.4
50,000 18,884 18,648 236 1.2
100,000 51,912 51,624 288 .6
300,000 221,504 221,148 356 .2
500,000 402,456 402,092 364 .1
1,000,000 857,456 857,092 364 (2)
1 Less than 0.05 percent.
2 Maximum effective rate limitation 87 percent.
It can be seen that every taxpayer in the country would benefit from
an increase in exemptions. Such an increase would be of particular
benefit to low-income taxpayers who must struggle to make ends meet even
as to the necessities of life.
The relief which the majority would provide in the bill for consumers
is so negligible as to be ineffective in increasing purchasing power.
We are disturbed that the President has said that we cannot afford an
increase in exemptions. Apparently the administration is not concerned
so much over the effect on revenues of the provisions in this bill as it
is in advancing the "trickle down" theory of taxation.
The Secretary of the Treasury, who is in no small part responsible
for the well-being of the economy, stated that he "vigorously" opposes
an increase in personal exemptions.
Apparently the administration does not see any drawback to approving
an increase in exemptions for trusts of $200, as contained in the bill,
and an exemption of $100 in dividends income from tax.
Since the administration has taken the position that the fiscal
condition of the Treasury is such that tax reductions can be permitted
at this time, we are at a loss to see why it still insists that the
evidence at hand dictates tax relief primarily at the top of the scale
rather than at the bottom.
COMMENTS ON CERTAIN PROVISIONS IN THE BILL
The staffs of the Joint Committee on Internal Revenue Taxation and
the Treasury Department together have spent over 2 years preparing
recommendations for this bill. Extensive hearings were held, and some
15,000 replies to questionnaires were reviewed, preparatory to making
recommendations to be included in the bill.
In contrast, the committee deliberated on this bill for only 1 month
and a half. In our opinion, such a complete overhauling as this,
involving the most complicated laws which the Congress has ever written,
would require at least 1 year to fully understand the changes proposed
and to intelligently approve existing law as being as nearly perfect as
it can be made.
We frankly admit that we do not fully understand or comprehend many
of the changes proposed in the bill. Many tax lawyers spend their
entire lives keeping posted on certain narrow fields of taxes. In many
instances, we were not even given a draft of the proposed changes in the
law until the committee began considering them.
We fear, that, in the hasty manner in which this most complicated
legislation has been handled, we will have to spend many weeks
straightening out the law in the future, if the bill becomes law. In
the short time which we have had to review the bill -- and we were only
given a completed committee print a week ago -- we have found certain
changes which are being proposed which we question. The fact that we
have not commented on other changes in the bill does not necessarily
mean that we approve them.
Our comments on specific proposals in the bill follow.
EXCLUSION FROM INCOME AND CREDIT AGAINST TAX FOR DIVIDENDS
GENERAL
The bill proposes (sec. 116) first a $50 and then a $100 exclusion
from income of dividends received by shareholders. The $50 exclusion
would be provided in the first year of operation, and the $100 exclusion
in the second and subsequent years.
A credit against tax would be provided for the remaining amount of
dividends received by shareholders (sec. 34). In the first year of
operation, this credit would be 5 percent of the remaining dividends,
and in the second and subsequent years, the credit would be 10 percent
in most cases.
This provision would make a fundamental change in our tax philosophy,
and it reflects more than any other provision in the bill the "trickle
down" theory of taxation of the present administration.
We find it difficult to understand the position of the administration
in its willingness to sponsor this proposal, which, when fully
effective, will cost $814 million in revenue and benefit only a
comparative handful of taxpayers, while at the same time it opposes any
measure of general relief for the average taxpayer.
This proposal reverses the ability-to-pay principle of taxation and
gives a tax advantage to unearned (investment) income over earned income
from labor and services. For many years and up until 1944, credits for
earned income were provided in our tax laws.
We fully recognize that the process of investment is fundamental to
our free-enterprise system, but this does not mean that investment
income should be given a tax advantage over other income.
DIVIDEND INCOME IS AT AN ALLTIME HIGH
Not only have dividends risen to an alltime high, but profits have
been plowed back into corporations in recordbreaking amounts. It was
recently reported that the average dividend return on dividend-paying
stocks listed on the New York Stock Exchange was 6 percent, and another
6 percent was plowed back into corporations for the benefit of
shareholders. This makes a total of 12 percent on shareholder
investments.
Throughout the postwar period, stockholder investments have ranged
between 11 percent and 16 percent. When we compare this high rate of
return to interest on saving deposits and United States savings bonds,
we can see that shareholders have fared very well in recent years.
92 PERCENT OF AMERICAN FAMILIES OWN NO STOCK
Ninety-two percent of American families own no stock whatever. Of
the remaining 8 percent, six-tenths of 1 percent own 80 percent of all
publicly held stock. This means that the proposal of the majority would
be reducing the taxes of only 8 percent of American families, and
primarily for the benefit of only six-tenths of 1 percent.
An analysis of Statistics of Income for 1950, prepared by the
Internal Revenue Service, reveals that over 80 percent of all taxpayers
have incomes of less than $5,000 a year. This 80 percent receives less
than 11 percent of all dividend income. Persons with incomes of $10,000
or more received, in 1950, almost three-fourths of all dividend income.
This group accounts for less than 4 percent of all taxpayers. Persons
earning $25,000 or more received more than one-half of all dividend
income, and accounted for only eight-tenths of 1 percent of all
taxpayers.
It is claimed that this proposal will help many widows and elderly
persons who depend on dividend income. The facts above indicate that
very few such persons receive any dividend income whatever, while the
vast majority of higher income taxpayers receive such income. This
proposal can hardly be called a measure for the benefit of the average
taxpayer.
REVENUE LOSS IS SUBSTANTIAL
It is estimated that the revenue loss in fiscal year 1955 under this
proposal would be $240 million; in 1956, it would be $642 million; and
when fully operative, $814 million. This is providing a substantial
reduction in taxes to a very few selected individuals. Just over 4
percent of people in the United States own publicly held stock, around 6
1/2 million. Putting it another way, only about 1 of every 16 adult
persons owns such stock.
This contrasts sharply with the few hundred thousand average
taxpayers who will benefit from other provisions, where the total loss
of revenue is considerably less.
The reductions in taxes provided under this proposal are substantial
for those persons who are fortunate enough to own large amounts of
stock. This can be seen from the following comparison of tax liability
of persons who receive wages and salaries only with persons receiving
all their income from dividends for the year 1955:
Comparison of tax liability of a person receiving a salary with a
person receiving all his income from dividends for the year 1955
MARRIED COUPLE, 2 DEPENDENTS
Dividends,
Percentage recipients
Tax on Tax on reduction (percent of
salary dividend in tax for increase in
Amount of income 1 (earned income dividend "take
income) (unearned) 2 recipient home" pay)
$3,000 $60 $20 66.7 1.4
$4,000 240 110 54.2 3.5
$5,000 420 200 52.4 4.8
$8,000 976 484 50.4 7.0
$10,000 1,372 700 49.0 7.8
$15,000 2,486 1,360 45.3 9.0
$20,000 3,800 2,220 41.6 9.8
$25,000 5,318 3,280 38.3 10.4
$50,000 15,976 11,670 27.0 12.7
$100,000 44,724 35,905 19.7 16.0
$300,000 194,804 167,965 13.8 25.5
$500,000 356,956 312,115 12.6 31.3
$1,000,000 766,456 676,615 11.7 38.5
1 Income before deductions and personal exemptions. Tax computations
assume deductions equal to 10 percent of income in arriving at net
income for tax purposes.
2 All dividends are assumed to be received by the husband. (If a
wife receives dividends they would get a $200 exclusion from income.)
NOTE. -- Proposal for 1955 provides for exclusion of first $100 of
dividends and a 10-percent tax credit on dividends in excess of the
exclusion. The amount of dividends on which the credit is computed is
not to exceed the taxable income (net income after deductions and
personal exemptions).
THIS PROPOSAL IS ONLY A BEGINNING
In announcing the action of the committee in adopting this proposal
the chairman stated:
The committee approved two new provisions which take the first step
toward the elimination of double taxation of corporate dividends.
It is estimated that the complete elimination of tax on dividends in
the hands of shareholders would cost around $3.4 billion in revenues.
This attitude is symptomatic of the present administration. The one
area where tax relief is least needed at this time is this area.
SUMMARY
Not only is this the wrong kind of tax relief at the wrong time, it
is wrong in principle. Adoption of this proposal would mean that those
best able to pay their fair share of taxes would be given special
treatment resulting in the shifting of the burden of taxation to those
least able to bear it.
We strenuously oppose this proposal.
TAX RELIEF FOR WORKING MOTHERS AND OTHERS
Another provision in the bill (sec. 214) which is claimed to benefit
the "average" taxpayer is that which allows a $600 deduction to widows,
widowers, legally separated or divorced persons, and wives with disabled
husbands for child-care expenses.
There is no doubt of the need for tax relief for such persons. This
need has been recognized for some time by many of us who have introduced
bills to give such relief.
THIS RELIEF IS VERY LIMITED
The relief which the bill proposed to give these persons is so
limited as to border on the ridiculous. Compared with the $1,200
million which the majority originally proposed be given to the
corporation shareholders of America, and even compared with the $814
million which the majority still proposes be given to these shareholders
-- most of whom are in the high-income brackets -- the $40 million in
relief provided here seems stingy indeed.
NO RELIEF GIVEN MOTHERS WHO MUST WORK TO SUPPLEMENT FAMILY INCOME
The most serious criticism that can be directed against the proposal
is that it totally fails to recognize the fact that tens if not hundreds
of thousands of American mothers are obliged to leave their children to
go out and take a part- or full-time job simply in order to supplement
their husbands' earnings and make ends meet. To these thousands of
families, the need to pay for child care while the mother is out working
is no less pressing than for a mother who has been widowed or separated.
Yet the bill limits the benefits of this child-care provision to
mothers who have been widowed or separated, or whose husbands are
physically incapacitated. We are wholeheartedly in favor of giving tax
relief to these unfortunate mothers, but we see no reason why relief
should not be given to any mother who is forced to work to supplement
family income, with proper limitations.
CHILD-CARE DEDUCTION LIMITED TO $11.54 A WEEK
Even for those comparatively few working mothers who will be able to
qualify under this bill, the amount of the benefit is almost too small
to be taken seriously. The maximum amount of the child-care deduction
that can be taken is $600 a year -- $11.54 a week -- no matter how many
children there are to be cared for. Those who imagine that any mother
can hire adequate child care help for $11.54 a week have simply lost
touch with realities. This $600 limitation greatly restricts the tax
relief accorded. For example, a widow earning $85 a week would receive
a tax benefit of $2.31 a week.
We proposed in committee that the deduction be increased to at least
$1,200 a year, which we believe to be far more realistic, but we were
defeated by the majority.
To say that the majority has taken a full step in the right direction
would be too generous. They have inched ahead, perhaps, but no one
should be deluded into thinking that all of the working mothers of this
country are going to get the relief they need and deserve from the
majority's proposal.
INCOME TAX TREATMENT OF TRUSTS
TWO-YEAR "CHARITABLE" TRUSTS
In an attempt to carry out the laudable purpose of encouraging
charitable gifts, the bill proposes (sec. 673(b)) to permit taxpayers to
set up 2-year trusts to pay the income from property to charities.
Instead of encouraging the giving of money to charity, this proposal
will be a bonanza to wealthy taxpayers at the expense of the Treasury
Department.
The proposal will allow the grantor of a trust to avoid the tax on
the income of the property placed in the trust, even though he receives
the property back at the end of a 2-year period. And even though the
income is not taxable to the grantor he will nevertheless be entitled to
a charitable deduction equal to the present value of the income placed
in trust. Accordingly, the taxpayer who owns income-producing property
and whose highest tax rate is greater than 50 percent can actually make
money by supposedly satisfying his philanthropic desires.
For example, if the taxpayer's highest tax rate is 90 percent and he
owns property producing a yearly income of $5,000, over 2 years he will
have $10,000 in income, pay $9,000 in taxes, and retain $1,000 after
taxes. However, if the taxpayer desires to increase his retained income
from the property 800 percent, he need only make a gift of the 2-year
income in trust for a charity. The charitable deduction of
approximately $10,000 to which he thereby becomes entitled will reduce
the taxes he would otherwise pay by $9,000. Thus, by giving up, through
the charitable gift, the $1,000 which he would have retained after
taxes, he will receive in exchange a $9,000 reduction in taxes. The
result is an increase of $8,000 in his income after taxes (the saving in
taxes of $9,000 less the net gift, after taxes, of $1,000 of income).
Similarly, a taxpayer in the 75-percent bracket will double his
retained income from the property through the 2-year gift in trust; the
taxpayer in the 60-percent bracket will increase his retained income by
50 percent; and the taxpayer in the 50-percent bracket will be able to
make the "gift" without giving up any money.
Obviously, the only charitable impulses that are involved in this
provision are those toward the upper-income taxpayer. If it becomes law
such 2-year trusts will mushroom and be, in time, a severe blow to the
revenue.
We are pleased that the majority have agreed to offer a floor
amendment which will eliminate this loophole.
DEPRECIATION
Present law allows investment in buildings, machines, and equipment
used in a trade or business to be recovered by deduction of an equal
portion of the cost each year over the useful life of the item involved.
Thus a machine costing $1,000 with a 20-year life would be depreciated
one-twentieth of its cost, less its salvage value, each year, or
slightly less than $50.
DOUBLE-RATE DECLINING-BALANCE METHOD AUTHORIZED
The bill (sec. 167) would authorize the depreciation of new
facilities at twice the ordinary rate, applied to the unrecovered cost
of the asset. Under this so-called double-rate declining-balance
method, a machine costing $1,000 with a 20-year life would be
depreciated at a 10-percent rate each year, instead of 5 percent, and
each year the rate would be applied to the unrecovered balance. There
would be no reduction of recoverable cost for salvage value. As
compared with present methods, the effect of this method would be to
increase the annual allowances for depreciation of an asset in the early
years of its useful life and decrease those in later year. As a result,
under the proposed method about two-thirds of the cost of an asset could
be written off in the first half of its useful life, compared to less
than one-half at present.
REVENUE COST IS GREAT
The proposed provision will cause an important change in the
accounting methods of all businesses. Once a change of this nature is
made, its reversal is difficult and causes business complications. Hence
this provision, unlike changes in rates or exemptions, is of a permanent
nature. Its cost cannot be measured in terms of the revenue loss
involved for next year only. The total cost must be considered.
Because on a single asset high depreciation in early years is offset
by low depreciation in later years, the true initial cost of introducing
double-rate declining-balance depreciation into the economy is not
universally understood. In about 18 years when all, or a representative
group, of assets are on this basis, annual depreciation will be
comparable to that under present methods. Then, high depreciation on
new assets will always be roughly offset by low depreciation on old
assets. But in the first years after adoption, only new, or
comparatively new, assets will employ the method, and there will be no
offset to their high depreciation. Therefore, in these early years, the
Treasury will continue to sustain a revenue loss. This will be the cost
of shifting over to a depreciation method which will permit business to
accelerate depreciation, so that the depreciated value of all busines
assets in the Nation would thereafter alwayse be less than under present
methods.
This may be illustrated and made clear by considering the overall
reduction in taxable income of a single company which has 20 machines
costing a total of $20,000 ($1,000 each), with a salvage value per
machine of $121.58, and having an average useful life of 20 years. As
in the economy as a whole, each year part of these machine wear out and
must be replaced. Here one-twentieth of the total capital investment,
or a $1,000 machine, wears out each year and is replaced. Thus in the
first year after replacement begins, a new $1,000 machine is eligible
for the double-rate declining-balance method of depreciation; in the
second year, 2 new machines costing $2,000; in the third year, 3 new
machines costing $3,000, and so forth, until in the 20th year all the
company's 20 machines costing $20,000 are eligible. Thereafter, the new
depreciation allowances can be applied to all the machines.
The net loss in revenue to the Treasury from the proposal is
illustrated by the following table comparing the depreciation deduction
of the company under the ordinary method and under the double-rate
declining-balance method:
TABLE OMITTED
The revenue loss from the double-rate declining-balance depreciation
reaches its peak in our example in the eighth year of its operation. Not
until the 20th year does the depreciation at ordinary rates equal the
accelerated depreciation. After the 20th year, both methods result in
the same yearly depreciation deduction. Over the 20-year period during
which the depreciation deductions differ the double-rate
declining-balance method will result in total depreciation deductions of
$12,094.17 as opposed to $9,223.43 under ordinary depreciation, or an
increase of 31.2 percent in the total depreciation deduction of the
company for the 20-year period. There will, of course, be a
corresponding decrease in the net profits of the company and the taxes
which it will pay.
The effect on the economy as a whole will be the same as the effect
on the company in the example. The only difference is that the entire
economy is currently replacing its factories, machinery, and equipment
at the rate of about $31.7 billion per year instead of the $1,000 used
in the example.
Estimates of the staff of the Joint Committee on Internal Revenue
Taxation show the loss in revenue from the changeover as $375 million in
the first year, $1.050 billion in the second year, and $1.550 billion in
the third year. These estimates are based on the assumption that
capital replacements and additions and tax rates will continue at their
present levels. Admittedly this assumption may be unrealistic, but in
order to show the full impact of this provision some assumption of
relevant facts has to be made, and we are assuming no change in present
facts. On this same assumption, it is possible to predict the
approximate total revenue cost of a changeover to the new depreciation
method. As more and more assets added after January 1, 1954, become
eligible for the new method, the annual revenue loss will increase until
it reaches, in 1960, a peak of $2.200 billion, on these same
assumptions. Thereafter, as some of the assets employing the new method
enter the later years of their useful lives when annual depreciation
allowances are lower under the new method than under present methods,
the aggregate annual revenue loss will decline until finally,
approximately 18 years from now, a point of equilibrium will be reached.
Thereafter, if annual capital replacements and additions remain
constant, aggregate annual depreciation under the new method should be
at a level comparable to that under present law. But before this point
is reached, the enormous sum of $19 billion in revenue, under the
assumptions used, will have been irretrievably lost. This is the true
total cost of a shift to double-rate declining-balance depreciation.
The following table shows anticipated losses by years, computed on
the assumption that capital replacement and additions and tax rates
continue at present levels:
Estimated revenue loss
Fiscal year ended June 30 -- In millions
1955 $ 375
1956 1,050
1957 1,550
1958 1,900
1959 2,100
1960 2,200
1961 2,150
1962 2,050
1963 1,850
1964 1,600
1965 1,300
1966 950
1967 550
1968 125
1969 1 (325)
1970 ---
1971 ---
1972 ---
Total ---
1 Figures in parentheses are revenue increases.
The arguments for this measure are twofold. The first is that
present Treasury depreciation policies are too strict and should be
liberalized. The second is that more favorable depreciation will
encourage capital investment, thereby increasing the productive capacity
of the Nation and increasing prosperity.
We think both of these arguments have some validity. But as to the
first, the basic rules on computation of the depreciation allowances
have been liberalized. At this time when the revenue demands on the
Government are so extremely high that only limited tax reductions can be
permitted, we believe there is no reason further to change the method by
adopting a provision on increased rates as extreme as the on proposed.
It is questionable also whether present methods of depreciation have
held back expansion appreciably. In 1946 when corporate tax rates were
38 percent, $15 billion was invested in business plant and equipment. In
1953, with the corporate rate at 52 percent and an excess profits tax
rate of 30 percent, $28 billion was invested -- almost twice as much.
As to the second argument, we believe that an increase in productive
capacity will result in a more stable manner from increases in the power
to purchase what is produced than from the artificial stimulation of tax
writeoffs.
The possible $19 billion additional cost of this measure under the
assumption made raises the serious problem whether it can be enacted
without seriously limiting our ability to accord other tax relief, not
only this year but for the entire period during which its cost will be
felt. We believe that other provisions of greater benefit to the
average taxpayer have a prior claim. We base this view not only on
considerations of fairness, but also on the fact that wide consumer tax
relief will be of greatest benefit to the economy at this time.
ELIMINATION OF PREMIUM PAYMENT TEST FOR TAXATION OF LIFE INSURANCE IN
THE ESTATE OF THE INSURED
The bill (sec. 2042) would make a basic change by excluding
life-insurance proceeds from the taxable estate of the insured unless at
his death he possesses "incidents of ownership" of the policy. Where the
insured gives away the beneficial interest in the policy, but pays the
premiums, the death benefits would no longer be taxed in his estate.
Under present law, if a husband transfers ownership of an insurance
policy on his life to his wife, but continues to pay the premiums
himself, the proceeds are still considered to be a part of the estate he
leaves his wife on his death and are, therefore, included in his estate
in computing the estate tax.
It is sought to justify the change as merely putting life insurance
on a par with other property which may be given away free from estate
tax if the gift is not made "in contemplation of death." But life
insurance is not like other property. It is inherently testamentary in
nature. It is designed, in effect, to serve as a will, regardless of
its investment features. Where the insured has paid the premiums on
life insurance for the purpose of adding to what he leaves behind at his
death for his beneficiaries, the insurance proceeds should certainly be
included in his taxable estate.
We predict that if this provision becomes law, it will virtually do
away with the estate taxation of life insurance. To avoid the tax, the
insured need only assign the policy to his wife or other beneficiary.
Since estates of less than $60,000 are nontaxable, only the wealthy will
benefit. Nevertheless, we predict that the estate-tax revenue loss will
be substantial. Doubtless life insurance will come into great favor
among persons of wealth as a means of avoiding estate taxes.
The proposal goes even further than the method of taxing
life-insurance proceeds as a part of estates that prevailed prior to
1942, when an exclusion of $40,000 was provided, which Congress
eliminated in the Revenue Act of 1942.
DEFERRED COMPENSATION, PENSION TRUSTS, ETC. (SECS. 401-404)
GENERAL
Present law encourages the establishment of pension plans for
employees by providing for deductions of contributions to such plans by
employers and by providing that the employees will not be taxed on these
contributions at the time the contributions are made. The employees are
taxable when they receive the pensions from the plans. Since the
employee is not taxed until he receives the benefits, this type of
compensation is commonly called "deferred compensation."
Safeguards have been provided in present law to insure that
deferred-compensation plans do not discriminate in favor of high-paid
employees, officials, and shareholders of corporations.
Employee trusts are desirable and should be encouraged. The bill
changes the test which these trusts and plans must meet in order to
receive favorable tax treatment. It is our belief that the changes
provided in the bill go far beyond encouraging employees' trusts and
plans and will open up the use of these plans in a manner which will
favor high-paid employees, executives, and shareholders to the detriment
of low-paid employees.
DISCRIMINATION WOULD BE PERMITTED UNDER PENSION AND PROFIT-SHARING
TRUSTS (SEC. 501(E))
At present in order for pension and profit-sharing trusts to qualify
for preferential tax treatment they are generally required to provide
benefits for 70 percent or more of all employees or not to discriminate
in favor of officers, shareholders, supervisory, or highly compensated
employees. The bill would change this so as to permit these plans to
qualify even though they cover much smaller groups of employees, and
even though they discriminate in favor of officers, shareholders, or key
employees.
If a corporation has more than 19 regular employees, the plan would
qualify if either 10 regular employees or 25 percent, whichever is
greater, are covered. If a corporation has less than 20 regular
employees, it would qualify if 50 percent were covered.
When these percentage requirements for employees covered are coupled
with the provision that employees who have worked for a company less
than 5 years may be excluded from the total number of its employees, it
can be seen that very few employees in some cases would have to be
covered in order for the plans to be approved. This could lead to the
rankest kind of discrimination.
It would be possible for a corporation, particularly one with few
employees, to see to it that employees were with the corporation less
than 5 years if it wanted to establish a plan which would provide for
high-paid employees, officials, and stockholders. For example, if there
were 60 employees working for a corporation and 20 had been employed
less than 5 years, a plan could qualify even though it only covers 10
employees. (Since 20 of the employees have been with the company less
than 5 years, this would only leave 40 to be considered, and, since the
plan could qualify by covering only 25 percent of the remaining 40, this
would mean only 10 of the employees would have to be covered.)
In case of a 1-man corporation, a trust could qualify by covering
just the 1 employee. If only 4 employees are involved, and 2 are
stockholders, which is often the case where family corporations are
involved, the plan would qualify by just covering the husband and wife,
since this would be 50 percent of the 4 employees.
Employers would also be given the broad discretion to set up any
classification of covered employees that they desire. There would be
the limitation provided that any group selected could not discriminate
in favor of stockholder-employees or key employees. An employee would
be considered a stockholder only if he owns 10 percent or more of the
company's stock, either directly or indirectly, and discrimination would
be considered to exist if more than 30 percent of the total funds were
used for such stockholder's benefits.
Key employees are defined as being the 10 percent in the highest pay
brackets, but not more than 100 of the highest paid in a corporation.
Here discrimination would be considered to exist if key employees
comprised more than 10 percent of the participants in a plan. This
would mean that in the case of the larger corporations with many
thousand employees, the plan could be limted to the 1,001 top-level
employees and still be considered to be nondiscriminatory.
DISCRIMINATION IN BENEFITS (SEC. 501(E))
In addition to these invitations to discrimination in determining
what employees shall be covered by a pension plan, the bill allows
further discrimination in distributing benefits among employees covered
by the plan. Existing safeguards barring discrimination in allocating
benefits between top employees and others would be weakened.
In the case of pensions and annuity plans, the first $4,000 of wages
paid could be excluded in determining benefits and contributions.
Benefits and contributions would have to be allocated equally to each $1
of wages or salaries above the $4,000 amount. This would mean that an
employee with an income of $4,001 would have his benefits computed on
the basis of $1 in income, while an employee with $10,000 in income
would have his benefit based on $6,000 of income.
When we realize that the average wage for industrial workers is less
than $4,000 a year, it is easy to see that this provision will favor
employees at the top.
In the case of profit-sharing and stock-bonus plans, the same rule as
to contributions and benefits would apply to 75 percent of the
employers' contributions; however, the remaining 25 percent of the
employers' contributions could be allocated so as to give higher paid
employees up to twice as much per $1 of wages as in the case of low-paid
employees.
ANNUITIES PURCHASED FOR AN EMPLOYEE BY AN EMPLOYER WOULD BE EXEMPTED
FROM INCOME TAX
Under present law, if an employer himself buys an annuity contract
for an employee, the employee is taxable on the premium payments made by
the employer if the employee has a nonforfeitable right under the
annuity contract. These premiums are now considered as compensation,
just as wages or salaries.
The bill provides that the employee will not have to include the
premiums in his income when the employer makes the payments. The
employee would be taxable only when the payments are received. In most
cases, this will mean after the employe has retired and, at that time,
his tax rate will probably be much lower that when the premiums were
paid by the employer. Thus benefits which are, in effect, additional
compensation escape tax at the time payment for them is made by the
employer.
The ordinary person who desires an annuity must use money which he
has after paying his income tax in order to purchase the annuity.
PREMIUMS PAID ON LIFE INSURANCE POLICIES PURCHASED THROUGH QUALIFIED
EMPLOYEES' TRUST NOT TAXABLE TO EMPLOYEE
Under present law, when premiums are paid on a life insurance
contract for an employee, the premium is considered to be a distribution
from the employees' trust purchasing such a policy and the employee is
taxable to the extent of the premium when it is paid.
Section 402(a)(4) of the bill provides that the premiums shall not be
taxable to the employee when they are paid. The proceeds from the
insurance would be taxable when distributed by the trust. This is
another case where in effect, what very properly can be considered
additional compensation would be permitted to escape tax since it would
not be considered under the bill as being additional compensation.
PAYMENTS FROM NONQUALIFIED TRUSTS GIVEN SAME TREATMENT AS THOSE FROM
QUALIFIED TRUSTS
Under present law, if an employee receives a nonforfeitable right to
payments from a nonqualified trust, he is taxable immediately upon the
employer's contribution to a nonqualified trust. The employer is also
given a deduction for the contribution.
The bill would provide that the employee would be taxable only when
he receives payment from the trust and the employer would get a
deduction at that time. This is another case where tax on income would
be deferred until the employee very probably is in a lower tax bracket,
or until he is retired.
The bill removes the distinction between rights which are forfeitable
and those which are nonforfeitable at the time contributions are made.
Since this provision means that the same general tax treatment is
provided for employees whether they are under qualified or nonqualified
trusts, the incentive for setting up qualified trusts will be
considerably lessened.
ESTATE TAX EXEMPTION PROVIDED FOR PAYMENTS FROM EMPLOYEES' TRUSTS
Under present law, the value of an annuity or other payment received
from an employees' trust which forms part of a pension, stock bonus, or
profit-sharing plan is included in the gross estate of an employee for
estate-tax purposes.
Section 2039(c) of the bill would exempt such payments from qualified
plans from the estate tax. When we realize that the exemption for
estate taxes is $60,000, we can see that this provision will benefit
only wealthy employees and will not benefit the average employee.
SUMMARY
We are greatly concerned that the changes in the provision relating
to deferred compensation not only will permit discrimination in favor of
top employees and key executives of corporations, but will also provide
a device for the escape of ordinary income from tax.
CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
If corporations were completely free to accumulate earnings and
profits beyond the reasonable needs of the business without making
periodic distributions, by way of dividends, stockholders would easily
escape a good measure of their tax. Accordingly, every revenue act
since 1913 has included provisions to guard in some measure against this
posibility. Section 102 of the present code, and predecessor provisions
since 1921, have placed a penalty tax on the corporation used to avoid
the surtax on its shareholders by permitting earnings and profits to
accumulate without distribution.
BURDEN OF PROOF SHIFTED TO COMMISSIONER OF INTERNAL REVENUE
The basic change proposed by sections 531-536 is to shift to the
Commissioner of Internal Revenue the burden of proving an unreasonable
accumulation of profits. This change disregards the basic purpose of
section 102 of the present code. The section is a protective statute,
intended to safeguard the revenues. While it may be difficult at times
to ascertain the permissible limits of corporate accumulations, it by no
means follows that the Commissioner should have the burden of
establishing those limits. If officer and directors are the best judges
of a corporation's needs, they are, by the same token, the very persons
who should bear the burden of proof.
With very few exceptions, the taxpayer has the burden of proving the
facts throughout the administration of the tax laws. This is as it
should be since the facts are almost invariably within the control of
the taxpayer. This is especially true in the case of unreasonable
accumulations of earnings and profits, since the officers and directors
are particularly informed as to the circumstances which may justify
accumulations.
The bill would allow any "reasonably anticipated need" to serve as an
excuse for accumulation. This would be a further liberalization which
would reduce the effectiveness of the provision.
PUBLICLY HELD CORPORATIONS ALLOWED TO ACCUMULATE SURPLUS
Section 532 of the bill would exempt so-called "publicly held"
corporations from the application of the accumulated earnings tax. A
"publicly held" corporation is defined as a corporation which has more
than 1,500 stockholders with no one individual owning more than 10
percent of the stock. There is no apparent justification for allowing a
larger corporation to accumulate its earnings improperly while
penalizing a smaller corporation for so doing. The fact that few of the
larger corporations have been subjected to the additional tax may well
be the result of their awareness of the section and their duty to their
stockholders to avoid its penalty. To exempt them completely could be
an open invitation to accumulate earnings and permit their shareholders
to avoid tax on their dividends.
EXISTING LAW SHOULD NOT BE WEAKENED
We believe that the changes proposed weaken existing law considerably
and will encourage tax avoidance. This is especially true since the
rates of 27 1/2 percent on the first $100,000 and 38 1/2 percent on any
additional surplus improperly accumulated are low penalties to prevent
the avoidance of far higher taxes on the stockholders in most case.
CORPORATE DISTRIBUTIONS AND ADJUSTMENTS (SECS. 301-391)
GENERAL
The provisions of subchapter C (secs. 301-391) are perhaps the most
complex in the proposed new code. They cover an area of major tax
significance. The use of the corporate device is replete with
opportunities for tax manipulation, generally obscured from public
understanding, to enable the shareholder to withdraw corporate earnings
and profits and escape from the higher individual surtax rates on
dividends.
Due to the complexity of this subject, time has not permitted us to
more than analyze these sections on their surface. The comments which
we make below appear to us to be well taken. Any legislative changes in
this field should be made with caution and with full understanding of
their implications. We doubt that anyone can claim that such
consideration has been given to this subject.
PREFERRED STOCK "BAIL OUTS"
A favored technique has been the preferred stock "bail out," masking
as a tax-free dividend or recapitalization. Under this device a
"closely held corporation" -- that is, a corporation in which the stock
is held by comparatively few individuals -- can issue a dividend of
preferred stock to the common stockholders, who then sell the preferred
stock for cash. Sometimes the sale of the stock is arranged before
issuance and the stock is tailored to the requirements of the buyer. In
some cases the stock is redeemed shortly after issuance.
This device, where successful, results in substantial tax avoidance.
Stockholders in high brackets pay tax on ordinary cash dividends at
rates as high as 91 percent. But stockholders who obtain their cash
from sale of stock received as a dividend pay at most capital-gains tax
on the sale at a maximum rate of 25 percent. Yet, when these carefully
planned transactions are completed, the stockholders and the
corporations are frequently in exactly the same position as if a cash
dividend had been declared.
An example of how a "bail out" works will show specifically how this
can be accomplished
Corporation A has outstanding only common stock, owned by a limited
family group. The company has accumulated earning and profits of $10
million and is in a position to make substantial cash dividend
distributions upon which the recipients would be taxed at ordinary
income (surtax) rates. To avoid that tax result, the controlling
shreholders cause the corporation, through recapitalization or stock
dividend, to issue $10 million of preferred stock to its shareholders.
The shareholders have arranged to sell the preferred stock to an
investor, perhaps an insurance company, and the terms of the preferred
stock issue, such as its retirement and sinking fund features, are
tailored to the purchaser's investment policy. The new stock is issued
and shortly thereafter the stockholders close the deal with the
insurance company and receive the $10 million purchase price. Instead
of being taxed at ordinary (surtax) rates, which reach a maximum of 91
percent, on the $10 million if received as a dividend, the shareholders
upon sale of the stock claim favored capital-gain treatment (25 percent)
on the difference between the $10 million sale price and the allocated
"base" for the stock. The shareholders have received the accumulated
earnings and profits of the corporation without either liquidation or
loss of business control and management.
In the recent Chamberlain case, the Tax Court (18 T.C. 164 (1952))
held a distribution of preferred stock as outlined above to be taxable
on issuance as a dividend. The decision was reversed by the court of
appeals, Chamberlain v. Commissioner (207 F.2d 462 (6th Cir. 1953)),
which held the issuance of the preferred to be a tax-free stock dividend
notwithstanding a prearranged sale and the taxpayer's admission that the
transaction was carried out to avoid taxes. Certorari has been applied
for to obtain Supreme Court review but the Court has not yet acted on
the Government's request. (Petition of the Government was denied on
Mar. 8, 1954.)
The basic problem is to close the "bail-out" loophole, while leaving
corporations and their stockholders free to carry out legitimate changes
in the capital structure and ownership of the corporate enterprises.
The bill reaches a surprising solution to this problem. It simply
narrows the loophole, instead of closing it.
Section 309 would impose a tax on the corporation at the time any
preferred stock is redeemed within 10 years from its date of issuance.
The tax to the redeeming corporation would be 85 percent of the amount
paid out in redemption.
The 10-year period may well prove only an inconvenient roadblock to
be detoured in reaching the same destination. Its mechanical certainty
offers reliable guidance in charting such transactions to avoid tax.
Conceivably in many instances redemption after 10 years will offer
attractive investment opportunity to "bail-out" the shareholders in the
Chamberlain pattern.
The bill, by allowing preferred stock dividends to be issued and
sold free of dividends tax, abandons the current Government position of
asserting tax liability at ordinary rate at the time of issuance of the
preferred stock in case of prearranged sale. This rule could be
retained at least as a complement to any adequate event-of-redemption
rule.
In our opinion, the restrictions in the bill are inadequate to stop
the tax-avoidance practice it is designed to meet. Stockholders can
continue to extract money from corporations by receiving and selling
stock dividends, providing the purchaser is willing to retain the stock
for 10 years as an investment. Moreover, stockholders of thousands of
corporations now holding preferred stock issued more than 10 years ago
will not be affected by this waiting period. They will be able to
transfer their preferred stock for cash and cause its immediate
redemption. (See W. P. Hobby, 2 T.C. 980 (1944); Stanley D. Beard, 4
T.C. 756 (1945); Leona K. Moore, 5 T. C. M. 133 (1946).) Stockholders
of corporations which do not now have preferred stock can likewise
easily skirt this obstacle by planning ahead. They need only cause
their corporations to issue preferred stock at once. After 10 years
have passed, they will be able to extract cash at capital-gain rates
from the corporation whenever they wish by simply selling preferred
stock and causing its immediate redemption.
Moreover, the transfer tax of 85 percent imposed upon quick
redemptions of preferred stock is too low to deter stockholders from
using the dividend, sale, and redemption device in all cases. This 85
percent tax on the corporation is equivalent only to a dividend tax on
the stockholder of less than 46 percent or, coupled with the maximum
possible capital gain tax, a total tax rate of less than 60 percent.
These are well below top bracket surtax rates. Thus, at a total cost of
$185, a corporation can deliver a preferred stock dividend of $100 to a
stockholder and redeem it at once from his purchaser. The stockholder
will be able to keep at least $75 after paying the capital-gain tax on
the sale. In contrast, if a corporation declares an ordinary cash
dividend of $185 to a stockholder in the 91-percent bracket, he will
keep, after taxes only $16.65.
We believe that means can be devised effectively to close this
loophole. Further consideration should be given to such possible
remedies as imposing a dividend tax upon sale or redemption of preferred
stock under appropriate circumstances, as recommended by the American
Law Institute (Federal Income Tax Statute, February 1954, vol. 2, sec.
X519(g)).
SUBSTANTIALLY DISPROPORTIONATE REDEMPTIONS
Another mechanical rule, which should be critically appraised, is the
"substantially disproportionate redemption" rule (sec. 302(a)(4)). At
present, a pro rata redemption of stock (absent complete liquidation or
qualified partial liquidation of the business) is equivalent to a
dividend distribution and is taxed at ordinary income (surtax) rates.
The bill would allow this result to be avoided by a "substantially
disproportionate redemption." The test provided is whether, after the
redemption, the shareholders' percentage of participating stock
ownership is less than 80 percent of his percentage prior to
distribution. Assume that stockholder X owns 9,000 out of 10,000 (90
percent) outstanding shares of common stock (the only "participating"
stock) of corporation A. Stockholder X is in control of the corporation
and wishes to realize in part upon its earnings and profits without
ordinary income tax consequence and without substantially relinquishing
control of the enterprise. Under the bill, he may cause redemption of
721 shares, retain 71 percent of control, and obtain capital-gain
treatment of his gain upon the redeemed stock. The adequacy of this
provision is open to question.
ABANDONMENT OF THE "PROPORTIONATE INTEREST" RULE
Section 305 of the bill would abolish the "proportionate interest"
rule and allow stock distributions by a corporation of its own stock,
common or preferred (or rights) without tax consequence to the
shareholder at the time of issuance. Under existing court decisions,
whether a preferred-stock dividend is taxable when issued depends on
whether the proportionate interests of the shareholdes in the assets and
earnings of the corporations have been changed by the distribution. The
application of that rule involves some perplexities and uncertanties, it
is true; but before abandonment of taxation at the time of issuance the
alternatives should assure strong safeguards against tax avoidance
through bailouts and sales. Thus section 305 further underlines the
importance of critical and mature appraisal of the substitute tax
measures devised in this bill.
SUMMARY
The comments above do not attempt exposition of the provisions of
subchapter C, or even their more salient effects. But the complexity of
the subject and the history of subversion of prior tax enactments in
that field caution against anything more than tentative acceptance upon
the premise of further opportunity for full public exploration. To
indulge a generality, the suggested new provisions, on balance, in
contrast to existing law, court decisions, and administrative rules lean
heavily in the direction of tax postponement. The attempt to obtain
rules of mechanical certainty is laudable for the practical purposes of
taxation, but in this field of ingenious adaptation the line must well
be drawn beyond the shadow of easy manipulation.
TAX TREATMENT OF FOREIGN SUBSIDIARIES AND BRANCHES
14-PERCENTAGE POINT TAX DIFFERENTIAL
The bill (sec. 37) provides that income of domestic corporations from
foreign branches and subsidiaries shall be taxed at a rate 14 percentage
points lower than the regular corporate rate on income from domestic
sources. The revenue cost of this provision is estimated at $147
million in fiscal year 1955.
The discrimination would exist in favor of corporations with foreign
investments and against those which earn this income at home.
The measure also favors corporations as against individuals and
partnerships doing business abroad.
As an incentive for American capital to aid in the development of
backward areas, the provision is a tax inducement to a private
enterprise point 4. We are in heartiest accord with this objective. But
since the provision is inherently discriminatory, we believe that its
coverage should be only as broad as is absolutely necessary to
accomplish the objective of inducing new foreign investment in backward
areas. The coverage of the proposed measure is much too broad.
In the first place, the 14-point differential is not restricted to
new foreign investment. Therefore, for a considerable number of years
the sacrificed revenue will provide primarily an unexpected windfall for
corporations fortunate enough to have made foreign investments in the
past. Nor is this favorable tax treatment confined to investment in
underdeveloped areas. Thus much revenue will be sacrificed as a benefit
to past investment or inducement to future investment in countries with
mature economies and with less need of our investment than
underdeveloped areas.
If the Government is to sacrifice tax revenues to accomplish a
national purpose, it should do so as fairly and economically as
possible. At this time it appears desirable to restrict the benefits of
the 14-point tax incentive to income from new investment in
under-developed areas and areas where it is needed. These two
limitations would confine the scope of the measure to desired purposes
and would greatly reduce its cost. They would eliminate the
discrimination between domestic and existing foreign investment. Further
study should be given to the other aspects of this provision at a later
time.
DEFERMENT OF TAX ON INCOME OF FOREIGN BRANCHES OF CORPORATIONS
The bill (secs. 951-958) would permit domestic corporations to defer
payment of tax on income of foreign branches until the income is brought
back to the United States. At present, domestic corporations must
include income of their foreign branches in their tax returns in the
years in which the income is earned by the foreign branches. Not only
would the provision allow the domestic corporation to choose the year in
which it desires to be taxed on foreign income, but it appears to create
unnecessary loopholes and ambiguities. In any event, the following
items concern us and we believe that further consideration should be
given to them:
(1) Income brought home is measured by comparing the investment of
the domestic corporation in the branch at the beginning of the year and
at the end of the year. The possibility of creating special facts for
these dates only is obvious. Apparently, there is nothing in the bill
to prevent the domestic corporation from avoiding all tax on its foreign
income by maintaining the same level of foreign investment on these two
dates. For example, a corporation could bring $1 million in income from
a foreign branch into the United States on January 2, and then ship it
back out of the country on December 30, bringing it back in again on the
following January 2. In this way, the level of its foreign investment,
as measured under this bill, would technically be the same on just 2
days of the year -- January 1 and December 31 -- but the domestic
corporation enjoys the benefit of having the foreign-branch income in
its possession for the other 363 days -- tax-free. So long as earnings
withdrawn from the foreign branch are returned by the last day of the
year, there would appear to be no reason why the domestic corporation
could not enjoy the use of the money for the remaining 363 days of the
year and still avoid any tax on the income.
(2) The foreign branch may deduct from its income foreign taxes which
it has paid. Then when the domestic corporation brings the income back
to this country, it is entitled to an additional credit for the taxes
paid the foreign country. Thus, if the foreign branch earns $50,000 and
pays $12,500 of this amount to the foreign country in taxes, the bill
would allow $12,500 in foreign taxes to be deducted from the branch
income. And when the remaining $37,500 is brought home, the bill
further allows the domestic corporation to reduce the amount of its
United States taxes in the amount of $12,500 foreign tax. In this way it
gets a double credit for its foreign tax bill.
(3) The bill wold give corporations with foreign branches the
advantage of being able to offset the early losses of a foreign branch
against its profits from domestic operations, thus reducing its income
tax. Then in later years, when the branch begins to operate at a
profit, the domestic corporation can delay paying taxes on that profit
simply by not bringing the profit into the United States. Thus, these
corporations have an "everything to gain and nothing to lose" tax
advantage from their foreign branches.
(4) Under the bill domestic corporations may be able to declare
dividends which will be legal under State dividend laws, because based
on earnings of the branch, but which will be nontaxable to the
stockholder because not yet included in the domestic corporation's
earnings under this provision.
Although it may be desirable to accord treatment to foreign branches
similar to that now accorded to foreign subsidiaries, we believe that
the provisions in the bill should be tightened so as to eliminate these
areas of possible abuse.
CONSOLIDATED RETURNS
REDUCTION OF TEST OF AFFILIATION FROM 95 TO 80 PERCENT
The bill propose (sec. 542(b)(2)) to reduce the stock ownership
requirement for filing consolidated returns from 95 to 80 percent. The
reduction would appear unfair to the 20-percent minority stockholders
who may well see their possible benefits from an operating loss
carryback or carryforward, for example, wiped out by consolidation with
the other income of the majority stockholder.
JERE COOPER.
JOHN D. DINGELL.
WILBUR D. MILLS.
NOBLE J. GREGORY.
A. SIDNEY CAMP.
AIME J. FORAND.
HERMAN P. EBERHARTER.
CECIL R. KING.
THOMAS J. O'BRIEN.
VIEWS OF HALE BOGGS
I fully subscribe to the minority views, except those on the
provision relating to the exclusion and tax credit for dividends. While
a valid argument might be advanced that this is not the time, because of
the urgent necessity for an increase in exemptions, to urge the dividend
relief, I cannot subscribe to the attack on the principle involved.
This is the only area in the whole Federal tax structure where double
taxation exists in fact, and until recent years this was recognized in
our tax structure. In addition to this failure to take some action
would continue this discrimination.
HALE BOGGS.