View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Referring to Mr. Paul's accompanying memorandum marked ,fB!f,
question arises as to how much loss of revenue will result from the
suggestions made as follows:

(a). A provision requiring affiliated corporations (de-

fining those terms as they were defined in the income tax acts immediately prior to 1934) to file consolidated returns, the rates of
taxation to remain tinchanged.
(b). A provision granting permission to file consolidated returns (l) upon condition that under a consolidated return there
should be added an additional rate of 1% to the tax generally provided
with respect to corporations, and (2) without stich a 1$ differential,

A provision modifying the present taxation on 15fo of the

amount received as intercorporate dividends in the following respects:
(a). An elimination of this tax where the dividends were
received from a subsidiary company the. formation of which was necessaiy
to carry on business activities in a particular state.
(b). Eliminating the tax completely where the corporation
has reasonably invested surplus in another corporation without acquiring a controlling interest.


(c). Raising the tax (by imposing it upon 25% instead
of 15fo of the dividends received) in the case of complicated corporate structures involving a sub-subsidiary.

(a). A provision amending Section 820 added by the Rev-

enue Act of 193S and giving the Commissioner discretion to allow adjustments back to 1932 for worthless stock or bad debts where there
has been a determination resulting in a double disallowance of such
a deduction.
(b). A provision eliminating from the statute (retroactively to 1932) the requirement that bad debts ascertained to be worthless during the taxable year must be charged off on the books of Hie

A provision amending Section 117 of the Internal Revenue

Code to provide that neither a mortgage foreclosure nor any conveyance
in lieu of a foreclosure should be regarded as a sale or exchange within the meaning of Section 117 and that the loss of either party upon
such transactions should be ordinary, rather than capital, losses.

(a). A provision which would prospectively amend the in-

come tax statute by rejecting the Supreme Court cases of Gould v. Gould
and Douglas v. Willcuts and which would impose income tax upon a
divorced wife with respect to amounts hereafter received by way of alimoney or trust payments in lieu of alimony, allowing the husband to deduct such amounts from his gross income.

(b). A provision which would subject to existing gift
tax rates the creation by a husband of an alimony trust which completely discharged the husband1s obligation of support towards his divorced wife,

A provision amending the Chandler Act to provide that the

cost basis of assets in the hands of a corporation reorganized under
Section 77 B should be reduced only by the amount of the debt cancellation which would have constituted taxable income except for the
statutory exemption in the same Act.

A provision that the earnings or profits of corporations

available for dividend distribution shall not be affected by any increase or decrease in the value of assets, or on account of a tax-free
reorganization, which are not recognized for income tax purposes.

A provision retroactively reducing the undistributed

profits tax in the case of corporations which were unable to make legal distribution of dividends under local law because of capital deficits, to a flat tax of 5

(a). A provision removing the 65$ or 75fo tax on the un-

distributed income of personal holding companies where the company
has no earnings or profits available for the distribution of a dividend.
(b). A provision imposing the personal holding company
surtax upon taxable income without regard to the existence of earnings

or profits, but extending the consent dividends credit provided in
Section 28 to permit shareholders to consent to the taxation of undistributed income even though such amounts would not have been taxed to
them as a dividend if actually distributed.
10. A procedural provision requiring all tax suits or proceedings to be instituted against the United States rather than the
Collector or Commissioner and conferring upon the Board of Tax Appeals
and the courts a broad discretion in tax cases to disregard the principle of res judicata, where the facts or the law as announced by the
courts is changed in the subsequent year.
11. A provision allowing the ^1+00 credit for dependents to
be claimed with respect to children of the taxpayer until the children
reach the age of 21, instead of 13.
12. A provision allowing a maximum deduction of §100 for
medical or dental expenses per year paid on behalf of the taxpayer or
any of his dependents.
13. A provision once more granting the |4,000 gift tax exclusion to gifts in trust, but with a limitation that only one such
exclusion should be recognized in any year with respect to gifts in
trust for the same beneficiary.
14. A provision amending the gift tax law to the effect
that conveyances by way of tenancies of the entirety of the type

involved in Lilly v. Smith should not be subjected to gift tax where
the same property will later be taxed for estate tax purposes.
refunds to

A provision reducing the interest on deficiencies and
rather than 6%.