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LIBRARY
PWM 5030
JUN 1 5 1972
TREASURY DEPARTMENT

IMMEDIATE RELEASE
Friday, April 1. I960

A-801

Secretary Anderson today announced the appointment of Edwin F.
Rains as an Assistant General Counsel of the Treasury Department.
It was also announced that Assistant General Counsel Fred B. Smith
has been designated to handle the legal matters relating to international finance formerly performed by Elting Arnold, who resigned as
Assistant General Counsel on March 19, I960, to become General Counsel
of the Inter-American Development Bank.
Mr. Rains will take over Mr. Smithfs former duties, which include
supervision of legal work relating to the Bureau of Customs, Bureau of
Narcotics, and the Office of the Comptroller of the Currency.
As a member of the General Counsel^ staff, Mr. Rains for the past
eight years has been Chief Counsel of Foreign Assets Control. Mr. Rains
was appointed as an attorney in the Office of the Chief Counsel of the
Bureau of Customs of the Treasury Department in 1938. In 1941 he joined
the staff of the General Counsel of the Treasury Department, and, except
for a period of service from 1944 to 1946 in the Navy, in which he rose
to the rank of Lieutenant (<j.g.), Mr. Rains has been associated with
that staff.
Mr. Rains was born in New York City on April 4, 1915. He graduated
from City College of New York in 1934 with a B.S.S. Degree, and from
Columbia Law School in 1937 with an LL.B. Degree.

He was admitted to

the New York Bar in 1938 and to the District of Columbia Bar in 1948.
Mr. Rains resides at 217 East Marshall Street, Falls Church,
Virginia, with his wife and two children.
0O0

IMMEDIATE RELEASE
Friday, April 1, I960

A-801

Mr. Rains

was appointed as an attorney in the Office of the Chief Counsel of the
Bureau of Customs of the Treasury Department in 1938.

In 1941 he joined

the staff of the General Counsel of the Treasury Department, and, except
for a period of service from 1944 to 1946 in the Navy, in which he rose
to the rank of Lieutenant (j.g.), Mr. Rains has been associated with
that staff.
Mr. Rains was born in New York City on April 4, 1915. He graduated
from City College of New York in 1934 with a B.S.S. Degree, and from
Columbia Law School in 1937 with an LL.B. Degree.

He was admitted to

the New York Bar in 1938 and to the District of Columbia Bar In 1948.
Mr. Rains resides at 217-East Marshall Street, Falls Church,
Virginia, with his wife and two children.
oOo

Under Secretary Fred C 0 Scribner, Jr. has sent the following letter to
the Honorable Harry F 0 Bp?a? Chairman, Oommett.e ©n Finances
April 1, i960
My dear Mr* Chairman:
After the close of the Hearings on H» R„ 10 before the Finance
Committee last year# you requested the Treasury Department, in cooperation vith the Staff of the Joint Committee on Internal Revenue Taxation,
to search for a better approach to the treatment of the retirement
savings of self-employed people than H_ Rd 10» We are accordingly
responding to your request with a discussion of an approach which would
grant self-employed individuals treatment comparable to that received
oy employees covered by qualified pension plans and at the saae time
avoid the many serious problems inherent in H« R* 10*
Pension KLans under Present Law
Present law accords favorable tax treatment to pension plans,
established for the exclusive benefit of employees or their beneficiaries, which qualify under the Internal Revenue Code. Covered employees
under qualified plans are not taxed currently on employers* contributions
made on their behalf to these plans„ Instead, the employees generally
include the benefits from such plans In taxable income in the year
they are received or made available,, The deferment of tax until ultimate distribution provided for employees with respect to employer
contributions under qualified plans applies whether or not the employee
has vested rights in the contributions* Typically, the employee does
not have vested rights to such contributions, although plans vary
considerably from immediate vesting to vesting after reaching specified
years of service, or a specified age, or until actual retirement age.
Trusts established to administer qualified pension plans ore exempt from
tax. Similarly, the Life Insurance Company Income Tax Act of 1959
granted exemption, fully effective in 1961, to income earned on insured
reserves established in connection with qualified pension plans* In
addition, employers are permitted to take tax deductions, within specified limits, for their contributions to qualified plans, regardless of
whether the employees have a forfeitable or nonforfeitable right to
such contributions at the time they ere made*
The law grants this favored tax treatment only to pension plans
which do not discriminate as to coverage, contributions, or benefits in
favor of employees who are stockholders, officers, supervisors, or
highly compensated. There are alternative tests for determining
whether the coverage requirements are met* Under the first alternative,
the coverage requirements are satisfied if the plan covers 70 percent
A-802

- 2 or more of all the employees, or 80 percent or more of all the employees
who are eligible to benefit if 70 percent or more of all the employees
are eligible to benefit under the plan. Before applying these percentages, there may be excluded individuals who have been employed not more
than 5 years, employees whose customary employment is for not more
than 20 hours in any one week and employees whose customary employment
is for not more than 5 months in any calendar year.
Under a second alternative under the law, instead of meeting the
percentage requirements, the plan can qualify if it covers employees
under a classification found by the Internal Revenue Service not to be
discriminatory in favor of employees who are officers, shareholders,
supervisors or highly compensated. Most plans satisfy the coverage
requirements for qualification under this option rather than by meeting
the percentage of employees test. The law specifies that a plan shall
not be considered discriminatory merely because it is limited to salaried
or clerical employees.
A qualified pension plan cannot provide a higher rate of contribution or benefit for higher paid employees than forlower paid employees
or for shareholder-employees than for those who are not shareholders.
However, the dollar amount of benefits or contributions for the higher
paid employees may be larger than for the lower paid employees provided
that such amounts constitute a uniform percentage of the compensation of
participants. Under appropriate circumstances, the private plan may be
integrated with the social security system whereby the portion of
social security benefits which is not attributable to the employee's
own contributions is taken into consideration in determining whether
the benefits paid by the private plan meet the nondiscrimination test.
The portion of social security benefits not attributable to the
employee's own contributions is considered equivalent to a benefit
which can be financed by a 9-3/8 percent contribution rate on wages up
to $4,800 under money purchase types of plans. In terms of benefits
this portion has been valued at 37-1/2 percent of wages covered by
the social security system, up to $4,800 a year. Under the integration rules, the benefits of the higher paid employees, after being
combined with the designated portion of social security benefits,
must not be larger in relation to salary than the similarly combined
benefits of lower paid employees.
The Income Tax Regulations point out that a pension or similar
plan which is so designed as to amount to a subterfuge for the distribution of profits to shareholders will not qualify as a plan for the

3
- 3exclusive benefit of employees. The plan must benefit the employees
in general. This contemplates coverage of a wider range of employees
than the limited participation of a group consisting predominantly of
shareholders where there are other full-time employees who have met
a reasonable service requirement. The "exclusive benefit of employees"
requirement is not met if, by any device whatever, discrimination is
effected in favor of the shareholders. Thus, approval has been denied
to plans in a number of cases where the effect of the plan provisions,
including those designed to integrate with social security benefits, is
to exclude nonowner-employees leaving shareholder-employees as the sole
beneficiaries. However, a qualified plan may be maintained only for
shareholder-employees if there are no other permanent employees.
The present problem of how to treat the retirement savings of
self-employed individuals arises because they are not permitted by
law to participate in qualified pension plans. Under the Internal
Revenue Code, only employees are permitted to participate in such
plans. It has been asserted that under some circumstances the grounds
for making self-employed people ineligible for coverage under qualified
pension plans are somewhat artificial. Working proprietors and partners
engaged in activities which can be incorporated under the laws of their
respective States may form corporations and become employees for pension
plan purposes. Certain unincorporated organizations also might, for a
variety of reasons, be treated as an association taxable as a corporation
so that for tax purposes the members may become "employees". Indeed,
under Subchapter S of the Internal Revenue Code, proprietors and
partners may Incorporate, be taxed substantially as partnerships or
proprietorships without corporate tax liability, and nevertheless be
treated as "employees". The Internal Revenue Service has administrative
problems In dealing with partnerships which attempt to be treated as
associations in order to allow the members to obtain coverage under
qualified pension plans. This constantly raises difficult questions of
substance over form.
Defects of H. R. 10
As we indicated on June 17, 1959 in our statement before your
Committee, we do not believe that H. R. 10 represents a satisfactory
approach to the tax treatment of the retirement savings of self-employed
people. This bill would allow self-employed individuals to establish
their own voluntary pension plans with tax advantage without making any
provision for the retirement needs of their employees. For the first
time it would permit the establishment of voluntary retirement plans
conferring tax advantages for the exclusive benefit of the employer.
Even if H. R. 10 were adopted, there would still remain substantial

- hdifferences between the tax treatment of self-employed individuals
covered by voluntary retirement plans and employees, including ownermanagers of corporations, covered by qualified pension plans. Moreover, a precedent would be created for allowing individuals to take
tax deductions for retirement savings even though historically such
favored tax treatment has been allowed only in the case of nondiscriminatory plans for the benefit of employees. Such a precedent could
have very severe repercussions on the fundamental nature of the
individual income tax and on tax revenues. We have estimated the
revenue loss of allowing self-employed people tax deductions for their
retirement savings under H. R. 10 at $365 million on a full year*s
basis. However, the extension of comparable tax deductions to other
taxpayers for their retirement savings could involve a revenue loss
up to $3 billion depending on how the principle would be extended.
In view of these problems, we have concluded that it would be
unwise to add the unique benefits and precedent of H. R. 10 to our
existing laws pertaining to retirement income.
Alternative Approach
Serious difficulties raised by H. R. 10 would be avoided under
an alternative approach which, with appropriate safeguards described
below, would allow self-employed individuals the right to be covered
by pension plans like employees. This would permit self-employed
individuals (including the partners of a partnership) to establish a
qualified pension plan for themselves and their employees and thereby
secure treatment similar to that accorded to owner-managers of corporations covered by such a pension plan. It would also eliminate
the problems now resulting from attempts by partnerships to secure
classification as a corporation for tax purposes in order to be
eligible for coverage in a qualified pension plan. This approach
would allow self-employed individuals to secure the benefits of a
qualified pension plan only by establishing a plan meeting the requirements of the Internal Revenue Code as to nondiscrimination of benefits
and coverage. Moreover, since the retirement needs of the selfemployed would be met within the framework of the present provisions
of the Internal Revenue Code relating to pension plans, it should not
create a precedent for allowing individuals to take tax deductions
for a wide variety of individual savings for different purposes. As
under present law, the qualified pension plans covering self-employed
individuals could be funded through contributions to a trust or by
purchase of an annuity contract directly from an insurance company.
Self-employed individuals establishing such plans for themselves and
their employees could, if they chose to do so, use associations to
pool their separate funds for investment purposes.
Any legislation allowing self-employed Individuals to be covered
under qualified pension plans should provide adequate safeguards to

4
- 5prevent unwarranted advantages. To a considerable extent, the fact
that such pension plans covering self-employed individuals would be
required to fulfill all the present requirements in the Internal
Revenue Code as to nondiscrimination In regard to coverage and benefits
would substantially reduce the possibilities for abuse. However,
because the present provisions of the Internal Revenue Code were
designed for plans covering only employees, the extension of such
provisions to plans covering the self-employed would require additional provisions to meet the new problems that would result from
such extended coverage. Some of the features that such legislation
would have to contain are outlined below.
1. A proprietor or partner should be covered under a qualified
pension plan only if he performs personal services. Since the
objective of such pension plans is to provide retirement benefits,
it would be entirely inappropriate to allow Inactive owners who derive
their income entirely from investments to participate. A corporate
shareholder can participate in a qualified pension plan only if he is
an employee of the corporation. Benefits and contributions for
covered self-employed individuals engaged in activities involving
significant capital investment should be based only on the part of
business Income attributable to personal services. Unless this is
done, self-employed individuals would be given an advantage over
other covered employees, including owner-managers of corporations,
whose benefits under present law are based solely on their earned
income. This means, for example, that pension benefits or contributions for self-employed individuals should not be based on the amount
of their self-employment income for social security purposes as
proposed under H. R. 10 where such income includes investment income
as well as personal service income.
2. Unless, as outlined below, the vested benefits provided for
employees are substantial in relation to those provided for the
owners of the business, limitations should be placed on the pension
contributions that self-employed Individuals (individual proprietors
and partners who have a partnership interest exceeding a specified
percent, say 10 percent) should be allowed to make for themselves.
Similar limitations, with a transition period for existing plans,
should be applied to contributions on behalf of stockholder-employees
who own a specified percent of the voting stock or of all classes
of stock. In applying these rules, the ownership interests of
close relatives should be taken into consideration. The application
of these limitations to contributions on behalf of such stockholderemployees is basic to the plan both in terms of equity and revenue.
It is an essential part of the plan to provide comparable treatment
for the retirement savings of self-employed persons and owner-managers

-6 of corporations and to avoid reintroducing the problems inherent in
attempts by partners to be treated as associations in order to secure
more favorable pension treatment. Moreover, while the estimates are
difficult to make at this time, as noted below, applying these
limitations to pension contributions on behalf of stockholder-employees
would over the years provide some offset to the cost of extending
similar pension coverage to self-employed people.
Appropriate limitations would inc3ude the following:
(a) A basic employer contribution on behalf of each self-employed
individual or corporate owner-manager would be permitted, amounting up
to 10 percent of earned income, or $2,500, whichever is less. Such
contributions, however, could not be discriminatory in favor of the
owners as compared with employees.
(b) Nevertheless, nondiscriminatory contributions on behalf of
self-employed individuals and corporate owner-managers would be permitted to exceed this basic amount under certain conditions where
there are substantial contributions made on behalf of other employees.
Regardless of the 10 percent - $2,500 limit, pension contributions on
behalf of each self-employed individual or owner-manager of a corporation could be as much as the largest annual deductible contribution
vested in any covered employee who is neither an owner nor a close
relative of an owner.
(c) Moreover, there would be no special limitation on nondiscriminatory contributions for self-employed persons and corporate
owner-managers if the total amount of such contributions did not
exceed one-half of the total annual deductible contributions vested
in all employees who are neither owners nor close relatives of an
owner.*

*This limitation is roughly similar to the so-called 30-percent rule
(I.T. 3674) which was applicable in limiting the deduction of ownermanagers of corporations prior to 1950. Under the latter rule no
more than 30 percent of the total employer contributions under a
qualified pension, profit-sharing, or stock-bonus plan could be used
to finance benefits for stockholder-employees who own more than
10 percent of the voting stock. This rule was held invalid by the
Tax Court in Volkening Inc. (19^9 13 T.C. 723) since there was no
specific statutory authority for the rule.

5
-7(d) Individuals should not be permitted to arrange to
increase the allowable amounts that can be contributed on their
behalf to qualified pension plans merely because they split their
activities into several businesses each with a different pension
plan.
Under these limitations, contributions made on behalf of a selfemployed individual or an owner-manager of a corporation could exceed
10 percent of his earned income or $2,500 a year only where the pension
plan provides vested rights for at least some employees. Where employees
have vested rights there is an automatic safeguard that funds contributed
ostensibly on their behalf will not as a result of forfeitures, eventually accrue to the individuals establishing the plan. This helps both
to prevent abuses and to reduce problems of administration. Moreover,
except where he is a part of a large enterprise with numerous partners, the self-employed Individual, as a practical matter, has what
amounts to a vested right in the amounts set aside for him under a
pension plan, even though the plan nominally provides only forfeitable
rights. Thus a self-employed person would have to give other covered
employees comparable vested rights if he wished to increase contributions on his own behalf above the basic allowance.
3. Pension plans providing benefits for self-employed individuals
or owner-managers of corporations should be specifically precluded
from taking credit for social security payments under the integration
rules so as to exclude from benefits all other individuals. For
example, a self-employed individual earning a substantial income whose
employees all earn not more than $4,800 a year (the amount covered by
social security) should not be permitted to establish a qualified
pension plan which nominally covers himself and all his employees but
which, in effect, provides no contributions for the latter on the grounds
that their retirement needs are vaet by social security benefits. To
allow this would be contrary to the fundamental purpose of qualified
pension plans which is to provide retirement benefits for employees
generally and not merely for the owners of a business. Such problems
would be reduced if plans with total contributions for self-employed
individuals and corporate owner-managers exceeding one-half of the total
contributions made for all other employees were required to provide
nondiscriminatory pension contributions or benefits for all covered
employees starting with the first dollar of earnings regardless of
social security benefits.
Moreover, even where the contributions for the owners do not exceed
one-half of the total contributions made for their employees, a special

- 8problem woula arise when a self-employed individual who is not covered
by the social security system establishes a plan under which benefits
for his employees are integrated with social security benefits. The
present integration rules might be interpreted to permit such a selfemployed person to contribute to the plan at a higher rate with respect
to the first $4,800 of his earned income than he contributes for his
employees under the social security system. This discrimination in
favor of such self-employed individuals could be avoided by covering
such individuals under the social security system or by restricting
their pension contributions on their own behalf to their earned income
in excess of the level covered by social security.
If this alternative approach were to be enacted, your Committee
may wish at some later date to consider allowing all qualified plans
covering corporate owner-managers and self-employed people to take
credit for social security benefits in determining whether the private
benefits are nondiscriminatory. This might be considered as part of
a program to provide uniform integration rules for all qualified plans,
including those covering working owners. There is some indication that
in certain cases the present rules have resulted in reducing unduly the
benefits derived from the private plan by employees whose entire wages
fall within the limits covered for social security purposes. One possibility which merits study would be to allow all pension plans to take
credit under the integration rules for only the amount of the employer^
social security contributions on behalf of employees.
4. Under contributory plans, self-employed individuals and ownermanagers would be permitted to make additional nondeductible contributions consistent with those permitted for employees. To prevent unwarranted tax advantages through the deferment of tax on the earnings of
large accumulations of funds, the additional nondeductible contributions
by such individuals would be limited to 10 percent of earned income up
to $2,500 a year. However, self-employed individuals without employees
would not be permitted to make such additional contributions. To discourage self-employed individuals and owner-managers from contributing
nondeductible amounts in excess of the allowable limits, some penalty
should be imposed where such excess contributions are made.
5. Where the pension plan does not provide all covered employees
with vested rights, forfeitable contributions made on behalf of employees
would not be permitted to accrue eventually to the self-employed person
or the corporate owner-manager establishing the plan. Instead, as under
present Income Tax Regulations relating to pension plans, any forfeitures

- 9-

resulting under the pension plan would be used to reduce the employer's
contributions and would not be used to Increase benefits for the
remaining participants»
6. In the absence of special provisions* some self-employed
individuals might seek to increase the tax advantages resulting from
coverage under a qualified pension plan "by overfunding the employees *
benefits under the plan* The tax deductions for the excess contributions, for example^ might be taken in high~income years and the excess
amounts on termination of the plan might be withdrasrn and included in
the self-employed individual^ taxable income in a period when his
income is relatively low. To reduce the amounts reverting to an
employer on termination of a plan, all employees covered at the time of
termination would be given vested rights to benef its,, as under present
administrative rules„
7© A somewhat similar problem would arise if a covered self-employed
individual could terminate the plan at any time or could keep the plan
in effect beyond his expected lifetime. Although the plan is established
to provide retirement benefits, the self-employed individuals, if they
could terminate the plan at will, could secure special averaging
advantages; they could reduce their taxes in high-income years by reason
of their contributions to the plan and withdraw the funds from the plan
in low tax years© This unintended tax benefit could be avoided lyy
requiring that the plan be irrevocable and by imposing penalties on
any withdrawals other than for disability before some normal retirement age* say 60* Such penalties could include an increased tax on
such early withdrawals and a denial of the opportunity to participate
In a qualified plan for some period such as five years. There should
also be included a requirement that the self-employed Individuals start
withdrawals before some maximum age, say 70 _
8© The prohibited transaction rules provided by the Internal
Revenue Code to prevent abuse through the misuse of pension funds should
be strengthened for plans covering self-employed individuals and ownermanagers of corporations. For such plans It might be desirable to
apply the type of prohibited transaction rules proposed in II. R. 10 to
prevent any opportunity for self-employed Individuals to take a deduction
for funds contributed to a pension plan and then, in effect, take back
these funds for their own use while such funds are ostensibly still
in the pension plan«,
98 With appropriate safeguards, Instead of participating in a
pension plan providing for specific contributions or benefits, selfemployed individuals might be permitted to participate in a form of

- 10 retirement plan which would allow them to set aside funds in profitable years and yet not commit them to do so in nonprofitable years*
If self-employed individuals are allowed to be covered by retirement
plans providing such flexibility, contributions on their behalf
should be subject to the limitations described above to prevent abuse*
In addition, plans of this type should be permitted for the seJ.f«
employed only if they (l) provide a definite formula for contributions,
(2) grant all covered employees immediate vested rights to employer
contributions, (3) do not permit contributions on behalf of selfemployed individuals to be lumped in one year through the carryover
of unused deductions in prior years, and (k) provide that benefits
to covered self-employed individuals are not to be paid before the
age of 60, except in the case of earlier disability* It would be
basic to the approach to apply similar limitations to qualified profitsharing plans covering owner-managers of corporations, with a transition period for existing plansp
10© The present long-term capital gains treatment accorded to
lump-sum distributions by qualified plans at termination of the employee's
service or at his death should be removed* Instances have come to our
attention where employees have received lump sums in excess of $800,000
taxable at capital gains rates• These lump-sum distributions are not
true capital gains and the present capital gains treatment seems to
have been extended to them primarily to mitigate the impact of the
progressive tax rates on sums which have accumulated over long periods
of time© This aim would be served better by providing some form of
direct averaging treatment for these lump-sum distributions, such as
would be provided by H. R© 3J0 for lump-sum distributions received after
the age of 65«.
The exemption from estate and gift taxes of pension rights attributable to employer contributions under qualified plans should also be
reexaminede
The revenue loss resulting from the basic approach outlined in
this letter, insofar as it is attributable to the tax relief provided
for the self-employed, would be less than the $365 million estimated
annual revexme loss involved under H* R # ID. Utilization of the
legislation would be reduced because self-employed people would be
able to secure the tax relief for their retirement savings only by
establishing qualified pension plans providing comparable benefits
for their own employees on a nondiscriminatory basis* Under this
approach, self-employed individuals making substantial pension

- 11 -

contributions for their employees could make larger contributions
on their own behalf than under H. R. 10. However, the additional
cost attributable to this factor would be more than counter balanced
by the fact that the approach would base the allowable deductions of
the self-employed only on their earned income and would not allow extra
deductions to be taken automatically by older people without employees.
A portion of the revenue loss resulting under this approach would
also be due to the coverage1 under new pension plans of employees of
self-employed persons. While it is difficult to estimate the total
revenue effect, we believe that the annual over-all revenue loss attributable to the coverage of self-employed people and their employees in
new pension plans as outlined above would range between $150 million
and $250 million before taking bto account offsets due to corresponding changes in the corporate pension and profit-sharing area. In the
long run some part of this revenue loss would have resulted apart from
the approach since, with the rapid growth of pension plans, a significant
number of the employees covered under the new pension plans might eventually
have been covered by pension plans in any event. The long run revenue loss
resulting from the approach we have described should be considerably less
than that resulting from H. R. 10 in its present form, particularly since
it avoids the precedent that the latter would offer.
It is difficult to estimate the increase in revenue that would
result from placing the limitations described above on qualified plans
covering owner-managers of corporations and from elimination of the
present capital gains treatment of lump-sum distributions. However,
the revenue effect of these changes should over the years provide
significant offsets to the revenue loss from extending coverage under
pension plans to self-employed people.
The Treasury believes that the alternative approach as outlined
is more sound and equitable than the measure now under consideration.
However, the Committee and Congress in considering the alternative
approach must also consider whether, if the tax base is to be further
limited and legislation which will reduce tax collections enacted,
this particular area is entitled to first priority. Any legislation
should also take into account current and future budgetary requirements and the essentiality of substantial debt reduction in fiscal
1961 and subsequent years.

- 12 If your Consult tee desires to recommend legislation along the
lines of this approach, the Treasury staff will cooperate with the
Joint Committee staff in drafting a bill. This plan represents a
different approach to the problems involving the self-employed end,
as en integral part of the approach, concerns (l) corporate plans
covering stockholder-employees with substantial proprietory Interests,
(2) the capital gains treatment now accorded to certain lump-sum
distributions by pension and profit-sharing plans, and (3) possibly,
the gift and estate tax exemptions now provided for pension rights
attributable to employer contributions under qualified plans• While
the Treasury is not advised as to whether in the discretion of the
Committee it is intended that hearings be held concerning ell aspects
of the approach as outlined, we should point out that the changes
suggested are both substantive and important*

Fred C. Scribner, Jr. ( /
Under Secretary of the Treasury
Honorable Harry F« Byrd
Chairman, Committee on Finance
United States Senate
Washington 25, D. C.

8
W U A 3 E A. M. agWSPAPSRS. TttMday, April 5, i960.

She Treasury Department announced last eveoiog thtt Wie tenders lor two series of
Treasury bills, one series to be an additional issue of the bills dated January 7, 1M
and the other series %o be dated April 1, I960, which were offered on jjarch 31, were
opened at the Federal Reserve i&nks on April k. Tenders were invited for .1,100,000,L
or thereabouts, of 91-day bills and for *500,000,GQC, or thereabouts, of 182-day billi,
The details of the two series are as follows.
r y <*_-«.v^_w_ w u ,
RftKE OF ACCEPTED
COHmiTIVE BIBS*

Low
Average

18 2-day treasury bills
maturing October 6,'I960
#pprox. Squi?;
Annual Bate
"frice

91-day Treasury bills
ma taring Jul^r 7. 1Q60
Approx. "Ajuiv,
, "fries
Annual Bate

. . m i —

• •

1 1

i »

—

99.32? 2.6625
99.2B3
2,83^
99.310Sl"
2.731t

9B.$kk
96.2iPP
96.520

ii*

•

..in

2.880*
2.991%
2.927% y

1 percent of the amount of 91-day bills bid for at the low price was accepted
2U percent of the amount of 162-day bills bid for at the lev price was accepted
-

TOTAL TS1E3EBS APHJED FGit AJ© ACCEPTED BI FED£Hii_.
District

Applied For
' g i . . ) i i n . i Q vm&tffifr.i,

Accepted
—i i

" ^IGTKICTS:

Applied tor Accepted

i i

Boston
Warn York
Philadelphia
Cleveland
Richmond
Itlanta
Chicago
St. Louis
•"Irmeapolis
Kansas City
Dallas
San Francisco

$ 25,361,000
1,217,96*3,000
29,468,000
21,857,000
16,076,000
22,691,000
171,365,000
22,330,000
10,665,000
25,325,000
12,366,000

15,361,000
706,213,000
29,468,000
21,857,000
17,076,000
22,291,OCX)
152,365,000
22,299,000
10,665,000
25,225,000
12,366,000
65,016,000

# 4,385,^0
622,414,000
8.118,000
10,327,000
1,870,000
3,660,000
59,650,000
4,082,000
3,uB3,000
4,188,000
2,376, OCX)
20,082,000

I 4,355,000
3*3,646,000
8,118,000
5,327,000
1,870,000
3,260,000
49,370,000
k,062,000
3,1*83,000
4,138,000
2,126,000
20.082,000

TOTAIS

£1,643,005,000

$1,100,224,000 a/

#744,657,000

1500,079,000^

a/ Includes $200,105,000 noncoatpetitive tenders accepted at the average price o
B/ Includes $36,867,000 noncompetitive tenders accepted at the average price of 98.5$
y Average rate on a coupon issue equivalent yield basis is 2.79$ for the 91-day billi
and 3.01% tor the 182-day bills. Interest rates on bills are quoted on the basil
of bank discount, with their length in actual number of days related to a 360-d*J
year. In contrast, yields on certificates, notes, and bonds are computed on thi
basis of interest on the investment, with the number of days remaining in a seal*
annual interest paywsnt oeriod related to the actual number of days in the periM
and with semiannual eoflipounding if tsore tnsn one coupon oeriod is involved.

TREASURY DEPARTMENT
WASHINGTON, D.C
SLEASE A. M. NEWSPAPERS, Tuesday, April 5^1960.

A-803

The Treasury Department announced last evening that the tenders for two series of
reasury bills, one series to be an additional issue of the bills dated January 7, I960,
nd the other series to be dated April 7, I960, which were offered on March 31, were
pened at the Federal Reserve Banks on April 4. Tenders were invited for $1,100,000,000,
_* thereabouts, of 91-day bills and for $500,000,000, or thereabouts, of 182-day bills,
Jie details of the two series are as follows:
AN3E OF ACCEPTED
OMPETITIVE BIDS j

91-day Treasury bills
maturing July 7, I960
•wi«n.i.jw^iiiii.in i i _ f M i ^ M

High
Low
Average

HI. iff•

inj'Cauiw-naw

182-day Treasury bills
maturing October 6_ I960
Approx. Equiv,
Price
Annual Rate

_III_I,n

Price

Approx. Equiv.
Annual Rate

99.327
99.283
99.310

2.662$
2«836*
2.731* y

98.544
98.488
98.520

2,880*
2.991*
2.927* y

percent of the amount of 91-day bills bid for at the low price was accepted
4 percent of the amount of 182-day bills bid for at the low price was accepted

OTAL TENDERS APPLIED FOR AND ACCEPTED BX FEDERAL RESERVE DISTRICTS.
District

Applied For

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

$ 25,361,000
1,217,963,000
29,468,000
21,857,000
18,076,000
22,691,000
171,365,000
22,330,000
10,665,000
25,325,000
12,386,000
65,518,000

TOTALS

$1,643,005,000

Accepted
15,361,000
706,213,000
29,468,000
21,857,000
17,076,000
22,291,000
152,365,000
22,299,000
10,665,000
25,225,000
12,386,000
65,018,000

t Applied For
*
»

s
f

s
s
t
3
3
3
1
%

$ 4,385,000
622,414,000
8,118,000
10,327,000
1,870,000
3,680,000
59,650,000
4,082,000
3,1*83,000
4,188,000
2,378,000
20,082,000

H , 100,224,000 a/ $744,657,000

Accepted
* 4,355,000
393,846,000
8,118,000
5,327,000
1,870,000
3,280,000
49,370,000
4,082,000
3,483,000
4,138,000
2,128,000
20,082.000
$500,079,000 y

f Includes $200,105,000 noncompetitive tenders accepted at the average price of 99.
/ Includes $38,867,000 noncompetitive tenders accepted at the average price of 98.520
/ Average rate on a coupon issue equivalent yield basis is 2.79* for the 91-day bills
and 3.01* for the 182-day bills* Interest rates on bills are quoted on the basis
of bank discount, with their length in actual number of days related to a 360-day
year* In contrast, yields on certificates, notes, and bonds are computed on the
basis of interest on the investment, with the number of days remaining in a semiannual interest payment period related to the actual number of days in the period,
and with semiannual compounding if more than one coupon period is involved.

- 3wiRl5a;iiwfiK'i:*»)

from the sale or other disposition of Treasury bills does not have any special

treatment, as such, under the Internal Revenue Code of 1954. The bills are subje

to estate, inheritance, gift or other excise taxes, whether Federal or State, bu

are exempt from all taxation now or hereafter imposed on the principal or intere
thereof by any State, or any of the possessions of the United States, or by any

local taxing authority. For purposes of taxation the amount of discount at which

Treasury bills are originally sold by the United States is considered to be inte

Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954 the amo

of discount at which bills issued hereunder are sold is not considered to accrue

until such bills are sold, redeemed or otherwise disposed of, and such bills are
cluded from consideration as capital assets. Accordingly, the owner of Treasury

bills (other than life insurance companies) issued hereunder need include in his

income tax return only the difference between the price paid for such bills, \;h

on original issue or on subsequent purchase, and the amount actually received ei

upon sale or redemption at maturity during the taxable year for which the return
made, as ordinary gain or loss.
Treasury Department Circular No. 418, Revised, and this notice, prescribe the
terms of the Treasury bills and govern the conditions of their issue. Copies of
the circular may be obtained from any Federal Reserve Bank or Branch.

- 2-

mmssmmgmk

11
decimals, e. g., 99.925. Fractions may not be used. It is urged that tenders De
made on the printed forms and forwarded in the special envelopes which will be
supplied by Federal Reserve Banks or Branches on application therefor.
Others than banking institutions will not be permitted to submit tenders ex-

cept for their cwn account. Tenders will be received without deposit from incorpo

rated banks and trust companies and from responsible and recognized dealers in in
ment securities. Tenders from others must be accompanied by payment of 2 percent

the face amount of Treasury bills applied for, unless the tenders are accompanied
an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal Re-

serve Banks and Branches, following which public announcement will be made by the

Treasury Department of the amount and price range of accepted bids. Those submit-

ting tenders will be advised of the acceptance or rejection thereof. The Secretar

of the Treasury expressly reserves the right to accept or reject any or all tende

in whole or in part, and his action in any such respect shall be final. Subject t

these reservations, noncompetitive tenders for $ 200,000 or less for the addition
bills dated January 14, I960 , ( 91 days remaining until maturity date on

?£^x

£&&

July 14, I960
) and noncompetitive tenders for $ 100,000 or less for the
182 -day bills without stated price from any one bidder will be accepted in full
J%fllmTmij*)Jmrm,

at the average price (in three decimals) of accepted competitive bids for the respective issues. Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on April 14. 19fiO . in cash or

other immediately available funds or in a like face amount of Treasury bills matu
ing April 14, 1960 Cash and exchange tenders will receive equal treatment.
Cash adjustments will be made for differences between the par value of maturing
bills accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the sale

or other disposition of the bills, does not have any exemption, as such, and loss

^ggK»QQ95Qi^i6C

12
TREASURY DEPARTiHftT
Washington

RELEASE A. M. NEWSPAPERS,
Thursday, April 7, 1960
^

The Treasury Department, by this public notice, invites tenders for two series

of Treasury bills to the aggregate amount of $1,600,000,000 > or thereabouts, for

W
cash and in exchange for Treasury bills maturing

April 14. 1960

> i n the amount

xp_)_
of $ 1,602,048,000 , as follows:

xptpc
91 -day bills (to maturity date) to be issued April 14, 1960 ,
in the amount of $ 1,100,000,000 , or thereabouts, representing an additional amount of bills dated January 14, 1960 ,
and to mature July 14, 1960 , originally issued in the
amount of $ 400,175,000 , the additional and original bills
to be freely interchangeable.
182 -day bills, for $ 500,000,000 , or thereabouts, to be dated
April 14, I960 , and to mature October 13, 1960

p^t

"" g**

The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face

will be payable without interest. They will be issued in bearer form only, and i

denominations of $1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000 (matu
value).

Tenders will be received at Federal Reserve Banks and Branches up to the closing
hour, one-thirty o'clock p.m., Eastern Standard time, Monday, April 11, 1960

Tenders will not be received at the Treasury Department, Washington. Each tender

must be for an even multiple of $1,000, and in the case of competitive tenders t
price offered must be expressed on the basis of 100, with not more than three

RELEASE A. M. NEWSPAPERS,
Thursday, April 1, i960.

A-804

The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$1,600,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing April 14, i960,
In the amount of
$1,602,048,000, as follows:
91-day bills (to maturity date) to be issued April 14, i960,
in the amount of $ 1,100,000,000, or thereabouts, representing an
additional amount of bills dated January 14, i960, and to
mature July 14, i960,
originally issued in the amount of
$400,175,000,
the additional and original bills to be freely
interchangeable.
182-day bills, for $500,000,000, or thereabouts, to be dated
April 14, i960, and to mature October 13, i960.
The bills of both series will be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided, and
at maturity their face amount will be payable without interest.
They will be issued in bearer form only, and in denominations of
$1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000 (maturity
value) .
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty o'clock p.m., Eastern
Standard time, Monday, April 11, i960. " Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
with not more than three decimals, e. g., 99-925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by
Federal Reserve Banks or Branches on application therefor.
Others than banking institutions will not be permitted to submit
tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.

2 Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public
announcement will be made by the Treasury Departmment of the amount
and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part,, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $200,000 or less for the additional bills dated
January 14, i960, (91 days remaining until maturity date on
July 14, i960)
and noncompetitive tenders for $100,000
or less for the 182-day bills without stated price from any one
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on April l4, i960,
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing April 14, i960.
Cash and
exchange tenders will receive equal treatment. Cash adjustments
will be made for differences between the par value of maturing
bills accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the Internal Revenue Code of 195*1-. The bills are subject to
estate, Inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereunder
need Include in his income tax return only the difference between
the price paid for such bills, whether on original issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
return is made, as ordinary gain or 0O0
loss.
Treasury Department Circular No. 4l8, Revised, and this notice,
prescribe
the terms
of
bills
and
thefrom
conditions
Federal
of theirReserve
Issue.
Bank
Copies
orthe
Branch.
of Treasury
the circular
may
begovern
obtained
any

treatment, as such, under the Internal Revenue Code of 1354. The bills are subject

to estate, inheritance, gift or other excise taxes, whether Federal or State, bu

are exempt from all taxation now or hereafter imposed on the principal or intere
thereof by any State, or any of the possessions of the United States, or by any

local taxing authority. For purposes of taxation the amount of discount at which
Treasury bills are originally sold by the United States is considered to be in-

terest. Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954

the amount of discount at which bills issued hereunder are sold is not considere
to accrue until such biHs are sold, redeemed or otherwise disposed of, and such
bills are excluded from consideration as capital assets. Accordingly, the owner

of Treasury bills (other than life insurance companies) issued hereunder need in

clude in his income tax return only the difference between the price paid for su

bills, whether on original issue or on subsequent purchase, and the amount actua
received either upon sale or redemption at maturity during the taxable year for
which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418, Revised, and this notice, prescribe the
terms of the Treasury bills and govern the conditions of their issue. Copies of
the circular may be obtained from any Federal Reserve Bank or Branch.

- 2 -

for their own account. Tenders will be received without deposit from incorporated

banks and trust companies and from responsible and recognized dealers in invest

securities. Tenders from others must be accompanied by payment of 2 percent of t

face amount of Treasury bills applied for, unless the tenders are accompanied by
an express guaranty of payment by an incorporated bank or trust company.
All bidders are required to agree not to purchase or to sell, or to make any

agreements with respect to the purchase or sale or other disposition of any bill

of this issue, until after one-thirty o'clock p.m., Eastern Standard time, Tuesd
April 12, 1960.
Immediately after the closing hour, tenders will be opened at the Federal Re-

serve Banks and Branches, following which public announcement will be made by th

Treasury Department of the amount and price range of accepted bids. Those submit

ting tenders will be advised of the acceptance or rejection thereof. The Secreta

of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final.

Subject to these reservations, noncompetitive tenders for $400,000 or less witho

stated price from any one bidder will be accepted in full at the average price (

three decimals) of accepted competitive bids. Settlement for accepted tenders in

accordance with the bids must be made or completed at the Federal Reserve Bank o
April 15, 1960, in cash or other immediately available funds or in a like face

amount of Treasury bills maturing April 15, 1960. Cash and exchange tenders will

receive equal treatment. Cash adjustments will be made for differences between t
par value of maturing bills accepted in exchange and the issue price of the new
The income derived from Treasury bills, whether interest or gain from the sale

or other disposition of the bills, does not have any exemption, as such, and los
from the sale or other disposition of Treasury bills does not have any special

16
RELEASE A. M. NEWSPAPERS,
Thursday, April 7, I960.

A-805

The Treasury Department, by this public notice, invites tenders for

$2,000,000,000, or thereabouts, of 365-day Treasury bills, for cash and in exchan

for treasury bills maturing April 15, 1960, in the amount of $2,003,314,000, to b

issued on a discount basis under competitive and noncompetitive bidding as herein
after provided. The bills of this series will be dated April 15, 1960, and will

mature April 15, 1961, when the face amount will be payable without interest. The

will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,0
$100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the clos-

ing hour, one-thirty o'clock p.m., Eastern Standard time, Tuesday, April 12, 1960

Tenders will be received at the Federal Reserve Banks of Philadelphia and Chicago

and at the Baltimore Branch of the Federal Reserve Bank of Richmond only from bid

ders whose principal places of business are located in their respective districts

except in those cases where bidders located in other areas customarily enter thei

tenders through Philadelphia, Chicago, or Baltimore. Tenders will not be received
at the Treasury Department, Washington. Each tender must be for an even multiple

of $1,000, and in the case of competitive tenders the price offered must be expre
on the basis of 100, with not more than three decimals, e. g., 99.925. Fractions

may not be used. (Notwithstanding the fact that these bills will run for 365 days

the discount rate will be computed on a bank discount basis of 360 days, as is cu

rently the practice on all issues of Treasury bills.) It is urged that tenders be
made on the printed forms and forwarded in the special envelopes which will be
supplied by Federal Reserve Banks or Branches on application therefor.
Others than banking institutions will not be permitted to submit tenders excep1

TREASURY DEPARTMENT
WASHINGTON, D.C.
RELEASE A. M. NEWSPAPERS,
Thursday, April 7, 1960.
The Treasury Department, by this public notice, invites tenders for

$2,000,000,000, or thereabouts, of 365-day Treasury bills, for cash and in exchang

for Treasury bills maturing April 15, 1960, in the amount of $2,003,314,000, to be

issued on a discount basis under competitive and noncompetitive bidding as hereinafter provided. The bills of this series will be dated April 15, 1960, and will

mature April 15, 1961, when the face amount will be payable without interest. They

will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,00
$100,000, $500,000 and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the clos-

ing hour, one-thirty o'clock p.m., Eastern Standard time, Tuesday, April 12, 1960.

Tenders will jDe_jreceived at the Federal Reserve Banks of Philadelphia, and Chica
and atthe Baltimore Branch of the Federal Reserve Bank of Richmond only from bid-

ders whose principal places of business are located in their respective districts,

except in those cases where bidders located in other areas customarily enter their

tenders through Philadelphia, jChicago^ or JBaatijnore. Tenders will not be receiv
at the Treasury Department, Washington. Each tender must be for an even multiple

of $1,000, and in the case of competitive tenders the price offered must be expres
on the basis of 100, with not more than three decimals, e. g., 99.925. Fractions

may not be used. (Notwithstanding the fact that these bills will run for 365 days,

the discount rate will be computed on a. bank discount basis of 360 days, as is cu
rently the practice on all issues of Treasury bills.) It is urged that tenders be
made on the printed forms and forwarded in the special envelopes which will be
supplied by Federal Reserve Banks or Branches on application therefor.
Others than banking institutions will not be permitted to submit tenders except

- 2-

for their own account. Tenders will be received without deposit from incorporated

banks and trust companies and from responsible and recognized dealers in investme

securities. Tenders from others must be accompanied by payment of 2 percent of th
face amount of Treasury bills applied for, unless the tenders are accompanied by
an express guaranty of payment by an incorporated bank or trust company.
All bidders are required to agree not to purchase or to sell, or to make any

agreements with respect to the purchase or sale or other disposition of any bills

of this issue, until after one-thirty o'clock p.m., Eastern Standard time, Tuesda
April 12, 1960.
Immediately after the closing hour, tenders will be opened at the Federal Re-

serve Banks and Branches, following which public announcement will be made by the

Treasury Department of the amount and price range of accepted bids. Those submit-

ting tenders will be advised of the acceptance or rejection thereof. The Secretar
of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final.

Subject to these reservations, noncompetitive tenders for $400,000 or less withou

stated price from any one b:\dder will be accepted in full at the average price (
three decimals) of accepted competitive bids. Settlement for accepted tenders in

accordance with the bids must be made or completed at the Federal Reserve Bank on
April 15, 1960, in cash or other immediately available funds or in a, like face
amount of Treasury bills maturing April 15, 1960. Cash and exchange tenders will

receive equal treatment. Cash adjustments will be made for differences between th

par value of maturing bills accepted in exchange and the issue price of the new b
The income derived from Treasury bills, whether interest or gain from the sale

or other disposition of the bills, does not have any exemption, as such, and loss
from the sale or other disposition of Treasury bills does not have any special

- 3-

treatment, as such, under the Internal Revenue Code of 1954. The bills are subject

to estate, Inheritance, gift or other excise taxes, whether Federal or State, but

are exempt from all taxation now or hereafter imposed on the principal or interes
thereof by any State, or any of the possessions of the United States, or by any
local taxing authority. For purposes of taxation the amount of discount at which
Treasury bills are originally sold by the United States is considered to be interest. Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954

the amount of discount at which bills issued hereunder are sold is not considered
to accrue until such bills are sold, redeemed or otherwise disposed of, and such
bills are excluded from consideration as capital assets. Accordingly, the owner

of Treasury bills (other than life insurance companies) issued hereunder need in-

clude in his income tax return only the difference between the price paid for suc

bills, whether on original issue or on subsequent purchase, and the amount actual
received either upon sale or redemption at maturity during the taxable year for
which the return is made, as ordinary gain or loss.
Treasury Department Circular No. 418, Revised, and this notice, prescribe the
terms of the Treasury bills and govern the conditions of their issue. Copies of
the circular may be obtained from any Federal Reserve Bank or Branch.

13
»§®>3A!!!1 BSJSASS,
ftoaday. 4sril ?, 2MQ.

A-y t
(

Efforts received trm the Inderal iasarve Banks show that mibseripfetoii
total abo*it $$,710 million for the 4$ treasury Botes of my

X5, 3J6S, and

about $370 million for t&e A*>Xfm$ f m m m x y Bond© of 1975-85, included in the
Treasury's current financing.
©us Treasury w 4 U allot in f a U all subscriptions received iter the 4*1/0
Treasury Bonds of U7S*85. Sobaerlpffeioas for the ±~XJ4$ treasury Bonds of
3375-85 include $18? million from subscribers in the savings-type investor
groups; $87 million from commercial banks for their own account; and $96 million
from all others. Among these subscriptions there were 2,100 full-paid subscriptions for $25,000 or less, aggregating about $20 million.
The Treasury will also allot 50 percent on subscriptions ia excess of
$100,000 for the current cash offering of $2 billion, or thereabouts, of A$
Treasury Notes maturing May 15, 1962. Subscriptions for $100,000 or less will
be allotted in full. Subscriptions for store than $100,000 will be allotted not
less than $100,000. Subscriptions for the 4$ Treasury Botes include $5,031
million from commercial banks for their own account, and $1,687 million from
all others.
In addition to allotments on account of public subscriptions, the Treasury
has allotted $100 million of the 4»Xfm$ Treasury Bonds of 1975-85 and $27,400,000
of the 4$ Treasury' Notes of May 15, 1962, to Government investment accounts*
Details by Federal Reserve Banks as to subscriptions and allotments will
be announced whan final reports are received from the Federal Reserve Banks.

TREASURY DEPARTMENT
WASHINGTON, D.C.
IMMEDIATE RELEASE,
Thursday, April 7, I960.

A-806

Reports received from the Federal Reserve Banks show that subscriptions
total about $6,718 million for the 4$ Treasury Notes of May 15, 1962, and
about $370 million for the 4-1/4$ Treasury Bonds of 1975-85, included in the
Treasury's current financing.
The Treasury will allot in full all subscriptions received for the 4-1/4$
Treasury Bonds of 1975-85. Subscriptions for the 4-1/4$ Treasury Bonds of
1975-85 include $187 million from subscribers in the savings-type investor

groups; $87 million from commercial banks for their own account; and $96 million
from all others. Among these subscriptions there were 2,100 full-paid subscriptions for $25,000 or less, aggregating about $20 million.
The Treasury will also allot 30 percent on subscriptions in excess of
$100,000 for the current cash offering of $2 billion, or thereabouts, of 4$
Treasury Rotes maturing May 15, 1962. Subscriptions for $100,000 or less will
be allotted in full. Subscriptions for more than $100,000 will be allotted not
less than $100,000• Subscriptions for the 4$ Treasury Notes include $5,031
million from commercial banks for their own account, and $1,687 million from
all others.
In addition to allotments on account of public subscriptions, the Treasury

has allotted $100 million of the 4-1/4$ Treasury Bonds of 1975-85 and $27,400,00
of the 4$ Treasury Notes of May 15, 1962, to Government investment accounts.
Details by Federal Reserve Banks as to subscriptions and allotments will
be announced when final reports are received from the Federal Reserve Banks.

21
TREASURY DEPARTMENT
Washington
MEMORANDUM TO THE PRESS: April 7, I960

STATEMENT BY SECRETARY OP TREASURY ANDERSON
ON FINANCING RESULTS

The subscriptions to the bonds shows only a limited acceptance by the
current market for a long-term bond at the 4-1/4% statutory interest rate
ceiling.
In announcing the offering last week the Treasury did not attempt to
estimate the probable amount of the subscription to the bond. The Treasury
said under present market conditions there was no way to determine the
true demand for long term bonds within the 4-1/4 ceiling; the only way to
find out was to offer sorriething to test the market.
The results indicate that suggestions to the effect that Treasury could get
a substantial amount of debt extension either by cash or advance refunding
under the 4-1/4 ceiling were not well founded.
Total cash raised from the announced allotment to the 4% note, as well
as the bond, will meet Treasury's cash needs for the balance of the fiscal
year ending June 30, I960.

22
- ik the Committee announced that it would consider the so-called "gross
up" amendment as a separate matter and has scheduled these public
hearings. The argument most commonly made by those who oppose a
change in the existing tax rate preference accorded foreign subsidiary operations is that discontinuance of the preference, by
increasing the United States tax on foreign income when repatriated,
may to some extent tend to discourage investment which might otherwise have been made in the less developed countries, whether or not
arguments of this type will be sufficiently persuasive to override
the apparent need for a change in the formula for computing the
foreign tax credit in order to put it on a sound and consistent
basis may well depend upon the facts presented by other witnesses
at these hearings.
The Treasury would welcome the opportunity to cooperate with
the Committee and its staff in the further development of appropriate legislation after studying the testimony and submission of the
witnesses In these hearings.

changes in tax rates abroad on a country by country basis, or be
limited in application to the foreign subsidiary form of operation.
Instead, if upon full consideration, your Committee should determine
that a rate reduction in this area is appropriate, it would appear
more sound and equitable that it be granted on a uniform and predictable basis. It should be emphasized, however, that a reduction
in the tax rate on foreign income must clearly serve the national
interest in order to justify the discrimination against United
States source income, as well as the resulting revenue loss. In
the Treasury Department's report dated May 6, 1959 on H. R. 5> it
was stated that a Ik percent reduction in tax on foreign income,
as provided in section k of the bill as introduced, would have produced a revenue loss of approximately $200 million. Because of the
large revenue loss and because of the doubtful effect of rate reduction as an incentive for the expansion of American business abroad,
the Treasury Department, as you know, was opposed to section k of
H. R. ..
To summarize, the Committee decided last August that the duplication of the deduction and credit now allowed with respect to
foreign taxes attributable to dividends received from foreign subsidiaries should be eliminated. The Treasury supported the Committee's decision. Because of the protests on the part of the taxpayers
investing abroad through foreign corporations to a change adversely
affecting them without giving them an adequate opportunity to be heard,

24
- 12 expression of intent to the contrary on the part of Congress. If
this situation should arise, the treaties involved could, we are
confident, be easily modified to accord with the change made in
our tax law by enactment of the pending legislation.
The third possible way for the Committee to handle the present
tax rate discrimination favoring the foreign subsidiary form of
doing business abroad would be to extend the preferential tax rates
(through amendment to the foreign tax credit provisions) to income
earned abroad by domestic corporations, including the new foreign
business corporation, should H. R. 5 he enacted. In other words,
such an approach would require that the Committee reverse its decision announced on January 31> I960, and remove the present limited
"gross up" amendment from H. R. 5- 'While this approach would equalize the tax rate situation as between foreign subsidiary and branch
operation abroad, it would, by continuing and enlarging this tax
preference for foreign income, discriminate against taxpayers whose
income is earned in this country.
The fourth possible approach, as I indicated above, is to enact
H. R. IO859 or its companion bill, H. R. 10860, together with a
direct and uniform reduction in the rate of tax on foreign income.
If preferential tax rates for foreign income are considered desirable from the standpoint of foreign economic policy as a means of
increasing investment abroad, it is at least questionable that the
preference should depend upon and fluctuate with the level of and

- 11 -

As to the relationship of the "gross up" amendment upon existing treaty obligations, it is clear that if Congress desires to do
so it can enact H. R. IO859 and H. R. 10860 without violating any
treaty provisions. The problem in this area is that several existing treaties contain language which purports to freeze the existing
tax credit provisions in the law. If the pending legislation is
enacted, a question might arise as to whether the gross up amendment
would apply to dividends paid by subsidiaries incorporated in perhaps as many as fourteen of the tax treaty countries. Most of the
treaties in question, however, have a savings clause which expressly
reserves to the United States the right to change its tax laws as
they affect its own citizens, residents, and corporations without
regard to any provision of the treaty. Furthermore, a good argument
can be made that the gross up amendment merely involves the inclusion of the foreign tax in United States taxable income without
disturbing or limiting the allowable foreign tax credit. As a
matter of fact, the amendment would actually increase the dollar
amount of the credit for taxes deemed paid by the foreign subsidiary.
Apart from these considerations, it is clear that enactment of
H. R. IO859 and H. R. 10860 would not override any of our treaty
obligations unless the Congress expressly indicates such an intention. Thus, if in any case it could be shown that the application
of the gross up amendment would be contrary to a treaty obligation,
the treaty provisions would prevail, in the absence of a dear

- 10 Finally, it is suggested that the "grossing up" amendment, if
applicable to foreign subsidiaries generally, may raise a problem
in connection with certain of this country's tax treaties, which
appear to call for the allowance of a foreign tax credit under the
United States law in effect at the time the treaties were negotiated.
wliile legitimate questions do arise as to the effect in various
areas of the change in the foreign tax credit computation proposed
in H. R. IO859 and H. R. 10860, several points should perhaps be
noted in response to the arguments just mentioned. The first is
that it is highly questionable whether the continuance of a tax
preference is warranted where, in actual operation, it discriminates
against domestic corporations who pay the full United States tax
rate on every dollar of their income. A second consideration is
that the existence of the preference, while perhaps helpful to
investors in some of the less developed countries, gives, in the
aggregate, a much greater tax advantage to investment in the highly
industrialized areas of the free world. In this regard, the Treasury
estimates that application of the gross up amendment to dividends of
all foreign subsidiaries (assuming no significant change in their
dividend policies) would increase the revenues by about $46 million
a year. Of this amount, approximately $31 million would be attributable to dividends from the more developed countries, and the
balance of $15 million, from the less developed areas.

matter of tax policy and must be justified, if at all, on other
policy grounds. Moreover, if H. R. 5 should become law, enactment
of the pending bills would serve to reduce somewhat the tax advantages now available to the foreign subsidiary as compared to the
new class of domestic corporation which would be authorized under
H. R. 5.
The second possible alternative available to the Committee would
be to do nothing, as has been suggested by some who oppose enactment
of the gross up amendment. Those favoring this approach note that
the present method of computing the foreign tax credit for dividends
from a foreign subsidiary has been in the law for more than kO years.
Domestic corporations investing abroad are said to have relied upon
the continuance of this provision which,, in effect, grants preferential tax rates to the foreign subsidiary form of operation.
It is also noted that enactment of I. R. IO859 or H. R. IO80O
will increase the taxes of American businessmen investing abroad and,
it is claimed, may place them in a disadvantageous competitive position vis-a-vis their foreign competitors.
In any case, it is asserted that the increase in taxes on
foreign subsidiary operations which would result under the proposed
legislation may tend to discourage foreign investment, particularly
in the less developed countries where it is said tax rates are more
likely to be sufficiently low to maximize the benefits under section
902.

%— y

taxpayers in this country would seem to require that income earned
abroad be taxed at the same rate as income earned in this country.
At least four possible alternative approaches would appear to
be open to the Committee. These are:
(l) Enact H. R. IO859 or its companion bill, H. R. 10860,
thereby eliminating the doubling up of the deduction and credit
for the same foreign taxes where American enterprises operate
abroad through foreign subsidiaries.
(2) Leave present law unchanged, as has been suggested by
some who oppose enactment of the gross up amendment.
(3) Extend the preferential treatment now applicable to
income earned through foreign subsidiaries to income earned through
branch operations.
(k) Enact H. R. IO859 or its companion bill, H. R. 10860,
together with a direct and uniform reduction in the rate of tax
on foreign income.
I would now like to comment briefly on these four possible
approaches.
The first approach, which is to enact the bills which are the
subject of this hearing, would eliminate the doubling up of the
deduction and credit for the same foreign taxes where American
enterprises operate abroad through foreign subsidiaries. The preferential tax rates now accorded income earned abroad through foreign
subsidiaries appear to have little or no rational foundation as a

chain of two subsidiaries. Thus, where a dividend paid by a foreign
subsidiary comes from a distribution which it in turn has received
from its own foreign subsidiary, the combined United States and
foreign tax burden may be as low as 40.18 percent.
In broad terms, the issue before your Committee in connection
with H.R. IO859 and H.R. 10860 is whether to equalize the effective
tax rate imposed on income derived from abroad through a foreign
subsidiary with the rate applied to such income when earned by a
branch of a domestic corporation. As mentioned earlier, in August
of last year your Committee tentatively concluded that the ultimate
level of the combined foreign and United States tax on repatriated
foreign income should be the same, whether the corporate form used
to conduct operations abroad involved domestic or foreign incorporation. Your Committee also tentatively decided that the way to
accomplish this was by adoption of the "gross up" amendment across
the board. As you know, the Treasury did not recommend this change
in the foreign tax credit computation in its report to the Committee
on H. R. 5, hut the Treasury has supported the Committee's tentative
decision in this area. Certainly it is difficult for us to find
fault in theory with the general principle that the tax rate applicable to income received by American firms operating abroad should
generally be the same, without regard to form of organization. In
like fashion, in the absence of overriding public policy considerations, tax neutrality and the general principle of fairness to

-6 -

foreign subsidiaries under the present foreign tax credit formula
are not fixed, but depend upon the level of foreign taxes, as
applied country by country. The foreign income tax rate which
produces the maximum benefit for an American corporation is 26
percent. When the foreign tax rate is at this level, the combined
United States and foreign tax rate on $100 of profits earned abroad
and distributed by a foreign subsidiary is k$*2k percent. As the
foreign tax rate goes below 26 percent, the combined foreign and
domestic tax rate increases until, with a zero foreign tax, the
combined effective rate would, of course, equal the United States
tax rate of 52 percent. By the same token, as the foreign tax rate
increases and approaches 52 percent, the tax benefit to be derived
through the foreign tax credit from the use of a foreign subsidiary
declines, wlien the foreign rate reaches or exceeds the United States
rate, no tax benefit is derived. If plotted on a chart, having as
its base the tax rates abroad varying from zero to 52 percent, the
tax advantages flowing from the foreign tax credit would form a
curve, with the high point reached at the 26 percent foreign tax
rate, assuming a domestic rate of 52 percent. This is the so-called
"Doppler effect" in the mathematics of the computation, referred to
by Mr. Donald H. Gleason in his paper submitted in connection with
the recent tax revision hearings of your Committee.
As mentioned earilier, this tax benefit under the foreign tax
credit can be increased substantially by operating abroad through a

- 5-

31-

as you know, the United States tax on this smaller tax base is
postponed until the foreign profits are distributed as dividends
to the American parent corporation. As a result, present law, in
effect, allows the American parent both a deduction and a credit
for foreign taxes imposed on the profits of its foreign subsidiary.
This comes about from an apparently unintended defect in the statute
in allowing to a domestic corporation a credit for foreign taxes
paid by its foreign subsidiary without also including in the parent's
income the amount of tax which is creditable.
The basic provision of the Internal Revenue Code containing this
formula has been in the tax law since 1918. As noted previously, the
double allowance permitted under existing law, where operations are
carried on abroad through foreign subsidiaries, in many cases results
in a much lower combined effective rate (foreign and domestic) on
income earned abroad than the present 52 percent United States tax
rate. The basic principle of the foreign tax credit, however, is
that in no case will the taxpayer pay a combined tax on foreign income
in an amount less than the United States tax rate. Consistent with
t he latter principle, a domestic corporation operating abroad directly
through a branch does not receive the benefit of a deduction for foreign taxes in computing its credit and therefore the combined effective
tax rate on the branch profits is never less than 52 percent.
As has been discussed before the Committee on several occasions
in recent years, the reduced tax rates available through the use of

32
- koperating abroad through branches."
Ten members of the Committee, however, called attention in the
report to the fact that if H. R. 5 were enacted and the "gross up"
requirement were made applicable only to foreign business corporations, the bill would, in fact, discriminate against the foreign
business corporation and in favor of continued operations abroad
by American investors through foreign corporations. These members
urged that the Committee hold public hearings on the application of
the "gross up" principle with respect to both foreign business
corporations and all foreign subsidiaries.
On March 2, i960, Chairman Mills announced that he had introduced H. R. IO859, and Mr. Mason, H. R. 10860, to carry out the
decision of the Committee to deal as a separate matter with the socalled "gross up" amendment to the foreign tax credit insofar as
applicable to dividends received by domestic corporations (other
than foreign business corporations) from their foreign subsidiaries.
The Chairman also announced that the Committee would hold public
hearings on these identical bills.
Under present law, if a domestic corporation operates abroad
through a branch, the United States tax is imposed on the profits
earned abroad at the time they are earned and before the deduction
of income taxes levied in the foreign country. However, if a
foreign subsidiary is used, the United States tax applies only to
the foreign profits remaining after deduction of foreign taxes and,

33
- 3tax thereon of $*K), and declared a dividend of the remaining $60 to
its United States parent, the latter would report dividend income of
$100 (rather than $60).

The United States tax before the foreign

tax credit would be $52, the credit would be $40, and the net tax
payable to the United States would be $12. The combined effective
tax rate would be 52 percent.
The Committee has recently considered the problem which the
above examples illustrate in connection with H. R. 5, the Foreign
Investment Incentive Act of i960.

In a press release relating to

this bill, dated August 19, 1959. the Committee announced that it
had decided to eliminate the duplication of a deduction and a
credit for foreign taxes for both domestic corporations qualifying
under the bill, as foreign business corporations and for foreign subsidiaries generally.

In a press release dated January 21, i960,

however, the Committee indicated that it had reconsidered its decision and had removed from the amended bill the provision dealing with
the so-called gross up of foreign taxes, except in the case of foreign
business corporations and their subsidiaries.
The "gross up" provisions were retained in the case of foreign
business corporations, according to the report of the Committee on
H. R. 5. to "give assurance that the granting of tax deferral will
not decrease the ultimate level of combined foreign and United States
tax on this foreign income of these domestic corporations below the
level of taxation generally applicable to other domestic corporations

-2-

to the United States. The combined foreign and domestic tax on the
$100 of income would therefore be $52.
Another domestic corporation, operating in Country X through a
foreign subsidiary, earns $100 and pays a tax of $40 on this income.
The foreign subsidiary pays its United States parent corporation the
balance of $60 as a dividend, and the United States company reports
as income only this amount, which is, in effect, after deduction of
the foreign taxes. The United States tax of 52 percent on foreign
dividends of $60 would be $31.20. However, the parent is also
deemed under existing law to have paid a ratable share of the foreign
tax paid by its subsidiary for purposes of the foreign tax credit.
Under the formula in section 902, it is allowed a foreign tax credit
equal to 60 percent of the foreign tax, or $24. After offset by
this credit, the net tax owed to the United States is only $7*20.
The combined United States and foreign tax in this situation is
therefore $47.20, or in terms of the combined effective tax rate,
47.2 percent. This rate advantage is increased where a chain of
two foreign subsidiaries is used, so that the combined United States
and foreign rates may, in some circumstances, be as low as 40.18
percent.
The bills now before you would eliminate the above tax advantage
in the case of income earned by a foreign subsidiary by "grossing up"
its dividend payments by the amount of foreign tax attributable to
the dividend. Thus, if the subsidiary earned $100, paid a foreign

TREASURY DEPARTMENT
Washington
STATEMENT BY JAY W. GLASMANN,
ASSISTANT TO THE SECRETARY, BEFORE
THE CCMOTTEE ON WAYS AND MEANS OF THE
HOUSE OF REPRESENTATIVES, WITH RESPECT
TO H. R. IO859 AND H. R. 10860,
10:00 A.M., APRIL 11, I960
MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE:

I appreciate the opportunity to be here today to comment on
H. R. IO859 and its companion bill, H. R. 10860, which would amend
section 902 of the Internal Revenue Code of 1954 by providing for
the so-called "gross up" of foreign taxes allowed as a credit in
the case of a domestic corporation receiving dividends from its
foreign subsidiary. The amendment is designed to equalize the tax
treatment of income derived from abroad in the form of dividends
from a foreign subsidiary with that accorded income derived from
direct operations abroad through a branch of a domestic corporation.
In effect, these bills would deny the dividend recipient the allowance of both a deduction and a credit for the same foreign taxes paid
by the foreign subsidiary.
The problem before the Committee today can be illustrated by the
following simple example:
A domestic corporation, operating in Country X through a branch,
earns $100 which is taxed by X at a 40 percent rate. The United States
would impose a tax of 52 percent on the corporate income of $100, and
would allow a foreign tax credit of $40, leaving a net liability of $12
A-807

36
TREASURY DEPARTMENT
Washington

STATEMENT BY JAY W. GLASMANN,
ASSISTANT TO THE SECRETARY, BEFORE
THE COMMITTEE ON WAYS AND MEANS OF THE
HOUSE OF REPRESENTATIVES, WITH RESPECT
TO H. R. IO859 AND H. R. 10860,
10:00 A.M., APRIL 11, i960
MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE:

I appreciate the opportunity to be here today to comment on
H. R. IO859 and its companion bill, H. R. 10860, which would amend
section 902 of the Internal Revenue Code of 1954 by providing for
the so-called "gross up" of foreign taxes allowed as a credit in
the case of a domestic corporation receiving dividends from its
foreign subsidiary. The amendment is designed to equalize the tax
treatment of income derived from abroad in the form of dividends
from a foreign subsidiary with that accorded income derived from
direct operations abroad through a branch of a domestic corporation.
In effect, these bills would deny the dividend recipient the allowance of both a deduction and a credit for the same foreign taxes paid
by the foreign subsidiary.
The problem before the Committee today can be illustrated by the
following simple example:
A domestic corporation, operating in Country X through a branch,
earns $100 which is taxed by X at a 40 percent rate. The United States
would impose a tax of 52 percent on the corporate Income of $100, and
would allow a foreign tax credit of $40, leaving a net liability of $12
A-807

37
- 2 -

to the United States. The combined foreign and domestic tax on the
$100 of income would therefore be $52.
Another domestic corporation, operating in Country X through a
foreign subsidiary, earns $100 and pays a tax of $40 on this income.
The foreign subsidiary pays its United States parent corporation the
balance of $60 as a dividend, and the United States company reports
as income only this amount, which is, in effect, after deduction of
the foreign taxes. The United States tax of 52 percent on foreign
dividends of $60 would be $31.20. However, the parent is also
deemed under existing law to have paid a ratable share of the foreign
tax paid by its subsidiary for purposes of the foreign tax credit.
Under the formula in section 902, it is allowed a foreign tax credit
equal to 60 percent of the foreign tax, or $24. After offset by
this credit, the net tax owed to the United States is only $7*20.
The combined United States and foreign tax in this situation is
therefore $47.20, or in terms of the combined effective tax rate,
47.2 percent. This rate advantage is increased where a chain of
two foreign subsidiaries Is used, so that the combined United States
and foreign rates may, in some circumstances, be as low as 40.18
percent.
The bills now before you would eliminate the above tax advantage
in the case of income earned by a foreign subsidiary by "grossing up"
its dividend payments by the amount of foreign tax attributable to
the dividend. Thus, if the subsidiary earned $100, paid a foreign

- 3tax thereon of $40, and declared a dividend of the remaining $60 to
its United States parent, the latter would report dividend income of
$100 (rather than $60). The United States tax before the foreign
tax credit would be $52, the credit would be $40, and the net tax
payable to the United States would be $12. The combined effective
tax rate would be 52 percent.
The Committee has recently considered the problem which the
above examples illustrate in connection with H- R. 5. the Foreign
Investment Incentive Act of i960. In a press release relating to
this bill, dated August 19, 1959. the Committee announced that it
had decided to eliminate the duplication of a deduction and a
credit for foreign taxes for both domestic corporations qualifying
under the bill as foreign business corporations and for foreign subsidiaries generally. In a press release dated January 21, i960,
however, the Committee indicated that it had reconsidered its decision and had removed from the amended bill the provision dealing with
the so-called gross up of foreign taxes, except in the case of foreign
business corporations and their subsidiaries.
The "gross up" provisions were retained in the case of foreign
business corporations, according to the report of the Committee on
H. R. 5, to "give assurance that the granting of tax deferral will
not decrease the ultimate level of combined foreign and United States
tax on this foreign income of these domestic corporations below the
level of taxation generally applicable to other domestic corporations

- h.

39
operating abroad through branches."
Ten members of the Committee, however, called attention in the
report to the fact that if H. R. 5 were enacted and the "gross up"
requirement were made applicable only to foreign business corporations, the bilJL would, in fact, discriminate against the foreign
business corporation and in favor of continued operations abroad
by American investors through foreign corporations. These members
urged that the Committee hold public hearings on the application of
the "gross up" principle with respect to both foreign business
corporations and all foreign subsidiaries.
On March 2, i960, Chairman Mills announced that he had introduced H. R. IO859, and Mr. Mason, H. R. 10860, to carry out the
decision of the Committee to deal as a separate matter with the socalled "gross up" amendment to the foreign tax credit insofar as
applicable to dividends received by domestic corporations (other
than foreign business corporations) from their foreign subsidiaries.
The Chairman also announced that the Committee would hold public
hearings on these identical bills.
Under present law, if a domestic corporation operates abroad
through a branch, the United States tax is imposed on the profits
earned abroad at the time they are earned and before the deduction
of income taxes levied in the foreign country. However, if a
foreign subsidiary is used, the United States tax applies only to
the foreign profits remaining after deduction of foreign taxes and,

40
- 5as you know, the United States tax on this smaller tax base is
postponed until the foreign profits are distributed as dividends
to the American parent corporation. As a result, present law, in
effect, allows the American parent both a deduction and a credit
for foreign taxes^imposed on the profits of its foreign subsidiary.
This comes about from an apparently unintended defect in the statute
in allowing to a domestic corporation a credit for foreign taxes
paid by its foreign subsidiary without also including in the parent's
income the amount of tax which is creditable.
The basic provision of the Internal Revenue Code containing this
formula has been in the tax law since 1918. As noted previously, the
double allowance permitted under existing law, where operations are
carried on abroad through foreign subsidiaries, in many cases results
in a much lower combined effective rate (foreign and domestic) on
income earned abroad than the present 52 percent United States tax
rate.

The basic principle of the foreign tax credit, however, is

that in no case will the taxpayer pay a combined tax on foreign income
in an amount less than the United States tax rate. Consistent with
t he latter principle, a domestic corporation operating abroad directly
through a branch does not receive the benefit of a deduction for foreign taxes in computing its credit and therefore the combined effective
tax rate on the branch profits is never less than 52 percent.
As has been discussed before the Committee on several occasions
in recent years, the reduced tax rates available through the use of

41
-6 foreign subsidiaries under the present foreign tax credit formula
are not fixed, but depend upon the level of foreign taxes, as
applied country by country.

The foreign income tax rate which

produces the maximum benefit for an American corporation is 26
percent. When the foreign tax rate is at this level, the combined
United States and foreign tax rate on $100 of profits earned abroad
and distributed by a foreign subsidiary is 45.24 percent. As the
foreign tax rate goes below 26 percent, the combined foreign and
domestic tax rate increases until, with a zero foreign tax, the
combined effective rate would, of course, equal the United States
tax rate of 52 percent. By the same token, as the foreign tax rate
increases and approaches 52 percent, the tax benefit to be derived
through the foreign tax credit from the use of a foreign subsidiary
declines. When the foreign rate reaches or exceeds the United States
rate, no tax benefit is derived.

If plotted on a chart, having as

its base the tax rates abroad varying from zero to 52 percent, the
tax advantages flowing from the foreign tax credit would form a
curve, with the high point reached at the 26 percent foreign tax
rate, assuming a domestic rate of 52 percent. This is the so-called
"Doppler effect" in the mathematics of the computation, referred to
by Mr. Donald H. Gleason in his paper submitted in connection with
the recent tax revision hearings of your Committee.
As mentioned earilier, this tax benefit under the foreign tax
credit can be increased substantially by operating abroad through a

-7 chain of two subsidiaries. Thus, where a dividend paid by a foreign
subsidiary comes from a distribution which it in turn has received
from its own foreign subsidiary, the combined United States and
foreign tax burden may be as low as 40.18 percent.
In broad terms, the issue before your Committee in connection
with H.R. IOO59 and H.R. 10860 is whether to equalize the effective
tax rate imposed on income derived from abroad through a foreign
subsidiary with the rate applied to such income when earned by a
branch of a domestic coiporation. As mentioned earlier, in August
of last year your Committee tentatively concluded that the ultimate
level of the combined foreign and United States tax on repatriated
foreign income should be the same, whether the corporate form used
to conduct operations abroad involved domestic or foreign incorporation. Your Committee also tentatively decided that the way to
accomplish this was by adoption of the "gross up" amendment across
the board. As you know, the Treasury did not recommend this change
in the foreign tax credit computation in its report to the Committee
on H. R. 5} but the Treasury has supported the Committee's tentative
decision in this area. Certainly it is difficult for us to find
fault in theory with the general principle that the tax rate applicable to income received by American firms operating abroad should
generally be the same, without regard to form of organization. In
like fashion, in the absence of overriding public policy considerations, tax neutrality and the general principle of fairness to

-8 taxpayers in this country would seem to require that income earned
abroad be taxed at the same rate as income earned in this country.
At least four possible alternative approaches would appear to
be open to the Committee. These are:
(l) Enact H. R. IO859 or its companion bill, H. R. 10860,
thereby eliminating the doubling up of the deduction and credit
for the same foreign taxes where American enterprises operate
abroad through foreign subsidiaries.
(2) Leave present law unchanged, as has been suggested by
some who oppose enactment of the gross up amendment.
(3) Extend the preferential treatment now applicable to
income earned through foreign subsidiaries to income earned through
branch operations.
(4) Enact H. R. IO859 or its companion bill, H. R. 10860,
together with a direct and uniform reduction in the rate of tax
on foreign income.
I would now like to comment briefly on these four possible
approaches.
The first approach, which is to enact the bills which are the
subject of this hearing, would eliminate the doubling up of the
deduction and credit for the same foreign taxes where American
enterprises operate abroad through foreign subsidiaries. The preferential tax rates now accorded income earned abroad through foreign
subsidiaries appear to have little or no rational foundation as a

44
-9 matter of tax policy and must be justified, if at all, on other
policy grounds. Moreover, if H. R. 5 should become law, enactment
of the pending bills would serve to reduce somewhat the tax advantages now available to the foreign subsidiary as compared to the
new class of domestic corporation which would be authorized under
H. R. 5.
The second possible alternative available to the Committee would
be to do nothing, as has been suggested by some who oppose enactment
of the gross up amendment. Those favoring this approach note that
the present method of computing the foreign tax credit for dividends
from a foreign subsidiary has been in the law for more than 40 years.
Domestic corporations investing abroad are said to have relied upon
the continuance of this provision which, in effect, grants preferential tax rates to the foreign subsidiary form of operation.
It is also noted that enactment of H. R. IO859 or H. R. 10860
will increase the taxes of American businessmen investing abroad and,
it is claimed, may place them in a disadvantageous competitive position vis-a-vis their foreign competitors.
In any case, it is asserted that the increase in taxes on
foreign subsidiary operations which would result under the proposed
legislation may tend to discourage foreign investment, particularly
in the less developed countries where it is said tax rates are more
likely to be sufficiently low to maximize the benefits under section
902.

45
- 10 Finally, it is suggested that the "grossing up" amendment, if
applicable to foreign subsidiaries generally, may raise a problem
in connection with certain of this country's tax treaties, which
appear to call for the allowance of a foreign tax credit under the
United States law in effect at the time the treaties were negotiated.
While legitimate questions do arise as to the effect in various
areas of the change in the foreign tax credit computation proposed
in H, R. IO859 and H. R. 10860, several points should perhaps be
noted in response to the arguments just mentioned. The first is
that it is highly questionable whether the continuance of a tax
preference is warranted where, in actual operation, it discriminates
against domestic corporations who pay the full United States tax
rate on every dollar of their income. A second consideration is
that the existence of the preference, while perhaps helpful to
investors in some of the less developed countries, gives, in the
aggregate, a much greater tax advantage to investment in the highly
Industrialized areas of the free world. In this regard, the Treasury
estimates that application of the gross up amendment to dividends of
all foreign subsidiaries (assuming no significant change in their
dividend policies) would increase the revenues by about $46 million
a year. Of this amount, approximately $31 million would be attributable to dividends from the more developed countries, and the
balance of $15 million, from the less developed areas.

46
-uAs to the relationship of the "gross up" amendment upon existing treaty obligations, it is clear that if Congress desires to do
so it can enact H. R. IO859 and H. R. 10860 without violating any
treaty provisions. The problem in this area is that several existing treaties contain language which purports to freeze the existing
tax credit provisions in the law. If the pending legislation is
enacted, a question might arise as to whether the gross up amendment
would apply to dividends paid by subsidiaries incorporated in perhaps as many as fourteen of the tax treaty countries. Most of the
treaties in question, however, have a savings clause which expressly
reserves to the United States the right to change its tax laws as
they affect its own citizens, residents, and corporations without
regard to any provision of the treaty. Furthermore, a good argument
can be made that the gross up amendment merely Involves the inclusion of the foreign tax in United States taxable income without
disturbing or limiting the allowable foreign tax credit. As a
matter of fact, the amendment would actually increase the dollar
amount of the credit for taxes deemed paid by the foreign subsidiary.
Apart from these considerations, it is clear that enactment of
H. R. IO859 and H. R. 10860 would not override any of our treaty
obligations unless the Congress expressly indicates such an intention. Thus, if in any case it could be shown that the application
of the gross up amendment would be contrary to a treaty obligation,
the treaty provisions would prevail, in the absence of a clear

- 12 -

expression of intent to the contrary on the part of Congress. If
this situation should arise, the treaties involved could, we are
confident, be easily modified to accord with the change made in
our tax law by enactment of the pending legislation.
The third possible way for the Committee to handle the present
tax rate discrimination favoring the foreign subsidiary form of
doing business abroad would be to extend the preferential tax rates
(through amendment to the foreign tax credit provisions) to income
earned abroad by domestic corporations, including the new foreign
business corporation, should H. R. 5 be enacted. In other words,
such an approach would require that the Committee reverse its decision announced on January 31, i960, and remove the present limited
"gross up" amendment from H. R. 5° While this approach would equalize the tax rate situation as between foreign subsidiary and branch
operation abroad, it would, by continuing and enlarging this tax
preference for foreign income, discriminate against taxpayers whose
income is earned in this country.
The fourth possible approach, as I indicated above, is to enact
H. R. IO859 or its companion bill, H. R. 10860, together with a
direct and uniform reduction in the rate of tax on foreign income.
If preferential tax rates for foreign income are considered desirable from the standpoint of foreign economic policy as a means of
increasing investment abroad, it is at least questionable that the
preference should depend upon and fluctuate with the level of and

changes in tax rates abroad on a country by country basis, or be
limited in application to the foreign subsidiary form of operation.
Instead, if upon full consideration, your Committee should determine
that a rate reduction in this area is appropriate, it would appear
more sound and equitable that it be granted on a uniform and predictable basis. It should be emphasized, however, that a reduction
in the tax rate on foreign income must clearly serve the national
interest in order to justify the discrimination against United
States source income, as well as the resulting revenue loss. In
the Treasury Department's report dated May 6, 1959 on H. R. 5, it
was stated that a 14 percent reduction in tax on foreign income,
as provided in section 4 of the bill as introduced, would have produced a revenue loss of approximately $200 million. Because of the
large revenue loss and because of the doubtful effect of rate reduction as an incentive for the expansion of American business abroad,
the Treasury Department, as you know, was opposed to section 4 of
H. R. 5To summarize, the Committee decided last August that the duplication of the deduction and credit now allowed with respect to
foreign taxes attributable to dividends received from foreign subsidiaries should be eliminated. The Treasury supported the Committee's decision. Because of the protests on the part of the taxpayers
investing abroad through foreign corporations to a change adversely
affecting them without giving them an adequate opportunity to be heard,

49
- 14 the Committee announced that it would consider the so-called "gross
up" amendment as a separate matter and has scheduled these public
hearings.

The argument most commonly made by those who oppose a

change in the existing tax rate preference accorded foreign subsidiary operations is that discontinuance of the preference, by
increasing the United States tax on foreign income when repatriated,
may to some extent tend to discourage investment which might otherwise have been made in the less developed countries. Whether or not
arguments of this type will be sufficiently persuasive to override
the apparent need for a change in the formula for computing the
foreign tax credit in order to put it on a sound and consistent
basis may well depend upon the facts presented by other witnesses
at these hearings.
The Treasury would welcome the opportunity to cooperate with
the Committee and its staff in the further development of appropriate legislation after studying the testimony and submission of the
witnesses in these hearings.

A -»':' r

KRL3ASE A . M . IEWSPAFSRS,
Tuesday, April 12, I960.

The Treasury Department announced last evening that the tenders for two series of
treasury bills, one series t© be an additional issue of the bills dated January lit, i$fa
and the other series to be dated April lh, I960, which were offered on April 7, wers
opened at the Federal teserve Banks on April 11. Tenders were invited for 11,100,000,01
or thereabouts, of 91-day bills and for #500,000,000, or thereabouts, of 182-day billa?
The details of the two series are ae followst
mrnn 0P ACCEPTED
COMPETITIVE BIBS?

High
Low
Average

91-day Treasury bills
maturing jfaly lib I960
j^ppy^ liquiv.
Price
Annual Bate
99.135®/
99.069
99.08li

3.501H
3.683$
3.622$ 1/

182-day Treasury bills
maturing October 13 _ I960
Approx. Equiv.
Price
Annual Bats
90.121. y
3.711#
97.952
98.052

li.OSlj*

3.85W 1/

IjEeepting three tenders totaling $382,000; b/ Excepting one tender of $10,000
percent of the amount of 91-day bills bid for at the low price wag accepted
32 percent of the amount of 182-day bills bid for at the low price wa® accepted

TOTAL TSHDIRS APPLIED F01 AND ACCSFISD SI FBB1EAL RESERVE BIBTRICTS*
District

Allied For

Boston
Hew Torlc
Philadelphia
Cleveland
Eiehstottd
Atlanta
Chicago
St. Louis
ttinneaf&olis
Kansas Gity
Dallas
San Francisco

#
26,i*l*?,0OO
1,286,51*1,000
27,829,000

TOTALS

W992k9<m
10,055,000
21,9lt2,O0O
193,980,000
21,2l4li,00O
10,714,000
32,335,00)
15,748,000
50,112,000
11,745,871,000

Accepted

Applied For

Accepted ,,TJII

I6,liti7,000
728,81*1,000
27,829,000
40,924,000
10,055,000
20,51*2,000
131,980,000
20,21*4,000
9,5ll*,OO0
31,835,000
15,748,000
116,112,000

I 3,979,000
1*73,005,000
8,1*51,000
9,969,000
l,01ii,000
3,974,000
80,502,000
11,21*3,000
2,008,000
8,383,000
3,969,000
43,927*000

I 3,979,000
344,605,000
8,451,000
9,969,000
l,0ll*,OOO
3,974,000
58,502,000
11,243,000
2,008,000
8,383,000
3,969,000
43.927,000

$1,100,071,000 y%

|65O,Jt2]i,Q0O

#500,024,000 d/

Includes #226,005,000 noncompetitive tenders accepted at the average price of
Includes 11*2,924,000 noncompetitive tenders accepted at the average price of 98.0f2
Average rate on a coupon issue equivalent yield basis is 3.71$ for the 91-day bill*
and 3*99% tor the 182-day bill®. Interest rate® on bills are quoted on the b&fil
of bank discount, with their length in actual umber of days related to a 360*dijr
year. In contrast, yields on certificates, notes, and bonds are computed on tbt
basis of interest on the Investment, with the number of days remaining in a semiannual interest payment peiiod related to the actual ituiaber of daye in the period
and with semiannual compounding if more than one coupon period is involved.

\j __.

TREASURY DEPARTMENT
W A S H I N G T O N , D.C
RELEASE A . M . NEWSPAPERS,
fuecday, April 12, I960.

A-808

The Treasury Department announced last evening that the tenders for two series of
Treasury bills, ono caries to be an additional issue of the bills dated January lit, I960,
airl the other series to be dated April lu, I960, which were offered on April 7, were
opened at the Federal Reserve Banks on April 11. Tenders were invited for 01,100,000,000,
or thereabouts, of 91-day bills and for $500,000,000, or thereabouts, of 182-day bills.
The details of the two series are as follows:
RAISE OF ACCEPTED
COMPETITIVE BIDS:

High
Low
Average

182-day Treasury bills
maturing October 13, I960
Approx. Equiv.
Price
Annual Rate

91-day Treasury bills
maturing July lk« I960
Approx. Equiv,
Price
Annual Rate

98.124 b/
97.952
98.052

3.501%
3.683$
3.622$ 1/

99*115 a/
99.069 ~
99.081*

3.711.S
lu05W
3.851$ 1/

a/ Excepting three tenders totaling $382,000; b/ Excepting one tender of $10,000
"62 percent of the amount of 91~day bills bid for at the low price was accepted
32 percent of the amount of 182-day bills bid for at the low price was accepted
TdAL TEWDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District

Applied For

Accepted

: Applied For

Accepted

•

Boston
Neu York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Ilinnsapolis
Kanaas City
Dallas
San Francisco

$
26,1*1*7.000
1,286,541,000
27,829,000
1*8,921*, 000
10,055,000
21,91*2,000
193,980,000
21,21*4,000
10,714,000
32,335,000
15,71*8,000
50,112,000

16,1*1*7,000
728,81*1,000
27,829,000
1*0,924,000
10,055,000
20,51*2,000
131,980,000
20,21*4,000
9,5ll*,000
31,835,000
15,71*8,000
1*6?112,000

s
*
*
:
:
t
:
•
i
t
s
J

$1,71*5,871,000

$1,100,071,000 c/:

& 3,979,000
1*73,005,000
8,1.51,000
9,969,000
1,011*, 000
3,974,000
80,502,000
11,21*3,000
2,008,000
8,383,000
3,969,000
1*3.927,000

$ 3,979,000
344,605,000
8,1.51,000
9,969,000
1,011,000
3,974,000
58,502,000

$650,42l*,000

C5C0,O2l*,O00

11,21J3,000

2,C08,COO
8,383,000
3,969,000
1*3,927,000

•

TOTALS

Includes $226,005,000 noncompetitive tenders accepted at the average price of 99.081*
t
If Includes £ 1*2,921*,000 noncompetitive tenders accepted at the average price of 98.052
:

Average rate on a coupon issue equivalent yield basis is 3.71$ for the 91-oay bills
and 3»99% for the 182-day bills. Interest rates on bills aro quoted on the basis
of ban!: discount, x:ith their length in actual nueiber of days related to a 360-day
year. In contrast, yields on certificates, notes, and bonds aro ce./putcd on the
basis of interest on the investment, with the number of days remaining in a semiannual interest payment period related to the actual numbor of days in the period,
and with semiannual compounding if more than one coupon period is involved.

Oc1

A-

RELEASE A. M. SUsTSPAFBItB ,
Wednesday, April 13 f I960.

The Treasury Department announced last evening that the tenders for $2,000,000,000
or thereabouts, of 365-day Treasury bills to be dated April 15, I960, and te sataie '
April 15, 1961, which were offered on April 7, were opened at the Federal Reserve Btifa
on April 12.
The details of this issue are as follows:
Total applied for - $2,856,156,000
Total accepted
- 2,000,115,000

(includes 1111,356,000 entered on a
noncompetitive basis and accepted In
f a H at the average prise shown bales)

Range of accepted competitive bids: (Excepting four tenders totaling .116,000)
High
Low

- 95.5Q& Equivalent rate of discount approx. k.k3&% par anna.
- 95.194
*
*
*
•
4*7li0* *
*

Average

- 95.328

l*.608* «

• \j

(12 percent of the amount bid for at the low price was accepted)
Federal Reserve
District

Total
Applied for

Total
Accepted

Boston
Sew fork
Philadelphia
Cleveland
Bichstond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Kallas
San Francisco

44,>90,000
2,21*8,002,000
1*5,301,000
103,318,000
16,559,000
10,962,000
206,907,000
8,818,000
8,3al,O00
21,509,000
13,055,000
128_79l*_000

$
2*1,090,000
1,527,677,000
20,301,000
72,268,000
14,059,000
10,862,000
172,507,000
7,798,000
6,177,000
17,7fe9,O0O
10,855,000
98,772,000

TOTAL

12,356,156,000

#2,000,115,000

1/ Average rate on a coupon issue equivalent yield baeie ia 1*.81*55 for these sills.
~
Interest rates on bills are quoted on the basis of bank discount, with their
length in actual number of days related to a 360-day year. In contrast, yield*
on certificates, notes, and bends are computed on the basis of interest on th«
investment, with the number of days remaining la a semiannual interest paymtnt
period related to the actual number of days in the period, and with seKiaaaaal
compounding if more than one coupon period is involved*

TREASURY DEPART
W A S H I N G T O N , D.C
5LEASE A. M. NEWSPAPERS,
idnesday, April 13, I960.

A-809

The Treasury Department announced last evening that the tenders for $2,000,000,000,
. thereabouts, of 365-day Treasury bills to be dated April 15, I960, and to mature
jril 15, 1961, which were offered on April 7, were opened at the Federal Reserve Banks
1 April 12.
The details of this issue are as follows:
Total applied for - #2,856,156,000
Total accepted
- 2,000,115,000

(includes $111,356,000 entered on a
noncompetitive basis and accepted in
full at the average price shown below)

Range of accepted competitive bids: (Excepting four tenders totaling $116,000)
High
Low

- 95.500 Equivalent rate of discount approx. k*k3Q% per annum
- 95.191*
«
«
tt
n
«
4.71*0$ »
«

Average

- 95.328

k.603% «

(12 percent of the amount bid for at the low price was accepted)
Federal Reserve
District

Total
Applied for

Total
Accepted

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

$
1*4,590,000
2,21*8,002,000
1*5,301,000
103,318,000
16,559,000
10,962,000
206,907,000
8,818,000
8,31*1,000
21,509,000
13,055,000
128,794,000

$
1*1,090,000
1,527,677,000
20,301,000
72,268,000
ll*,059,00Q
10,862,000
172,507,000
7,798,000
6,177,000
17,71*9,000
10,855,000
98,772,000

TOTAL

$2,856,156,000

$2,000,115,000

'Average rate on a coupon issue equivalent yield basis is lf.»SJU^S for these bil
Interest rates on bills are quoted on the basis of bank discount, with their
length in actual number of days related to a 360~dajr year. In contrast, yields
on certificates, notes, and bonds are computed on the basis of interest on the
investment, with the number of days remaining in a semiannual interest payment
period related to the actual number of days in the period, and with semiannual
compounding if more than one coupon period is involved.

AJt»_s__xx3qaxp_gx
from the sale or other disposition of Treasury bills does not have any special

treatment, as such, under the Internal Revenue Code of 1954. The bills are subje

to estate, inheritance, gift or other excise taxes, whether Federal or State, bu

are exempt from all taxation now or hereafter imposed on the principal or inter
thereof by any State, or any of the possessions of the United States, or by any

local taxing authority. For purposes of taxation the amount of discount at whic

Treasury bills are originally sold by the United States is considered to be inte

Under Sections 454 (b) and 1221 (5) of the Internal Revenue Code of 1954 the am

of discount at which bills issued hereunder are sold is not considered to accru

until such bills are sold, redeemed or otherwise disposed of, and such bills ar
cluded from consideration as capital assets. Accordingly, the owner of Treasury

bills (other than life insurance companies) issued hereunder need include in hi

income tax return only the difference between the price paid for such bills, whe

on original issue or on subsequent purchase, and the amount actually received ei

upon sale or redemption at maturity during the taxable year for which the retur
made, as ordinary gain or loss.
Treasury Department Circular No. 418, Revised, and this notice, prescribe the
terms of the Treasury bills and govern the conditions of their issue. Copies of
the circular may be obtained from any Federal Reserve Bank or Branch.

~ 2-

BTOQBQ8Q_8_S5g&

decimals, e. g., 99.925. Fractions may not be used. It is urged that -f^Sders be
made on the printed forms and forwarded in the special envelopes which will be
supplied by Federal Reserve Banks or Branches on application therefor.
Others than banking institutions will not be permitted to submit tenders ex-

cept for their own account. Tenders wiH be received without deposit from incorpo

rated banks and trust companies and from responsible and recognized dealers in i

ment securities. Tenders from others must be accompanied by payment of 2 percent

the face amount of Treasury bills applied for, unless the tenders are accompanie
an express guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at the Federal Re-

serve Banks and Branches, following which public announcement will be made by th

Treasury Department of the amount and price range of accepted bids. Those submit

ting tenders will be advised of the acceptance or rejection thereof. The Secreta

of the Treasury expressly reserves the right to accept or reject any or all tend
in whole or in part, and his action in any such respect shall be final. Subject

these reservations, noncompetitive tenders for $ 200,000 or less for the additio
bills dated January 21, 1960 , ( 91 days remaining until maturity date on
July 21, 1960 ) and noncompetitive tenders for $100,000 or less for the

182 -day bills without stated price from any one bidder will be accepted in full
£xx£
at the average price (in three decimals) of accepted competitive bids for the respec-

tive issues. Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on April 21, 1960 . in cash or

other immediately available funds or in a like face amount of Treasury bills mat
ing April 21, 1960 Cash and exchange tenders will receive equal treatment.
Cash adjustments will be made for differences between the par value of maturing
bills accepted in exchange and the issue price of the new bills.
The income derived from Treasury bills, whether interest or gain from the sale

or other disposition of the bills, does not have any exemption, as such, and los

KKmSDQD!B5©CI®IX

TREASURY DEPARTMENT
Washington
RELEASE A. M. NEWSPAPERS,
Thursday, April 14. 1960

•

The Treasury Department, by this public notice, invites tenders for two series

of Treasury bills to the aggregate amount of $ 1,400,000,000 , or thereabouts, f
cash and in exchange for Treasury bills maturing April 21, 1960 , in the amount
of $ 1,400.525.000 > as follows:
91 .day bills (to maturity date) to be issued April 21, 1960 >
in the amount of $ 1,000,000,000 , or thereabouts, representing an additional amount of bills dated January 21, 1960 ,

m
and to mature
July 21, 1960
, originally issued in the
amount of $ 400,228,000 , the additional and original bills
to be freely interchangeable.
182 -day bills, for $ 400,000,000 , or thereabouts, to be dated
2£__2$X
SpBEJ
April 21, 1960
, and to mature
October 20, 1960
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face

will be payable without interest. They will be issued in bearer form only, and i

denominations of $1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000 (matu
value).

Tenders will be received at Federal Reserve Banks and Branches up to the closing
hour, one-thirty o'clock p.m., Eastern Standard time, Monday, April 18. 1960

Tenders will not be received at the Treasury Department, Washington. Each tender

must be for an even multiple of $1,000, and in the case of competitive tenders t
price offered must be expressed on the basis of 100, with not more than three

RELEASE A. M. NEWSPAPERS,
Thursday, April 14, i960

A-810

The Treasury Department, by this public notice, invites tenders
for two series of Treasury bills to the aggregate amount of
$1,400,000,000, or thereabouts, for cash and in exchange for
Treasury bills maturing April 21, i960,
in the amount of
$1,400,525,000, as follows:
91-day bills (to maturity date) to be issued April 21 i960
in the amount of $1,000,000,000, or thereabouts, representing an'
additional amount of bills dated January 21, i960, and to
mature July 21, i960,
originally issued in the amount of
$400,228,000,
the additional and original bills to be freely
interchangeable.
182-day bills, for $400,000,000, or thereabouts, to be dated
April 21, i960,
and to mature October 20, i960.
The bills of both series will be issued on a discount basis undei
competitive and noncompetitive bidding as hereinafter provided, and
at maturity their face amount 'will be payable without interest.
They will be issued in bearer form only, and in denominations of
$1,000, $5,000, $10,000, $100,000, $500,000 and $1,000,000 (maturity
value).
Tenders will be received at Federal Reserve Banks and Branches
up to the closing hour, one-thirty o'clock p.m., Eastern
Standard time, Monday, April 18, i960.
Tenders will not be
received at the Treasury Department, Washington. Each tender must
be for an even multiple of $1,000, and in the case of competitive
tenders the price offered must be expressed on the basis of 100,
^with not more than three decimals, e. g., 99.925. Fractions may not
be used. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes which will be supplied by
Federal Reserve Banks or Branches on application therefor.
Others than banking Institutions will not be permitted to submit
tenders except for their own account. Tenders will be received
without deposit from incorporated banks and trust companies and from
responsible and recognized dealers in investment securities. Tenders
from others must be accompanied by payment of 2 percent of the face
amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank
or trust company.

- 2 Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public
announcement will be made by the Treasury Departmment of the amount
and price range of accepted bids. Those submitting tenders will be
advised of the acceptance or rejection thereof. The Secretary of
the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive
tenders for $200,000 or less for the additional bills dated
January 21, i960, £l days remaining until maturity date on
July 21, i960)
and noncompetitive tenders for $ 100,000
or less for the 182 -day bills without stated price from any one
bidder will be accepted in full at the average price (in three
decimals) of accepted competitive bids for the respective issues.
Settlement for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on April 21, i960,
in cash or other immediately available funds or in a like face
amount of Treasury bills maturing April 21, I960, Cash and
exchange tenders will receive equal treatment. Cash adjustments
will be made for differences between the par value of maturing
bills accepted in exchange and the Issue price of the new bills.
The income derived from Treasury bills, whether interest or
gain from the sale or other disposition of the bills, does not have
any exemption, as such, and loss from the sale or other disposition
of Treasury bills does not have any special treatment, as such,
under the' Internal Revenue Code of 1954. The bills are subject to
estate, Inheritance, gift or other excise taxes, whether Federal or
State, but are exempt from all taxation now or hereafter imposed on
the principal or interest thereof by any State, or any of the
possessions of the United States, or by any local taxing authority.
For purposes of taxation the amount of discount at which Treasury
bills are originally sold by the United States is considered to be
interest. Under Sections 454 (b) and 1221 (5) of the Internal
Revenue Code of 1954 the amount of discount at which bills issued
hereunder are sold is not considered to accrue until such bills are
sold, redeemed or otherwise disposed of, and such bills are excluded
from consideration as capital assets. Accordingly, the owner of
Treasury bills (other than life insurance companies) issued hereundei
need include in his income tax return only the difference between
the price paid for such bills, whether on original Issue or on
subsequent purchase, and the amount actually received either upon
sale or redemption at maturity during the taxable year for which the
0O0
return is made, as ordinary gain or loss.
Treasury Department Circular No. 4l8, Revised, and this notice,
prescribe
the terms
of
bills
and
thefrom
conditions
Federal
of theirReserve
issue.
Bank
Copies
orthe
Branch.
of Treasury
the circular
may
begovern
obtained
any

TREASURY DEPARTMENT
WASHINGTON, D.C.
IMMEDIATE RELEASE, Wednesday, April 15, I960., A-811
The Treasury Department today announced the subscription and allotment figures
vith respect to the cash offering of up to $1-1/2 billion of 4-1/4$ Treasury Bonds
of 1975-85, all of which subscriptions were accepted in full. The bonds are dated
April 5, 1960, and will mature May 15, 1985, unless they are called for redemption
at the option of the United States on any interest date on or after May 15, 1975.
In addition to the amount allotted to the public, $100 million of these bonds were
allotted to Government investment accounts.
On the companion cash offering of $2 billion, or thereabouts, of 4$ Treasury
Notes of Series E-1962, to be dated April 14, I960, and to mature May 15, 1962, subscriptions in excess of $100,000 were allotted 30 percent, but not less than $100,000
on any one subscription, and subscriptions for $100,000 or less were allotted in full.
In addition to the amount allotted to the public, $27,400,000 of these notes were allotted to Government investment accounts.
Subscriptions and allotments were divided among the several Federal Reserve Districts and the Treasury as follows:
TREASURY BONDS OF 1975-85
Total Subscriptions
Received & Allotted

Federal Reserve
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
Govt.Inv.Accts3.

Totals

TREASURY NOTES OF SERIES E-1962
Total
Total Subscriptions Received
Allotments

$ 38,489,500
128,693,000
14,424,500
8,550,000
19,442,500
15,977,000
44,865,000
7,742,000
5,805,500
11,411,500
22,056,000
52,031,500
46,000
100,000,000

$ 411,497,000
2,704,844,000
296,591,000
541,253,000
212,120,000
239,257,000
903,401,000
198,316,000
122,082,000
208,144,000
321,414,000
556,054,000
34,000

$469,534,000

$6,715,007,000

Allotments by investor classes for the bonds were as follows:
Savings-type . . .'. . $186,149,500
Commercial banks . . . 87,303,000
All others
96,081,500
Total $369,534,000
Govt. Inv. Accts. . . 100,000,000
Grand Total . $469,534,000

132,640,000
827,521,000
97,328,000
173,337,000
73,045,000
85,675,000
306,198,000
74,703,000
50,407,000
82,093,000
106,400,000
174,001,000
34,000
27,400,000

$2 ,210,782,000

- 2-

Commodity

Period

and

Quantity

Unit
Imports
of
as of
Quantity;April 2. l%n

Absolute Quotas:
Peanuts, shelled, unshelled,
blanched, salted, prepared or
preserved (incl. roasted peanuts but not peanut butter)...
Rye, rye flour, and rye meal..

Butter substitutes, including
butter oil, containing 45% or
more butterfat
Tung Oil

*Imports through April 1 1 , 1960.

12 mos. from
August 1, 1959

1,709,000

Pound

Sept. 1, 1959 June 30, 1960
Canada
75,851,741
Other Countries 1,547,995

Pound
Pound

50,636,21!

Calendar Year

1,200,000

Pound

1,199,95!

Feb. 1, 1960 Oct. 31, 1960
Argentina
17,958,321
Paraguay
2,223,000
Other Countries
704,382

Pound
Pound
Pound

3,616,22
Quota Fills
155,8(J

538,^

TREASURY DEPARTMENT
Washington, D. C.
IMMEDIATE RELEASE

A-812

FRIDAY, APRIL 15, I960

The Bureau of Customs announced today preliminary figures showing the imports for
consumption of the commodities listed below within quota limitations from the beginning
of the quota periods to April 2, I960, inclusive, as follows:

Commodity

Period

and

:
:
:

Quantity

Unit
:
Imports
of
:
as of
Quantity :April 2, 196f

Tariff-Rate Quotas:
Cream, fresh or sour Calendar Year 1,500,000

Gallon

Whole milk, fresh or sour Calendar Year 3,000,000

Gallon

Cattle, 700 lbs. or more each
(other than dairy cows)

January 1, I960 March 31, I960
April 1, 1960 June 30, 1960

Cattle, less than 200 lbs. ea.. 12 mos. from
April 1, 1959
12 mos. from
April 1, I960
Fish, fresh or frozen, filleted,
etc., cod, haddock, hake, pollock, cusk, and rosefish

Calendar Year

120,000

Head

26,159

120,000

Head

114

200,000

Head

33,953

200,000

Head

246

36,533,173

Tuna fish Calendar Year 53,448,330
White or Irish potatoes:
Certified seed
0ther

12 mos. from
Sept. 15, 1959

114,000,000
36,000,000

Walnuts Calendar Year 5,000,000

Pound

12,485,211^

Pound

8,581,279«

Pound
Pound

47,708,54C
3,699,608

Pound

2,068,69C

Pound

423

Peanut oil 12 mos. from
July 1, 1959

80,000,000

Woolen fabrics Calendar Year 13,500,000
Woolen fabrics Pres. Proc. 3285 and 3317
(T. Ds. 54845 and 54955)

March 7 December 31, I960

Stainless steel table flatware
(table knives, table forks,
tablespoons)...

Nov0 1, 1959 Oct. 31, I960

Pound Quota filled

350,000

69,000,000

Pound

Pieces

109,998

50,262,200

1/Imports f°r consumption at the quota rate are limited to 18,266,586 pounds during the
first six months of the calendar year.
(overJ

TREASURY DEPARTMENT
Washington, D. C.
IMMEDIATE RELEASE

FRIDAY, APRIL 15, I960

A-812

Commodity

Period

and

Unit
of
Quantity

Quantity

:
Imports
:
as of
:April 2, 1960

Tariff-Rate Quotas:
]ream, fresh or sour Calendar Year 1,500,000

Gallon

iftiole milk, fresh or sour Calendar Year 3,000,000

Gallon

battle, 700 lbs. or more each
(other than dairy cows)

January 1, 1960 March 31, I960
April 1, 1960 June 30, 1960

lattle, less than 200 lbs. ea. . 12 mos. from
April 1, 1959
12 mos. from
April 1, 1960
'ish, fresh or frozen, filleted,
etc., cod, haddock, hake, pollock, cusk, and rosefish

Calendar Year

120,000

Head

26,159

120,000

Head

114

200,000

Head

33,953

200,000

Head

246

36,533,173

'una fish Calendar Year 53,448,330
bite or Irish potatoes:
Certified seed
Other

12 mos. from
Sept. 15, 1959

114,000,000
36,000,000

alnuts Calendar Year 5,000,000

Pound

12,485,21ll

Pound

8,581,279

Pound
Pound

47,708,540
3,699,608

Pound

2,068,690

Pound

423

Pound

Quota filled

Pound

109,998

eanut oil 12 mos. from
July 1, 1959

80,000,000

oolen fabrics Calendar Year 13,500,000
°olen fabrics p
res. Proc. 3285 and 3317
(T
- Ds. 54845 and 54955)

March 7 December 31, I960

Sinless steel table flatware
(table knives, table forks,
tablespoons)

Nov. 1, 1959 Oct. 31, I960

350,000

69,000,000

Pieces

50,262,200

^ropoTTs for consumption at the quota rate are limited to 18,266,586" pounds during the
(over)
first six months nf the calendar year.

- 2 -

Commodity

Period

and

Quantity

Unit :
Imports
of
:
as of
Quantity:April 2, I960

Absolute Quotas:
Peanuts, shelled, unshelled,
blanched, salted, prepared or
preserved (incl. roasted peanuts but not peanut butter)..,

Rye, rye flour, and rye meal..

Butter substitutes, including
butter oil, containing 45% or
more butterfat
,
Tung Oil

*Imports through April 11, I960.

12 mos. from
August 1, 1959

1,709,000

Pound

538,440

Sept. 1, 1959 June 30, I960
Canada
75,851,741
Other Countries 1,547,995

Pound
Pound

50,636,2L3

Calendar Year

1,200,000

Pound

1,199,95

Feb. 1, 1960 Oct. 31, 1960
Argentina
17,958,321
Paraguay
2,223,000
Other Countries
704,382

Pound
Pound
Pound

3,616,22
Quota Fillei
155,8«!

CO
LO
LO

TREASURY DEPARTMENT
Washington, D. G.
IUHSDIATE RELEASE

<_P

A-813

FRIDAY, APRIL 15, I960.

PRELIMINARY DATA ON IMPORTS FOR CONSUMPTION 0? UNMANUFACTURED LEAD AND ZINC CHARGEABLE TO THE 6.UOTAS ESTABLISHED
BY PRESIDENTIAL PROCLAMATION NO. 3257 OF SEPTEMBER 22, 195*
QUARTERLY QUOTA PERIOD • January 4, I960 -March 31» I960
IMPORTS • January 4, I960 - March 3'* • 960
ITEM 392
j LesuTbullion or base bullion,
t load in pigs and bars, lead
Load-bearing ores, flue dust,s dross, reolai-ad lead, scrap
and mattes
: lead, antiJaonlal lsad, anti: aoni&l scrap load, typo metal,
i
all alloysQuota
or combinations of
sOiarterly Quota
:_iartarly
t
lead
t Dutiable. Lead
Imports : Datiabla Lead n.s.p.f.Dsporta
'(pounds')
~"
pFoundsJ
23,680,000
10,080,000
23,630,000
10,030,000

Country
of
Production

Australia

ITEM 394

ITEM 393

ITEM 391

t
*

: Zina-baaring ores ©f all kinds,: Zino la blocks, pigs, or slabs;
: except pyrites containing tt** s °1^9 o d worn-out zino, fit
t
over 3$ of zino
s only to be remanufaetured, zino
i
:
dross, and zinc skiamings
i€_tartariy
Quota,
:
I Quarterly __ota
5
_________
laports : By Weight
Imports
: Dutiable Zina
(Pounds)"
(Pounds)

Belgian Congo

5,440,000

Belgium and
Luxemburg (total)

7,520,000 3,973,3»*3

Bolivia
Canada

5,040,000

5,040,000
66,430,000

13,440,000 13,440,000 15,920,000 15,920,000

66,480,000

Italy
Mexico
Peru

16,160.000

16,160,000

Un« So. Africa

14,830,000

14,880,000

Yugoslovia
All other foreign
countries (total)

6,560,000

_B£_>AR__t XN THE BURSA. O. CUSTOMS

5,H39,90l

6,560,000

37,840,000

3,600,000

36,880,000

36,867,123

70,480,000

6,320,000

6,319,957

12,880,000

12,877,509

35,120,000

35,I2ft,000

3,760,000

3,759,9*9

15,760,000

6,080,000

17,840,000

6,080,000

TREASURY DSPASBSHf
Washington, D« C«
i^CDIAiS SSLEASS

FRIDAY, APRIL 15. I960.

A-813

PRELIMINARY DATA ON I2-POR.3 FOR CONSUMPTION 0? lEftL4NU_ AC7UP3D LEAD AND ZINC CHARGEABLE TO fHS QUOTAS ESTABLISHED
BY PRSSIDSN7IAL PROCLAMATION NO. 3257 OF SEPTEMBER 22, 195^
QUARTERLY QUOTA PERIOD • January 4, I960 - March 3', I960
IMPORTS - January 4, I960 - March 31, I960

ITEM 394
ITEM 392
iTEii 393
: Lead bullion or bass bullion,
j
t lead in pigs and bars, lead
Zina-bsaring ©r$s of all kinds, Zino la blooka, pigs, or slabsj
t Lead-baaring oras, fl_3 dust,s dross, reslainad lead, scrap
old and ^ra~out zino, fit
except pyrites containing not
!
and c_.ttes
: lead, aati-tioaial load, antionly to ba reaanuf&ctursd, zino
t
i aonia.1 scrap Isad, typs zetal,
crar 3^ o£ sin"
dross, and sine ski.~3lng3
:
: all alloys or ooabinationa of
:
*.,.,.„ ,-_, -l35-_ ,n_Ls.?*^*
i
£uarta?ly Quota
Quartsrly (_icia
:Quartsriy feio.a
:_z_rt3rly C_ota
Iaports : Duti^bla Load
By ?ai.?ht
Isporta
i Dutiable Lead
I_oort3 j Dutiable Zinc
(Pounds']*
~
*~ (Pounds)
(Pounda)
(Pounds
ITEM

Country
of
Prodaotion

Aiistr_li_
Belgian COQgO

10,080,000

391

IQ,Q8Qj000

5,440,000

5,439,901

7,520,000

3,973,3^3

B3igiua 2nd

Lu25_b_rg (total)
_sUvi_
•>-->--Is

5,040,000

13,440,000

13,1(40,000

15,920,000

Ital;-

L'-.__;<?

?*?U

1$,160,300

Cn.- So. Africa

14,880,000

T'Ji y*"" 1r""-* '*
All rth
ccu-VirJ.ti (total)

23,680,000 23,680,000

16,160,000
14,880,000

6,560,000

66,480,000

«K

6,560,000

15,920,000

37,840,000

3,600,000

36,880,000

36,867,123

70,480,000

6,320,000

6,319,957

12,880,000

12,877,509

35,120,000

3,760,000

3,759,949

15,760,000

6,030,000

6,080,000

17,840,000

6,080,000

TREASURY DEPARTMENT
Washington, D. G.
IMMEDIATE RELEASE

FRIDAY, APRIL 15, I960. A-8l4
PRELIMINARY DATA ON IMPORTS FOR CONSUMPTION OF UNMANUFACTURED LEAD AND ZINC CHARGEABLE TO THE QUOTAS ESTABLISHED
BY PRESIDENTIAL PROCLAMATION NO. 3257 0? SEPTEMBER 22, 195*
QUARTERLY QUOTA PERIOD -April I, I960 - June 30, I960
IMPORTS - April I, I960 - April 12, I960

Country
of
Produotion

ITEM 391
ITEM 392
i •"'"'" L"
J Lead"'bullion or base bullion,
i
i lead in pigs and bars, lead
Lead-bearing ore3, flue dust,J dross, reolaimad lead, scrap
and mattes
: lead, antijoonial lead, antit aonial scrap load, type metal,
j all alloys or combinations of
J
:Quarterly Quota
"
IjQua1rt9riyn_iota'~
lead, n.s.p.f.
i Dutiable. Lead
Imports : Dutiable Lead
Imports
(Pounds)
(Pounds)

ITEM 393
ITEM 394
:
*
t
*
: Zino-bearing ore3 of all kinds,: Zino in blocks, pigs, or slabs;
x except pyrites containing not t old and worn-out zino, fit
:
over y$> of zino
t only to bs .^manufactured, zino
i
*
dross, and zino skimmings
:
i Quarterly Quota
tsQuartsrly Quota
x Dutiable Zinc
Imports : By
ffel&ht
Imports
~
(Pounds)
(Pounds)

Australia 10,030,000 9,752,328 23,630,000 8,875,639
Belgian Congo - - - 5,440,000

'SStS'ct^) - - - 7,520,000 224,000
Bolivia 5,040,000 2,901,91 *» Canada 13,440,000 13,440,000 15,920,000 1,410,707 66,430,000 42,310,923 37,840,000 5,289,241
Italy - 3*600,000 1,351,056
M.,100 - 36,880,000 2,472,072 70,480,000 16,119,276 6,320,000
Ptru

16,160,000 2,939,833 12,880,000 799,135 35,120,000 3,283,211 3,760,000 599,813

Un. So. Africa 14,830,000 8,109,000 Yugoslovia - 15,750,000 893,491
A

oountr.rsf(totfl) 6,560,000 885,797 6,030,000 6,080,000 17,840,000 17,840,000 6,030,000 1,563,029

PBKPXHKD XH TH_ BUR-MI GT CUSTOMS

TREASURY DEPARTMENT
Washington, D* C*

I&SDIATE RELEASE

FRIDAY, APRIL 13, I960.

A-814

PRELIMINARY DATA ON IMPORTS FOR CONSUMPTION 0? UKiftNUFACTUE3D LEAD AND ZINC CHARGEABLE TO THE QUOTAS' ESTABLISHED
BY PRESIDENTIAL PROCLAMATION NO. 3257 OF SEPTEMBER 22, 1953
QUARTERLY QUOTA PERIOD • April I, I960 - June 30, I960
IMPORTS - Aprif |, i960 - April 12, I960
ITEM

Country
of
Produotion

Australia

391

1
1
1 Lead-bearing ores, flua dust,:
1
and mattes
:
t
:
2
J
tGuartarly feiota
1 Put labia. Load
Iaporta
(Pounds)
""
10,080,000

9,752,328

ITEM 393
ITEM 394
-_.^iI_^l-i_L
Lead bullion or base bullion,
lead in pigs and bars, lead
Zino-baaring o_«3 of all kinds,: Zino la blook3, pigs, or slabs;
dro33, rajlaisad load, scrap
except pyritas containing not : old and worn-out zino, fit
lead, anti^onlal load, antiovsr y$> of zino
f only to bo reaanufactured, zino
aonial scrap load, typs aatal,
:
dross, and zino skirtings
all alloys or ooobinationa of
load
n.s.p.f.
rtarly Quota
;(__j.rt3rly Quota
:Quartsrly Quota
Inoorts : By Weight
Eutlabli Laad
Inporta : Dutiable Zins
Izporta
(Pounds*)"
(Pounds)
(Pounds)
23,680,000

8,875,639

Belgian Congo

5,440,000

Belgian and
Luxaaburg (total)

7,520,000

Bolivia

5,040,000

2,901,91'*

Canada.

13,440,000

15,320,000

1,410,707

66,430,000

42,310,923

37,840,000

5,289,241

3,600,000

1,351,056

Italy

K*xioo

36,880,000

2,472,072

70,480,000

16,119,276

6,320,000

12,880,000

799,135

35,120,000

3,283,211

3,760,000

15,760,000

893,^91

6,080,000

17,840,000

Peru

16,160,000

2,939,833

Sn0 So. Africa

14,830,000
/

8,109,000

?ugoslovia
All other foreign
oountrles (total)

6,560,000

885,797

224,000

6,080,000

599,813

1,563,029

COTTON WASTES
(In pounds)

<%>

COTTON CARD STRIPS made from cotton having-a staple of less than 1-3/16 inches in length, COMBER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VALUE. Provided, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple- length in the case- of the following countries. United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy.

Country of Origin
United Kingdom
Canada . . . .
France . . . .
British India
Netherlands
Switzerland
Belgium . .
Japan • • .
China « , .
Egypt » . .
Cuba . . .
Germany . .
Italy . . .

Established
TOTAL QUOTA

Total Imports "1 Established s
Imports
1/
Sept. 20, 1959, to s 33-1/356 of . Sept, 20, 19 59
Total Quota s to April 12. I960
i April 12 f 1960

4,323,457
239.690
227,420
69,627
68,240
44,388
38,559
341,535
17,322
8,135
6,544
76,329
. 21,263

1,709,419
239,690
131,686

1,441,152

75,807

22,216

22,747
14,796
12,853

22,216

25,443
2,260

25,443
7,088

25,443
?,?60

5,482,509

2,130,714

1,599,886

1,566,878

1/ Included in total imports, column 2.
Prepared in the Bureau of Customs.

TREASURY DEPARTMENT
Washington, D. C.

MMEDIATE RELEASE

A-815

PRIDAY, APRIL 13, I960.

Preliminary data on imports for consumption of cotton and cotton waste chargeable to the quotas
established by the President's Proclamation of September 5, 1939, as amended
COTTON (other than linters) (in pounds)
Cotton under 1-1/8 inches other than rough or harsh under 3/4"
Imports September 20, 1959 , jforil I2f I960 '
puntry of Origin
-ypt and the AngloEgyptian Sudan ....
?ru
"itish India
lina
:xico
'azil
lion of Soviet
Socialist Eepublics
•gentina
,
.iti
uador

Established Quota
783.816
247,952
2,003,483
1,370,791
8,883,259
618,723
1+75,124
5,203
237
9,333

Imports

Established Quota

Country of Origin

Honduras
Paraguay
Colombia
Iraq
19,908
British East Africa ...
8,833,259 Netherlands E. Indies .
Barbados
618,000
l/Other British W. Indies
Nigeria
2/Other British W. Africa
3/Other French Africa ...
Algeria and Tunisia ...

45,656,420 Lbs.

Staple Length
1-3/8" or more
1-5/32" or more and under
1-3/8" (Tanguis)
l-l/8" or more and under
1-3/8"

Allocation
39,590,778

39,590,778

1,500,000

4,565.642

4,565,642

Imports

752
871
124
195
2,240
71,388

Imports

752
_

124
*»
_

21,321
5,377
16,004

689

«_

TREASURY DEPARTMENT
Washington, D. C.
IMMEDIATE RELEASE

A-815

FRIDAY. APRIL 15, I960.

Preliminary data on imports for consumption of cotton and cotton waste chargeable to the quotas
established by the President's Proclamation of September 5, 1939, as amended
COTTON (other than linters) (in pounds)
Cotton under 1-1/8 inches other than rough or harsh under 3/4"
Imports September 20, 1959 _. April 12f I960 '
Country of Origin
Ef-ypt and the AngloEgyptian Sudan . .-.
reru
British India
China
Mexico
Brazil
Union of Soviet
Socialist Republics
Argentina
Haiti
Ecuador

Established Quota

783,816
247,952
2,003,483
1,370,791
8,883,259
618,723
475,124
5,203
>237
9,333

Country of Origin

Imnorts

19,908
8,883,259
618,000

Established Quota

Honduras
Paraguay
Colombia
Iraq
British East Africa ...
Netherlands E. Indies .
Barbados
1/Other British W. Indies
Nigeria
2/0ther British W. Africa
3/Other French Africa ...
Algeria and Tunisia ...

Other than Barbados, Bermuda, Jamaica, Trinidad, and Tobago.
Other than Gold Coast and Nigeria.
Other than Algeria, Tunisia, and Madagascar.
Cotton 1-1/8" or more
Imports August 1, 1959 - April 12. I960
Established Quota (Global) - 45,656,420 ^bs.
Staple Length Allocation Imports
1-3/8" or more
39,590,778
1-5/32" or more and under
1-3/8" (Tanguis)
1-1/8" or more and undec

1,500,000

39,590,778
1,500,000

752
871
124
195
2,240
71,388
21,321
5,377
16,004

689

Imports

752
_.

124
._»
^
-

_.
,_,
..

-£-COTTON WASTES
(In pounds)
COTTON CARD STRIPS made-from cotton having-a staple of less than 1-3/16 inches in length, COMBER
WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE
ADVANCED IN VALUEs Provided, however, that not more than 33-1/3 percent of the quotas shall
be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more
in staple length in the case of the following countries % United Kingdom, France, Netherlands,
Switzerland, Belgium, Germany, and Italy .

Country of Origin
United Kingdom
Canada . . . .
France . . . .
British India .
Netherlands
Switzerland
Belgium • *
Japan • • •
China • • . •
Egypt a a a
Cuba . . . ,
Germany » •
Italy . . a

Established
TOTAL QUOTA

t
Total Imports
s Sept. 20, 1959, to
: Anril 12. I960

Established
33-1/356 of
Total Quota

Imports
Sept. 20, 19 59
to April 12. 1960

4,323,457
239,690
227,420
69,627
68,240
44,388
38,559
"341,535
17,322
8,135
6,544
76,329
. 21,263

1,709,419
239,690
131,686

1,441,152

75,807

22,216

22,747
14,796
12,853

22,216

25,443
2,260

25,443
7,088

25,443
?,?60

5,482,509

2,130,714

1,599,886

1,566,378

1/ Included in total imports, column 2.
Prepared in the Bureau of Customs.

CD
LO

r—
LO

TREASURY DEPARTMENT
Washington

IMMEDIATE RELEASE

A-816

FRIDAY, APRIL 15, I960.

The Bureau of Customs announced today the following preliminary
figures showing the imports for consumption from January 1, I960, to
April 2, 1960, inclusive, of commodities for which quotas were established pursuant to the Philippine Trade Agreement Revision Act of
1955:

Commodity

Buttons

Established Annual
Quota Quantity
,

765,000

Unit
of
Quantity
Gross

Imports
as of
April 2, 1960
59,078

Cigars. ,

180,000,000

Number

822,345

Coconut Oil

403,200,000

Pound

27,770,228

6,000,000

Pound

1,072,821

1,904,000,000

Pound

Cordage
(Refined..,
Sugars
(Unrefined,
Tobacco

18,122,000*
604,624,000*
5,850,000

Pound

* Information furnished by Department of Agriculture.

3,807,549

TREASURY DEPARTMENT
Washington

IMMEDIATE RELEASE

A-816

FRIDAY, APRIL 15, I960.

The Bureau of Customs announced today the following preliminary
figures showing the imports for consumption from January 1, I960, to
April 2, I960, inclusive, of commodities for which quotas were established pursuant to the Philippine Trade Agreement Revision Act of
1955:

Established Annual
Quota Quantity

Commodity

Buttons

765,000

Unit
of
Quantity

Imports
as of
April 2, I960

Gross

59,078
822,345

Cigars ,

180,000,000

Number

Coconut Oil ,

403,200,000

Pound

27,770,228

6,000,000

Pound

1,072,821

904,000,000

Pound

Cordage ,
(Refined..,
Sugars
(Unrefined,
Tobacco ,

18,122,000*
604,624,000*
5,850,000

Pound

* Information furnished by Department of Agriculture.

3,807,549

TKM

S T A T U T O R Y D E B T LIMITATION

9^fS^iSr

15,1960
A p #
Washington, ______!—±^L*—1, _.
Section 21 of Second Liberty Bond Act, as amended provides that the face amount « ° M f £ ° ^ S ^ ^ ^ ^
of that Act, and the face a,n un of obligations guaranteed as to principal and interest by the United St*.es
^ffl*™**™
A S O F

MARCH 3 1 , I960 ,

b^ngTntv^ £?l2Se1S2S& fSUo.OQoA .iB be temporarily increased by

$10,000,000,000.

...

.„ , .

. .

The following table shows the face amount of obligations outstanding and the face amount which can still be issued under
this limitation :
.
Total face amount that may be outstanding at any one time
$^75 »000,000,000
OutstandingObligations issued under Second Liberty Bond Act, as amended
Interest-bearing:
Treasury bills ., „ $37 ,1531023 , 000
Certificates of indebtedness.
1 5 f 237 » 810 , 000
Treasury notes
48.283.550.000
$100,674,383,000
BondsTreasury
8 4 , 713 , 069 , 850
Savings (current redemp. value)
47,753»887• 035
Depositary.
1 7 1 , 349 , 500
Investment series
....7.152.331.000
139,790,637,385
Special FundsCertificates of indebtedness
8,042,864,000
Treasury notes.... 10 , 636 , 238, 000
Treasury bonds
24,578,110,000
43.257.212.000
Total interest-bearing
.....
283,722,232,385
Matured, interest-ceased
459,761,550
Bearing no interest:
United States Savings Stamps
Excess profits tax refund bonds
Special notes of the United States:
Internat'l Monetary Fund series
Total ._

53 ,885 ,081
(77 t7y^
2,181,000 , 000
....•..-

Guaranteed obligations (not held by Treasury):
Interest-bearing:
Debentures: F.H.A
137,759,800
Matured, interest-ceased
Jjl.(*0
Grand total outstanding
Balance face amount of obligations issuable under above authority

2.235.685.033
286,417,678,968

-1 JO * J-L-l * J^J

Reconcilement with Statement of the Public Debt i$9£SJl.3ljl....l2.*$.
(Date)
(Daily Statement of the United States Treasury,
Ma£Ch..31-,...19.60.
)
(Date)
OutstandingTotal gross public debt
Guaranteed obligations not owned by the Treasury.
Total gross public debt and guaranteed obligations.
Deduct - other outstanding public debt obligations not subject to debt limitation

286.555.990,^92
8,444,009,507

286,826,484,7^3
"I 38,311 1 525
286,964,79^,268
408 t 80^.775

286,555,990,^93

A-817

S T A T U T O R Y D E B T LIMITATION
,r.T^^.TT n-,

-,,- T R E A S U R Y D E P A R T M E N T

-,,-/*

i ^

Flscel Service

' *.
1C. 1 Q , n
Washington, A p r . 1 5 , I 9 6 0
Section 21 of Second Liberty Bond Act, as amended, provides that the face amount of obligations issued under authority
of that Act, and the face ainwit of obligations guaranteed as to principal and interest by the United States (except such guaranteed obligations as may be held by the Secretary of the Treasury), "shall not exceed in the aggregate $285,000,000,000
(Act of June 30, 1959; U.S.C., title 31, sec. 757b), outstanding at any one time. For purposes of this section the current redemption value of any obligation issued on a discount basis which is redeemable prior to maturity at the optionof the holder
shall be considered as its face amount." The Act of June 30, 1959 (P«L. 86-74 86th Congress) provides that during the period
beginning on July 1, 1959 and ending June 30* I960, the above limitation ($285,000,000,000) bhall be temporarily increased by
$10,000,000,000.
The following table shows the face amount of obligations outstanding and the face amount which can still be issued under
this limitation :
Total face amount that may be outstanding at any one time
$295,000,000,000
OutstandingObligations issued under Second Liberty Bond Act, as amended
Interest-bearing:
AS

Treasury bills $37 ,153,023, 000
Certificates of indebtedness
Treasury notes
„
BondsTreasury
Savings (current redemp. value)
Depositary.
Investment series
Special FundsCertificates of indebtedness
Treasury notes
Treasury bonds
Total interest-bearing
Matured, interest-ceased
Bearing no interest:
United States Savings Stamps
Excess profits tax refund bonds
Special notes of the United States:
Internat'l Monetary Fund series
Total

O F MARCH 3 1 , I960

1 5 . 237,810 , 000
48.283.550.000

$100,6.74,383,000

8 4 , 713,069 , 850
47,753,887,035
171 % Jk9, 500
7.152.331.000

1 3 9 , 790 ,637,385

8 , 0 4 2 , 864 , 000
10 , 636, 238, 000
24,578,110,000

43.257.212.000
283,722,232,385
4 5 9 76l 550

53,885,081
799,952
2,181,000,000

Guaranteed obligations (not held by Treasury):
Interest-bearing:
Debentures: F.H.A
137 , 759 , 800
Matured, interest-ceased
551,725
Grand total outstanding
Balance face amount of obligations issuable under above authority

2, 235 . 685. 033
286,417,678,968

1^8. 3 H » 525
286.555.990.493
0,*KW-, U U 7 , _)U/

Reconcilement with Statement of the Public Debt tl^9^.y±.t..A-yS9.
(Data)

(Daily Statement of the United States Treasury,
r\ .

••

}lWCCh..31 ,,...19.60.

(Date)

OutstandingTotal gross public debt
Guaranteed obligations not owned by the Treasury.
Total gross public debt and guaranteed obligations. „
,
Deduct - other outstanding public debt obligations not subject to debt limitation

,
,

286, 826,484,743
1,3°» JH 1 y£y
286,964,796,268
408^805.775

286,555,990,493

A-817

*pril ?f xm

M W f M W P ff-«u jtug^ h.jqiffMf.
gSW#S3l#*g securities
acecaat*
darleg ib© soatfc
fevmmit tor trmmzy immmmm^m mM other
1960s
|43,695,CXX».00
* » # » • » » * • * * • • • • * • •

$ falletfiag transact ioaa wsre &&de la direct

©r

V»K

•

{^miB

TREASURY DEPARTMENT
WASHINGTON, D.C

IMMEDIATE RELEASE,
ffucodayi—Maiaab-l^j 1Q60_^

# Ofy^J rf'9C*i

Sr*Sl

During Fah^fmory^ I960, market
transactions in direct and guaranteed
securities of the government for
Treasury investment and other accounts
resulted in net purchases by the Treasury
Department of J±_S__Mz3_|g>.

0O0

TREASURY DEPARTMENT
WASHINGTON, D.C

IMMEDIATE RELEASE,
Friday, April 15, I960.

A-818

During March 1960, market transactions
in direct and guaranteed securities of the
government for Treasury investment and
other accounts resulted in net purchases
by the Treasury Department of $43,081,500.

0O0

mp^u

*t w. w a w g a a , tawday, Apia If, 4*g.

list <wnl;^ thftt Vm Ummm for
Mil®, one mmwtmm 1m m an additlMtl X»*m mi tlMi bills Omtrnd
1960, mni th* otor series to ye m%*M April 21, I960, which mmm oliorvd on April li*,
11,000,000,00®, *r ^.rs& limits, #£ ffc-Aqr Mil* ftii for 1400,000,000, or
•f l§t*<§ay nil is. rn.. muiX* #f tl» too 3>.ri^ mm. mm follow**

nun. ft Aoesmo

fA*4*f frmmiry bUU

htm*
mUirtm Dctobar
.RpfW* I^UiT,
Animal lata

OONKHUfK BfiMIt

Rich

ftOft
AVWTH*

3»i$*
3*33«

nasty
,

B.nmy

ttait

3*6QSI
3.783*
3.7C» |/

$f tf0, 0§0
Af tl» a t m i #f 9i-1ay tills bid • or at tt* lot* ^riea wa*
of tlm a m o t of XSa-d^ M H a % M ftr at ti» 1** prlo«
t m i T S m & A m X E D fQi AMD AOOUnm If tSDUUX WWERVE UOfflKICfSf

aaaa*
pin T©rk
WLmhmi%4
AtlAStft
0&i@a||®
St* loiiia
fOmaftptllft
Mfiyia» Gity
Bolli*
toaua

*•__». .gHL-» fltgtfai.
190)1***
l»t3i,?0#,00@
ff,S3if00§

JMSMOft
U_ f t» 9 «9

m»m9tm
t0§,?«S,000
28,01*0,000
10?766,GOO
31,000,000
20,371,000
«Lf7A
f3tt»aai

#3$,tii,000
3®,##,000
12,^B?,000
21,031,000
H3,StSf00@
aati»M0
ff3f&,000
33,2f0,00©
20,271,000
n,000,031,000 y

sssL
I Mn,0O0
8tt)t>_Q0O
1,3*0,000
13,652,000
5.1W.QC&
6030,000
ftO?f,000
3,203,000
3,12$,000
10,075,000
$,401,000
i7t§s,ii3,0o©
yy,i^.gi_

• fcjgn*ooo
300,678,000
1,500,000
6,052,000
4,80S* ,090
k,W,0C*
29,U9,000
3,203,000
1,625#000
5,660,0)0
gi00»iaf00@y

IMlvitt tCAJMlfOOO mmmwmMUm Undara *ocsept»d «t the awag_ priw of ft#^
lacludtis m§m9W®
mm*mpmUUm
Um$*m mwmUA
m% th* *v*r&*« prica #f Si.llt
Avi««g« !»%• ©« * t#«p#» iasu© ©q^ivslent |l#Xdi baois la 3#3ft| fe? th« 91-^y Mill
aai
3*§3i
^ r tii« vitli
162-day
billa.
on billii
aro mmm*B
testli
#f Hnafe
4JMNi@«t,
ttelr
iMithInterest
in mtmXrata,
mtmMmr
miteyrn
mUtmB ontoth«
* im-timy

ynzr. in contrast, yields mm mmvUttmmtm, not*©, and boais *r« cwnput*d on tia
fe^sl^ #f imttftiNit on th© inv^ateant,, with toe number of d»y» r®«aiitltig In * mm&~
mmmX Am%mm% mmywmwk period r«lat#d to th* actual mmtomv mt d&ym in Ui* p**t
&&$ vith *^aiAnnu«l ©©»|K>undi«g If more than or^ ©o\ipon wmwA&tl Am AammlmmB.

TREASURY DEPARTMENT
_________

WASHINGTON, D.C
RELEASE A. M. NEWSPAPERS, Tuesday, April 19, I960. ..-819
The Treasury Department announced last evening that the tenders for two series of
Treasury bills, one series to be an additional issue of the bills dated January 21,
I960, and the other series to be dated April 21, I960, which were offered on April lk9
were opened at the Federal Reserve Banks on April 18. Tenders were invited for
$1,000,000,000, or thereabouts, of 91-day bills and for $1*00,000,000, or thereabouts,
of 182-day bills. The details of the two series are as follows:
182-day Treasury bills
RANGE OP ACCEPTED
91-day Treasury bills
maturing October 20, I960
COMPETITIVE BIDS:
maturing July 21, I960
Approx. Equiv*
Approx. Equiv.
Price
Annual Rate
Price
Annual Rate
High
Low
Average

99.177
99.156
99.161*

3.256$
3.339$
3.306$ 1/

98.137 a
98.118
98.127

3.685$
3.723$
3.705$ y

y Excepting one tender of $50,000
30 percent of the amount of 91-day bills bid for at the low price was accepted
61 percent of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AND ACCEPTED BI FEDERAL RESERVE DISTRICTS:
District

Applied For

Accepted

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

$
31,130,000
1,231,709,000
29,539,000
39,956,000
H.,853,000
23,181,000
208,71*8,000
28,01*0,000
10,766,000
37,000,000
20,371,000
79,03l*_000

«
•
:
•

$1,7514,327,000

$1,000,031,000 y

TOTALS

19,138,000
635,262,000
U*,539,000
30,609,000
12,287,000
21,031,000
123,578,000
21,173,000
9,376,000
33,290,000
20,271,000
59,1*77,000

:
3
:
3
3
:
3
3
3
3

Applied For

Accepted

$ 1*,677,000
559,323,000
8,310,000
13,652,000
5,109,000
6,130,000
92,179,000
3,203,000
3,125,000
10,075,000
5,1*01,000
37,629,000

$ 1*,577,000
300,878,000
2,580,000
8,052,000
l*,809,O0O
1*,199,000
29,1*19,000
3,203,000
1,625,000
5,860,000
5,1*01,000
29,518,000

$71*8,813,000

$1*00,121,000 c/

y Includes $251,1*81,000 noncompetitive tenders accepted at the average price of 99.161*
y. Includes $1*8,621,000 noncompetitive tenders accepted at the average price of 98.127
£/ Average rate on a coupon issue equivalent yield basis Is 3.38$ for the 91-day bills
and 3.83$ tor the 182-day bills. Interest rates on bills are quoted on the basis
of bank discount, with their length in actual number of days related to a 360-day
year. In contrast, yields on certificates, notes, and bonds are computed on the
basis of interest on the investment, with the number of days remaining in a semiannual interest payment period related to the actual number of days in the period,
and with semiannual compounding if more than one coupon period is involved.

en
CO
CO
LO

April 18, I960

Dear Lew:
Your letter of April 14, I960, advising of your resignation as First Deputy Comptroller of the Currency is received
with very mixed feelings. I am delighted that you are to go
to a most challenging position with one of our outstanding
national banks as I know that you will make a fine contribution
to that institution and will be highly successful in your new
work. Therefore, I offer sincere congratulations on the fine
recognition and opportunity which has come to you.
At the same time, like everyone in this office and I am
sure in the Treasury as a whole, we feel deep regret that you
are to leave us. You have served the office effectively and
well over more than thirty years. I am particularly familiar
with the record of the past seven years which covers the term
of my service as Comptroller of the Currency. You have done
great quantities of work intelligently and faithfully and
have made a great contribution to the Office of the Comptroller
of the Currency. Your activities have been in all respects
outstanding and have gained for you the high respect of
everyone. When you leave to assume your new position you will
carry with you our respect, admiration and affection.
I must add to this an expression of the very great obligation I feel to you personally for the way in which you have
helped me in the discharge of my duties. You have been truly
a stalwart and true friend and associate. You deserve every
word of praise that I can find to describe your performance.
With my best wishes for a happy and successful career
in your new connection, I am,
Sincerely yours,
/s/ R. M. Gidney
Ray M. Gidney
Comptroller of the Currency
Mr. L. A. Jennings
First Deputy Comptroller
of the Currency
Comptroller of the Currency
Washington, D. C.

^o
CO
in

7 Q

April Ik, I960
My dear Mr. Secretary:
The attached copy of a letter
to Mr. Ray M. Gidney, Comptroller of the Currency,
contains my resignation as First Deputy Comptroller
of the Currency effective commencing May 16, i960.
At that time I shall join the Republic National Bank
of Dallas, Texas as a Senior Vice President.
It has been a very real privilege
and pleasure to serve under your general supervision
as Secretary of the Treasury since July 29, 1957. On
numerous occasions as an Assistant Chief National Bank
Examiner and later as a Deputy Comptroller of the
Currency, I have worked with Texas bankers on various
banking matters and problems. They have so uniformly
represented the very best in American banking that I
have come to expect an extra measure of ability to be
possessed by all Texans. You have more than upheld
the tradition and I have profited through serving
under you.
If, at any time, you believe that
I can be of service to you, please call on me. You
may rest assured that I shall do my level best to
become worthy of the Texas tradition I have mentioned.
Sincerely yours,
/s/
L.A. Jennings
L. A. Jennings
Deputy Comptroller of the Currency
Enclosure
The Honorable Robert B. Anderson
Secretary of the Treasury
Washington 25, D. C.

oo
CO
03

c
THE SECRETARY OF THE TREASURY
WASHINGTON

April 18, I960

Dear Mr. Jennings?
It is with great regret that I have read your letter of
April 14, 196©, informing me of your resignation as First
Deputy Comptroller of the Currency effective May 16, i960.
I know that Ray Gidney feels as I do that your absence will
be keenly felt in the Office of the Comptroller, and in saying so I know also that I reflect the views of scores of
people In the banking fraternity throughout the Nation.
Before and since your appointment as First Deputy
Comptroller in January, 1952, your splendid reputation with
bankers throughout the country has been based on their observation of your wide knowledge of banking, a quick recognition of new developments and trends, and your outstanding
executive ability.
At the same time that I express these regrets, let me
also congratulate you on the occasion of your new connection
as a Senior Vice President of the Republic National Bank ©f
Dallas. All of us in the Treasury wish you every success in
your new position.
Sincerely,

/s/ Robert B. Anderson

Mr. Lewellyn A. Jennings
First Deputy Comptroller
of the Currency
Treasury Department
Washington 25, D. C.

CO
CO

oo
LO

FOR IMMEDIATE RELEASE
Monday, April 18. I960

A-820

Secretary Anderson today announced "with great regret"
the resignation of Lewellyn A. Jennings as First Deputy
Comptroller of the Currency effective May 16, I960.
Mr. Jennings will become Senior Vice President of the
Republic National Bank of Dallas, Texas.
Mr. Jennings has been with the Office of the Comptroller
of the Currency since February, 1929, and after serving in
various capacities, was named Deputy Comptroller in July
of 1950. He became First Deputy Comptroller in January, 1952.
The exchange of letters between Secretary Anderson,
Mr. Jennings and Comptroller of the Currency Ray M. Gidney
are attached.

TREASURY DEPARTMENT

WASHINGTON, D.C.

FOR IMMEDIATE RELEASE
Monday. April 18. I960

A-820

Secretary Anderson today announced "with great regret"
the resignation of Lewellyn A. Jennings as First Deputy
Comptroller of the Currency effective May 16, I960.
Mr. Jennings will become Senior Vice President of the
Republic National Bank of Dallas, Texas.
Mr. Jennings has been with the Office of the Comptroller
of the Currency since February, 1929, and after serving in
various capacities, was named Deputy Comptroller in July
of 1950. He became ^First Deputy Comptroller in January, 1952.
The exchange of letters between Secretary Anderson,
Mr. Jennings and Comptroller of the Currency Ray M. Gidney
are attached.

THE SECRETARY OF THE TREASURY
WASHINGTON

April 18, I960

Dear Mr. Jennings2
It is with great regret that I have read your letter of
April 14, i960, informing me of your resignation as First
Deputy Comptroller of the Currency effective May 16, i960.
I know that Ray Gidney feels as I do that your absence will
be keenly felt in the Office of the Comptroller, and in saying so I know also that I reflect the views of scores of
people In the banking fraternity throughout the Nation.
Before and since your appointment as First Deputy
Comptroller in January, 1952, your splendid reputation with
bankers throughout the country has been based on their observation of your wide knowledge of banking, a quick recognition of new developments and trends, and your outstanding
executive ability.
At the same time that I express these regrets, let me
also congratulate you on the occasion of your new connection
as a Senior Vice President of the Republic National Bank of
Dallas. All of us in the Treasury wish you every success in
your new position.
Sincerely,

/s/ Robert B. Anderson

Mr. Lewellyn A. Jennings
First Deputy Comptroller
of the Currency
Treasury Department
Washington 25, D. C.

April 14, i960
My dear Mr. Secretary:
The attached copy of a letter
to Mr. Ray M. Gidney, Comptroller of the Currency,
contains my resignation as First Deputy Comptroller
of the Currency effective commencing May 16, i960.
At that time I shall join the Republic National Bank
of Dallas, Texas as a Senior Vice President.
It has been a very real privilege
and pleasure to serve under your general supervision
as Secretary of the Treasury since July 29> 1957. On
numerous occasions as an Assistant Chief National Bank
Examiner and later as a Deputy Comptroller of the
Currency, I have worked with Texas bankers on various
banking matters and problems. They have so uniformly
represented the very best in American banking that I
have come to expect an extra measure of ability to be
possessed by all Texans. You have more than upheld
the tradition and I have profited through serving
under you.
If, at any time, you believe that
I can be of service to you, please call on me. You
may rest assured that I shall do my level best to
become worthy of the Texas tradition I have mentioned.
Sincerely yours,
/s/
L.A. Jennings
L. A. Jennings
Deputy Comptroller of the Currency
Enclosure
The Honorable Robert B. Anderson
Secretary of the Treasury
Washington 25, D. C.

85
April 18, I960
Dear Lew:
Your letter of April 14, i960, advising of your resignation as First Deputy Comptroller of the Currency is received
with very mixed feelings. I am delighted that you are to go
to a most challenging position with one of our outstanding
national banks as I know that you will make a fine contribution
to that institution and will be highly successful in your new
work. Therefore, I offer sincere congratulations on the fine
recognition and opportunity which has come to you.
At the same time, like everyone in this office and I am
sure in the Treasury as a whole, we feel deep regret that you
are to leave us. You have served the office effectively and
well over more than thirty years. I am particularly familiar
with the record of the past seven years which covers the term
of my service as Comptroller of the Currency. You have done
great quantities of work intelligently and faithfully and
have made a great contribution to the Office of the Comptroller
of the Currency. Your activities have been in all respects
outstanding and have gained for you the high respect of
everyone. When you leave to assume your new position you will
carry with you our respect, admiration and affection.
I must add to this an expression of the very great obligation I feel to you personally for the way in which you have
helped me in the discharge of my duties. You have been truly
a stalwart and true friend and associate. You deserve every
word of praise that I can find to describe your performance.
With my best wishes for a happy and successful career
in your new connection, I am,
Sincerely yours,
/s/ R. M. Gidney
Ray M. Gidney
Comptroller of the Currency
Mr. L. A. Jennings
First Deputy Comptroller
of the Currency
Comptroller of the Currency
Washington, D. C.

TREASURY DEPARTMENT
Washington
STATEMENT OF JAY W. GLASMANN,
ASSISTANT TO THE SECRETARY, BEFORE
THE COMMITTEE ON FINANCE OF THE
UNITED STATES SENATE ON H. R. 9662
10:00 A.M., APRIL 20, i960

The Treasury Department welcomes this opportunity to present
its views on H. R. 9662, a bill which would make a number of important substantive and technical changes in Subchapters J and K of
chapter 1 of the Internal Revenue Code. These Subchapters deal with
the income tax treatment of estates, trusts and beneficiaries, and
partners and partnerships.
As you know, in 1954 the Congress substantially revised and
enlarged the statutory provisions of the income tax laws relating
to estates and trusts (Subchapter J), and for the first time spelled
out detailed rules for the taxation of partners and partnerships
(Subchapter K).
With several yetirs of practical experience under these subchapters, it has become evident that many of the rules in these complex
areas of the tax law can and should be clarified and improved.
H. R. 9662 is intended to bring about such needed clarification and
improvement. With few exceptions, the Treasury Department supports
the changes embodied in this legislation.
BACKGROUND OF H. R. 9662
H. R. 9662 had its beginning in the Fall of 1956 when a Subcommittee of the House Ways and Means Committee appointed a number of
A-821

- 2 -

eminent attorneys and accountants to serve as advisors to the Subcommittee in its study of the possible revision of Subchapters J
and K of the Internal Revenue Code.
The advisory groups on Subchapters J and K held many meetings
between November, 1956 and December, 1958, with the members devoting
many hours to their extensive and difficult task. Printed preliminary reports, including drafts of statutory amendments, were submitted
to the Subcommittee of the Ways and Means Committee by the advisory
groups and released to the public late in 1957 • Members of the
advisory groups then testified before the full Ways and Means Committee in January and February of 195&, discussing in considerable
detail their reports and legislative recommendations. To facilitate
consideration of the changes proposed by the advisory groups, bills
were introduced In the House to make the proposed changes readily
available to the interested public.
Thereafter, the final reports of the advisory groups were completed in December 1958, and during February and March, 1959> the
Ways and Means Committee held extensive public hearings on these
reports. Members of the advisory groups again appeared and gave
detailed explanations of their recommendations. The Committee also
received comments on the advisory groups proposals from the Treasury
Department and from interested members of the public.

88
- 3Before turning to a discussion of the provisions of the bill,
I should like again to express publicly the appreciation of the
Treasury Department for the distinguished service performed by
those serving on the advisory groups on Subchapters J and K. Their
excellent work in assisting the Congress in its study of these
technical and complex areas of the tax law has made possible the
pending legislation.
The bill which is before the Committee today would make important changes in both Subchapters J and K» The bill is well over one
hundred pages long, and its subject matter for the most part Is both
technical and complex. If the Committee wishes us to do so, we can
proceed with a section by section discussion of the bill. In view
of the involved nature of the bill, however, we believe that we' can
be of greater help to the Committee if we concentrate on those areas
of the bill which are of major interest or which are controversial.
TITLE I - TRUSTS AND ESTATES
By way of introduction to a discussion of the more important
amendments in the trust and estate area (Title I of the bill), it
may be helpful to the Committee if I describe in very general terms
several of the basic rules governing the taxation of trust and estate
income under Subchapter J of present law,
(l) Income currently distributed or distributable by a trust
or an estate is considered to pass through the trust or estate as

-4-

a conduit, and is taxed to the beneficiaries as if the trust or
estate had not intervened between the beneficiaries and the ultimate
source of the income.
(2) Income which is not currently distributed or distributable,
and which is accumulated by the trust or estate, Is taxable to the
trust or estate as if it were a separate individual taxpayer.
(3) Income distributed by the trust or estate retains its tax
character in the hands of the beneficiary. For example, tax exempt
interest and long term capital.gain received by a trust and distributed to a beneficiary are treated for tax purposes in the hands of
the beneficiary as tax exempt interest and long term capital gain.
(4) Because the income accumulated by a trust is taxable to the
trust rather than the beneficiary, a reduction of tax win usually
result whenever the trust is in a lower tax bracket than the beneficiary. In recognition of the abuses possible in this area, Congress
in 1954 added the so-called five year "throwback" rule to the Internal
Revenue Code. In substance, this rule provides that if in any year
a trust makes a distribution in excess of its "distributable net
income" for the year, the excess will be Included in income of the
beneficiary to the extent of the accumulated income of the trust for
the preceding five years. The concept of "distributable net income"

came into the tax law in 1954 and is used to measure the amount includible by beneficiaries in their taxable Income. Generally speaking, it
is the taxable income of the trust with certain adjustments. For

- 5example, no deduction is allowed for distributions to beneficiaries,
or for the personal exemption allowed trusts and estates. Under the
throwback rule, the tax payable by the beneficiary on the receipt of
accumulated income cannot exceed the additional tax he would have
paid if the income had been distributed currently by the trust rather
than accumulated. If the throwback rule applies, the beneficiary is
taxed not only on the distribution in excess of the distributable net
income of the trust, but also on the tax paid by the trust on the
accumulated income distributed. The beneficiary then gets a credit
for the taxes paid by the trust. The throwback rule does not apply
unless the amounts distributed exceed the distributable net income
by more than $2,000. There are other exceptions to the throwback rule,
most notably an exception for final distributions made more than nine
years after the creation of a trust.
(5) Where a trust or estate has several beneficiaries, problems
arise as to the allocation for tax purposes of the distributable
income of the trust among the beneficiaries, particularly where the
distributions of the trust exceed its distributable net Income or
where, under the terms of the trust instrument, part of the trust
income is accumulated, but corpus distributions are made by the trust.
In order to determine the beneficiaries who are to be regarded as
having received taxable Income and the extent thereof, Congress in
1954 provided a system of priorities in the allocation of income of
estates and trusts, commonly referred to as the two tier system.

-6 Under this rule, the distributable net income of the trust or
estate, which by and large is taxable to the beneficiary receiving
it, is allocated first to the beneficiaries to whom income is required to be distributed currently (the so-called first tier beneficiaries). If there is any distributable net income left over,
this remaining distributable net income is then divided among all
other beneficiaries who have received distributions of either corpus
or income. These latter beneficiaries are referred to as second tier
beneficiaries, and, as mentioned, include every one other than beneficiaries to whom income is required to be distributed currently.
(6). This tier system, standing alone, might give an inequitable
result in any case where a single trust with several beneficiaries
provides a well-defined separate share for each beneficiary. For
this reason Congress, in 1954, also added the so-called separate
share rule to the Code.. In essence, this rule, which applies only
to trusts and not to estates, provides that substantially separate
and independent shares of different beneficiaries in a single trust
shall be treated as separate trusts for purposes of determining the
tax incidence of distributions by the trust.
Turning now from this brief review of present law to the provisions of the measure pending before the Committee, I should first
like to discuss section 101 of the bill which relates to the sale of
property subject to a legal life estate.

Section 101 - Legal Life Estates
This section is intended to prevent income from escaping taxation
through a loophole which it appeared had been opened by the decision
of the Court of Appeals for the 9th Circuit in Cooke v. United States,
228 F.2d 667 (1955). In that case the Court held that the owner of
a legal life estate in certain stocks, where there was no liability
for waste, was not subject to tax either individually or as a fiduciary for the remainderman upon gain realized on disposition of the
securities.
In an opinion handed down the 8th of this month in de Bonchamps v.
United States, the Court of Appeals for the 9th Circuit expressly overruled its position in the Cooke case by holding that property held
subject to a legal life estate should be treated as property held in
trust and that the life tenant is liable as fiduciary for payment of
tax on capital gains of the trust. This decision follows recent decisions of the Court of Claims and the District Court for the Southern
District of California, which also held the life tenant responsible
for the capital gains tax as a fiduciary.
These decisions appear to remove the need for the corrective
legislation contained in section 101 of the bill, at least for the
present time.
Section 107 - Tier System
As I have mentioned, present law provides a two tier system for
determining which of the beneficiaries receiving distributions from

\y y

-8 an estate or trust are deemed to have received its "distributable
net income" and are thus subject to tax upon the distributions.
Under this two tier system, beneficiaries receiving discretionary distributions of current income are placed in the same tier (the
second) with beneficiaries who can receive only corpus. Thus, a
beneficiary entitled to receive only corpus under the terms of the
trust instrument may be taxed on a portion of the amounts he receives
even though the distributable net income was in fact only sufficient
to satisfy the distributions to the income beneficiaries.
To correct this and other inequities produced by the present tier

system the bill would revise the classification of beneficiaries under
the present two tiers and add a third tier, primarily for those beneficiaries who can receive corpus only. Section 107 of the bill would
establish the following order of priority for taxing distributable
net income to the beneficiaries of a trust or estate:
First tier — Beneficiaries receiving mandatory or discretionary
distributions which can be paid only from current income.
Second tier — Beneficiaries entitled to receive discretionary
distributions which may be paid out of either current Income or
corpus (including accumulated income of prior years).
Third tier — Beneficiaries entitled to receive distributions
only out of corpus or accumulated income.
It should be noted that enactment of the proposed change in the
tier system, while logically sound, will necessarily mean that some

-9 -

beneficiaries of existing trusts and estates will be taxed more and
others less than would be the case under present law.
Section 102 and Section 106 - Charitable Beneficiaries
Two important provisions in the bill relate to the treatment to
be accorded charitable beneficiaries of estates and trusts. The
first would bring about a major simplification in the law by treating charitable contributions as distribution deductions rather than
as deductions from gross income, as is provided under present law.
This change would eliminate the need for two separate sets of computations and numerous complex adjustments in preparing fiduciary
returns where there are distributions to both charitable and noncharitable beneficiaries.
The second major change involving charities has to do with their
place in the tier system for purposes of determining when charitable
contributions shall reduce distributable net income. The bill, in
effect, places charitable beneficiaries in a fourth or last tier, so
that charitable distributions cannot reduce the distributable net
income allocable to, and hence taxable in the hands of, non-charitable
beneficiaries, including beneficiaries in the third tier who can under
the trust instrument receive only corpus distributions. The stated
purpose of this provision is to eliminate opportunities for tax
avoidance through the mixing of charitable beneficiaries and individual beneficiaries in the same trust.

- 10 -

For example, under present law if a grantor sets up a trust with
all of its income required to be paid to his son and an equal amount
of corpus is required to be paid University X, the son will be taxed
on the full amount he receives. On the other hand, if the provisions
of the trust instrument are reversed, with all of the income payable
to University X and an equal amount of corpus payable to the
grantor's son, the son would not be taxable. Under the bill the
grantor's son in both situations would be taxable on the amount
received from the trust, without regard to whether the amount he
received was characterized as income or corpus under the trust instrument. This result would be accomplished by dropping the charity down
to the bottom rung of the tier system ladder, so that the distributable net income of the trust will always be allocated first, to the
extent thereof, to amounts paid to taxable beneficiaries. While controversial, the proposed change in the tax treatment accorded distributions to charity is needed to prevent manipulation of charitable
beneficiaries to the advantage of individual beneficiaries through
operation of the tier system.
Section 108 - Separate Share Rule and Distributions in Kind by Estates
Section 108 of the bill would extend the separate share rule to
estates and would adopt a "distributions in kind" approach in connection with certain distributions by estates. These changes, although
criticized by some as not being as broad as they might like, actually
go a long ways toward correcting the major problems and hardships now

- 11 -

encountered in the taxation of distributions by estates.
The problem areas under existing law which have resulted In
widespread dissatisfaction with the handling of estate distributions
can be illustrated by two examples. First, suppose a testator leaves
half of his estate to his son and the other half to a marital deduction trust for his widow. If, during the probate of the estate, the
executor makes a partial distribution of corpus to the trustee in
order to establish the widow's trust, without making a similar distribution to the son, the trustee for the widow will have to pay a
tax on a disproportionately large amount, if not all, of the income
of the estate even though half of the estate's income has been accumulated for the son and must eventually be paid to him. The extension
of the separate share rule to estates, as proposed in section 108 of
the bill, would limit the tax on the trustee, under the facts in the
example, to the income attributable to the widow's separate one half
interest or share in the estate. The second example Involves the
case where the executor distributes the family automobile from the
residue of the estate to the widow. Since existing law generally
treats as a tax-exempt distribution of corpus only those distributions by the estate which are gifts or bequests of definite sums of
money or specific property, the widow would realize taxable income
upon receipt of the family car. Under the "distributions in kind"
approach adopted in the bill, real property or tangible personal
property owned by the decedent at death could be distributed from

- 12 the decedent's residuary estate to his beneficiaries free of income
tax if the executor designates the distribution as being in satisfaction of a bequest or devise.
Here again it should be noted that the proposal in the bill
differs materially from that recommended by the advisory group,
which in substance was that Congress should re-enact, with minor
changes, the rule of law which existed under the 1939 Code. In
effect, the advisory group proposal would permit the executor for
a period limited to three years to determine whether, and to what
extent, a distribution by the estate would be taxable to the beneficiary.
Section 103 (b) - Corpus Items of Deduction
Under present law expenses of an estate or trust which are
charged against corpus are allowed, in effect, as deductions to the
income beneficiaries even though the economic burden of the expenses
falls on the remaindermen. This rule applies even where there is
income allocable to corpus which is taxable to the estate or trust
against which these expenses could have been allowed as deductions.
This result has been severely criticized as improperly depriving
the remaindermen of the benefit of tax deductions to which they are
rightfully entitled.
To remedy this situation, section 103 of the bill provides that
corpus deductions shall first be applied against Income which is
allocable to corpus and taxable to the trust or estate. Only the

\y -^-

- 13 -

excess of corpus deductions which the trust cannot use to offset
corpus income are permitted to benefit the income beneficiaries.
The amendment will continue the policy of present law to avoid
wastage of corpus deductions and, at the same time, will result in
more equitable treatment of the remaindermen with respect to deductions chargeable against corpus.
In this connection it should be noted that tinder the bill where
an estate or trust uses the alternative method under section 1201
to compute its tax on capital gains, the corpus deductions (which
would have been allowed the trust if the alternative tax were not
applicable) are not allocated back to the income beneficiaries.
It has been stated by the Advisory Group and others that this
results in a wastage of deductions where the alternative tax Is used
by the estate or trust. We do not think that there is any wastage
of deductions in any realistic sense In this situation since the
overall tax on the estate or trust is less than it would have been
if the corpus deductions had been taken and the capital gains subjected to the regular rate. Moreover, if the corpus deductions were
permitted to go over to the income beneficiaries when the alternative tax applies, the executor or trustee might be subjected to
pressure by the income beneficiaries to realize more capital gains
as the capital gains of the estate or trust neared the point where
the alternative tax would become applicable.

- 14 -

Section 113 - Multiple Trusts
Section 113 of the bill is designed to limit the tax avoidance
opportunities existing under present law in connection with the use
of the multiple trust device. Basically, the multiple trust problem
arises when a grantor creates more than one trust to accumulate
income for the same ultimate beneficiary. The tax advantages offered
by the use of multiple trusts are two-fold: First, the splitting of
income at the trust level among a number of separate taxable entities
and second, the avoidance of tax at the beneficiary level through
multiplication of exceptions to the five-year throwback rule. Some
of the more flagrant cases that have come to the attention of the
Internal Revenue Service in recent years have involved the establishment of between 90 and 200 trusts by the same person to accumulate
income for the same beneficiary. More typical Is the situation
where an individual, either all at one time or over a period of years,
will establish from two to ten trusts to accumulate income for the
same beneficiary.
The substantial tax savings to high-bracket taxpayers that may
result from the use of the multiple trust device is illustrated by
the following example: Suppose an individual in the 90 percent tax
bracket wants to make a gift of a million dollars worth of securities
yielding a return of 4 percent to his son, who prior to the gift has
taxable income of $20,000. If the gift Is made directly to the son,
the annual income from the securities, amounting to $*K),000, would

- 15 -

be added on top of the son's regular income and, if he were single,
would be taxed at an effective rate of about 65 percent. If the
million dollars worth of securities were transferred to a single
trust established to accumulate income for the son, the income would
be taxed to the trust as a separate entity at an effective rate of
around 49 percent. If multiple trusts, rather than a single trust,
were used to accumulate income for the son, the tax savings may be
materially increased. Thus, if the grantor established five trusts
to accumulate the income for the son, the effective tax rate on the
$^40,000 of income, divided equally among the five trusts as separate
tax-paying entities, would drop to around 24 percent. Moreover,
because of the many exceptions to the throwback rule provided by
existing law (particularly the termination exemption for trusts lasting more than nine years), it would be a simple matter for the grantor
to arrange his five trusts so as to avoid any additional tax on his
son at the time the accumulated trust income is distributed to him.
While in a case as flagrant as this five-trust example the
Service might attempt through litigation to disregard the separate
trust entities, the example does illustrate the procedure followed
by a number of high tax bracket taxpayers to obtain tax advantages
through the creation of multiple trusts for the same beneficiary.
Incidentally, the example points up the fact that single trusts can
also be used to save taxes. This suggests that at an appropriate
time Congress should give serious study to tightening for all trusts

- 16 the application of the throwback rule of existing law.
The problem of multiple trusts has been recognized for a number
of years. In 1956, for example, the staffs of the Joint Committee
on Internal Revenue Taxation and the Treasury Department listed this
problem as one of a number of unintended benefits for examination by
the Subcommittee on Internal Revenue Taxation of the House Ways and
Means Committee. The work of the advisory group on Subchapter J in
the multiple trust area grew out of this staff recommendation.
A number of different possible ways of dealing with the multipletrust problem have been suggested. Those who oppose any legislation
suggest that there is no proof that the problem is sufficiently widespread to justify complex legislation and that the Service should
attempt to control the problem through regulations and litigation.
Others have suggested that a broad statutory provision might be
enacted which would simply give the Secretary of the Treasury or his
delegate the power to tax multiple trusts as one trust, where necessary to prevent tax avoidance. Another approach, and basically the
one recommended by the advisory group on Subchapter J, would provide
detailed statutory rules for consolidating the income of all trusts
created by the same grantor for substantially the same primary beneficiaries, without regard to the presence or absence of tax avoidance
motives. Still another approach, and the one adopted in the bill to
deal with the problem, would tax the beneficiary receiving distributions from multiple trusts at the time the distributions are received.

-17 -

202

This would be accomplished by expanding and tightening the operation
of the throwback rules of existing law where multiple trusts are
involved.
Each of the above approaches has Its advantages and disadvantages.
As I have mentioned, the approach taken in section 113 of the
bill would tax the beneficiaries of multiple trusts upon the accumulated income of such trusts as and when distributed to the beneficiaries. This rule would apply, however, only to the extent that
income has been accumulated by a multiple trust in the preceding 10
years. Moreover, where a grantor creates a series of trusts to distribute the accumulated income to the same beneficiary, the first
trust making distributions would not be subject to the multiple
trust rules, but distributions from the second and succeeding trusts
would be treated as multiple trust distributions.
In essence the bill attacks the multiple trust problem by eliminating the exceptions under the present five-year throwback rule and
by extending the throwback period from 5 to 10 years. This new 10
year throwback rule for multiple trusts would operate in substantially
the same manner as the present five year throwback rule except that
the character rules would be eliminated and the additional taxes due
from the beneficiaries would be computed without the lini tation on
tax contained in section 66Q (a) of the Code.

- 18 -

The principal advantages of this approach are twofold: First,
the additional tax is imposed on the beneficiary and only when it is
an established fact that the trust is a multiple trust. Thus, as
compared to the consolidation approach, it offers more certainty as
to the trusts to which it applies and there is no need to develop
complex rules for consolidation of trust income or to fix responsibility for making the consolidation. Second, by tightening and
expanding the throwback rule many of the tax advantages which now
contribute to the establishment of multiple trusts would be removed.
The approach taken under section 113 of the bill has been criticized on a number of grounds. First, it is argued that the throwback
approach, by waiting to impose the additional tax upon distributions
by multiple trusts, does not reach the savings that occur during the
period income is accumulating in the trusts at relatively low tax
rates. Second, it is claimed that the approach creates an unwarranted
discrimination between beneficiaries of single and multiple trusts.
For example, it is pointed out that multiple trust status, because
of the elimination of the character rules, results in the taxation
of beneficiaries on amounts which represent accumulated tax exempt
income. It is also asserted that it is inequitable to make multiple
trust status depend upon "co-existence" of two trusts rather than
"co-accumulation" of income by the trusts. To cure these problems
it has been suggested that the bill might be revised to provide that
trusts would be treated as multiple trusts only if they accumulate

income for the same period so that there is some income splitting.
It has also been proposed that tax exempt income of a multiple trust
should retain its character when distributed to a beneficiary. We
believe that these suggestions have considerable merit and that these
and other possible modifications of section 113 should be given careful study.
It is claimed that many of the objections to the throwback
approach of section 113 would be satisfactorily met by consolidation
of the income of multiple trusts as earned* In other words, multiple
trusts accumulating income for the same beneficiary would, in effect,
be taxed as one trust. This in substance is the advisory group oroposal, although the advisory group would have permitted certain
exceptions to its general rule. While the consolidation approach
has considerable merit, the major objections to the advisory group
proposal are as follows:
(l) Under the proposal the existence of multiple trusts depends
upon whether the "primary beneficiaries" of two or more trusts are
"substantially the same". Since these terms are vague, it will be
difficult for both taxpayers and the Revenue Service to determine
the scope of the statute.
(2) It does not require consolidation of trust Income where
the grantor has created three or less trusts and no two were created
within 60 months. Furthermore, testamentary trusts would be treated
separately from inter vivos trusts. This three-trust exemption would

- 20 -

be, in effect, acquiescence in a three-way income splitting and would
blueprint a way for tax minimi zation.
(3) The proposal does not spell out the method of computing the
tax in connection with the consolidation of income of multiple trusts,
the method of allocating the tax among the trusts, or fix the responsibility as to which trustee shall bring the several trusts together.
It has been suggested, that matters as basic as computation of tax,
allocation of liability for tax and fixing responsibility for consolidating trust income should not be left to regulations without some
statutory guidance.
(4) It does not have any impact upon the foreign source income
of a trust established in a foreign jurisdiction, even though the
grantor and primary beneficiary are American residents, and the
grantor has already established several domestic trusts to accumulate
income for that same beneficiary.
As is evident from the above discussion, the multiple trust
problem is not a simple one. It is, however, a problem that urgently
needs Congressional action. In the opinion of the Treasury Department,
some form of legislation should be enacted during this session of
Congress to prevent existing and potentially serious abuse through
the use of multiple trusts. The Treasury Department prefers an
approach to the multiple trust problem along the lines of section 113
of the bill over the consolidation approach suggested by the advisory
group primarily because of the greater complexities involved in

)

}

1 n^
- 23. -

If the Committee should feel that the throwback approach taken
in section 113 of the bill does not provide a satisfactory solution
to the multiple trust problem, the Treasury Department would recommend that the Committee give favorable consideration to the consolidation approach of the advisory group but with appropriate modifications to insure that all multiple trusts are effectively covered.
If neither approach can be satisfactorily worked out in time for
legislative action this year, consideration might be given by the
Committee to the adoption of an interim or stop-gap measure for
deterring at least the more flagrant abuses In the multiple trust
area.

- 22 -

107

TITLE II - PARTNERSHIPS

Title II of the bill would substantially revise Subchapter K,
which deals with the taxation of partners and partnerships.
As mentioned at the beginning of my statement, the 1939 Code
contained only a few brief sections dealing with partnerships, while
the 1954 Code devotes an extensive subchapter to this area. Title
II of the present bill, while retaining the basic statutory framework of Subchapter K, would make a number of significant changes
in existing law.
By way of background, it may be helpful if I outline some of the
major features of the present law before commenting on the proposed
changes.
(l) A partnership does not pay any income tax. Only Its
members are taxable in their individual capacities upon their distributive shares of 'the partnership taxable income, whether or not
actually distributed to them. In other words, the partnership acts
as a conduit and the partners are treated as having realized their
shares of partnership income or sustained their shares of partnership loss directly from the source from which realized by the
partnership. For example, rental income received by a partnership
retains its character as rental income in the hands of a partner
thus permitting him to utilize the special character of this Income
in computing his retirement income credit.

- 23 -

(2) Generally speaking, a partner realizes no income and
sustains no loss when he makes contributions to or receives- distributions from a partnership.
(3) Specific rules are set forth in the Code to deal with a
variety of partnership problems such as computing the basis of
partnership interests and assets, and choosing and changing partner
and partnership taxable years. The statute also provides various
alternative ways for handling partnership transactions which,
although adding complexity to the law, afford the partners a maximum amount of flexibility.
(4) Although a partnership interest is a capital asset, there
are limitations imposed under the so-called "collapsible partnership"
provisions of the Code on the extent to which gain realized by a
partner on the sale of his partnership interest can be treated as
capital gain. The rules in this area, while necessarily complex,
are designed to prevent tax avoidance through the conversion of
ordinary income items, like uncollected and untaxed partnership
income, into capital gain.
(5) Specific rules are also provided in the statute for the
treatment of payments made to a retiring partner or to the successor
in interest of a deceased partner in liquidation of the partner's
interest in the partnership. In substance, payments made for the
partner's interest in partnership property are treated as capital
payments. Other payments are treated as ordinary income.

- 24 1 OQ
mm. \y 'y

With this short introduction to a highly complicated subject,
I would now like to discuss briefly several of the partnership provisions of the bill which I believe will be of particular interest
to the Committee.
Rearrangement of Partnership Provisions
The partnership advisory group recommended that Subchapter K
be rearranged to make its provisions easier to understand, particularly in the case of the small partnership. The bin reflects this
proposal by grouping in Part I of the revised Subchapter the provisions likely to be applicable to the great mass of partnerships and
by grouping in other parts the various elections and other technical
provisions of the law which are likely to apply only to more complex
partnerships, or to the unusual transactions of the average partnership. This does not mean, of course, that the substantive complexity
of Subchapter K will be reduced by merely rearranging its provisions.
In many Instances only a partial picture can be obtained by reading
the simple or general rule set forth in the earlier part of the
rearrangement. To be certain of tax consequences, in situations
which are at *n complicated, the lawyer and accountant will still
have to refer to the exceptions or more complex rules set forth in
the latter portions. However, many believe the rearrangement will
enable persons to grasp more readily the meaning of these partnership
provisions. The Department has no objection to Its adoption.-

- 25 Section 702 (b) - Level for Determining Character of Partnership Items
We would next like to comment on a controversial question which
was the subject of considerable discussion before the Ways and Means
Committee; namely, at what level is the character of partnership
income and deductions to be determined. The existing statutory
provisions contain no explicit statement on this point, but the
proposed new section 702 (b) would provide that the character of all
partnership items shall be determined as if realized directly by the
partner from the same source from which realized by the partnership.
One of the problems which the new provision is intended to cover
is the basis for determining whether gain on a sale of property by a
partnership is capital gain where, if sold directly by one or more
of the partners, the gain would have been taxable as ordinary income.
The example often used to illustrate the problem Is the case of a
real estate dealer who enters into a partnership with two non-dealer
investors to acquire and hold real estate which is subsequently sold
by the partnership at a profit. There are at least three possible
views as to the appropriate factors to consider in determining how
such gain is to be taxed to the partners.
The first, which has a number of proponents, is to look solely
to the business activities of the partnership. This would permit
the real estate dealer to use the partnership to convert ordinary
income into capital gain, and does not appear to us to be sound.

Si ''*

'. ' 1
J^ •*- **—

- 26 The second possibility is to determine the character of gain on
sale of a partnership asset by looking primarily to the activities
of the partnership, with weight being given in appropriate cases to
the activities of a partner who owns a substantial Interest in the
partnership. Thus, in the example, the fact that 1 of 3 partners
is himself engaged in the real estate business might be sufficient
to taint the partnership. If so, the gain realized on the sale would
be taxable to all three partners as ordinary Income. Such a rule has
the merit of providing uniform treatment for all partners and, again
looking at the example, it would block the flagrant use of partnerships by real estate dealers to avoid tax. But, it should be noted
that such a rule might impose an ordinary income tax on some partners
who perhaps should be given capital gain treatment while letting
others off with capital gain who should be treated as receiving
ordinary income.
The third possible approach to this difficult problem, and the
one adopted in the bill, after its recommendation by the advisory
group, is that the character of the gain be determined at the partner
level taking into account for this purpose the activities of the
partnership. Such a rule should generally tax as ordinary income
to the real estate dealer his share of the partnership gain on the
sale. At the same time, it would allow partners who are not real
estate dealers to enjoy capital gain treatment provided the activities

of the partnership do not put it in the trade or business of buying
and selling real estate. Moreover, just as it is possible for a
real estate dealer who is a sole proprietor to have a segregated
investment account (sales from which result in capital gain), so
also will it be possible under this third approach, where a partnership interest represents an investment account, for sales by the
partnership to give rise to capital gain, rather than ordinary
income, for the partner who is a real estate dealer. This will be
a factual question to be determined in each case.
The Treasury Department favors this third approach.
Section 764 (a) - Close of Partnership Year Upon Death of a Partner
Section 764 (a) of the Subchapter K amendments relates to the
time of closing of the partnership taxable year for a partner who
dies. This provision, designed to correct an unintended hardship
under existing law, merits the special attention of your Committee
because of its importance to many partnerships.
Under the present law the partnership taxable year generally
does not close when a partner dies. This rule was enacted as part
of the 1954 Code to prevent the bunching of income where the partnership and a partner were on different taxable years. While the
holding open of the partnership year is an equitable rule where a
partnership and partner are on different taxable years, It can
produce a serious hardship where they are on the same taxable year.
Thus, if a partner and his partnership file their returns on a

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calendar year basis (which is the usual case) and the partner dies,
he often loses much of the benefit otherwise arising from deductions,
exemptions, and income splitting for the year of his death since
none of the partnership income is included in the decedent's final
return. The bill would correct this by providing that the partnership year closes for the decedent as of the date of his death,
unless his successor in interest, usually his executor, elects to
the contrary.
"Simplified" Reporting of Partnership Income
The next section I would like to discuss Is section 702 (e),
which would provide an optional procedure for reporting partnership
income. This is the only partnership provision in the bill with
which the Treasury disagrees. We would recommend that it be deleted.
This provision did not originate with the partnership advisory
group but was added to the bill by the Ways and Means Committee.
The stated objective of the provision is to simplify the reporting
problems of small partnerships. We, of course, are sympathetic with
the desire to simplify the partnership law and, in particular, the
reporting procedures for the smaller partnerships. We have serious
doubt, however, that the proposal can accomplish its stated purpose.
On the contrary, we are of the view that this additional election
will further complicate the law, and may prove to be a tax trap for
the unwary partner.

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As I previously mentioned, one of the basic characteristics of
partnership taxation under the 1954 Code and the regulations is the
so-called conduit theory whereby the character of every partnership
item of income and deduction which has tax significance carries over
to the partners and is reflected as such on their individual income
tax returns. Although in most cases this works out to the individual
partner's benefit, some taxpayers nevertheless feel that it is too
complicated to keep track of and reflect in their individual tax
returns the significant tax characteristics of specific partnership
items.
The bill attempts to minimize this problem by providing that
where a partnership so elects only a limited number of the items
entering into the partnership income account will retain their character when passed down to the partners. Capital gain and loss items,
gains and losses with respect to certain business assets, and dividend income would continue to retain their character. All remaining
items would be taken into account by the individual partners on
their returns as a single, net., ordinary income or loss item.
The suggested change could have the following adverse consequences to the partners of an electing partnership:
(l) If the partnership has rent or interest income, the individual partners will lose the benefit of the rental or interest
character of their shares of such partnership income for purposes
of computing the amount of their retirement income credits.

(2) The partners will lose the benefit of the additional 20
percent first year depreciation allowance with respect to any
depreciable assets acquired by the partnership during any year the
election is in effect.
(3) The partners will receive no deduction for partnership
charitable contributions, soil and water conservation expenditures,
exploration expenditures, and depletion deductions.
I
(4) Also disallowed to the partners under the new reporting
procedure will be any credits (other than those for dividends)
attributable to the partnership income.
In view of the heavy price which the partners may unknowingly
have to pay for the purported simplification effected by the new
reporting procedure, it seems to us that the provision may in fact
be harmful rather than helpful. Moreover, the claimed simplification of reporting procedures may be more apparent than real. For
example, before making the election under section 702 (e) partners
and partnerships will still have to ascertain the nature of all
partnership income, deductions and credits in order to know whether
to make the election. Furthermore, the new reporting procedure provided under the bill, since it relates only to the determination of
the tax liability of the Individual partners, would have little, if
any, effect upon the reporting problems of an electing partnership.
The partnership itself will still have to submit a return showing
the nature of all of its income and deductions on the regular

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partnership return form (Form IO65) in order for the Internal Revenue
Service to make sure that each partner's distributive share of partnership income does not reflect any of the deductions or exclusions
of the type which cannot be passed through to the partners of a
partnership making an election under section 702 (e).
Section 776 - Amounts Paid to a Retiring Partner or a Deceased
Partner's Successor in Interest
Next I would like to call the Committee's attention to some of
the changes the bill would make in an important provision of present
law dealing with the tax consequences of partnership payments to
retired partners or deceased partner's successors. This is proposed
section 776 in the bill. The basic function of this section is to
help solve the problem as to how the income of the partnership is to
be accounted for when the interest of a retiring (or deceased partner)
is being bought out by the partnership.
Present law divides payments to a retiring partner into two
categories. The first relates to the amounts paid for his interest
in partnership property. These amounts are generally capital payments, which are taxed as capital gain to the retiring partner and
are not deductible by the partnership. The second category involves
payments which exceed the value of the retiring partner's interest
in partnership property. These amounts are taxed as ordinary income
to the recipient and are deductible by the partnership.
The bill does not alter this fundamental structure but makes two

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significant amendments. First, a more equitable definition of partnership property has been developed, with the result that the retiring
partner does not pay ordinary income tax upon amounts received for
his rights to participate in future services of the partnership or
in its future delivery of goods.
Second, a rule has been added which treats all payments to a
retiring partner as payments for partnership property, even though
the payments exceed the value of such property, if all the payments
are made within a 12-month period*

This is designed to bring about

the result which the parties normally intend where a partner's
interest is liquidated by means of a lump-sum payment or a series
of payments over a short period of time.
In addition to these important substantive amendments, a number
of simplifying and clarifying changes have been made in this section.
Sections 749, 750 and 751 - Collapsible Partnership Transactions
I would finally like to mention briefly some of the more important
changes made by the bill in the collapsible partnership provision.
This area, which is covered by proposed sections 749. 750 and 751 in
the bill, is a highly technical one. However, the collapsible partnership problem can be illustrated by a simple example. Assume that
A, B and C are members of a housing development partnership and that
most of the partnership assets consist of fully completed houses
which the partnership will sell in the ordinary course of its business. Each partner's share of the partnership income upon the sale

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II.

of the houses is, of course, taxable as ordinary income. Suppose
that prior to the sale of the houses by the partnership, partner A
sells his partnership interest. Under the collapsible partnership
rules, A is taxable at ordinary income rates on his share of the unrealized partnership income on the houses, despite the general rule
that a partnership interest is to be treated as a capital asset.
You will, of course, note the similarity between the operation
of these partnership rules and those which apply when a shareholder
sells stock in a collapsible corporation. In addition, just as
shareholders in collapsible corporations are prevented from converting oardinary income into capital gains by means of distributions in
liquidation of their stock, so under the collapsible partnership
rules are partners prevented from accomplishing such result through
the medium of partnership distributions.
While the basic pattern of taxing collapsible partnerships
introduced in the 1954 Code has been retained in the bill, experience has shown that some modifications are needed. Accordingly,
the bill would make a number of changes designed to simplify these
complex provisions, to make their operation more equitable, and to
close a serious loophole.
As a matter of simplification the bill substitutes for the
detailed and troublesome definitions of "unrealized receivables" and
"substantially appreciated inventory" a more workable concept of the
type of partnership assets which results in ordinary income.