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LIB R A R Y
ROOM 5030
JUN 141972
TREASURY DEPARTMENT

Bill offering
October 3, 1947

.
S-483

Statistics of Income for 1944, Part 2
October 8 , 1947
S-484
Debt limitation
October 6, 1947

2

...................

....................... . . ♦ « . * * »
S-485

Bill offering . . . . . . . .
October 7, 1947
S-436

..........

Bill tenders
. . . . . . . . . . . . .
October 7, 1947
S-487

17

. . . . . . . .

is

19

.................

Voluntary tax evasion d i s c l o s u r e s ................... .. .
October 8, 1947
P-488
Customs: Cotton
October 8, 1947

22
S -489

Customs: Cotton . . . . . . .
October 8,
1947
S-490
Customs: Wheat
October 8 ,
1947

20

24

............................

26
S-4-91

Customs: Philippine quotas. . . . . . . . . .
October 8,
1947
S-492
Customs: Quota commodities
October 8,
1947
S-493

...........

27

...................

Snyder address accepting Gallatin statue
October 15, 1947
S-494

28

...............

29

33

Bill tenders
October 11, 1947

S-495

Market transactions
October 15, 1947

S-496

34

Wiggins address, presentation Albert Gallatin statue
October 15, 1947
$ -4 9 7
Program of Exercises, Gallatin statue

35

. •

37

. . « • • • • • • •
45

Syyder message to Coast Guard Cutter B I B B .........
October 15, 1947
S-498
Subscription figures on 2-l/2^ Bonds, Series A-1965
October 15 , 1947
S-499

...

46

Bill offering
October 17 ,

.....................................
1947
S-500

Snyder address "The Veteran Wants to Know"
October 19,
1947
S-501
Bonds issuod-Redeomed during September
Snyder address Herald-Tribune forum
October 20,
1947
S-502

47

. . . . .

• • • • • • • •

50
51

......................

Two employees, Customs, receive award for suggestions.
October 23,
1947
S-503
1;% Certificate offering, Series K-1948
October 22, 1947
S-504
Business Los^ Offsets
October 24, 1947

48

. . . . . . . . .

54

55

58
S-505

Foley address, testimonial dinner, Coast Guard Cutter BIBB
October 29, 1947
S-506

93

Bill tenders
. . . . . . . . . . . . . . . . . . . . . . .
October 21, 1947
£-507

99

Bill offering
. . . . . . . . .
October 24, 1947
£-508

. . . . . . . .

100

.............

101

......... . . . .

110

........

Amendments to Gold Regulation, Act of 1934
October 25, 1947
S-509
Bill tenders
. . . . . . . . . . . . .
October 28, 1947
£-510
Automobile dealers tax evasion cases
October 29, 1947
S-511

• • • • • • • . • •

Snyder commends APofL on Security Thrift Program
October 29, 1947
S-512
Subscription figures on 1% Certificates
October 29, 1947
S-513
Bill offering . . . . . . . . . . .
October 31, 1947
S-514

........

........

• .

Ill

113

...

114

. . . . .

115

Taxation of Small Business
• • • • • • • • • • . • • •
October 29, 1947
S-515

116

Snyder address, Conference of Bank Correspondents, St. Louis
November 4, 1947
S-516

169

Pg 3

Wiggins state©nt. Ways«Means Committee, farm cooperatives
November 4, 1947
£-517

174

Status of Tax Studies
November 4, 1947

201

...............

Bill t e n d e r s ..............
November 4,
1947
S-518

204

Bill offering
November 7,

¿05

............................ ............ m
1947
S-519

Taxation of Farmers’Cooperative Associations
October.31,
1947
£-520
Debt limitation
November 7,
1948

S-521

Bill tenders
November 11,

£-522

206

246

.............
1947

. . . . . .

. . . . . . . .

247

Bonds issued-Redeemed during October

248

Snyder address, Young Democratic Clubs, Cleveland . . . .
November 14,
1947
£-523

249

Secret Sfervice steps up drive against cpunterfeiters
November 13,
1947
£-524

...

252

Customs: Cotton
. . . . . . . . . . . . . . . . . . . . .
November 13,
1947
£-525

256

Customs: Wheat
November 13 ,

258
1947

£-526

Customs: Philippine commodities
November 13,
1947
£-527

. . . . . . . . . . . . .

Customs: Quota commodities
November 13,
1947
£-528
Bonds, 1948-50; 2-3/4^ 1948-51 bonds called
November 14,
1947
S-529

2%

oOo

259

260

............

261

1
treasury

De p a r t m e n t

Washington,
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-The Secretar.y df> thé:Treâsür#, bÿt tni s' public notioe i r
invites tenders for $1,300,000,000, or ‘théréabouti s, of 91 -day
Treasury bills, for cash and in exchangé,.for T.réa suryi biIls
matu^ing Qotdber-9/
'‘oe‘,'lssueal}oii’*'.à dlscbùiit^b&sts.
under compétitive r:and noh«è ompè titi;vé jëiddihg as.•hèréinaf£ér
provided. A The bi lis of thi s sehiés w'ill bé' fdaied vOctbben ,9,
IÇÂT 1 a,nd; wi 11 mature Jâhùary 8 ,' 1948, Cwhéh the f^ace amouhfr
will be payable" without: interést. Thé#' wi 11 be la suëd :£&#
bearer form. .only*; and in denominatipns 'of:‘$ 1.,00,0¿. $ 5 >£
$10,000*. $ 100, Ó0CT, $500,000 andi$T,OOû,OO0 (maturity value )i

Tenders will be rèdelved at Federal.-Rjéservé Babies
Èrànchés up to the closing1hour , two o'*clock, p.:m.:
,<Eastern;
Standard time; Monday, October 6 19^7*. Tenders .will not f.
b#i:rècéivé^ át ;thblzTheasury^Departments Washington.. Eachl tender muétfrbe fpt an even:multipie of $Ì*ÒÓ0, and in the - :
case •Of competitive tenders the price offered mUist be expressed oh the basi $ of •100, with not mòre!.than three •
;j
dediinals,-e .g. ,.-99*925^ Fractions may not 'be used. .-.It is.r^:
urged that^tenders be made on the printed forms and •forwardetd
ih thè '•special envelopes which will be supplied by Federal
Reservé; Banks or Branches On application thérèfor ..p . . .

,

Tenders*will be received without deposit, from incorporated
banks and trust companies and from responsible and recognized
dealers in investment sec uri ties !i' Tender s.frprn others must be
accompanied by payment of 2 perc’ènt 6f;the face amount of .;
Treasury bills applied for, uni èss•the1 tenders are accompanied
by an express guaranty of>payment'by an incorporated bank or
trust.company.
' -* V V'.
’,-j
;Imi&èdiàtely after1the" closlhg hour,, tëliders wilijbe
:
opened at the :Federal' Reserve Banks and Blanches,.'fol 1owing ■:
which public annowcemeht^will be made by the Secretary of
thè Treasury 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 ex­
pressly reserves the right to accept or reject any or a111
tenders, in whole or in part, and his action in any such
respect shall be final. Subject to these reservations, non­
competitive tenders for $200,000 or less without stated price
from any one bidder will be accepted In full at the average
price (in three decimals) of accepted competitive bids.

-

2

iri,:

S e t t l e m e n t a c c e p t e d ten d ers in >ao.cor dañee^w lth th e b id s
must be made ■ ;or •c ompleted a t th e f e d e r a l 0 H b^e^vèi'Ô ^ on . '
O ctober 9 , *1 9 4 7 , in cash o r o th e r imm ediatèiy—avarti^b lé/’iiiixá^
o r in a l i k e fa c e amount o f T reasu ry b i l l s m aturing October 9
19^7 » C a > and %
e&change ten d er s, w ill r e c e iv e equal treatm e n t
Cash-/ ad ju s tments-f $111 v.be *made f o r ' d if f é r ë h c e à bbttte en •th e |>ar
valu e o f;m a tu rin g y b lll s a cce p te d in exchange and.; t f e é ;í t ó t ó : ■■; " ■ M
p r ic e ofr th e new- -bii l s ,
.
.
•
*' E a "f* t
*>
I:*•i%

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. , .V'.

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-rx

s¿;

The :income derived from T r e a s u r y biilrt , irhet^et- jifterfe s‘t
or gaii^^rdpi thex sale or other disposition off
btó|.syv ^ rf
shall nqtr havf;any- exemption, as s,uch, 'ató Idas,1;frpk’A ' h e ' > f
sale or other:disposition of Treasury bills shall n W ítétre
any special, ti^atment;* as such, under the Infc^fna^'&éyehàe j^'u
Code, or laws amendatory or supplemëntary thereto^' € he billsshall be*subject to estate, inheritance, gift or, other excise
taxes, whether Federal, or State., but shall be bxetept^ from1 al 1
taxation; hprr;°P hereafter imposed, on the; principal dr interest
thereof ?by. anÿ State, or any. of. the posses sipris' of ;the tînitèd"
States, dr by any local taxing authority. For tfápósé&'pf "
taxation the amount of discount at 'which Tréa'sui;y¡ biaÿs ^ape' v
originally sold by the United State s shal 1 be .¿dñstó^ed to
be interests * Under Sections t&fand H t í a ) 1?!.},. úf llfé^lnterriál
Revenue Code, as amended by Section 115 of the ReVenne Act v
of 1 9 bl,^the: amount of discount a t .which bill s % sátféd here- ‘
l\
under are sold shall not be considered to a ¿drup
such1*;
bills shall be sold, redeemed or otherwise diSposèd of, a n d •*:
such bills are excluded fro®, consideratlpn as.^capital assets.
Accordingly# the owner of Treasury bills (other."than"ïiJré '*■
insurance- companies) issued hereunder need incítód ;in ‘his
:;a
income tax -return only the difference between the price;naiáf
for such bills, whether on original issue or.on subseqüèU^
purchase, and the amount actually recèived;,eithe*‘ uddn:sale
or redemption at maturity during the taxable'year tc& whichf
the return is made, as ordinary gain or loss. *
.v-'
; o
Treasury ^Department Circular No, ,418, al.áméhdtó, and*
this notice.#:! prescribe the terms of the Treasury,billb,^nd '
govern the, conditions of their. isauéif- Copiébí o'f;$iîè^ eiVéüf -'
lar. may. be* obtalnedí from any Federal; Reserve.. Behkfpr Branch’.

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TREASURY DEPARTMENT

Washington

FOR RELEASE,

Wednesday. October

8, 19^7

Press Service
No. S-UgU

Secretary of the Treasury Snyder today made public
a series of tabulations which will appear in the report
"Statistics of Income for 19I&, P a r t 2 ," compiled from
corporation income and declared value excess-profits
tax returns, excess profits tax returns, and personal
holding company returns. These data are prepared under
the direction of Commissioner of Internal Revenue
George J. Schoeneman.

SUMMARY DATA
The number of corporation income and declared value
excess-profits tax returns for 19^4 is M+6,796, of which
288,90^ show net income of $27,123,7^0,99^, while
123,5^3 show deficit of $819,260,208, and 3^,329 have no
income data (inactive corporations).
The income tax liability reported on these returns is
$^*353*6191288 and the declared value excess-profits tax is
$9$,668,oU8, while an excess profits tax liability of
$10,^31,762,393, after credits, is reported on 55,912 cor­
poration excess profits tax returns for the same period.
Thus the total amount of corporation income and excess prof­
its taxes is $1^,88U,050,329, representing a decrease of
7 percent as compared with the total for 19U3. The amounts
of income tax and excess profits tax liability do not take
into account any credit claimed for income and profits taxes
paid to a foreign country or United States possession.

-

2

-

A comparison of the 1944 returns with the 1943 returns is provided
in the following summary:
Corporation returns, 1J 1944 and 1943:

Summary data

(Money figures in thousands of dollars)
^a a

A

1943

Increase or
decrease (-)
Per­
Number or
cent
amount

Income and declared value excess-profits tax returns
Total number of income and
declared value excess-profits
tax returns, Form 1120

446,796

455,894

-9,098

-2

288,904
27,123,741

283,735
28,717,966

5,169
-1,594,225

2
-6

4,353,620

4,479,166

-125,546

—3

98,668
10,431,762

154,934
11,291,483

—56,265
-859,721

-36
-8

14,884,050

15,925,582

-1,041,532

-7

Returns with no net income:2//
Number
Deficit 2/

123,563
819,260

136,786
898,722

-13,223
-79,461

-10
-9

Number of returns of inactive >
corporations

34,329

35,373

-1,044

-3

68,202
22,306,883

-12,290
-1,835,231

-18
-8

14,552,878
(See above)

-1,617,368

-11

Returns with net income: 2/
Number
Net income 2/
Tax liability:
Income tax 3/
Declared vaTue excessprofits tax
Excess profits tax 4/
Total

Excess profits tax returns
Taxable excess profits tax re­
turns, Form 1121:
55,912
Number
20,471,652
Excess profits net income 5/
Adlusted excess profits ne¥
7/12,935,510
income 6/
Excess profits tax
For footnotes, see pp. 29-50

3
-

3 -

RETURNS INCLUDED
The data presented in these tabulations are from returns for the
calendar year ending December 31, 19IA, a fiscal year ending within
the period July 194^ through June 19^ 5* and a part year with the
greater portion of the accounting period in 1 9 W ,
The data are* from corporation income and declared value excess*
profits tax returns, Form 1120; life insurance company income tax
returns, Form 1120L; mutual insurance company income tax returns,
Form 1120M; and corporation excess profits tax returns, Form 1121.
Included for this purpose in addition to returns filed by domestic
corporations are the returns filed by foreign corporations engaged
in business within the United States. Amended returns
tentative
returns are not included. The complete report, Statistics of Income
for 1944, Part 2 , will contain more detailed statistics from corpora*
tion income and declared value excess-profits tax returns and from
corporation excess profits tax returns, together with data from
personal holding company returns, Form 1120H.
The statistics are compiled from the returns as filed, prior to
revisions that may be made as a result of audit by the Bureau of
Internal Revenue and prior to changes which may result from carry­
backs, relief granted under section J 22. of the Internal Revenue Code,
recomputation of amortization of emergency facilities, or from the
renegotiation of war contracts, after the returns were filed.
Changes resulting from the renegotiation of war contracts are recorded
as settlements are reached, however, and the effect of renegotiation
settlements reached to date with respect to the tax year 194^ will be
shown in a special tabulation to be included in the complete report.
Statistics of Income for 19I&,' Part 2.
CHANGES IN LAW AFFECTING CORPORATION RETURNS
The comparability of the figures tabulated from the 19I& returns
with those from the I9U3 returns is affected by the changes in law
introduced by the Revenue Act of 19^3 • Returns for the calendar year
1944 and fiscal years ending in the period January through June 19^5
are filed under the provisions of the Internal Revenue Code as amended
by the Revenue Act of 19^3 • The amendments contained in this act
a-PPly also to the 19^4 portion of the accounting period, in the case
of returns for fiscal years beginning in 19^3 and ending in 19I&. The
most significant changes are as follows:

-

4

-

Income and Declared Value Excess-Prof its Tax Returns, Form

1120

-

(1) The amount of Income subject to excess profits tax which is
a credit against net income in arriving at normal-tax net income and
surtax net income is decreased by $ 5,000. This is the result of a
change in the excess profits tax law which provides an increase in the
specific exemption from $5,000 to $10,000 for purposes of determining
adjusted excess profits net income.
(2) Corporations filing returns for taxable years beginning in
191*3 and
in 19*& are required to compute two tentative taxes,
one under the 19U2 Act, the other under the 19^3 Act, and prorate each
on the basis of the number of days before January 1, 19*&, and the
number after December 31, 19^3, respectively. The prorated portions
of the two tentative taxes are then combined to determine the actual
liability, which is the amount tabulated in this report. Amounts
tabulated from these returns for all items other than the tax liability
are the amounts used in computing the tentative tax for 19^4 under
provisions of the Revenue Act of 19^3 Excess Profits Tax Returns. Form

1121

-

(1) The excess profits tax rate is increased from
cent of adjusted excess profits net income.

90

to

95

per­

(2) The specific exemption allowed a corporation, or an affili­
ated group of corporations filing a consolidated return, in determinp­
ing adjusted excess profits net income is increased from $5,000 to
$10,000. Exemption from filing an excess profits tax return is ac­
cordingly extended to cover corporations with exoess profits net in­
come up to $10,000, as against the $5,000 limitation previously in
effect•
(3) The percentage of invested capital allowed as a credit under
the invested capital method is reduced as follows:

Invested capital

Percentage allowed as a credit
under the Revenue Act of —
12*2

♦5,000,000
First
♦5,000,000
Hext
Hext ♦190,000,000
Over ♦200,000,000

19^2

8
6

S

5
5

0

7
5

4
mm

5

—

(M) The limitation on post-war credit is amended to give effect
to the increase in excess profits tax rate from 90 to 95 percent,
and special rules are provided for the computation of post-war
refunds on fiscal year returns.
(5) Corporations with taxable years beginning in 19^3 and ending
in 1 9 % are required to compute two tentative taxes and prorate each
in a manner similar to that described above for income tax. As in
the case of the income tax returns, the liability tabulated in this
release is the actual liability, i.e., the amount obtained by combin­
ing the prorated portions of the two tentative taxes. All items
other than the tax liability are tabulated in the amounts determined
under the provisions of the 19^3 Act.
GLASSIFICATIONS PRESENTED
The first three tables of this release show data from corporation
income and profits tax returns, classified by industrial groups. The
industrial classification is based on the business activity reported
on the return. When multiple businesses are reported on a return,
the classification is determined by the business activity which
accounts for the largest percentage of total receipts. Therefore,
the industrial groups do not reflect pure industry classifications.
There is no change in the industrial groups between 19^3 and 19% .
Table k shows data from returns with balance sheets, classified
according to size of total assets as of December 31» 19% » or close
of fiscal year nearest thereto. The total assets classes are based
on the net amount of total assets after reserves for depreciation,
depletion, amortization, and bad debts.
The classification of the returns by net income and deficit
classes, shown in table 5» and the classification by returns with
net income and returns with no net income, shown in tables 1, 3» and
5 , are based on the amount reported for declared value excess-profits
tax computation, adjusted by excluding the net operating loss deduc­
tion and adding Government interest subject to surtax only and excess
of net long-term capital gain over net short-term capital loss.
CREDIT ALLOWED LIFE INSURANCE COMPANIES
In analyzing the data compiled from returns classified under
the major group "Insurance carriers, agents, etc.," it should be
noted that life insurance companies are required to include only
Interest, dividends, and rents in gross income. Beginning 19^2»
life insurance companies are allowed a "reserve and other policy
liability credit" equal to a flat proportion of investment income

H

O «•

less tax-exempt interest. This credit, which is deducted after
arriving at net income, and is reported only on returns with net
income, takes the plane of the deductions for reserve earnings,
deferred dividends, and interest paid, which formerly were allowed
in computing net income.
l o r 19^+ the credit ratio is .9261 and for normal tax pur­
poses the aggregate amount of reserve and other policy liability
credit is $991*535*^6* of which $990,865*626 is reported on re­
turns with balance sheets. As an offset to this credit, adjust­
ment for certain non-life insurance reserves is reported in total
amount of $6,0*4
-6,357, of which $6,0*4-5,216 is reported on returns
with balance sheets. The latter adjustment, which is made in order
to include in the tax base the interest received on non-life insur­
ance reserves, applies only to life insurance companies deriving
a portion of their income from contracts other than life insurance,
annuities, or noncancellable health and accident insurance.
DATA PREVIOUSLY RELEASED
Certain tabulations prepared from the 19*+*4- returns were made
public previously in a preliminary report issued as of April 1*4-,
19*47, end are omitted from this release. Table L-A of the prelimi­
nary report shows by major industrial groups the number of consoli­
dated income tax returns filed by affiliated corporations, with the
corresponding amount of total compiled receipts, net income, adjusted
excess profits net income, income tax, declared value excess-profits
tax, excess profits tax, and dividends paid. In table 3 of the pre­
liminary report, there is shown by adjusted excess profits net in­
come classes and by method of credit computation the number of taxa­
ble corporation excess profits tax returns for 19*4*4-, with the corre­
sponding amount of excess profits net income, excess profits credit,
adjusted excess profits net income or deficit, excess profits tax,
credit for debt retirement, and post-war refund.

Table 1. — Corporation income and declared value excess—profits tax returns.1/ 1944. by malor iiriuatTHAi
no not income: Number of return», total compiled receipt., net income or deficit’ aid d i viders reid i T r e s h art ^ e t a ^ t h ^ r ^ n ^ ^ ^ i o ^
tax, income tax, declared value excess-profits tax, exceaa’profits tax, and adjusted «xceJa p r e ? i £ “ e ^ i £ ^ e
’

iv.:
with “ t income and return, with

’

With

lnCO“ ’ Total

(Money figures in thousands of dollars)

Major industrial groups and minor
industrial groups 8/

1
2
S
4
5

6
7
8

9
10

11
12

18
14
15
16
17
18
19
20

21
22
28
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54

56
57
58
59
60

All industrial groups
Mining and quarrying
Metal mining
Iron
Copper
Lead and zinc
Gold and silver
Other metal mining
Metal mining not allocable
Anthracite mining
Bituminous coal, lignite, peat, etc.
Crude petroleum and natural gas production
Crude petroleum, natural gas, and natural gasoline
production
Field service operations
Nonmetallic mining and quarrying
Stone, sand, and gravel
Other nonmetallic mining and quarrying
Nonmetallic mining and quarrying not allocable
Mining and quarrying not allocable
Manufacturing
Food and kindred products
Bakery products
Confectionery
Canning fruits, vegetables, and sea foods
Meat products
Grain mill products, except cereal preparations
Cereal preparations
Dairy products
Sugar
Other food, including ice and flavoring syrups
Pood and kindred products not allocable
Beverages
Malt liquors and malt
Distilled, rectified, and blended liquors
Vine
Nonalcoholic beverages
Beverages not allocable
Tobacco manufactures
Cotton manufactures
Textile—mill products, except cotton
Woolen and worsted manufactures, including
dyeing and finishing
Rayon and silk manufactures
Knit goods
Hats, except cloth and millinery
*.
Carpets and other floor coverings
Dyeing and finishing textiles, except woolen
and worsted
Other textile*4Bill products
Textile-mill products, except cotton, not allocable
Apparel and products made from fabrics
Men's clothing
Women’s clothing
Fur garments and accessories
Millinery
Other apparel and products made
from fabrics
Apparel and products made from
fabrics not allocable
Leather and products
Leather, tanned, curried, and finished
Footwear, except rubber
Other leather products
Leather and products not allocable

For footnotes, see pp. 29-30.

Total
number
of re­
turns

Number
of
returns

Total
compiled
re­
ceipts 10/

Net
income 2/

288,904
3,796
222
36
16
62
40
32
56
79
932
1,894
1,612

252,962,944
3,480,815
709,244
156,411
250,488
163,045
19,899
63,051
56,351
327.128
1,425,746
695,385
489,580

27,123,741
568.801
110,481
11,471
57,629
16,969
3,616
16,241
4,555
15,682

751
79,345
9,100
1,496
537
1,267
842
873
58
1,788
131
1,742
366
2,771
489
295
156
1,794
37
215
816
3,469
529

282
205,806
650
314,164
516
192,981
127
120,541
7
642
19
9,147
61,044 151,218,292
6,958
19,487,146
1,101
1,577,872
475
865,163
956
1,711,053
675
7,209,926
713
2.433.566
24
379,934
1,280
2,440,498
105
835,669
1,561
1,363,337
270
672.129
2,188
5,725,064
427
1,804,494157
1,271,520
116
111,646
1,465
500,567
25
55,057
170
2,150,376
744
2,755,759
3,029
4,875,342
474
1,385,382

27,169
42,797
2 0 ,0 1 0
22,753
54
868
15,007,518
1,124,592
127,738
129,674
154,151
174,458
84,276
30,442,
152,877
55,522
158,025
57,428
386,946
184,931
94,936
21,019
82,558
3,523
166,400
277,725
516,388
155,453

405
1,119

1,021

446,796
9,540
1,665
92
88

204
761
169
351
151
1,755
3,802
3,279
523
1,436
1,083
351

22

360

101,000

97,974
70,805

Returns with net lnoome £/
Adjusted
Taxes
excess
Total
Income Declared
profits
tax
tax 3/ value
net
excessincome 11/
profits
tax
12,841,665
68,208
16,490
2,641
1,226
28
449
24
1,366
24,027
12,692
7,779

14,884,050
157,527
42,269
4,934
22,425
6,554
1,146
5,862
1,548
6,092
48,926
37,906
25,834

4,353,620
99,066
28,229
2,743
12,055
5,498
1,116
5,490
1,327
4,908
28,368
26,904
19,305

98,668
597
59
8
6
8
5

4,913
15,618
5,242
8,575

12,072
21,995
9,586
12,596

276
67
59
8

16
8,851,188
528,199
64,664
81,656
73,770
98,882
34,258
12,744
84,318
6,S71
45,859
25,477
199,554
89,840
60,591
17,158
29,513
2,272
33,935
178,308
300,516
105,450

559
9,391,328
661,806
77,224
84,774
90,953
U 0 , 768
47,712
17,922
97,œ5
23,326
79,731
32,391
233,805
111,920
61,397
14,449
43,766
2,273
79,855
183,781
327,787
105,521

7,599
10,354
5,081
5,260
13
505
2,199,838
218,949
23,509
18,036
29,165
27,527
18,666
6,984
25,572
17,611
40,840
11,238
69,664
36,411
12,997
1,123
18,868
465
50,910
37,759
78,876
18,969

12,122

13

IT
Excess
profits
tax 4/

paid in
cash and
assets
other than

Number
of
returns

Total
compiled
re­
ceipts 10/

Défi­
cit 5/

paid in
cash and
assets
other than

10,431,762
S7,864
14,001
2,183
10,564
1,048
24
561
19
1,164
20,451
10,680
6,483

5,968,526
181,804
77,457
7,846
35,222
12,934
2,740
13,008
5,707
7,600
24,948
52,218
49,851

123,563
3,824
645
41
36
80
289
81
118
67
652
1,629
1,468

9,237,587
546,781
68,863
36,374
U,854
5,822
5,683
5,056
6,076
66,589
177,377
178,237
163,261

819,260
51,427
10,823
1,842
1,240
1,138
2,720
1,614
2,268
1,797
8,263
22,608
21,623

88,517
7,673
1,320

2,387
19,292
4,584
14,705
4
287
2,829,070
254,267
28,285
23,654
25,927
50,047
17,194
10,155
26,186
24,141
53,404
15,294
69,391
56,292
10,020
822
21,986
271
75,155
46,908
70,253
16,060

166
661
490
164
7
170
15,575
1,816
350
47
245
145
159
10
4SI
28
354
69
410
32
38
33
302
5
57
65
374
48

14,976
53,527
40,675
12,573
479
2,187
2,997,101
452,889
59,088
1,817
52,908
106,651
42,987
595
75,191
46,949
55,340
13,384
75,787
14,258
56,374
5,209
21,780
165
5,442
31,862
70,297
15,096

986
6,957
4,756
2,154
47
978
156,579
13,398
1,531
288
2,812
1,317
1,261
12
978
2,647
2,064
690
3,604
515
1,071
242
1,760
19
104
1,352
3,807
748

S3
306
297
9

135
515
2,442
958

4,197
11,574
4,446
7,128
14
7,120,999
459,545
53,585
66,462
60,854
82,765
28,678
10,832
71,308
5,622
38,654
20,986
163,418
75,273
48,331
15,230
24,786
1,798
28,810
145,507
246,469
85,614

11

2
21
126
321
46

1

23
70,492
3,312
352
276
914
476
367
105
344
94
236
167
522
237
68

96

112
10

1
2
3
4
5
5
6
830
7
134
8
351
9
66 10
680 n
5,272 12
5,219 13

22
in
495
88

14
15
16
17
18
19
20
21
22
25
24
25
26
27
28
29
30
31
32
S3
34
35
36
87
58
59
40
41

..

29
19,189
4,215
65

m

46
521
534
49
2,876
292
52
535
520
1
14

465

178
81
398

740,122
1,051,782
161,337
293,987
471,382

79,118
108,599
11,501
21,808
61,246

45,173
59,846
4,047
5,928
38,965

48,850
67,751
6,128
11,016
39,892

13,028
17,364
2,672
5,943
7,953

295
520
95
48
328

55,527
49,867
3,361
5,026
31,631

14,166
12,917
2,034
6,368
5,762

35
77
28
26
61

2,931
6,496
3,641
4,657
8,801

184
221
64
328
527

17
106
5
9
(15)

42
43
44
45
46

375
254
7,346
1,472
3,026
615
358
1,459

304
213
6,157
1,310
2,617
366
295
1,232

382,589
386,762
3,828,425
1.337.566
1,421,148
94,029
66,667
728,496

39,126
59,557
256,976
99,991
83,798
2,166
2.801
55,166

18,609
24,320
142,237
54,707
47,339
161
675
31,958

25,147
25,482
156,800
62,643
50,282
675
1,171
34,084

7,498
5,470
56,648
15,667
10,814
522
548
7,376

171
46
3,108
1,871
635

15,478
19,967
117,044
45,104
38,834
141
593
26,283

7,880
5,068
28,310
12,748
6,521
200
193
7,387

65
36
1,079
151
355
241
61
204

23,013
7,662
109,817
21,428
31,651
26,696
3,818
20,800

1,290
444
3,593
648
772
835
71
947

207
64
142
31
89
(15)
1
18

47
48
49
50
51
52
53
54

416

337

180,520

13,055

7,396

7,947

1,721

138

6,088

1,261

67

5,444

321

3

55

1,983
318
925
706
56

1,698
284
801
587
26

2,096,768
543,415
1,254,458
277,620
21,277

140,996
44,254
74,782
20,099
1,882

65,143
21,861
32,190
10,459
633

82,089
26,943
42,388
11,784
974

26,904
8,433
15,144
2,895
432

581
192
238
144
7

54,604
18,318
27,006
8,745
535

27,666
7,516
18,202
1,608
340

265
30
114
no
9

42,719
1,997
29,846
9,771
1,104

1,162
129
626
351
55

56
21
29
6
•

56
57
58
59
50

211

111

10

30
425

Table 1. — Corporation income and declared value excess-profits tax returns, 1/ 1944, by major industrial groups and minor industrial groups, for returns with net income and returns with
no net income: Number of returns, total compiled receipts, net income or deficit, and dividends paid in cash and assets other than own stock; also, for returns with net income: Total
tax, income tax, declared value excess-profits tax, excess profits tax, and adjusted excess profits net income - Continued
(honey figures in thousands of dollars)
1
Major industrial groups and minor
industrial groups 8/ - Continued

61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
US
116
U7
U8
U9
120
121

Total
number Number
of re­ of
turns | 1returns

Manufacturing - Continued
Rubber products
452
Tires and inner tubes
89
Other rubber products, including rubberized
413
fabrics and clothing
Lumber and timber basic products
2,468
Logging camps and sawmills
1,693
Planing mills
775
FUmiture and finished lumber products
5,841
Furniture (wood and metal)
1,679
Partitions and fixtures
343
Wooden containers
508
Matches
16
Other finished lumber products, including cork
1,157
products
Furniture and finished lumber products not allocable
158
Paper and allied products
2,096
Pulp, paper, and paperboard
436
Pulp goqds and converted paper products
1,650
Paoer and allied products not allocable
.10
Printing and publishing industries
10,278
Newspapers
2,359
Periodicals
952
Books and music
773
Conmercial printing
2,953
Other printing and publishing
1,551
Printing and publishing industries not allocable
1,890
Chemicals and allied products
6,297
Paints, varnishes, and colors
820
Soap and glycerin
179
Drugs, toilet preparations, etc.
2,328
Rayon (raw material) and allied products
9
Fertilizers
261
Oils, animal and vegetable, except lubricants
236
and cooking oils
Plastic materials
106
Industrial chemicals
618
1,037
Other chemical products
705
Chemicals and allied products not allocable
Petroleum and coal products
481
330
Petroleum refining
147
Other petroleum and coal products
4
Petroleum and coal products not allocable
2,794
Stone, clay, and glass products
Cut—stone products
518
Structural clay products
646
Pottery and porcelain products
217
Glass and glass products
394
Cement
86
Concrete and gypsum products, wallboard
685
Abrasives and asbestos products
389
Stone, clay, and glass products not allocable
61
Iron, steel, and products
6,590
Blast furnaces and rolling mills
121
Structural steel, fabricated; ornamental metal work
751
Tin cans and other timrare
75
Hand tools, cutlery, and hardware
661
Heating apparatus, except electrical, and
1,007
plumbers' supplies
Firearms, guns, howitzers, mortars, and
89
related equipment
Ammunition
162
Tanks
14
Sighting and fire-control equipment, (except optical)
24
Ordnance and accessories, not elsewhere classified
70
Other iron, steel, and products
3,008
(not classified below)
Iron, steel, and products not allocable
410
Tor footnotes, see pp. 29—30.

Total
compiled
re­
ceipts 10/

Net
income 2 /

Returns with net income -/
Adjusted
Taxes
excess
Total
Declared
Income
profits
value
tax
tax 5/
net
excessincome 11/
profits

Returns with no net income
Excess
profits
tax 4/

Dividends
paid in
cash and
assets
other than
own stock

Number Total
of
compiled
returns re­
ceipts 10/

----_---

372
33
339

3,546,732
2,772,524
574,208

530,265
265,551
64,714

249,549
204,954
44,595

233,120
189,716
43,404

30,788
23,425
7,363

1,519
1,118
401

200,813
165,173
35,640

37,700
31,424
6,276

63
2
61

9,875
32
9,844

1,645
1,066
579
2,963
1,326
264
414
14
857

1,526,322
1,131,970
394,351
1,909,176
828,940
99,097
296,014
77,003
529,220

164,459
128,509
35,950
169,937
73,130
9,897
25,948
9,313
44,848

60,990
40,647
20,345
82,198
33,853
6,222
13,857
4,242
20,375

84,863
62,748
22,115
99,259
42,506
6,204
15,497
S,OT5
25,509

53,278
28,122
5,156
29,646
13,452
1,063
3,818
1,959
8,305

370
155
215
1,337
618
205
161
9
312

51,214
34,471
16,743
68,257
28,236
4,937
11,519
3,605
16,893

36,698
52,203
4,495
25,914
9,582
561
5,577
2,503
9,370

731
545
186
817
327
71
90
2
280

132,699
101,182
31,517
96,542
43,799
6,739
15,094
27
27,394

108
1,860
578
1,479
3
7,904
1,858
715
533
2,365
1,137
1,296
4,408
666
126
1,470
6
220
186

78,902
3,432,114
1,890,561
1,540,371
1,182
3,591,074
1,149,800
561,997
339,195
785,068
259,150
295,865
9,795,876
1,025,183
746,428
1,351,339
183,507
281,501
744,982

6,801
416,711
225,705
190,908
98
577,262
260,258
116,912
51,871
92*024
27,458
28,739
1,302,047
71,662
71,593
240,765
34,752
25,219
41,266

3,669
228,725
107,813
120,912

1,049
69,494
44,711
24,745
38
94,662
44,233
15,080
8,658
15,378
5,291
6,022
239,640
16,095
23,901
43,732
6,302
5,235
6,008

' 55
1,080
184
896

3,068
189,242
90,078
99,169

302,658
156,292
74,982
26,373
44,808
10,494
9,709
598,231
27,083
12,814
119,678
18,737
10,338
24,957

4,150
259,816
134,968
124,809
38
347,195
158,528
76,246
30,362
55,400
14,261
14,400
745,069
39,049
54,735
144,799
22,524
14,148
26,490

2,469
546
175
350
981
174
243
3,036
253
89
408
1
74
27

250,064
115,749
60,991
21,354
37,040
8,795
8,134
502,394
22,702
10,744
100,659
16,021
8,839
20,455

520
75,049
47,074
25,974
(15)
106,259
58,119
16,228
8,909
18,974
5,259
3,771
579,071
17,744
21,528
59,971
9,515
6,889
6,666

47
202
47
150
5
2,065
462
204
201
540
197
461
1,636
132
47
734
3
33
50

3,490
60,885
51,210
29,008
667
90,812
20,684
6,356
9,708
25,280
7,679
21,104
156,741
14,655
1,393
27,999
22
3,557
41,094

278
3,266
1,397
1,838
32
6,275
1,737
1,965
591
803
308
872
10,864
670
83
2,160
58
430
2,577

67
466
707
494
332
233
98
1
1,722
205
275
167
321
45
384
285
40
5,171
92
612
61
511
768

165,797
3,922,638
496,791
897,710
9,835,765
9,340,651
495,054
60
2,152,474
54,604
167,026
172,293
734,011
119,573
217,088
681,529
26,355
20,537,914
7,248,567
606,168
490,475
654,934
1,477,726

21,168
625,891
46,199
125,533
652,071
621,873
30,189
9
257,592
3,59e
12,790
16,387
95,798
14,360
17,952
95,578
1,333
2,165,784
451,694
82,904
37,805
105,337
199,752

18,585
279,791
23,092
68,156
79,164
68,560
10,604
•
118,539
956
1,635
7,914
48,334
1,052
3,620
54,946
104
1,394,359
185,992
60,097
6,536
68,100
137,379

13,894
544,410
27,682
77,589
254,870
238,373
16,495
2
150,417
1,598
5,299
9,705
57,541
6,003
8,295
61,454
525
1,406,771
254,464
56,291
17,420
69,560
135,076

2,768
106,668
8,257
20,695
187,655
180,208
7,424
2
51,594
742
3,902
3,052
18,214
5,094
5,237
14,926
427
285,728
105,888
7,733
11,846
13,457
22,242

205
1,450
214
516
117
75
42

10,922
236,292
19,231
56,528
67,118
58,090
9,028

3,128
221,431
9,583
22,616
585,256
578,128
7,128

675
36
38
100
101
27
49
319
4
10,931
92
1,028
34
615
1,089

98,148
820
1,559
6,555
39,225
882
5,010
46,208
91
1,110,112
150,488
47,531
5,541
55,287
109,746

58,118
636
8,718
2,671
20,909
8,555
6,004
14,852
771
328,150
121,052
6,284
13,824
17,135
25,958

54
158
287
178
114
75
56
3
983
106
347
46
61
41
269
98
15
1,065
23
125
9
ISO
194

5,914
25,534
26,616
11,960
196,550
175,557
20,750
43
158,096
5,898
51,925
11,161
14, S U
41,834
20,902
11,088
744
541,483
167,214
14,372
15,288
17,051
50,639

404
2,560
1,253
1,109
2,948
2,110
827
10
14,247
724
4,218
919
928
4,408
2,047
870
138
29,264
4,922
639
2,158
1,093
2,959

m
m

em

£7

Dividends
Defi­
cit s/ paid in
cash and
assets
other than
own stock
839
21
819

! 9,463

7,005
2,457
5,262
2,428
532
488
2
1,735

761
•
761

61
62
65

1,196 64
1,110 65
86 66
726 67
155 68
8 -69
531 70
- 71
51 72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91

137
10
127
565
434
1
65
37
12
1?
398
59
7
48
1
39

•
47
190
27
3,576
3,561
15

92
93
94
95
96
97
98
99
100
101
102
108
104
105
106
107
106
109
110
in
112
118
114

•»

1,554
9
233
20
94
1,177
17
2
2
1,658
969
15

«.

117
52

77

995,366

115,135

86,294

79,554

10,165

752

68,657

11,454

10

55,658

7,482

US

152
9
20
58
2,444

2,321,425
657,979
448,753
95,997
4,168,724

293,501
80,148
62,455
11,780
545,854

228,537
68,468
29,464
8,555
■ 574,652

205,017
58,130
34,292
8,167
364,293

24,881
4,394
10,410
1,155
60,582

1,444
549
8
116
4,055

178,691
53,187
23,874
6,896
299,656

28,549
7,206
15,229
1,045
64,524

9
5
3
U
507

23,085
2,481
954
69,415
114,427

779
406
171
1,056
6,640

166 116
117
118
U9
298 120

367

1,393,808

181,438

140,487

126,706

14,974

1,149

110,583

15,931

59

14,899

979

88 121

-

t

T o r footnotes, see pp.

29— 50 .

Tsbls 1, — Corporation income and declared value excess— profits tax returns, 1/ J.944, by major industrial groups and minor industrial groups, for returns with net income and returns with
no net income: Number of returns, total compiled receipts, net income or deficit, and dividends paid in cash and assets other than own stock; also, for returns with net income: Total
tax, income tax, declared value excess-profits tax, excess profits tax, and adjusted excess profits net
— Continued

(Honey figures in thousoids of dollars)
Major industrial groups and minor
industrial groups 8/ - Continued

122
123
124
125
126
127
128
129

130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
1S7
158
159
160
161
162

163
164
165
166
167
168
169
170

Manufacturing - Continued
Nonferrous metals and their products
Nonferrous metal basic products
Clocks and watches
Jewelry (except costume), silverware,
plated ware
Other manufactures of nonferrous metals and
their alloys
Nonferrous metals and products not allocable
Electrical machinery and equipment
Electrical equipment for public utility, manufacturing, raining, transportation (except auto­
motive), and construction use
Automotive electrical equipment
Communication equipment and phonographs
Electrical appliances
Other electrical machinery and equipment
Electrical machinery and equipment not allocable
Machinery, except transportation equipment and
electrical
Special industry machinery
General industry machinery
Metal-working machinery, including machine tools
Engines and turbines
Construction and mining machinery
Agricultural machinery
Office and store machines
Household and service-industry machines
Machinery, except transportation equipment and
electrical, not allocable
Automobiles and equipment, except electrical
Automobiles and trucks (including bodies and
industrial trailers)
Automobile accessories, parts (except electrical),
and passenger trailers
Automobiles and equipment, except electrical,
not allocable
Transportation equipment, except automobiles
Railroad and railway equipment
Aircraft and parts
Ship and boat building
Motorcycles and bicycles
Other transportation equipment, except automobiles
Transportation equipment, except automobiles,
not allocable
Other manufacturing
Manufacturing not allocable
Public utilities
Transportation
Railroads, switching, terminal, and passenger
car service companies
Railway express companies
Railways, street, suburban, and lnterurban,
including bus lines operated in conjunction
therewith
Taxicab companies
Other highway passenger transportation
Highway freight transportation, warehousing,
and storage
Air transportation and allied services
Pipe line transportation
Water transportation
Services incidental to transportation
Transportation not allocable

For footnotes, see pp. 29-30.

Total
number
of re­
turns 9/

Returns with no ne ; income 2/

Returns with net income —^
Number
of
returns

Total
compiled
re­
ceipts 10/

Net
income 2/

Adjusted
excess
profits
net
income 11/

Total
tax

2,267
285
58
565

1,779
202
43
476

4,350,328
1,585,757
176,724
311,551

476,784
153,775
23,304
39,530

275,145
78,161
13,089
26,205

295,655
88,793
15,115
25,872

69,860
25,545
3,824
4,450

2,527
463
240
412

1,349

1,051

1,923,071

230,398

157,546

157,112

27,428

10
1,784
674

7
1,392
570

355,225
8,051,196
3,104,884

29,777
986,711
390,562

147
715,701
259,281

8,760
672,326
260,389

83
443
135
267
184
6,062

56
356
89
181
140
4,721

275,996
2,998,743
86,751
435,021
1,149,801
11,111,627

49,180
538,617
11,172
47,469
149,712
1,630,889

37,937
266,991
6,887
33,007
111,598
1,170,711

983
1,715
1,625
85
348
274
179
292
565

759
1,302
1,275
75
281
211
127
215
480

844,348
2,616,318
1,994,330
1,092,371
1,127,661
1,771,715
348,645
272,975
1,043,263

117,797
431,780
333,561
144,568
165,940
193,975
65,444
31,313
146,511

S76
271

. 461
223

3,715,880
2,820,852

296

235

9

3

1,201
81
514
560
19
24
5

Dividends
paid in
cash and
assets
other than
own stock

Number
of
returns

Deficit 2/

Dividends
paid in
cash and
assets
other than
own stock

223,267
62,785
11,052
21,030

106,522
48,246
4,624
3,665

424
64
11
79

77,470
24,504
226
9,075

3,789
1,043
17
201

386
321
-

128
124
125

1,410

128,274

28,052

267

43,599

2,521

65

126

8,634
93,435
47,825

1
5,184
1,271

125
573,707
211,293

21,956
131,714
74,246

3
323
97

66
74,919
33,284

7
4,029
1, 574

467
292

127
128
129

35,098
231,286
7,240
31,812
106,501
1,106,645

4,279
20,791
1,562
4,912
14,065
168,108

53
3,225
73
321
242
11,357

30,766
207,270
5,605
26,580
92,194
927,178

6,048
25,624
1,406
5,953
18,437
200,295

21
65
37
76
27
1,147

8,367
12,451
12,726
6,464
1,627
215, U S

551
1,019
139
581
165
15,275

155
8
12
598

64,965
338,037
244,971
125,565
119,455
112,033
36,544
17,277
111,867

72,052
500,649
229,755
103,854
114,462
123,233
42,190
19,196
101,272

18,797
33,477
32,025
6,809
17,543
30,968
11,000
5,211
12,277

780
4,345
2,132
1,188
819
477
135
214
1,267

52,475
262,827
195,578
95,857
96,100
91,788
31,055
13,770
87,728

22,210
47,005
52,674
7,495
19,799
39,725
14,410
4,578
12,399

191
352
324
7
57
52
41
53
70

40,519
61,424
56,068
2,792
7,475
8,516
9,655
5,674
20,993

3,803
3,494
4,298
358
302
547
569
412
1,691

24
3
3
118
78

136
137
138
139
140
141
142
145
144

340,072
212,445

244,015
142,777

231,189
141,195

36,245
26,902

2,983
1,173

191,961
113,120

32,010
22,727

86
33

10,880
2,952

628
127

12
_

145
146

894,461

127,604

101,238

567

24

me

89,987

9,338

1,809

78,840

9,275

48

7,387

477

12

147

6

5

1

*

9

5

540

23

mm

860
60
391
378
12
17
2

24,533,777
1,055,788
18,102,605
5,334,259
34,703
5,960
464

2,110,031
153,827
1,606,929
343,957
4,776
529
13

1,536,165
108,365
1,132,594
292,225
2,813
168

148

216,553
15,389
182,088
18,200
752
123
(15)

12,180
1,441
8,289
2,394
55
2

1,193,204
88, i 0
885,060
217,437
2,343
143

287,161
32,095
234,732
19,561
611
162

•e

10,558
267
4,943
4,544
780
24
(IS)

701
63
345
220
73

»

284
16
101
153
7
6
1

244,050
7,674
147,802
82,683
5,486
406

-

1,421,996
105,110
1,075,438
238,031
3,149
268
(15)

149
ISO
151
152
153
154
155

3,628
3,030
20,560
15,608
732

2,683
1,827
13,067
8,695
386

2,729,020
1,904,157
21,635,269
14,115,400
10,015,759

339,344
217,554
4,277,770
2,571,867
1,943,697

217,258
130,327
1,891,259
1,418,194
1,163,477

220,091
136,148
2,389,527
1,591,819
1,251,491

42,875
30,386
816,251
422,830
290,653

1,981
2,132
2,892
2,492
665

175,235
103,630
1,570,184
1,166,497
960,173

43,660
27,545
1,218,930
367,530
251,469

828
763
6,175
4,042
256

76,026
88,346
862,140
705,799
137,611

6,S75
6,278
136,892
115,549
63,695

152
767
7,704
1,269
175

4
150

1
90

255,756
499,675

11
66,643

4
54,856

1
18,034

3
51

•

mm

19,885

16,751

9,897

3
24

1
121,655

5
50,641

94

161
162

609
1,817
7,011

427
1,365
4,519

136,364
691,384
926,603

15,595
186,429
74,448

9,512
127,583
19,058

9,584
120,271
33,184

1,888
19,107
16,888

68
149
313

7,628
1<B.,014
15,983

1,174
25,870
12,841

142
398
2,195

8,934
25,394
283,451

514
1,932
11,290

51
85
385

163
164
165

352
159
1,283
1,300
211

79
108
826
796
96

259,423
251,325
721,818
317,499
37,795

40,627
65,047
110,712
62,547
6,112

5,147
9,047
34,128
27,561
2,998

18,593
29,465
55,631
35,367
3,594

13,737
21,965
26,819
12,651
1,086

395
10
492
518
28

4,261
7,490
28,320
22,397
2,480

6,066
17,266
25,911
16,615
422

179
37
354
416
58

9,026
4,737
34,854
76,120
4,016

846
488
3,076
2,561
70S

••

160
228
71
21

166
167
168
169
170

-

Taxes
Declared
Income
value
tax 5/
excessprofits
tax

Excess
profits
tax 4/

-

Total
compiled
re­
ceipts 10/

•

a.

114
187
72
•»

-

-

122

130
131
132
133
134
135

156
157
158
159
160

=r«ï=r«r
(Money figures in thousands of dollars)
Major industrial groups and minor
industrial groups 8/ - Continued

Total
number of
returns 9/

Number
of
returns

Returns with net incase 1 T
Adjusted

Total
compiled
re­
ceipts 10/

profits
net
income U /

Total
tax

1 Income
J tax 5/

—
171
172
175
174
175
176
177
178
179
180
181
182
185
184
185
186
187
188
189
190
191
192
195
194
195
196
197
198
199
200

201
202
205
204
205
206
207
208
209

210
211
212
215
214
215
216
217
218
219

220
221
222
225
224
225
226
227
228
229
250
251
252

Public utilities - Continued
Communication
Telephone (wire and radio)
Telegraph (wire and radio) and cable
Hadio broadcasting and television
Other communication
Other public utilities
Electric light and power
Gas, distribution and manufacture
Water
Public utilities not elsewhere classified
Other public utilities not allocable
Trade
Wholesale
Commission merchants
Other wholesalers
Pood, including madcet milk dealers
Alcoholic beverages
Apparel and dry goods
Chemicals, paints, and drugs
Hardware, electrical goods, plumbing
and heating equipment
Lumber and millwork
Wholesalers, not elsewhere classified
Wholesalers, not allocable
Retail
General merchandise
Department, dry goods, other general
merchandise
Limited-price variety stores
Mail-order houses
Food stores, including market milk dealers
Package liquor stores
Drug stores
Apparel and accessories
Furniture and house furnishings
Eating and drinking places
Automotive dealers
Automobiles and trucks
Accessories, parts, etc.
Filling stations
Hardware
Building materials, fuel, and ice
Other retail trade
Retail trade not allocable
Trade not allocable
Service
Hotels and other lodging places
Personal service
Laundries, cleaners, and dyers
Photographic studios
Other personal service
Personal service not allocable
Business service
Advertising
Other business service
Business service not allocable
Automotive repair services and garages
Miscellaneous repair services, hand trades
Motion pictures
Motion-picture production
Motion-picture theatres
Amusement, except motion pictures
Other service, including schools
Servioe not allocable

For footnotes, see pp. 29—30,

5,776
5,052
26
715
5
5,176
800
611
1,5U
176
78
120,425
54,489
5,541
29,148
5,891
1,157
2,840
1,446
2,564

2,299
1,719
15
565
2
2,075
596
409
955
88
29
95,166
27,045
5,715
25,350
4,759
932
2,450
1,084
1,868

j 2,695,741
751,259
; 2,185,510
648,945
220,169
15,114
291,995
67,198
67
5
4.826.129
974,645
5,784,575
768,455
952,555
180,442
90,514
25,582
15,209
1,575
5,476
790
59,074,955 5,518,799
28,656,250 1,241,747
1,487,997
95,712
27,148,255 1,148,055
6,668,679
185.407
2,092,169
129,554
2.105.129
152,449
1,402,552
90,805
1,799,591
100,751

225,100
186,497
i
35,169
¡
5,158
•
275
j
1
¡1,602,467
606,143
56,869
569,274
80,446
98,850
82,265
50,157
42,883

982
12,559
1,929
70,622
5,424
4,945

768
9,939
• 1,550
54,965
4,682
4,555

655,647
21,624
10,685,252
416,569
75,116
1,765,215
25,725,219 j 1,815,452
951.564
9,081,878
7,428,016
754,615

7,399
176,675
30,641
911,998
584,822
484,984

297
182
5,462
1,709
4,294
10,156
4,454
9,768
7,591
6,920
671
1,758

242
107
3,876
1,416
5,575
8,701
5,552
6,209
5,950
5,394
556
1,029
1,8U
5,398
5,424
3,562
' 11,156
22,098
2,900
5,652
3,055
555
2,059
5
3,960
1,161
2,790
9
1,834
1,027
5,059
5061
2,733
1,722
1,901
65

2,112

6,898
6,757
4,279
15,512
58,095
4,505
8,251
4,510
710
5,220
11
6,900
1,659
5,226
15
5,091
1,535
4,020
651
5,589
4,456
5,578
157

1,489,459
164.425
5,548,165
168,506
884,155
5,049,428
795,975
1,154,871
1,148,622
979,557
169,084
189,284
189,441
1,214,602
1,509,8S7
992,659
4,715,486
5,055,519
924,574
789.425
584,086
57,4S6
147,580
505
940,552
547,516
591,146
2,090
127,484
142,809
1,495,404
670,860
822,544
265,026
560,850
11,596

166,180
10,769
148,007
6,915
55,186
254.408
86,541
66,255
65,445
56,020
9,422
11,648
14,164
68,966
88,161
40.575
261,620
625.565
105,985
61,652
59,177
6,616
15,805
56
79,979
56.575
45,545
260
8,791
16,078
269,044
116,549
152,495
51,194
55,850
1,052

247,965
206,173
5,009
58,785

94,222
5,615
55,679
855
24,101
122,545
23,084
25,247
12,655
10,185
2,450
4,190
2,529
13,651
35,664
9,019
84,325
243,820
30,682
14,214
8,256
2,422
5,556
«■
25,910
12,636
11,187
87
1,236
8,844
U9,661
45,749
75,912
29,240
15,768
265

Returns with no net income u~
Declared
value
excessprofits
tax

Excess
profits
tax 4/

Dividends
paid in
cash and
assets
other than
own stock

Number
of
returns

366,121
350,250
5,852
12,059

Total
compiled
re­
ceipts 10/

Defi­
cit ¿/

545,251
293,255
7,151
42,844
1
454,257
361,279
82,261
9,855
604
278
1,910,157
710,542
47,462
663,080
101,171
87,561
85,114
55,817
56,756

151,754
117,009
4,596
10,148
1
261,667
201,743
52,168
7,112
368
276
565,179
207,930
16,260
191,670
33,677
9,788
16,073
14,132
20,300

276
211,222
162
176,084
(IS)
2,555
115
52.585
125
192,465
81
159,456
23
50,070
19
2,705
1
255
(15)
17,890 L,527, 088
5,898
496,714
415
50,787
5,485
465,927
1,135
66,559
510
77,462
655
66.585
329
41,556
354
56,101

485,279
370,444
104,257
9,782
587
210
544,232
195,370
18,084
177,286
29,594
7,550
15,389
14,771
21,685

1,261
1,177
9
75
2
872
141
179
452
75
25
24,197
6,563
1,420
5,143
1,004
165
342
525
458

10,681
227,862
40, U 8
1,070,764
618,954
502,991

4,442
79,025
14,232
300,773
128,282
98,548

82
2,291
327
10,197
4,639
5,5S7

6,156
146,547
25, 559
759,795
486,015
401,086

3,943
71,179
15,575
510,993
161,920
122,657

191
2,340
518
14,181
657
547

31,367
791
587,082 13,018
51,910
1,113
986,318 28,551
35,848
1,269
32,266
1,098

27,777
1,958
33,186
1,486
8,946
34,311
21,0S7
11,948
14,759
12,614
2,144
2,501
3,056
16,178
15,899
9,163
56,476
117,357
22,761
13,340
8,854
1,135
3,342
9
18,104
8,149
9,893
62
1,868
1,862
46,816
22,280
24,557
7,001
5,389
216

1,254
28
588
95
306
1,564
428
484
382
537
45
51
191
543
564
365
1,796
2,070
249
375
195
55
127
(15)
365
155
205
4
84
286
278
98
179
200
229
5

80,245
4,685
46,914
771
20,215
101,578
19,581

37,064
2,199
34,639
279
8,694
28,983
18,072
9,945
8,512
7,141
1,571
3,071
1,855
14,742
12,434
7,849
57,870
114,846
11,074
10,400
7,355
268
2,777
19,089
8,718
10,506
64
821
1,178
62,049
27,703
34,347
6^495
3,642
98

47
63
1,453
275
822
1,267
804
5,355
1,397
1,293
104
664
269
1,347
1,230
643
3,455
12,614
1,243
2,308
1,088
137
1,079
4
2,453
398
2,051
4
1,156
476
829
248
581
1,959
2,153
S7

2,405
58
1,179
113
178,196
2,540
15,561
344
41,520
794
75,785
2,505
45,963
2,132
225,898
7,716
77,416
2,327
71,787
2,171
5,629
156
57,963
1,180
8,348
319
108,849
3,622
71,707
2,295
63,263
1,289
502,439 10,422
583,536 46,770
94,999 10,192
120,451
5,007
91,969
3,543
4,360
249
25,979
1,200
143
14
95,985
7,146
27,776
788
68,151
6,356
59
2
38,737
2,041
17,746
1,480
79,509
4,903
41,959
5,652
37,570
1,250
61,043
8,924
70,756
6,935
4,310
142

109,275
6,670
80,688
2,352
29,464
157,454
41,067
35,552
25,858
21,577
4,281
6,154
5,426
28,321
44,456
17,078
128,851
321,559
48,765
25,778
16,143
3,200.
6,425
9
58,402
18,8 U
19,450
141
2,976
9,200
146,978
58,780
88,198
30,642
18,166
452 j

1

21,100

10,717
8,626
2,092
5,582
2,179
11,601
27,994
7,551
70,579
201,952
25,755
12,064
7,096
2,O U
2,957
19,955
10,506
9,555
74
1,025
7,052
99,884
56,402
65,482
25,441
12,548
251

30,975
2,099
12,081
1,794
80
9
18,795
293
17
5
125^368 19,244
90,009 13,530
28,442
4,597
4,051
769
2,423
307
445
41
2,648,827 65,537
1, 360,070 26,783
123,556
2,905
1,236,514 23,878
394,732
4,563
39,571
689
57,043
966
40,676
848
1,891
54,134

cash and
assets
other than
own stock

23
25

6,412
5,725
659
25
1
2
6,249
4,417
1,714
2,705
512
150
72
20
144

171
172
173
174
175
176
177
178
179
180
181
182
185
184
185
186
187
188
189
190

602
1,361
41
1,329
200
194

191
192
193
194
195
196

7

197
198
199
200
201
202
205
204
205
206
207
208
209
210
211
212
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232

..
me
mm

*

24
16
7
265
98
41
154
154
(15)
50
22
142
168
142
502
1,927
334
154
129
«

25
—

501
208
93
mm

86
4
170
78
92
269
575
34

Table 1. - Corporation income and declared value excess-profits tax returns, 1/ 1944, by major industrial groups and minor industrial groups, for returns with net income and returns with
no net income: Number of returns, total compiled receipts, net income or deficit, and dividends paid in cash and assets other than own stock; also, for returns with net ¡income: Total
tax, income tax, declared value excess-profits tax, excess protits tax, and adjusted excess profits net income - Continued
(Money figures in thousands of dollars)

Major industrial groups and minor
industrial groups 8 / - Continued

233
234
235
236
237
238
239
240
241
242
245
244
245
246
247
248
249
250
251
252
253
254
255
256
2S7

258
259
260
261
262
263
264
265
266
267
268
269
270
271
272
275
274
275
276
277
278
279
280
281
282
283

Finance, insurance, real estate, and lessors of
real property
Finance
Banks and trust companies
Long-term credit agencies, mortgage
companies, except banks
Short-term credit agencies, except banks
Sales finance and industrial credit
Personal credit
Other short-term credit agencies
Short-term credit agencies, except
banks, not allocable
Investment trusts and investment companies 12/
Management type
Fixed nr semifixed type
Installment investment plans and guaranteed
face-amount certificates
Mineral, oil, and gas royalty companies
Investment trusts and investment companies
not allocable
Other investment companies, including
holding companies
Holding companies 13/
Operating-holding companies 14/
Security and commodity-exchange brokers
and dealers
Other finance companies
Finance not allocable
Insurance carriers, agents, etc.
Insurance carriers
Life insurance companies
Mutual insurance, except life or marine or
fire insurance companies issuing perpetual
policies
Other insurance carriers
Insurance agents, brokers, etc.
Real estate, including lessors of buildings
Owner operators and lessors of buildings
Lessee operators of buildings
Owners for improvement
Trading for own account
Real estate agents, brokers, etc.
Title abstract companies
Real estate, including lessors of buildings,
not allocable
Lessors of real property, except buildings
Agricultural, forest, etc., properties
Mining, oil, etc., properties
Railroad properties
Public-Utility properties
Other real property, except buildings
Lessors of real properly, except buildings,
not allocable
Construction
General contractors
Special trade contractors
Construction not allocable
Agriculture, forestry, and fishery
Agriculture and services
Forestry
Fishery
Nature of business not allocable

For footnotes, see pp. 29-30.

Total
number of
returns 9/

Returns with no net incoas &

Returns with net income £/
Number
of
returns

Total
compilad
re—
oeipts 10 /

142,067

82,857

8,834,643

34,736
15,481
3,235

24,616
13,679
1,497

5,507,698
2,385,516
24,874

1,558,675
729,658
6,530

3,550
1,515
1,444
150
443

2,280
929
77
254

197,093
62,892
125,278
1,085
7,838

54,995
19,267
53,538
282
1,908

5,431
423
76
61

2,476
339
63
48

261,608
131,831
17,007
18,004

196,958
104,184
15,568
1,833

93
V

148
2,723

83
1,943

4,969
89,798

1,327
74,046

77
16

2,105

1,495

423,919

508,705

522

56,419

955
1,150
1,305

670
823
889

247,320
176,599
126,350

214,024
94,680
29,912

•e
522
851

20,551
15,868
7,999

1,532
4,097
7,779
1,968

635
1,667
5,331
1,582
589
416

52,635
35,706
3,478,155
3,273,765
1,372,996
24,195

21,514
10,600
1,396,996
1,365,349
1,157,272
18,834

2,032
S78
20,625
15,675
""

8,774
5,022
110,137
98,215
34,462
6,263

7,015
2,526
92,461
84,836
34,462
6,263

854
5,811
92,332
73,277
2,470
4,135
2,741
5,094
1,281
5,354

577
3,749
49,372
41,770
1,385
1,592
1,797
785
822

1,876,576
204,390
1,617,801
1,585,285
55,286
34,406
15,120
73,790
50,562
25,552

189,242
31,647
334,830
288,675
7,404
9,507
5,541
10,185
6,849

6,668

15,675
4,949
19,392
16,634
852
255
231
447
684
288

57,489
11,922
103,182
89,577
2,551
2,400
1,417
5,009
2,454
1,795

44,110
7,625
85,139
74,286
1,767
2,096
1,166
2,519
1,809
1,495

7,220
1,258
2,764
432
167
2,355
264

3,518
629
1,660
225
96
795
115

230,988
11,199
84,173
104,815
20,556
7,125
3,142

109,728
5,409
38,896
52,001
8,250
5,186
1,986

14,791
105
6,517
7,192
350
142
505

47,011
1,602
16,640
23,615
3,275
974
908

34,485
1,501
11,124
17,550
2,988
845
474

81
14
44

12,528
5,607
6,548
373
6,825
6,178
374
273
17,415

7,160
2,944
4,164
52
3,912
5,603
178
131
1,824

2,699,979
1,786,905
905,716
7,359
822,592
788,951
16,309
17,352
142,901

172,738
111,141
61,129
468
134,455
128,679
3,355
2,441
17,875

73,544
45.299
28,164
82
59,765
38,786

90,176
57,542
32,451
185
65,306
61,336
766
1,204
6,905

29,486
20,134
9,245
107
29,500
28,166
747
587
5,775

988
463
519

668
446

1,020

1,221

Net
Adjusted
Income 2 / excess
profits
net
income 11 /
5,200,226

67,755

Total
tax

553,966

Taxes
Declared
Income
value
tax 3/
excessprofits
tax

57,795

1,022,182

51,042

992,161

504,810

40,658

253

122

752,407
255,392
2,174

8,339
1,241
1,609

128,012
69,055
6,050

89,774
20,324
6,025

20,095
5,920
436

234
236
236

2,872
1,792
924
156

22,234
5,752
15,655
129
700

998
454
370
48
126

10,584
5,463
4,033
242
646

2,157
955
687
510
205

362
223
107

237
238
239
240
241

79
-

183,928
95,951
11,893
870

889
71

4,570
906
45
345

7,805
465
676
32

1,994
529

12
10

-

242
245
244
245

2

66

44

15

1,277
75,938

54
742

748
2,528

350
6,284

135
1,321

246
247

35,676

296

447

268,452

569

10,954

18,227

1,741

248

20,271
15,405
7,214

280
16
54

w
447
731

188,586
79,865
6,216

247
322
340

4,658
6,296
11,830

12,508
5,719
1,849

341
1,400

110

249
250
251

38
34
125
24
•
(IS)

1,721
465
17,551
15,355
*

7,745
6,265
118,997
105,976
28,929
79

686
2,007
2,178
527
59
SO

9,951
5,218
296,220
262,277
1,476
712

19,260
14,146
24,621
22,635
158
97

3,945
5,586
6,016
5,934
50
-

252
255
254
255
256
257

24

13,355
4,196
16,772
14,589
741
198
588
585
252

76,968
13,021
84,787
75,212
1,714
2,455
1,965
1,662
2,345
1,455

258
1,851
37,414
50,145
1,030
1,915
1,260
1,076
400
1,590

260,088
35,944
533,423
465,059
28,057
10,564
3,651
12,949
4,260
8,904

22,580
1,986
165,105
127,056
2,835
9,711
7,528
1,181
225
14,574

5,885
82
15,254
11,737
25
351
431
115
35
581

258
259
260
261
262
263
264
265
266
267

12,448
87
5,472
6,053
282
125
451

65,991
2,598
26,320
32,721
2,314
1,160
878

3,i n
580
133
65
1,219
104

54,505
2,363
7,674
22,126
755
1,307
302

27,310
4,394
8,500
4,059
6,968
2,929
459

1,273
269
515
35
3
393
59

268
269
270
271
272
275
274

59,702
36,945
22,687
70
35,217
32,403

23,758
18,542
5,163
52
30,151
28,808
1,067
256
5,574

4,354
2,117
2,105
152
2,505
2,227
163
115
3,277

481,986
344,406
132,479
5,101
107,035
97,779
3,783
5,473
18,021

33,604
24,318
8,946
341
14,530
12,591
1,464
475
9,111

1,848
1,182
548
119
1,518
491
1,024
5
1,773

275
276
277
278
279
280
281
282
283

281,286
198,061
1,692

3,569

21,177
7,530
12,905
73

18,260
5,715
11,965
72
509

45
23
18

10,971
2,878
1,124
194

10,842
2,877

49

502
6,275

454
6,216

11
968
3,656

Dividends
paid in
cash and
assets
other than
own stock

11,022

295,637
203,447
1,829

668

Total
Defi­
compiled
cit ij
re­
ceipts 10/

2,806

12,949
5,362
142

1,075
183

Number
of
returns

493,368

1,529
799
14

2,112

Excess
profits
tax 4/

Dividends
paid in
cash and
assets
other than
own stock

1,122
194

1
5

1
2
(15)

101
1,271
902
43
84
53

101
40
48

10
4

6
2

6
789
768

4,587

220

8

10

IS
143

804
2,984

1,010

20
12

10

Table 2. - Corporation incase and declared value excess-profits tax returns, 1/ 1944, by major Industrial groupss Number of returns, compiled receipts, compiled deductions,
compiled net profit or net loss, net income or deficit, net operating loss deduction, adjusted excess profits net income, income tax, declared value excess-profits tax,
excess profits tax, total tax, compiled net profit less total tax, and dividends paid by type of dividend
(Money figures in thousands of dollars)
Major industrial groups 8/
All
Industrial
groups

1
2
3

4
5

6
;7

8

9

10
U

12

13
14
15
[16
17

18

19
20
21
22
25
24
25
26
27
28
29
50
31

Number of returns 16/
Receipts>
Oross sales 17/
Cross receipts from operations 18/
Interest on Government obligations
(less amortisable bond premium)«
Wholly taxable 19/
Subject to declared value excessprofits tax and surtax 20/
Subject to surtax only 217
Wholly tax-exempt 22/
Other interest
Rents 25/
Royalties 24/
Excess of net short-term capital gain
over net long-term capital loss 25/
Excess of net long-term capital gain
over net short-term capital loss 25/
Net gain, sales other than capital
assets 26/
Dividends, domestic corporations 27/
Dividends, foreign corporations 287
Other receipts
Total compiled receipts 10/
Deductions«
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 50/
Bad debts
Interest paid
Taxes paid 31/
Contributions or gifts 52/
Depreciation
Depletion
Amortization 55/
Net loss, sales other than capital
assets 26/
Other deductions

52

Total compiled deductions

53

Compiled net profit or net loss
(17 less 32)
Net income or deficit 2/ (53 less 7)
Net operating loss deduction 54/
Adjusted excess profits net income 11/
Income tax 3/
Declared value excess-profits tax
Excess profits tax 4/

54
55
56
37
58
39
40
41

Total tax
Compiled net profit less total tax
(33 less 40)
Dividends paid:
Cash and assets other than oim stock
Corporation's own stock
F o r footnotes» see p p * 29 a n d 50*

412,467

Total
lietal
mining
nlning
and
quarrying

Mining and quarrying
Crude
Bituminous petroleum ap<n
Anthra­ coal,
natural
cite
lignite,
adning peat, etc. gas pro­
duction
146

1,584

209,556,358 3,430,425 725,154 543,875
42,696,261
445,065 17,547 33,272

1,455,510
112,465

7,620

867

1,100,179
331,598

4,585
1,039

2,463
347

18,521
242,121
2,187,240
2,U S , 113
246,532
25,096

28
480
6,431
23,280
28,272
1,077

181
1,097
1,456
2,536
90

246
4,435
8,256
32

1

270
132

1
12

854
181

3,523

Manufacturing
Nonmetallie
mining
and
quarry­
ing
1,511

563,045 334,070
255,553 24,079

670
216

521
162

22

1

58
1,867
12,326
7,829
59

192
2,891
2,849
9,071
832

3
38
323

2,202
580
51

Mining
and
quarry­
ing not
alloca­
ble

Total
manufac­
turing

Food and
kindred
products

Tobacco
Beverages manufac­
tures

Cotton
manufac­
tures

TextUemiU
products,
except
cotton

Apparel
and
products
made
from
fabrics

Leather
and
products

Rubber
products

Lumber
and
timber
basic
products
2,376

1

8,771 144,043,991 19,639,031 3,751,888 2,U S , 914 2,734,510 4,744,423 3,811,581 2,U3,405 3,283,202 1,566,816
2,349
8,540,869
U2,133
15,537
25,276
4,505
153,767
101,197
10,636
40,672
27,170

2

189

76,619

8,774

2,598

207

809

3,405

7,256

1,961

89,445
11,045

4,586
567

1,407
142

229
157

1,765
109

5,586
150

1,078
139

1,212

68
815
11,852
18,469
2,817
195

16
174
2,544
5,055
475
234

5
84
2,964
2,757

U
123
1,505
7,234
172
131

18
311
3,2U
6,054
909
91

3
28
1,178
2,373
4,884
67

1
112

. 14

1,060
13,374
U6,S63
210,379
84,321
5,699

7
(15)
-

6
12
1

8
(15)

55

435

1,602
52

1,294
92

5

4
5

1

19

6

68

7

846
1,441
146
26

U
1,775
4,134
2,234
4

1,829
6,310
1,556
189

8
9

10
U

402,744

19,827

1,354

191

1,792

15,265

1,159

66

109,738

10,571

2,155

1,556

2,699

3,205

751

627

449

34,335

12

139,678

2,923

131

30

366

2,053

522

21

6,234

957

351

20

51

444

138

77

54

960

15

1,429,382
145,229
1,584,499

31,872
612
51,680

17,348
426
8,177

915
(15)
2,052

2,688

9,653
47
11,285

1,264

3
84

393,510
91,988
699,178

21,125
8,667
88,385

3,939
16,955

4,673
937
2,009

1,906
37
12,094

5,458
786
21,446

1,693
44
13,289

1,392

138
6,967

2,061
5,993
14,364

5,574
37
14,973

14
15
16

262,200,531 4,027,595 778,108 393,717

1,603,123

875,623 567,691

11,335 154,215,593 19,920,035 3,798,851 2,135,818 2,787,621 4,943,639 3,958,242 2,159,486 3,556,608 1,659,020

17

161,197,624 2,418,088 495,315 287,230
24,311,779
297,793 11,386 24,249
4,091
2,821
35/3,759.057
51,487
2,204
3,206
2,487,369
23,174
5,416
8,934
2,575,242
61,553
535,562
1,781
91
5,on
4,024
5,868
51, U 5
2,288,209
115,872 28,182 H,591
5,964,725
119
3,394
1,195
234,194
7,776
3,950,124
146,038 24,212
711,742
8,620
230,805 59,705
981,203
445
14,054
7,701
2,611
748
504,228
13,974

1,137,960
78,624
14,911
5,940
30,361
1,379
6,052
38,901
981
40,426
44,566
1,577
4,567

282,294 208,898
167,422 14,568
17,765 11,613
9,350
2,424
5,506 11,482
1,355
427
2,635
12,582
10,162
27,040
306
792
58,100 15,262
104,616 12,726
2,855
1,555
1,266
4,498

6,392 U O , 161,746 16,292,620 2,298,975 1,725,790 2,214,437 3,705,087 5,013,994 1,734,710 2,537,653 1,165,298
1,545
6,474,029
47,755
3,818
707
102,662
76,454
3,447
15,625
U,040
404
287
1,599,106
59,756
5,867
153,715
22,558
84,784
118,773
41,475
15,562
31,020
50
588,476
45,962
7,964
1,591
2,241
14,886
8,976
4,186
28,439
10,145
54
2,077,306
172,881
30,000
2,558
31,809
51,257
8,276
14,176
44,605
16,929
1
87,264
6,753
135
746
1,896
1,619
2,150
689
2,258
2,549
154
445,155
11,151
42,305
11,601
6,727
10,714
5,254
9,727
6,203
3,265
196
3,084,163
220,483
76,426
580,003
99,575
43,078
49, 6U
26,851
67,253
30,129
2
142,065
666
U,222
5,090
4,174
7,632
5,593
2,467
1,484
1,301
261
1,825,043
14,132
155,224
43,593
6,741
38,759
59,025
10,785
34,174
32,905
573
423,926
458
229
1
10
9
224
42,569
U
121
740,721
•
7,122
1,162
2,957
2,304
383
233
U,973
1,519
283
112,728
15,004
5,590
172
2,945
5,677
3,713
859
518
4,8U

17,637

104,084

56/255,653,929 3,709,741 578,268 379,821

1,510,329

26,552,868

297,382

31,153

104,315

1
3,115

38,689

798,066 351,813

1,526

U , 589, 355

1,658,526

22

23
24
25
26
27
28
29
50

150,210

31
32

U4,922

131,147

359,964

150,788

288,087

18
19

20
21
22

11,444 139,351,080 18,808,028 5,415,335 1,969,437 2,5U,126 4,430,747 5,684,832 1,999,540 3,027,170 1,503,956

387,854

507,517

6
9,505

26,546,602

317,854

99,839

13,896

92,794

75,557

55,878

57/111

14,864,313

1,U2,007

583,516

166,380

276,495

512,893

255,410

139,946

329,437

155,065

55

26,304,481
148,760
12,841,665
4,353,620
98,668
10,431,762

317,574
6,696
68,208
99,066
597
57,864

99,658
552
16,490
28,229
39
14,001

15,884
1,195
1,366
4,906

92,756
1,570
24,027
28,368
126
20,451

75,565
2,919
12,692
26,904
521
10,680

55,840
440
15,618
10,354
67
U,574

37/H1
16
303
25
14

14,850,959
47,874
8,851,188
2,199,858
70,492
7,120,999

1,111,194
3,148
528,199
218,949
3,312
439,545

583,542
1,779
199,354
69,864
522
163,418

166,296
28
35,955
50,910
135
28,810

276,371
190
178,508
37,759
515
145,507

512,581
1,828
300,516
78,876
2,442
246,469

255,382
1,243
142,237
36,648
5,108
117,044

159,855
778
65,143
26,904
581
54,604

329,426
127
249,549
30,788
1,519
200,813

154,996
949
60,990
53,278
370
51,214

34
35
36
57
58
39

21
1,164

22

14,884,050

157,527

42,269

6,092

48,926

57,906

21,995

359

9,391,528

661,806

235,805

79,855

183,781

327,787

156,800

82,089

233,120

84,863

40

U , 662,552

160,527

57,571

7,803

45,868

37,651

15,885

38/450

5,472,985

450,200

149, 7 U

86,526

92,715

185,106

96,610

57,858

96,317

70,202

41

6,057,043
247,196

189,477
1,502

78,777
89

7,667
50

25,628
570

57,490

19,598
125

317

2,848,259
134,934

258,482
23,560

69,926
2,595

73,177
*

47,018
7,583

70,749
9,500

28,452
5,371

27,722
2,591

58,461
285

37,894

42
43

868

2,000

F o r footnotes» see p p * 29 a n d 50*

Table 2. - Corporation income and declared value excess-profits tax returns, 1/ 1944, by major industrial groups: Number of returns, compiled receipts, compiled deductions,
compiled net profit or net loss, net income or deficit, net operating loss deduction, adjusted excess profits net income, Income-tax, declared value excess-profits tax,
excess profits tax, total tax, compiled net profit less total tax, and dividends paid by type of dividend — Continued

Furniture
Paper and
and
finished allied
products
lumber
products

1
2
3

4
5

6
7

8
9

10
11
12
13
14
15
16
17

18
19
20
21
22
23
24
25
26
27
28
29
30
31

2,062
6,044
3,780
9,969
Number of returns 16/
Receipts:
1,970,281 3,440,285 3,189,219 9,198,251
Gross sales 17/
7,275
217,429
Gross receipts from operations 18/
14,189
555,372
Interest on Government obligations
(less amortizable bond premium)i
2,691
Wholly taxable 19/
974
2,902
7,405
487
982
108
1,048
Subject to declared value excessprofits tax and surtax 20/
13
8
31
Subject to surtax only 21/
80
266
628
867
Wholly tax-exempt 22/
291
916
3,411
3,134
8,433
Other interest
2,678
6,804
10,924
Rents 23/
15,520
204
2,243
6,019
12,630
Royalties 24/
43
53
105
Excess of net short-term capital gain
122
over net long-term capital loss 25/
3,713
2,280
3,212
Excess of net long-term capital gain
6,813
over net short-term capital loss 25/
162
334
93
471
Net gain, sales other than capital
assets 26/
1,862
104,073
6,311
13,849
Dividends, domestic corporations 27/
284
1,739
932
11,288
Dividends, foreign corporations 28/
32,186
11,434
17,620
30,265
Other receipts
Total compiled receipts 10/
Deductions:
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 50/
Gad debts
Interest paid
Taxes paid 31/
Contributions or gifts 32/
Depreciation
Depletion
Amortization 33/
Net loss, sales other than capital
assets 26/
Other deductions

32

Total compiled deductions

33

Compiled net profit or net loss
(17 less 32)
Net income or deficit 2/(33 less 7)
Net operating loss deduction 34/
Adjusted excess profits net income 11/
Income tax 3/
Declared value excess-profits tax
Excess profits tax 4/

34
35
36
37
58
39
40
41

42
43

Printing
and pub­
lishing
indus­
tries

(Money figures in thousands of dollars)
Major industrial groups 8/ - Continued
Manufacturing - Continued
Machinery,
Chemicals Petroleum Stone,
Iron,
Nonferrous Electrical except trans­
and
and cosi
clay, and steel,
portation
machinery
metals and
products
allied
glass
and
and equip­ equipment and
their
products
electrical
products
ment
products products

Total tax
Compiled net profit less total tax
(33 less 40)
Dividends paid:
Cash and assets other than own stock
Corporation's own stock
For footnotes, see pp.

29 and 30,

446

6,236

2,203

1,715

5,868

9,218,065 2,261,312 20,132,308
509,475
12,890
725,458

4,273,244
100,880

8,001,147
36,442

11,084,497
138,997

2,705

Public utilities
Automobiles
and equip­
ment, except
electrical

Transpor­
tation
equipment,
except
automo­
biles

547

1,144

12,735

1
2

2,062
520

17,853
1,450

2,800
179

4,637
1,069

9,762
1,329

1,483
148

13,422
885

171
965
24,934
45,745
8,610
181

13
579
1,662
3,426
2,351
151

73
799
16,138
37,944
10,937
333

2
111
1,510
3,879
1,557
37

403
5,528
6,926
4,868
11,343
670

65
895
5,441
7,447
5,830
253

(IS)
40
1,522
2,560
1,135

52
475
12,371
7,466

6

8,767

1,904

6,412

1,434

2,095

4,310

147

258

497

126

104

425

102,844
26,386
80,862

4,269
6,152
13,024

35,720
3,168
90,305

14,448
2,144
25,446

20,095
7,317
23,472

11,049
4,748
49,695

2,005,718 3,492,999 3,481,886 9,952,617 10,032,115 2,310,569 21,079,396

4,427,798

8,126,116

11,524,742

1,488,483 2,479,381 1,912,628 6,262,441
9,641
1,889
113,459
488,618
58,926
125,254
55,360
113,139
10,479
14,262
34,034
33,991
22,846
74,712
15,458
131,730
1,777
1,744
8,765
6,022
13,778
11,946
23,832
4,328
69,941
154,532
34,795
62,655
4,416
8,262
7,438
2,080
72,876
44,819
169,784
20,713
860
3,679
12,881
12
191
1,105
8,488
73,352
4,756
1,213
4,431
5,293

3,259,947
58,830
56,071
38,605
63,158
5,293
11,256
80,653
4,678
66,054
25,273
53,693
1,665

6,108,336
2,952
61,955
27,259
91,900
1,899
25,089
135,342
5,967

7,940,686
11,843
174,287
39,477
187,699
6,013
24,366
192,925
13,952
108,259
477
73,551
6,266

187,104

278,019

561,569 1,176,690

1,840,752 3,079,289 2,910,270 8,660,566

66,200
66
37,888
924

1,139,362

229,515

572,130

928,433

9,382,027 2,066,646 18,942,077

3,954,691

7,137,906

9,708,233

1,004,149

265,542

Trans­
porta­
tion

208,756
3,707,492 19,104,286 2,759,411 1,943,442
154,202
862 5,489,236
17,511
25,960 21,418,952 14,162,150

4,096
867

6,694,845 1,576,590 15,435,410
262,186
6,535
498,054
42,383
19,573
211,740
80,627
90,610
8,034
163,069
49,751
526,874
2,039
11,514
11,221
70,734
6,211
83,044
274,143
43,144
367,023
2,427
11,592
20,073
332,608
51,480
312,274
1,656
26,196
307,874
138,597
8,195
196,679
23,517
10,515
2,560

Manufac­ Total
Other
manufac­ turing
public
utilities
turing
not
allocable

5,511

1,917
370
3

2,590

19,242

3

1,080
161

23,993
2,166

14,151
1,747

4
5

4

6

120

86

329

1,559
2,985
1,435
204

904
4,307
1,005
274

148
6,954
107,395
319,564
5,591
856

98
‘ 2,194
60,898
273,306
4,690
692

718

6,377

1,465

3,915

26,618

23,909

12

21

223

155

191

2,866

2,692

15

388
2,955
7,429

28,170
5,324
103,190

3,568
2,832
11,513

1,244
191
9,717

306,306
6,141
61,101

75,951
1,014
41,503

14
15
16

3,726,760 24,777,828 2,805,046 1,992,483 22,497,409 14,819,199

17

6,021

2,970,057 15,980,677 1,925,580 1,438,121
144,5S6
357 4,744,341
9,098
4,320 12,072,643
17,446
56,281
62,543
50,639
154,823
15,374
681,967
7,874
54,455
9,005
86,641
244,390
25,585
21,020
32,126
6,178
3,448
1,441
1,135
28,851
5,672
6,406
43,650
7,895
977,451
47,482
330,798
65,641
31,698 1,377,810
1,927
5,307
10,781
18,213
5,535
26,566
32,765
109,154
18,153 1,124,294
596
601
16
428
26,410
88,196
19,834
7,412
218,694
5,910
7,091
3,361
1,935
1,813
90,690
185,127

1,004,023

319,656

189,019

1,401,050

107,738
8,798,258
113,594
607,127
27,996
6,922
550,522
779,406
7,049
420,804
8,901
173,046
54,032

7

8
9

10
11

18
19

20
21
22
23
24
25
26
27
28
29
30

705,290

31

3,387,276 22,677,879 2,472,157 1,781,141 18,349,577 12,360,686

32

164,966

413,710

571,616 1,292,051

650,088

243,923

2,137,319

473,107

988,210

1,616,510

339,484

2,099,949

332,889

211,342

4,147,831

2,458,513

33

164,676
1,568
82,198
29,646
1,337
68,257

413,444
756
228,725
69,494
1,080
189,242

570,988 1,291,184
5,376
2,101
302,658
598,231
94,662
239,640
2,469
3,036
250,064
502,394

649,123
446
79,164
187,635
117
67,118

243,345
1,182
113,539
51,594
675
98,148

2,136,521
4,628
1,394,339
285,728
10,931
1 ,110,112

472,996
794
275,145
69,860
2,527
223,267

982,682
11,466
715,701
93,435
5,184
S73,707

1,615,615
2,830
1,170,711
168,108
11,357
927,178

339,445
232
244,015
36,245
2,983
191,961

2,099,474
2,672
1,536,165
216,553
12,180
1,193,264

332,769
2,081
217,238
42,875
1,981
175,235

211,256
1,673
130,327
30,386
2,132
103,630

4,140,878
14,821
1,891,259
816,251
2,892
1,570,184

2,456,318
13,689
1,418,194
, 422,830
2,492
1,166,497

34
35
36
37
38
39

99,239

259,816

347,195

745,069

254,870

150,417

1,406,771

295,653

672,326

1,106,643

231,189

1,421,996

220,091

136,148

2,389,327

1,591,819

40

65,727

153,895

224,421

546,981

395,218

93,506

730,548

177,454

315,884

509,867

108,296

677,952

112,799

75,193

1,758,504

866,693

41

26,640
3,525

73,186
6,862

106,824
2,621

379,468
16,917

388,832
10,663

59,672
1,987

329,788
7,884

106,908

132,182
4,361

200,892
8,623

52,022
1,558

287,862
3,326

43,793
4,969

28,312
7,252

1,226,634
22,197

368,799
3,387

42
43

1,101

oo

Table
T Corporation income and declared value excess-profits tax returns, 1/ 1944, by major industrial groups: Number of returns, compiled receipts, compiled deductions,
compiled net profit or net loss, net income or deficit, net operating loss deduction, adjusted excess profits net income, income tax, declared value excess-profits tax,
excess profits tax, total tax, compiled net profit less total tax, and dividends paid by type of dividend - Continued
*
y—wegj tJKiuwjUl uuuuqaiiua OA WJJLOTBJ
Major industrial groups 8 / - Continued

! Public utilities Continued

Communi­
cation

1
2
S

4
S

6
7
8
9

10
11

12
15
14
15
16
17

18
19

20
21
22
23
24
25
26
27
28
29
50
51
32
33
34
35
36
37
38
39
40
41

42
45

Number of returns 16/
Receipts:
Gross sales 17/
Gross receipts from operations 18/
Interest on Government obligations
(less amortizable bond premium):
Wholly taxable 19/
Subject to declared value excessprofits tax and surtax 20/
Subject to surtax only ixl
Wholly tax-exempt 22/
Other interest
Rents 23/
Royalties 24/
Excess of net short-term capital gai
over net long-term capital loss 25/
Excess of net long-term capital gain
over net short-term capital loss 25
Net gain, sales other than capital
assets 26/
Dividends, domestic corporations 27/
Dividends, foreign corporations 2£y
Other receipts
Total compiled receipts 10/
Deductions:
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 50/
Bad debts
Interest paid
Taxes paid 31/
Contributions or gifts 32/
Depreciation
Depletion
Amortisation 33/
Net loss, sales other than capital
assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss
(17 less 32)
Net income or deficit 2/ (S3 less 7)
Net operating loss deduction 34/
Adjusted excess profits net income 11/
Income tax 3/
Declared value excess-profits tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax
(33 leas 40)
Dividends paid:
Cash and assets other than own stock
Corporation's own stock

3,560

Other
public
utilities

2,947

--------------

..

Trade

Total
trade

117,363

Total
whole­
sale

Commission
merchants

33,608

3,718
50,836 59,765,940 28,981,651
21 511,715 4,745,089 1,129,414
741,110

Other
whole­
salers

5,135

Total
retail

28,473

69,146

General
merchan­
dise

5,339

Food
stores,
Including Package
market
liquor
milk
stores
dealers
5,529

1,691

Drug
stores

4,197

Apparel
and
acces­
sories

9,968

1,188,451 27,793,200 25,935,545 8,888,352 5,671,636 178,583 907,017 5,024,942
389,184
351,927
298,334
27,439
35,971
4,851
7,591
22,123

3,449
44

6,393
375

22,558
1,319

7,307
478

628
26

6,679
452

13,761
756

9,214
310

3
61
2,992
23,425
634
93

47
4,699
43,504
22,833
267
72

313
1,417
45,859
132,103
6,870
1,400

63
546
23,597
25,025
3,417
649

7
77
5,141
2,077
192
84

56
469
18,256
22,948
3,225
565

222
762
18,348
92,808
2,711
536

135
321
6,706
46,634
1,205
123

485

2,224

25,104

10,732

841

9,891

10,535

2,875

60

113

5,994

2,502

103

2,399

2,714

12 S

172,536
1 ,586
5,914

57,818
3,541
13,685

46,994
22,192
516,285

26,260
8,305
164,856

7,531
ISO
17,060

18,729
8,155
147,797

17,600
5,676
313,450

8,712
3,657
121,919

1,195
3
9,791

440
134

(IS)

30

(15)

102
868

126

1,133
35

4,336

Eating
and
drinking
places

9,562

Auto­
motive
dealers

Filling
stations

7,347

1,693

769,051 1,287,262 1,161,022
9,516
78,492
45)235

219,573
4) 164

Building
materials,
fuel,
and ice

Hard­
ware

2,080

6,745

192,562 1,277,058
l)S56 * 22)979

850
36

261
29

444
47

49
40

1,294
16,608
292
31

4
19
1,372
3)l30
32
44

4
57
255
5,029
83
78

4
55
2,056
3)746
180
45

72
1,825

257
465

8
6

4

4^265
*125
78
1,430

(15)

22
13

Furniture
and house
furnish­
ings

18

81

491
25

12

(15)

1 9^7

-

439
1,695
257
14

758

76

335

542

555

1,596

1,089

145

78

781

50

67

117

90

401

205

50

40

517

5
•
181

1,038

2,680
(15)
55,389

650

400
(15)
6,841

524

115

85

1,059

(15)
2,354

15,283

4,173
454
25

88

•

7,261

1
54,808

1

1

11,426

1,375

5

2,726,714 4,951,497 61*723,762 29,996,300

1,611,553 28,384,747 26,711,537 9,117,726 5,726,361 183,867 925,653 3,125,213

839,938 1,580,769 1,226,038

227,247

197,789 1,525,451

2,262
34,556 47,105,223 25,137,875
1,211,004 2,063,381
530,820
321,027
12,570
28,659 1,091,590
475,507
49,090
25,750
771,027
99,210
2,455
1,674
174,038
42,218
5,854
16,075
64,388
19,224
63,154
363,775
105,666
45,880
170,882
427,525
578,806
175,755
4,509
6,655
44,900
15,322
242,804
460,686
283,473
69,367
17,508
1
3,219
2,544
827
44,821
3,723
2,913
2,557
34,101
31,549
9,152

1,111,196 24,026,678 18,132,000 5,797,612 4,581,097 144,142 620,267 1,974,650
183,237
137,790
162,346
10,678
22,482
4,020
3,890
9,336
414,389
499,242
59,118
78,515
37,839
8,473 21,514
83,835
89,820
9,390
626,542
198,424
64,096
3,172 33,527
150,572
1,298
40,919
114,096
39,065
19,041
281
4,054
10,231
1,846
17,378
37,010
9,120
2,137
277
35
6,881
5,677
40,205
50,825
22,640
5,296
515
1,059
4,149
162,923
12,830
352,930
143,925
43,204
3,073 11,464
35,436
1,672
13,650
26,450
14,357
2,261
87
528
3,834
66,177
3,190
184,592
65,561
34,019
572
6,429
16,344
2,499
45
464
126
16
2
3
17
2,670
243
662
106
82 (15)
2
8
8,249
904
19,727
5,293
2,064
12
332
3,878

414,035
2)326
40,044
27,142
3,040
4,660
2,116
14,470
l)070
4,950
9

162,971
2)526
4)499
3)449
l)513

138,521
1^090
io)565
3)429
*406
475
394
2,541
171
966

229,524

466,236

7,680,862

2,366,799

1,997,493 3,991,599 58,469,082 28,780,791

175,471

2,191,328

4,716,787 1,801,688

767,157

13,104 169,911

594,314

1,520,669 27,260,121 24,923,674 8,187,110 5,580,792 177,290 873,256 2,893,288

769

730,048
49,450
44)726
64,429
15,735
697
2,836
33,153
691
18,941
13
54
3,983

829,908
24)582
57*901
22)554
5,810
2)724
4,108
14,849
801
8,349
19
91
592

241,068

357,434

190,602

33,358

755, 71Q, 1,322,192 1,162,887

216,772

10

*222
505
3,650

66
3,820
4

84

960,995
15^871
44^155
7^179
8'163
4^515
3^309
16^536
*917
11,439
61
193
1,321

25,499

183,306

1

8
181

183,942 1,257,959

729,221

960,098

3,254,679

1,215,509

90,883

1,124,626

1,787,863

930,617

145,568

6,576

52,397

231,925

84,228

58,577

63,150

10,475

13,847

65,492

729,160
634
247,965
131,754
276

3,253,262
18,115
1,602,467
565,179
17,890
1,327,088

1,214,963
6,322
606,143
207,930
5,898
496,714

90,807
1,249
36,869
16,260
415
30,787

1,124,157
5,073
569,274
191,670
5,483
465,927

1,787,101
9,293
911,998
300,773
10,197
759,795

930,296
361
584,822
128,282
4,639
486,015

145,467
1,264
55,679
33,186
588
46,914

6,570
127
853
1,486
95
771

52,392
284
24,101
8,946
306
20,213

231,903
1,062
122,545
34,311
1,564
101,578

84,209
456
23,084
21,057
428
19,581

58,540
l)548
25,247
11,948
484

21,100

63,115
*937
12,655
14,759
*382
10,717

10,468
*147
4,190
2)501
51
3,582

13,845
75
2,529

211,222

955,399
498
225,100
261,667
125
192,465

191
2,179

65,344
*911
13,631
16)l78
*543
11,601

343,2S1

454,257

1,910,157

710,542

47,462

663,080

1,070,764

618,934

80,688

2,352

29,464

137,454

41,067

33,532

25,858

6,134

5,426

28,321

385,970

505,841

1,344,522

504,967

43,421

461,546

717,099

311,682

64,880

4,224

22,933

94,471

43,161

25,045 »

37,292

4,341

8,421

37.171

366,144
421

491,691
18,389

550,481
43,903

199,787
26,275

19,798
2,881

179,989
23,394

312,522
13,233

162,120
4,190

34,665
179

295

8,701
105

29,246
3,352

18,171
1,179

9,984
158

8,667
1,043

5,121
116

1,876
207

14,884
465

8

For footnotes, see pp. 29 and 30.

_

j j

1 ______i

-I—

» ... ratura,

1/

la u

h, n w

orannat

Number of returns, compiled receipts. Compiled deductions.

5)056

31

Corporation income and declared value excess-profits tax returns, V
1944, by major industrial groupst Number of reterns,
M ^ ^ i t ^ t a x 1” 10’
net profit or net loss, net income or deficit, net operating loss Seduction, adjusted excess profits net income, inccme tax, declared value excess-profi
,
excess^rofits* tlx,” total "tax” co^iled net profit less total'tax, and dividends paid by type of dividend - Continued

Table

Service
Retail - Continued

Other
retail
trade

Number of returns 16/
Receipts i
Gross sales 17/
Gross receipts from operations 18/
Interest on Government obligations
(less amortizable bond premium)!
Wholly taxable 19/
Subject to declared value excessprofits tax and surtax 20/
Subject to surtax only 21/
Wholly tax-exempt 22/
Other interest
Rents 25/
Royalties 24/
Excess of net short-term capital gain
over net long-term capital loss 25/
Excess of net long-term capital gain
over net short-term capital loss 25/
Net gain, sales other than capital
assets 26/
Dividends, domestic corporations 27/
Dividends, foreign corporations 28/
Other receipts
Total compiled receipts 10/
Deductions!
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs, 50/
Bad debts
Interest paid
Taxes paid 51/
Contributions or gifts 52/
Depreciation
Depletion
Amortization 55/
Net loss, sales other than capital
assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss
(17 less 52)
Net income or deficit 2/ (55 less 7)
Net operating loss deduction 54/
Adjusted excess profits net income 11/
Income tax 5/
Declared value excess-profits tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax
(55 less 40)
Dividends paid!
Cash aid assets other than own stock
Corporation's own stock
For footnotes, see pp.

29 and 30,

6,654
,552,616
27,009

Retail
trade
not
alloca­
ble

Trade not
allocable

4,205
025,871
11,509

14,609

Total
service

54,712

Hotels
and
other
lodging
places

Personal Business
service service

4,145

848,945
89,970

762,601
650,464

558,455
625,902

1,489
105

2,980
252

1,272

28
109
4,114
14,270
742
215

24
158
7,450
85,862
5,525
481

Auto­
motive
repair
ser­
vices
and

7,960
159,876
740,256

Miscel­
laneous
notion
repair
services, pictures
hand
trades

1,505

6,415
67,552
944,759

72,855
85,548

47,805
110,602

Amuse­
ment,
except
motion
pictures

Other
service,
includ­
ing
schools

5,868

5,681

4,054

20,209
,458,299

28,851
280,248

25,527
592,941

Service
not
alloca­
ble

1,555
15,909

21

1,265
58,198
426
90

(IS)

12,810
2,549
5,154

10,211
57,978

51,909
5,695
72,554

2,754
252
9,021

25,780
5,557
50,710

909,876

,056,557

,572,915

85,825
178,125
252,852 455,195
55,985
18,985
25,879
50,580
15,449
57,910
2,459
5,242
5,455
27.797
21,470
46,458
848
976
22,007
46,749
295
7
105
564
1,268
6,665

47,054
564,071
65,268
17,505
5,812
1,976
2,254
16,127
987
15,020

1,940
99
7,850

1,581,564

,055,922

,015,925

,657,054 1,019,575

946,075
10,576
47,258
56,754
5,741
5,009
2,568
20,956
1,154
7,214

851,878
5,719
19,918
12,014
5,017
2,260
1,751
9,671
555
5,988
184

,855,548
47,447
118,840
45,275
17,725
8,154
8,960
50,122
5,129
29,515

455,498
,515,885
226,087
221,116
85,807
11,472
54,168
148,161
6,090
158,261
580
1,189
20,677

10
102
1,022

197

211
147
2,469

46,704
46,172
10,784
14,567
. 1,944
577
1,465
4,428
89
5,662

50,644
75,899
10,694
1,977
1,057
206
405
2,785
84
2,294

12,865
767,757
26,009
82,717
16,017
1,577
14,846
55,450
1,757
29,262

10

10

658,475
256,191

16,952
219,258
1,897,048
1,518,868
114,241
16,794

14,042
155,577
995,192
109,758
41,475
15,270

15,227
147,592
796,558
88,455
1,245
7,775

187,812

142,551

1,129
55

114,499

59,545

605,516
18,451
145,781

467,564
15,825
78,574

17,725
851
46,859

160
(15)
2,441

9,826,804

,655,710

2,454,571

50,925

40,478
98,805
55/466,845
175,525
110,955
150,142
654,779
595,575
16,267
565,147
25,101
1,414
221,554

19,909
22,406
295,547
55,094
15,527
115,552
504,501
150,445
12,255
61,214
4,065
157
92,702

9,287
16,555
6,759
554
11,282
19,140
6,855
479
2,076

592
222,688

40,058
12,496
75,181
208,745
116,579
10,229
48,114
189

404,678

56/6,712,150 2,215,255

1,597,645

42,274

26,928

5,114,654 1,422,476

856,926

2,895,416 1,268,899
12,971
41,155
12,949
67,755
281,286
495,568
1,529
2,806
11,022
57,795

709,554
8,560
5,562
198,061
799
4,587

295,657

205,447

1,829

21,177
51,765

22,596
765

965,662

1,508,746

56,648

658,057
241,589

281,794

225,712

855,228

95.798

955,920
515,071

791,655

186,997

578.951

26,728
618,566

5,815,784 1,068,525

925,774

251,507

52,955

65,576
5,859,478

Short­
term
credit
agencies
except
banks

82,886

275,066

59,115

155,879

Long-term
credit
agencies,
mortgage
companies,
except
banks

62,725

597,276 1,197,551

85,897

Banks and
trust
companies

54
8,544

1,295,668 1,016,808 4,764,618 5,058,124

125,695

15,418
245,541
25,257
14,219
5,241
1,128
1,599
7,959
296
6,927
10,110
24
25
260
11
565
I,
525

15,884
140,615
14,106
15,111
6,245
675
2,474
15,258
1,059

15,706

Total
finance

155
1,729

512,102

215,650

451,605

Total
finance,
insurance,
real estate,
and lessors
of real
property

264,167

72,875

85,866
1,657
55,664
15,899
564
27,994

59,085
464
9,019
9,165
565
7,551

251,198
2,500
84,525
56,476
1,796
70,579

578,795
12,528
245,820
117,557
2,070
201.952

95,791
5,890
50,682
22,761
249
25,755

56,625
1,515
14,214
15,540
575
12,064

72,855
1,208
25,910
18,104
565
19,955

44,456

17,078

128,851

521,559

48,765

25,778

58,402

6,750
458
1,256

1,868
84
1,025

14,598
256
8,844
1,862
286
7,052

264,141
915
119,661
46,816
278
99,884

42,270
1,540
29,240
7,001
25,441

26,895
757
15,768
5,589
229
12,548

146,978

50,642

18,166

41,440

22,056

122,456

257,571

45,055

50,870

54,475

117,189

12,605
1,554

7,991
699

58,572
4,595

116,772
5,455

11,408
567

10,554
425

19,590
447

62,219
592

200

II,

555,966

71,522

52,858
421
5,569
18,260
45
2,872

8,761
655

2,560,688 1,128,859

655,480

58/1,485

4,217
594

1,062,820
55,050

772,502
50,871

261,512
27,185

2,610

42
45

GO

Table 2. - Corporation Income and declared value excess-profits tax returns, \/ 1944, by major industrial groupsi Number of returns, compiled receipts, compiled deductions,
compiled net profit or net loss, net income or deficit, net operating loss deduction, adjusted excess profits net income, income tax, declared value excess-profits tax,
excess profits tax, total tax, compiled net profit less total tax, and dividends paid by type of dividend - Continued
(Money figures in thousands of dollars)
Major industrial groups 8 / - Continued
and lessors of real property - Continued
Agriculture, forestry, and fishery
Insurance carriers.agents.etc.
Real
Total
Lessors
Total
agricol­
of real
estate,
Agricul­
Finance
insurance Insurance Insurance including property, Construc­ ture,
tion
not
carriers, carriers agents,
farestry, ture and Forestry Fishery
except
lessors
allocable agents,
and
brokers, of
services
buildings
fiabery
buildings
etc.
etc.

Finance, insurance, real estate,
Finance - Continued
Other in­ Security
Invest­
and
vestment
ment
companies, commodity- Other
trusts
finance
including exchange
and In­
companies
brokers
vestment holding
compa­
and
compa­
nies 12/ nies 15/14/ dealers
Number of returns 16/
Receiptsi
Cross sales 17/
Cross receipts from operations 18/
Interest on Government obligations
(less amortizable bond premium)i
Wholly taxable 19/
Subject to declared value excessprofits tax and surtax 20/
Subject to surtax only Zl7
Wholly tax-exempt 22/
Other interest
Rents 25/
Royalties 24/
Excess of net short-term capital gain
over net long-term capital loss 25/
Excess of net long-term capital gain
over net short-term capital loss 25/
Net gain, sales other than capital
assets 26/
Dividends, domestic corporations 27/
Dividends, foreign corporations 28/
Other receipts
Total compiled receipts 10/
Deductions t
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 50/
Bad debts
Interest paid
Taxes paid 51/
Contributions or gifts 52/
Depreciation
Depletion
Amortization 55/
Net loss, sales other than capital
assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss
(17 less 52)
Net Income or deficit 2/ (55 less 7)
Net operating loss deduction 54/
Adjusted excess profits net income 11/
Income tax 5/
Declared value excess-profits tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax
(55 less 40)
Dividends paidt
Cash and assets other than own stock
Corporation's own stock

5,565

2,062

1,229

1,521

5,674

7,509

1,909
-

Nature of
business
not
allocable

86,786

6,629

11,514

6,417

5,850

341

246

5,101

1

50,567
223,228 1,027,553

6,281

416,249
2,694,871

765,088
115,852

738,604
102,788

10,106
5,471

14,576
7,595

61,910
61,296

2

21

151
58

4
5

-

11

5
24
1,957
4,343
797
177

5,600
-

-

17,756
41,454

54,788

8,992
7,486

5,570
890

5,062
500

7,882
5,601

117
52

1,682

112

290,811
72,595

290,554
72,569

257
27

4,416
944

636
143

1,655
167

914
521

865
517

50
4

28
1,544
26,095
701
5,965
2,850

55
782
54,644
8,782
1,599
615

715
2,902
4,015
1,414
62
857

4
94
2,690
6,467
52,054
57

17
75€
9,027
1,16S
621
577

2,779
64,606
871,360
136,458
199
541

2,774
64,582
870,257
135,151
114
485

5
26
1,123
1,308
85
56

106
955
28,567
912,505
2,559
2,720

6
120
1,929
160,349
70,207
263

7
514
2,236
11,776
294
298

4
182
2,502
10,938
2,622
513

4
169
2,029
10,552
2,471
283

15
257
515
151
19

46,555

11,090

5,930

425

5,816

8,262

7,649

615

31,719

5,280

10,559

8,468

6,186

2,244

37

1,809

12

6,522

1,022

46,449

458

857

557

136

221

55,692

1,105

1,657

1,895

887

944

62

1,063

13

162,844
5,944
5,111

274,446
10,971
8,555

7,651
59
3,873

1,240
7
2,460

1,124

119,406
1,258
12,160

115,897
1,057
4,504

5,509

16,827
197
38,745

1,719
1,154
16,304

5,029
158
56,716

7,525
15
15,192

7,195

54
(IS)
481

76
(15)
520

1,122

14,191

19
6,232

14
15
16

266,178

454,873

138,180

62,583

40,924 3,774,576 3,536,042

265,493 5,181,965

929,627

886,731

20,092

22,804

160,922

17

-

12,324
2,105
10,090
1,621
926
5,346
38,194
10,928
723
5,805
983
156
5,179

7,586
1,708
5,566
490
839
9,656
5,520
1,691
58
4,041
104

314,010
2,255,172
128,912
13,486
17,909
3,767
8,449
59,041
2,166
57,063
204
1,296
5,491

513,505
46,078
25,587
12,231
14,115
5,754
9,011
23,589
908
27,711
1,511
80
5,918

493,862
59,376
24,009
11,899
13,210
5,677
8,155
22,438
876
26,702
569
55
5,058

8,619
2,504
706
114

11,024
4,198
871
218
801
16
HO
352

7,558

28,719
815
608
4,137 35/59,455 55/11,311
24,004
819
16,618
126
1,675
1,337
2,551
5,578
1,288
2,562
5,241
1,517
95,036
1,891
90,144
1,461
49
957
805
27,551
25,971
17
15
10
6
7,064
2,821
6,965

8

66,521
22,555
14,620
2,367
1,457
915
2,416
5,909
190
5,094
187
52
3,846

25
24
25
26
27
28
29
50

19,840

21,645 2,067,514 1,972,019

115,495

217,550

125,526

30,030

51

208,647 1,978,567

-

-

6,804
721
105
4,665
18,516
4,951
555
557
2,751
-

957
55,525

51,255

-

-

7,206
24,577
5,911
481
574
6,446
6,015
294
1,306
5
-

1,467
54,956

-

19,024 2,193,580 1,970,352

8
2,158

220
7,656

238,334 2,151,225

-

28,111
48,142
7,385
538
1,042
1,045
4,892
504
1,580
7

6
100

15,808
47,680
108,898
90,868
92,280
13,479
286,827
327,408
2,368
266,575
630
772
103,555
621,620

-

4,760
•

5,147
3,560
1,451

1,001
60,889
20,486
204
10,008
20,592
500
18,253
36,524

12

102
61
768
799
U
429
941
45
855

(IS)

(15)
16
91
(15)

22
580
-

120,650

2,258

2,658

5

6
7

8
9

10
11

18
19

20
21
22

75,680

143,615

107,215

60,255

45,754 *&£37,593 §£¿28,746

609,525

770,474

18,210

20,859

152,155

32

190,498

291,260

50,965

2,548

52/2,810 1,456,983 1,407,296

29,687

172,658

82,558

139,448

120,104

116,257

i,882

1,965

8,787

53

189,154
405
95
10,842
49
79

290,478
1,264
522
55,676
296
447

28,063
1,259
851
7,214
54
751

2,254
209
2,052
7,015
58
1,721

37/3,546 1,572,575 1,542,714
628
2,294
1,856
20,625
578
15,675
92,461
2,526
84,836
54
125
24
465
17,551
13,355

29,661
458
4,949
7,625

82,418
1,315
14,791
34,483
81
12,448

139,153
5,803
73,544
29,486
988
59,702

119,922
2,816
59,765
29,500
789
35,217

116,088
2,269
58,786
26,166
768
32,405

1,869
473

4,196

171,724
24,574
19,592
85,159
1,271
16,772

8
10

1,965
74
968
587
15
804

8,763
955
3,656
5,775
145
2,984

54
35
36
37
58
39

10,971

56,419

7,999

8,774

110,137

11,922

105,182

47,011

90,176

63,306

61,336

766

1,204

6,905

40

179,527

254,841

22,966

38/6.426

49,272

56,798

54,921

1,116

761

1,885

41

185,922
588

270,193
1,757

6,326
425

11,691
4

25,606
5,351

31,649
669

29,299
669

2,090
“

259
—

5,346
178

42
43

3,022

98,215

101

182,955 5,042,517

38/5.832 1,326,846 1,509,081

17,765

69,476

35,527

- 11,852
282

13,105
193

98,041
1,802

67,265
114

125,013
2,244

111,910
2,051

11
747

For footnotes, see pp. 29 and. SO.

umm

■m

b.

Table 3» — Corporation income and declared value excess-profits tax returns 1/ with balance sheets, 1944, b y major industrial groups, for returns with net income and returns with no net incomes 2/ Number of returns,
assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns w ith net incomes Net operating lose

For footnotes, see pp. 29 and. SO.

"

W

"
■

Table 3» — Corporation income and declared value excess-profits tax returns 1/ with balance sheets, 1944, b y major industrial groups, for returns with net income and returns with no net incomes 2/ Number of returns,
assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns w ith net incomes Net operating lose
deduction, adjusted excess profits net Income, income tax, declared value excess— profits tax, excess profits tax, total tax, arid compiled net profit less total tax
_____ ___________________________________ (Money figures in thousands of dollars)

All industrial groupa

Number of returns with balance sheets 39/
Assetst
Cash 40/
Notes and accounts receivable
Less! Reserve for bad debts
Inventories
Investaents, Government obligations 41/
Other investments
Gross capital assets 48/ (except land)
Lessf Reserves
Land
Other assets
Total assets 43/
Liabilitiesi
Accounts payable
Bonds, notes, mortgages payable:
Maturity less than 1 year
Maturity 1 year or more
Other liabilities
Capital stock, preferred
Capital stock, common
Surplus reserves
Surplus and undivided profits 44/ %
Lesat Deficit 45/
Total liabilities 43/
Receipts!
Oross sales 17/
Qross receipts from operations 18/
Interest on Government obligations (less
amortizable bond premium):
Wholly taxable 19/
Subject to declared value excess-profits
tax and surtax 80/
Subject to surtax onlv 81/
Wholly tax-exempt 88/
Other interest
Rents 23/
Royalties 84/
Excess of net short-tenn capital gain over
net long-term capital Ices 85/
Excess of net long-term capital gain over
net short-term capital loss 85/
Net gain, sales other than capital assets 86/
Dividends, domestic corporations 87/
Dividends, foreign corporations 88/
Other receipts
Total compiled receipts 10/
Deductions!
Cost of goods sold 89/
Cost of operations 89/
Compensation of officers
Rent paid on business property
Repairs 50/
Bad debts
Interest paid
Taxes paid 31/
Contributions or gifts 58/
Depreciation
Depletion
Amortisation 33/
Net loss, sales other than capital assets 86/
Other deductions
Total compiled deductions
Compiled net profit or net loss (38 less 55)
Net income or deficit 2/ (54 lees 88 )
Net operating loea deduction 34/
Adjusted excess profits net income 11/
Income tax 3/
Declared value excess-profits tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax (54 lees 61)
Dividends paidt
Cash and assets other than own stock
Cornoration1s own stock
For footnotes, see pp.29-30.

Total mining and
quarrying
Net
No net
income
income
3,497
3,084

Net
income
866,615

No net
income
96,441

51,875,450
46,683,681
614,048
85,714,910
109,191,014
71,830,670
187,005,748
47,0^7,612
6,570,697
9,753,363
399,673,868

1,507,483
473,198
1,948,825
404,094
58,154
5,760
761,486
837,792
8,087,738
443,549
3,161,550
557,766
10,014,605 4,618,057
5,145,700 8,469,148
1,760,708
75,097
677,753
155,049
18,650,819 4,463,687

16,898,160
5,924,881
36,841,780
195,659,838
15,934,800
59,591,547
11,732,771
64,891,698
4,601,534
399,673,868

Net
income
807

53,777
84,781
8,695
35,600
82,667
88,016
1,856,086
594,600
39,874
59,198
1,016,698

163,144
98,435
279
99,844
189,804
161,764
1,044,759
685,490
8,400
49,901
1,186,883

880,969

91,819

70,508

1,130,936
119,956
5,618,148
383,078
4,890,224
317,615
1,177,385
149,980
6,193,743 1,463,034
467,185
806,901
3,264,973 1,789,884
4,593,285
847,671
18,650,819 4,463,687

75,970
177,489
66,671
58,967
483,448
39,483
301,626
858,768
1,016,698

7,709
85,454
104,674
87,767
895,581
65,811
622,967
53,983
1,186,883

1,506,918

________MÌO) ng and auarrvlng
Bituminous coal,
¡rude petroleum and
Anthracite mining
lignite, peat, etc. natural gai nroduction
Net
No net
Net
No net
No net
Net
No net
income _
income
Income
income
Income
income
income
888
489
1,694
1,345
77
63
501

Metal mining

89,907
87,809

11,460
15,531
18
10,467
7,181
18,668
400,658
191,335
88,278
15,550
308,380

10,091
88,365
83,878
384,568
188,733
4,464
9,689
388,965

15,588

1,000

114,493
1,314
133,871
8,899
8,773
73
47,110
887
108,309
1,018
142,088
693
80,680 1,820,561
575,858
18,811
17,769
336
85,801
960
15,844 1,831,318

7,594
12,485
87
4,808
5,206
13,193
180,954
72,850
5,145
4,948
159,420

114,059
118,908
848
42,286
76,357
804,314
1,618,158
906,741
85,199
31,709
1,311,395

17,384

5,843

68,586

23,472

109,897

15,396
1,482
86,973 104,331
55,780
12,744
11,415
3,854
183,705 106,255
8,116
7,555
71,578
103,000
27,314
59,634
308,380 528,965

1,654
8,800
3,689
1,083
2,190
589
6,096
7,459
15,844

30,083
81,460
77,395
38,913
457,858
47,447
498,191
67,953
1,831,318

9,239
36,558
8,826
10,309
63,831
8,900
37,398
58,513
159,420

70,359
145,115
68,355
49,775
468,015
64,014
444,743
108,257
1,511,395

Nonmetallic min- Mining and quarryIna and quarrying ing not allocable
No net
Net
Net
Ho net
income
income
income
628
579
15
109

87,836
45,153
8,189
14,759
7,634
48,883
530,187
863,107
5,045
14,845
483,047

50,842
36,8 U
853
37,936
46,460
85,403
348,531
180,005
19,198
18,484
408,808

5,088
8,569
529
4,653
8,730
5,732
109,317
52,736
5,500
4,038
98,308

747
859
7
585
854
385
1,498
987
73
125
5,524

956
847
14,290
2,582
1,570
851
17,706

37,443

545
943
-

86

14,946

8,669

315

1,603

10,380
44,778
98,571
26,577
33,366
30,955
15,580
21,803
177,419 135,567
83,544
81,863
138,670 150,884
134,264
10, A 4
483,047 408,808

4,681
16,454
6,636
8,524
48,817
8,848
19,777
18,038
98,302

83
141
458
310
557
850
1,461
50
3,524

281
2,153
1,410
338
14,081
2,054
2,685
6,880
17,706

801,301,809
59,679,535

5,707,026
8,441,603

8,970,948
539,880

484,899
83,381

662,538
13,514

61,129
3,055

287,648
23,159

54,588
9,809

1,306,655
74,822

135,390
89,959

418,930
813,193

131,824
31,093

890,568
13,996

41,008
8,962

4,810
1,816

1,578
503

1,078,295
385,145

19,994
4,991

4,318

854
19

8,368
345

94

257
150

13

806
168

44
15

588
808

74

8

89«
160

27

1,011

1

5
(15)

-

17,888
838,816
2,108,791
1,733,775
884,451
81,161

546
8,859
56,012
883,544
16,035
8,488

85
450
5,419
80,519
83,888
714

5
89
959
8,800
4,847
388

1

177
1,086
869
8,094
85

4
70
578
441
5

9
244
4,363
7,950
52

(15)
14
713
589
1,901
898

5
36
849
1,884
371
85

1

-

6

177
8,152
2,838
7,004
510

371,875

13,853

16,588

8,550

1,857

88

180

n

1,629

131

12,764

1,979

118,429
1,386,189
144,030
1,450,007
850,180,187

19,714
80,888
655
105,528
8,699,450

1,555
30,985
601
85,045
3,459,679

1,831
738
9
8,044
589,486

56
17,215
485
5,850
707,681

55
155

20

10

910
(15)
1,477
326,560

5

864
2,585
131
5,796
1,411,513

60
108
7
1,074
169,545

1,047
9,039
44
7,496
675,364

154,504,880
4,687,705 8,070,974
385,073
88,605,995
58,612
1,580,113
825,175
¿5/3,551,907
11,184
¿5/515,027
38,830
165,735
16,356
2,878,444
6,328
8,431,190
110,533
55,958
6,848
8,576
852,919
78,675
1,888
9,106
1,994,188
848,019
21,391
5,591,466
96,958
17,498
893,068
830,441
1,446
5,850
145
89,279
3,687,918
868,797
114,273
648,396
49,187
190,945
56,889
951,693
28,414
11,544
8,384
846,867
168,087
4,818
7,725
84,351,706
1,566,959
825,430
63,687
36/823.068.012 36/9.357,758 3,074,883
575,901
87,118,176
37/658.588
364,856 37/46.415
364,406
86,879,959
37/667.168
57/46.444
141,974
6,389
12,753,684
67,497
mm
4,518,460
98,005
m.
97,001
580
- 10,359,618
57,857
14,769,079
155,841
12,343,097
¿7/658,528
809,015 ¿7/46,416
5,888,664
830.058

74,387
4.606

180,381
l.«77

7,091
__ 85.

1

1

m

1
8,870
67,916

446,854
47,875
8,894
8,085
5,896
687
8,709
489
1,987
3,468
16
69
3,207
718
83,983
4,158
1,190
4
19,120
4,984
54,598
4,844
1,127
6,568
173
2,381
6,856
83,738
77,962
597,801
110,480 57/10,046
110,243 37 A0.050
586
16,458
88,166
39
13,974
48,178
68,848 ¿7/10,048
77,457
64

1,869
85

8

1
5

8
78
305
-

575
65,387

19
51
1,761
10,971
6,409
48

3

6
100
1,860
1,390

235,946
49,866 1,010,314
117,591
24,516
15,896
8,063
49,318
1,974
818
18,417
8,008
5,187
1,716
477
489
8,308
574
1,600
88,353
407
1,770
10
958
5,710
157
4,468
1,588
10,099
53,889
4,411
1,879
116
965
5
13
6,662
1,105
35,460
4,544
41,778
480
8,365
8,198
1,586
49
445
56
711
8,469
1,055
84,188
13,146
4,358
15,317
310,692
67,145 1,511,268
175,886
15,669 37A.758
100,850 37/6.341
15,660 ¿7/1,760
100,199 37/6.347
1,195
1,519
—
1,559
83,735
88,807
4,904
20
124
me
1,158
20,182
m
6,088
48,513
9,586 ¿7/1,758
51,737 ¿7/6,341
7,600
50

66
-

24,556
370

2

—
(15)

74
305
809

6
1

86

14

-

707

340

45

2

949
468

164
1,835

2

19
(15)

1

3,399
178,698

2,365
512,055

140
30
(15)
719
51,837

3

1

65
6,765

2,108

76,426
800,181
141,852
18,329
18,897
4,654
4,139
5,058
611
4,588
507
640
6,898
5,700
80,197
6,265
670
110
41,416
14,999
73,764
88,758
1,894
961
364
3,601
71,690
88,484
580,170
193,677
95,194 37/80.985
95,017 ¿7/20,999
2,651
18,387
86,179
508
•
10,569
36,856
56,359 ¿7/20,985

175,085
8,618
8,548

658

51,874

-

868

4,766
-

1,688

31,884
5,374
8,876
706
8,106
149
898
1,386
16
3,588
355
847
486
8,870
58,868
37/6,431
37/6.438

9,885
878
1,689
8,760
887
A , 514
18,389
1,106
488
89,841
869,458
48,603
42,567
418
15,608
•
10,302
67
•
A , 560
_
81,989
80,674 ¿7/6,431
19,806
306
125 ___ (15)

-

5,254

1,220
198
84
28

2
1

8
1,452
506
87
28
84

-

1

19
84

A0
60
(15)
185
148

1

100.
891
-

-

6
886

226
483
2,963
37/855
¿7/855

6,045
780
780
28
16
247
23
14
284
436
287
-

•
-

¿7/855
85
-

Table 3. - Corporation income aid declared value excess-profits tax returns 1/ with balance sheets, 1944, by major industrial groups, for returns with net income and returns with no net inoomei 2/ Humber of returns,
assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns-with net Incomer Net operating loss
deduction, adjusted excess profits net income, income tax, declared value excess—profits tax, excess profits tax, total tax, and compiled net profit less total tax — Continued
(Money figures In thousands of dollars)________ ____ ___________
_________________________ Ms tor
groups 8/ - Continued
Total manufacturing
Het

1
2
3
4
5

6
7

8
9

10
11
12
15
14
IS
16
17
18
19

20
21
22
23
24
25
26
27
28
29
SO
51
32
55
54
55
56
57
58
39
40
41
42
43
44
45
46
47
48
49
50
51
52
55
54
55
56
57
58
59
60
61
62
63
64

58,729

Ho not
13,441

Humber of returns with balance sheets 59/
Assets*
11,755,827
182,185
Cash 40/
313,708
14,555,467
Notes end accounts receivable
8,640
506,404
Lessi Reserve for bad debts
18,025,566
596,114
Inventories
11^255,650
68,804
Investments, Government obligations 41/
117,550
Other Investments
10,594,568
48,772,457 1,471,500
Gross capital assets 42/ (except land)
699,804
25,402,550
Lessi Reserves
95,077
1,686,680
Land
114,670
s',255*180
Otbsr assets
93',950,060 2,048,745
Total assets 45/
Liabilitiesi
262,708
9,012,810
Accounts payable
Bonds, notes, mortgages payable)
3,032,162
192,830
Maturity less than 1 year
278,075
Maturity 1 year or marc
6,055,752
149,688
15,946,195
Other liabilities
184,970
Capital stock, preferred
5,709*204
709,957
Capital stock, common
21,750,975
59,966
7,155,154
Surplus reserves
522,062
27,908,272
Surplus and undivided profits 44/
598,444
511,491
Lesst Deficit 45/
95,950,060 2,046,745
Total liabilities 45/
Receipts;
159,874,698 2,715,075
Gross sales 17/
138,784
8,157,612
Qross receipts from operations 18/
Interest on Government obligations (less
amortisable bond premium);
928
87,755
Wholly taxable ¿9/
183
Subject to declared value excess—profite
10,769
tax and surtax 20/
6
1,050
Subject to surtax only 21/
108
Wholly tax-exempt 22/
15,258
1,950
Other interest
115,590
9,082
198,695
Rents 25/
1,541
82,248
Royalties 24/
416
Excess of net short-term capital gain over
5,129
net long-term capital loss 25/
3,097
105,165
Excess of net long-term capital gain over
net short-term capital loss 25/
4,354
1,338
Net gain, sales other than capital assets 26/
389,484
974
Dividends, domestic corporations 27/
91,749
45
Dividends, foreign corporations 28/
669,155
21,519
Other receipts
f
149,780,486 2,892,822
Total compiled receipts 10/
Deductions;
106,766,724 2,258,835
Cost of goods sold 29/
106,015
6,550,410
Cost of operations 29/
1,486,417
91,521
Compensation of officers
25,255
556,785
Rent paid on business property
42,602
2,018,022
Repairs 50/ 5,909
80,408
Bad debts
18,574
420,580
Interest paid
66,466
2,995,074
Taxes paid 51/
562
140,577
Contributions or gifts 52/
1,748,238
54,192
Depreciation
7,064
407,105
Depletion
17,040
Amortisation 55/
717,475
Net loss, sales other than capital assets 26/
18,007
88,265
Other deductions
11,128,084
527,850
154,881,960 3,057.691
Total compiled deductions
Compiled net profit or net loss (58 less 55)
14,898,526 37/144.868
Net income or deficit 2/ (54 lass 28)
14,885,268 57/144,976
—
Net operating loss deduction 54/
46,987
8,784,071
Adjusted excess profits net income 11/
Income tax 5/
2,182,528
69,880
Declared value excess-profits tax
7,066,207
Excess profits tax 4/
»
Total tax
9,318,595
Compiled net profit less total tax (54 less 61)
5^580,151 52/144,868
Dividends paid;
17,548
Cash and assets other than o n stock
2,810,289
121.266
Corooration*s own stock
2.609

Beverages

Food and kindred
Net

No net
6,581

850,432
954,060
25,700
1,695,817
650,279
681,172
5,715,617
1,654,454
252,875
2i8 ,sse
7,120,659
545,857

1,491

No net
Net
income i-come
546
2,091

11,061
206,209
244,892
26,789
562
8,551
482,581
33,006
168,810
4,299
144,426
6,025
141,091
888,939
66,330
566,730
18,067
68,055
7,978
84,269
183,412 1,910,697
25,859

189,980

Cotton
Tobacco
wnrftftures
manufactures
No nat
Net
No net Net
income
Incewe
income income
58
161
724
29

Textile-mill prod­
ucts.exceot cotton
No net
Het
income
Income
2,960
554

585,797
156,260 1,535
118,542
278
5,655
578,393
178,346 2,170
287,723
503
7,653
16
2,597
2,624
11,575
67
3
706,719
453,425 5,097
914,888 1,646
15,730
595,804
190,655
924
50,150
15
248
191,181
81,469 1,665
89,114
54
5,455
241,000 1,704 1,095,664 12,524 1,485,472
23,016
821,267
650,517 5,742
101,286
8,676
379
54,572
26,086
566
8,942
108
1,041
98,186
478
22,536
174
50,265
2,706
48,555 1,608,812 3,876 1,557,207 18,999 2,859,284
7,259

55,790

91,745

2U,810

628

15

24,275
29,473
85,294
78,562
241,959
69,618
505,516
9,644
916,776

3,83
1,53
173,407
950
542,201
1,152
227,43
1,015
273,93
10,479
101,515
145
524,811
7,055
1,32
4,63
20,703 1,63,178

574
527
299
210
1,591
16

14
15
16
17
18
19

1 ,5 3
53
4,457

20
21
22

5,025 2,666,257 29,511 4,658,914
987
149,729
55
24,269

64,516 3,671,094
83,584
3,549

91,517 2,059,244
10,004
9,552

39,776 5,272,93
40,53
975

9,642
119

25
24

2

1,601
50

1

26

-

1

(is)
5
(is)

27
28
29
30
51
52

5

53

69,588 2,103,706
4,528
446

1,988

185,982

4,299
511

47
55

1,384
142

3
-

229
157

-

1,745
107

5
-

5,522
122

87
808
11,656
17,042
2,662
175

(15)
4
158
1,041
154
15

16
174
2,531
4,937
437
229

¿—
6
85
25
5

5
84
2,802
2,754
8
(IS)

3
IS
-

U
125
1,447
6,993
169
151

55
100
1
(IS)

18
505
5,160
5,829
908
85

9,754

287

2,063

25

1,556

-

2,693

4

218
162
—
5,830
404,258

281
5,955
22
16,455
5,697,525

4,600

56
5

1,067
159

6
29
155
1
5

5
27
1,160
2,286
4,681
57

2,964

29

660

4
595
45 (IS)
5,407
1,857
SO
—
786
57
20,840
39
11,565
118
5,145 2,717,446 50,790 4,852,782

50

72
1,690
44
12,920
5,779,485

(15)

SB
—
408
68,605

57,851 1,715,184 4,416 2,157,974 25,996 5,618,804
55,898 2,899,114
338,852 2,223,055
15,677,528
3,150
259
8,056
686
22
3,291
$,659
99,714
53,685
947
10,095
1,654
37,245
5,647
7,412
110,37
160
2,740
121,264
21,755
581
81,565
7,165
636
2,127
1,539
26,221
592
45
14,206
45,065
2,054
158
29,226
538
2,525
4,000
1,257
7,871
15
«,578
51,538
155
167,013
125
1,987
104
466
50
1,787
71
1,597
456
510
6,174
10,6»
578
1,842
10,555
6,082
52
4,977
11,109
451
195
59,945
1,558
575,356
99,465
67
1,315
47,495
5,796
42,044
374
74,425
213,178
6
5,011
665 (IS)
5,541
57
7,581
9
5,970
3
11,129
41,939
1,225
6,694
1,215
13,450
28
495
57,210
5,767
37,669
146,072
—
229
10
4
14
1 (15)
440
8
—
1,154
378
2,225
70
250
2,911
6,725
3,229
519
167
- ' 2,155
3,970
1,610
629
1,765
348
13,104
9,655
574,669
114,115
422
127,949 2,098
298,204
6,408
543,025
40,259
1,595,702
73,930 1,957,542 5,255 2,445,524 51,657 4,520,157
72,257 3,525,152
416,580 3,514,016
18,076,022
583,510 37/3.393
165,579 37/92
512,624 57/3.652
254,33
1,106,340 37/12.282
271,922 37/867
583,336 57/3,393
165,494 52/92
254,506
512,520 37/3.659
271,799 57/867
1,107,552 57/12,285
—
—
—
1,694
28
1,177
1,810
190
5,012
197,057
35,804
298,617
141,258
173,616
519,740
—
69,578
50,702
78,059
3,23
215,872
37,159
511
129
2,458
3,044
498
5,252
—
161,441
28,698
116,219
245,074
452,412
142,006
•
—
’ 231,530
155,546
325,552
651,556
79,529
179,662
151,979 57/3,395
98,786
86,050 37/92
187,075 37/3.652
92,259 52/867
456,804 57/12.282
554
-

72,491
-

1

2
491
420
5
4
9
916
5
6
68
7
165
2,624
8
9
991
230 10
557 11
4,457 12

5,539
5,63
3,564
1,475
11,732
243
5,974
5,591
30,255

386,595 3,652,698
10,256
12,255

69,302
1.984

13,39
2,165
53,148
3,761
80
12,669
5,818
35,03
255
208,554
164,23
756
9,946
825,37
409,006
2,93
16,681
162
907
51,31
20,703 1,690,178

5,35

18,955,559
92,960

3,715
05)

151,076
162,085
4,83
297,772
121,862
55,205
23,752
153,755
13,249
27,594
916,776

No net
income
57

166,114

172,522
45
55,222
7,525
41,33
297,908 1,118
4,241
123,828
70 172,890
3,323
157
1,797
142,954
84,918
428,065 2,178
424,475
12,558
2
158,558
3,288
1,139
568,426
552,807
484
19,559
8,626
1,350
15,102
776
4B,555 1,608,812 5,876 1,557,207

250,257
15.369

3,611
7,970
122
n,ss3
864
755
7,144
2,776
258
1,198
30,255

Net
inccme
53

2,630
67,O U
5,906
44,U 2
177,696
2,863
4,241
87,830
16,907
506,732
68,747
1,088
591,857
11,541
10,769
5,484
44,093 1,299,529

84,487

89,016
24,221
21,167
177,944
274,478
10,770
102,649
12,522
541,655
70,909
5,076
98,724
651,507
42,400
15,055
27,911
185,412 1,910,697

59
5
4,405
1
957
315
1,965
70,557 2,122,920

215,684
6,298
5,919
271,53
66
9,288
9,201
426,407
13,557
1,591
68,180
2,93
253,774
28,045
13,525
122,744
15,520
1,475
2,221
50,905
44,093 1,299,329

Rubber products

2,806
80,609
140,224
2,779
547,220
931
1,578
275,674
5,972
695,43
97
214,268
967,73
5,184
47,861
2,555
18,999 2,859,284

818

275,565
561,610
651,992
610,328
1,867,155
588,758
2,079,128
57,691
7,120,659

508
20,765
6,667
81,175
19,184,362

Lpparel and products
Leather and
Droduct 8
aade from fabrics
Net
No net
No net
Net
inccme
inoome
Income
income
1,652
23
5,860
915

12
-

46,739
6.683

111
900

69,586
8.941

429
53

26,050
5.23.9

6
(IS)

1,206
55

1
15
61
3
6

1
in
839
1,427
144
26

IS

615

(15)

61
49
1,587
1
6
•
236
9,215
101,709 2,063,870

3,272

(15)
(15)
4
14
1

f
(15)

h

1,772
4,125
2,254
4

2 25

9

444

2 54
2 55

14
55
4
2,059
5,995
•
14,520
23
41,03 5,346,215

45
9,828

56
57
58

34,840 2,529,33
76,256 1,687,93
595
2,37
718
7,167
15,099
39,374
1,63
5,651
576
8,889
1,649
9,39
44,451
298
200
15,93
16
194
37
2,253
562
5,095
13
9,63
26,140
67,104
1,584
510
1,484
2,446
1
IS
10,468
35,93
241
531
224
9
U,97S
5
232
1
8
4,34
200
491
23,475
11,082
3,408
146,331
42,107 5,015,975
104,995 1,943,451
30,257
140,419 37/1,057
37/3,286
550,227
140,307 37/1,057
37/5.287
127
755
64,924
249,541
30,780
26,73
579
1,519
200,807
54,415
—
81,757
233,1C6
57/5,286
58,661 17/1,057
97,152

7,581
8
454
3
164
4
3
145
(IS)
23
448
1,53
10,33
37/834
37/835
•
•
57/34

59
40
41
42
45
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62

37,63
285

73
«

63
64

67
“

26,963
2.691

3
-

For footnotes, see pp« 29— 50.

Table 3. — Corporation Income and declared value excess—profits tax returns
with balance sheets, 1944, by major industrial groups, for returns w i t h n e t Income and returns w ith no net incomes 7j Number of returns,
assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid b y type of dividend; also, for returns w i t h net incomet Net operating loss
deduction, adjusted excess profits net income, income tax, declared value excess—profits tax, excess profits tax. total tax, and compiled net'profit less total tax — Continued

.

.

For footnotes, see pp.

29—50.

Table 5. — Corporation income and declared value excess—profits tax returns 1 / with balance sheets, 1944, by major Industrial groups, for returns w i t h n e t income and returns with no net incomet 2 / Number of returns,
assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid b y type of dividend} also, for returns w i t h net incomer Net operating loss
deduction, adjusted excess profits net income, income tax, declared value excess—profits tax, excess profits tax, total tax, and compiled net'profit less total tax — Continued

»...
Uui.1CUd J ____________ I — , II..
lor industrial v t o u d s 8/ - Continued

________ LJ3
Furniture and fir>- Paper and allied Printing and pubIshed limber Droducti
dust ries
No net
Net
Net
Net
No net
No net
income
income
income
inccme
1,820
719
2,860
184
7,480
1,647
608

Lumber and timber
haaic nroducts
No net
Net
1

2
3
4
5
6
7
8
9
10
n
12
13
14
15
16
17
18
19
20
21
22
23
24

25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64

Number of returns with balance sheets 59/
Assets:
Cash 40/
Notes and accounts receivable
Less: Reserve for bad debts
Inventories
Investments, Govertment obligations 41/
Other investments
Gross capital assets 42/ (except land)
Less: Reserves
Land
Other assets
Total assets 45/
Liabilities:
Accounts payable
Bonds, notes, mortgages payable:
Maturity less than 1 year
maturity 1 year or more
Other liabilities
Capital stock, preferred
Capital stock, common
Surplus reserves
Surplus and undivided profits 44/
Less: Deficit 45/
Total liabilities 45/
Receipts:
Gross sales 17/
Gross receipts from operations 18/
Interest on Government obligations (less
amortizable bond premium):
Wholly taxable 19/
Subject to declared value excess-profits
tax and surtax 20/
Subject to surtax only 21/
Wholly tax-exempt 22/
Other interest
Rents 25/
Royalties 24/
Excess of net short-term capital gain over
net long-term capital loss 25/
Excess of net long-term capital gain over
net short-term capital loss 25/
Net gain, sales other than capital assets 26/
Dividends, domestic corporations 27/
Dividends, foreign corporations 287
Other receipts
Total compiled receipts 10/
Deductions:
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 30/
Bad debts
Interest paid
Taxes paid 51/
Contributions or gifts 32/
Depreciation
Depletion
Amortization 53/
Net loss, sales other than capital assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss (38 less 53)
Net income or deficit 2/ (54 less 28)
Net operating loss deduction 34/
Adjusted excess profits net income 11/
Income tax jj
Declared value excess-profits tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax (54 less 61)
Dividends paid:
Cash and assets other than own stock
Corooration's own stock

For footnotes, see pp. 29-30,

1,560
128,986
138,697
. 3,976
165,174
133,598
110,076
896,971
388,382
51,261
53,442
1,283,847

147,234
7,775
168,968
14,435
7,278
272
251,398
16,363
3,699
120,033
6,762
85,350
96,263
463,581
244,848
37,407
32,567
4,795
37,220
6,098
118,509 1,064,227

5,825
287,228
302,514
11,389
441
11,203
364,846
15,895
348,397
2,702
5,472
366,298
37,082 1,963,553
19,660 1,049,239
3,562
60,927
3,272
90,248
65,097 2,723,568

368,897
4,690
4,875
442,850
210
17,700
5,528
249,507
3,806
409,687
2,626
502,842
43,090 1,491,929
22,534
640,416
1,472
95,776
2,298
108,318
45,641 5,011,690

Chemicals and
allied products
No net
Net
income
income
1,399
4,245

9,884
15,923
1,586
8,176
1,863
3,120
50,301
25,721
1,728
4,833
68,520

989,340
909,335
30,348
1,327,116
887,238
1,764,167
3,862,841
1,986,448
130,120
221,837
8,075,198

12,143

549,420

Petroleum and
coal Droducts
No net
Net
income
income
105
317

785,562
9,052
13,206 1,360,858
17,758
264
29,458 1,060,305
818,688
1,897
4;68S 2,125,270
79,712 11,083,051
29,850 5,671,359
256,605
6,700
153,356
5,935
120,531 11,954,578

—
Stone, clay, and
glass oroduets
Net
No net
income
income
1,679
902

10,275
211,469
15,297
220,550
727
7,953
272,871
21,136
261,910
6,938
19,886
139,033
129,032 1,193,190
629,561
60,505
42,941
12,292
19,679
59,799
173,304 1,764,228

r q

Nonferrous metals
Iron, stesi, and
Droducts
and lhai.r. Brç<Jjctç
No net
Net
No net
Net
income
income
income
income
977
378
1,718
5,047

21,859 1,900,205
17,896 1,836,757
877
40,924
36,528 2,607,003
16,146 1,999,675
13,225 1,579,205
332,655 8,815,260
193,991 4,582,740
18,440
220,100
8,301
561,782
270,184 14,896,322

1
2

529,982
44,819
326,571
58,570
9,484
1,204
68,401
518,379
413,657
12,370
333,288
22,726
244,439 2,292,690
107,351 Ij5ó8j055
24,466
9,955
108,397
19,070
371,795 2,999,892

3,688
7,333
253
8,784
1,238
1,490
33,451
13,783
1,103
2,574
45,406

4
5
6
7
8
9
10
11
12

s

218,326

6,194

IS

34,304
66,205
111,011
41,887
437,805
48,675
551,958
70,508
1,283,847

10,813
42,448
36,224
18,643
8,870
113, 678
57,171
7,356
57,075
310,153
877
61,262
26,081
376,024
26,564
21,160
118,509 1,054,227

31,927
6,092
5,489
256,498
263,562
3, 727
4,635
395,090
647,890
30,008
170,451
1,065
859,867
16,605
9,661
18,123
65,097 2,723,568

1,366
100,218
7,479
195,267
457,889
3,958
3,179
213,466
727,491
16,628
1,337
160,281
14,625 1,060,686
5,864
65,398
45,641 3,011,690

225,061
5,418
11,220
407,511
877,142
8,844
654,532
5,310
35,958 2,097,544
641,823
802
14,930 2,680,559
58,394
26,106
68,520 8,075,198

87,275
9,637
19,287 1,612,350
501,751
5,334
393,318
11,176
58,063 4,263,534
756,741
1,966
23,717 3,413,436
9,483
26,768
120,531 11,954,578

3,955
34,366
35,762
64,600
4,199
184,699
27,951
108,565
569,398
33,292
87,592
2,400
632,947
44,438
5,371
17,814
173,304 1,764,228

425, 901
10,075
30,260
847,956
10,113 2,108,402
990,466
30,797
139,048 3,043,546
8,624 1,028,792
74,841 4,922,432
30,832
46,010
270,184 14,896,322

51,589
38,523
208,268
44,514
30,338
590,308
34,771
256,192
75,777
935,247
162,924
26,182
113,469
785,995
8,967
29,900
371,795 2,999,892

3,963
6,313
4,288
3,422
16,282
887
10,300
6,242
45,406

14
15
16
17
18
19
20
21
22

1,427,721
20,398

118,231 1,866,040
4,367
12,164

90,262 3,356,731
1,338
6,902

58,256 3,097,562
304
193,829

69,617 8,975,349
551,271
13,929

149,997
2,476

8,716,840
494,152

188,295 2,105,107
2,696
9,001

148,317 19,553,563
718,559
3,433

513,871 4,120,097
98,140
4,581

73,637
1,929

23
24

7,380
1,037

13
10

3,973
866

103
1

1,847
445

210
33

17,620
1,401

223
50

2,726
178

18

25

62,510

1,211
90
19
62
1,599
5,795
1,398
130
31,747
560
3,242
37
13,196
1,507,203

15,358

46
2

78,427

941
103

7
222
430
145
55

11
290
858
2,267
193
39

587

2,129

(16)

269
100
1,750
73
280
1,420
10,665
125,853 1,897,831

7,138

28
5

118,407

2,636
477

1
52
387
H
3

8
261
3,330
6,589
2,216
47

37

3,693

(lb)

77
37
6,228
97
4
1,706
658
17,274
92,919 3,408,174

2,933

28
10

171,789

2,878
978

5
77
152
11
4

50
626
3,079
10,207
5,790
57

12

3,146

(15)

8
276
16
13,821
33
932
30,902
220
59,136 3,363,914

19
2

18,119

831
(15)

24,629
3.511

278
14

72,741
5.862

137
1.000

105,926
2.609

26,677

99,874

12,436

1,559,658

38,121

z

Z 26

2
47
665
196
23

79
860
8,337
15,171
12,561
121

5
75
282
54
(15)

171
960
24,420
43,488
8,323
164

. «
2
400
1,021
29
17

n
570
1,429
2,447
2,309
139

1
9
230
921
35
12

72
766
15,849
36,294
10,342
301

i
55
262
1,603
235
29

111
1,481
3,699
1,493
31

1
17
175
64
6

27
28
29
30
31
32

13

6,528

247

8,356

367

1,600

304

5,617

582

1,420

14

33

426
46
103,409
25
11,288
29,106
914
85,499 9,722,924

44
13
1
854
154,071

101
101,684
26,190
78,809
9,508,496

ICE
94
157
14,432
2,144
(15)
2,740
24,428
524,460 4,270,485

24
16
(15)
940
76,842

34
35
36
37
38

61,837
437,260 3,134,874
117,148 14,946,872
6,315,059 141,116 1,454,384
56,816
1,463
2,671
2,256
494,993
1,445
4,029
253,432
3,310
198,172
11,601
51,913
6,448
1,075
35,609
17,753
86,679
3,344
37,945
513
6,962
1,025
75,415
1,659
12,386
60,321
929
513,578
5,216
44,052
157,043
3,511
962
5,142
132
1,792
231
10,233
81
11,373
10,755
383
79,158
3,584
1,096
4,475
1,701
67,489
78,015
1,228
355,525
10,715
18,226
38,538
4,348
249,639
40
4,608
8
22
19,992
2
2,401
11,213
9,116
64,342
1,229
302,288
8,476
4,212
42,619
316,260
271
25,002
740
23,063
3,132
297,900
181
1,453
8,385
52,081
839
2,230
8,115
74
188,053
135)779
4,006
1,135
58
1,689
16,675
525
723
9,333
42,361
217,602
8,271
21,158 1,088,538
243,252
949,761
20,729
80,471
549,565 3,800,552
169,004 18,323,819
8,867,448 196,646 1,889,371
469,933 37/3,629
641,047 37/2.SIS
257,295 37A3.593 2,160,592 37/25.105
469,823 37/3,630
256,726 37A3.602 2,159,826 37/25,157
640,087 37/2,917
764
1,179
4,677
445
270,010
- 1,390,731
76,565
118,489
69,176
285,099
184,291
51,299
10,896
2,522
104
673
219,160
64,920
98,133
- 1,107,259
- 1,403,254
—
290,858
249,315
150,105
179,075 37/3,629
757,338 37/25,105
107,191 37A3,593
391,732 37/2,915

39
40
41
42
43

386
2

63
64

(15)

(lb)

125,669
74,927 2,414,145
45,809 1,852,164
1.046.262 102,937 1,402,663
47,303 6.089.605
1,366
100,126
486,818
1,677
192
8,159
10,851
3,138
8,225
965
105,934
5,874
4,797
1,607
116,711
6,224
56,885
26,637
3,756
49,752
1,185
1,885
32,453
31,659
3,436
507
9,402
940
13,800
352
437
1,532
14,861
129,603
73,191
1,086
21,889
898
1,329
15,734
298
5,641
137
7,550
1,143
302
234
1,589
2,161
1,474
846
681
22,432
12,507
529
11,139
5,020
1,104
3,819
473
150,715
2,015
67,744
1,488
972
27,549
32,896
1,695
61,379
2,332
18
15
7,387
17
8,191
4,387
17
14
1,265
2,058
2,589
42,749
1,650
166,539
71,027
1,307
4,007
19,066
28,530
1,513
10
4
12,870
170
8
2,447
843
17
3,509
39,435
942
5
72,282
67
8,415
185
73
1,404
116
1,037
1,031
4,110
622
4,092
1,648
2,447
557
454
2,638
1,203
21,023
21,703 1,139,437
268,060
7,892
533,553
11,774
174,730
10,752
135,763
164,398
97,744 2.993.209
91,321 8,426,614
62,033 2,789,947
1,346,293 134,724 1.728.412
573,966 37/5.823 1,296,309 37/10.326
414,965 37/2.897
160,910 37/8.871
169,419 37/4.825
573,340 37/5.824 1,295,450 37/10,331
414,704 37/2.902
169,129 37/4.825
160,848 37/8.877
2,022
751
5,293
924
. 1,516
595,865
300,808
82,017
228,167
60,339
%
238,237
68,976
1 94,070
32,475
29,491
3,022
2,442
364
1,330
1,069
.248,508
500,392
68,102
188,794
50,698
•
345,020
741,651
258,838
83,536
98,923
156,126 37/2,897
228,946 37/5,823
554,659 ¿7/10,326
70,496 37/4,825
77,573 37/8,871
35,542
1.693

935,657

545
-

377,170
16.890

386
28

383,459
10.663

46
132
4,108
11
6,152
11,369
744
193,731 2,146,667

3,544
-

58,105
1.979

371
119
157
35,152
3,168
(lb)
85,337
1,629
155,411 20,484,411

1,550
3

326,870
7.807

105,290
1,632
2 ____1*099

(15)

44

45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62

H

h~

Table
assets
deduction.

Major industrial sroune 8/ - Continued
Manufactur ing - Continued
Electrical machinery Machinery, except
Transportation
Automobiles and
Other
Manufacturing
and equipinait
equipment except
transportation equip- equipment.except
manufacturing
not allocable
ment and electrical electrica.
automobiles
Net
No net
Net
No net
No net
Net
Net
No net
Net
Net
No net
No net
income
income
income
income
income
income
income
income
income
income
income

IS
16
17
IS
19
20
21
22
25
24
25
26
27
28
29
50
31
32
33
34
35
36
57
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
65
64

Number of returns with balance sheets 39/
Assets:
Cash 40/
Notes and accounts receivable
Less; Reserve for bad debts
Inventories
Investments, Government obligations 41/
Other investments
Gross capital assets 42/ (except land)
Least Reserves
Land
Other assets
Total assets 45/
Liabilities!
Accounts payable
Bonds, notes, mortgages payables
Maturity less than 1 year
Maturity 1 year or more
Other liabilities
Capital stock, preferred
Capital stock, oonnon
Surplus reserves
Surplus and undivided profits 44/
Less! Deficit 45/
Total liabilities 43/
Receipts t
Gross sales 17/
Gross receipts from operations 18/
Interest on Government obligations (less
amortizable bond premium)!
Wholly taxable 19/
Subject to declared value excess—profit s
tax and surtax 20/
Subject to surtax only 21/
Wholly tax-exempt 22/
Other interest
Rents 23/
Royalties 24/
Excess of net short-term capital gain over
net long-term capital loss 25/
Excess of net long-term capital gain over
net short-term capital loss 25/
Net gain, sales other than capital assets 26/
Dividends, domestic corporations 27/
Dividends, foreign corporations 28/
Other receipts
Total compiled receipts 10/
Deductions!
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 30/
Bad debts
Interest paid
Taxes paid 51/
Contributions or gifts 32/
Depreciatlo n
Depletion
Amortization 35/
Net loss, sales other than capital assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss (38 less 53)
Net income or deficit 2/(54 less 28)
Net operating loss deduction 34/
Adjusted excess profits net income 11/
Income tax 3/
Declared value excess-profits tax
Excess profits tax £/
Total tax
Compiled net profit less total tax (54 less 61)
Dividends paid:
Cash and assets other than own stock
Corporation's own stock
For footnotes,

1,363

288

4,607

608,638
956,606
16,519
1,213,441
706,395
751,904
1,087,481
597,815
40,437
181,955
4,932,522

3,983
8,703
307
13,380
546
3,157
20,756
7,419
791
5,771
47,342

1,051,641
1,190.101
36,892
1,732,457
1,242,594
401,427
2,586,955
1,410,950
103,272
277,335
7,157,940

499,267

7,666

734, 793

310,679
219,267
1,286,195
79,671
958,086
520,877
1,064,185
5,704
4,932,522

8,798
5,211
5,408
4,814
10,190
674
12,842
8,263
47,342

260,016
230,496
1,370,492
430,247
1,414,131
802,055
1,934,882
39,173
7,137,940

7,906,936
35,572

71,657 10,824,580
737
133,338

1,033

450

11,272
541,819
28,953
398,394
555
3,343
37,434
361,072
3,027
134, 507
6,900
63,966
81,440
825,624
38,234
437,752
44,597
4,524
7,805
62,820
142,587 1,991,704
24,509

369,437

79

857

640
1,804,231
1,002
2,884,709
22
13,805
1,823
1,967,528
44
1,538,350
334
452,732
2,800
2,585,769
1,275
1,508,471
105
84,785
582
611,718
6,033 10,407,545
1,577

1,816,900

254

2,593

9,256
240,785
42,231
536,899
405
8,524
23,070
418,180
1,764
230,879
3,455
133,168
55,544
493,335
15,270
257,379
2,686
19,704
8,244
67,556
110,575 1,674,603
20,314

166,502

1,756

664

4,470
165,932
8,343
246,529
159
4,810
12,351
205,644
1,713
110)412
2,650
110,631
23,782
361,643
10,052
177,580
1,953
25,346
2,293
35,489
47,346 1,079,254

5,605
10,564
454
15,020
2,799
3,082
34,881
15,146
1,274
3,898
61,524

741

8,462

114,099

10,984

152,828

168,367 2,677,959
68,444
14,651

70,247 1.826.508
2)345
24,252

9,860
176

18,760,009
5,407,613

84,241
187,057
1,334 20,502,053

1,483
109

1
-

12,994
884

16
(15)

1,883
369

28
1

1,043
159

25
1

403
5,516
6,906
4,787
11,299
654

12
14
69
41
17

64
887
5,239
6,988
5,580
204

1
8
148
459
242
41

(15)
40
1,456
2,543
1,155
5

(15)
IS
1

52
475
11,632
6,765
6,020
297

(15)
92
466
1
52

2
120
1,533
2,745
1,419
204

(IS)
(15)
22
231
10

4
74
875
3,557
920
31

2,074

12

4,117

175

713

5

6,025

533

1,444

19

20
185
1
588
111
4
2,955
72
1,526
7,325
209,703 3,680,384 10,130

209
28,126
5,324
101,498
24,347,922

518
*

1,706,170

202,447 3,661,650
4,327
563
50
2

131,515
4,361

4,441

12
112
21
3,560
(15)
2,831
1,632
10,981
239,417 2,719,814

Net
income

No net

8,013

5,275

Ccsmunication
Net

No net

1,820

1,301,182

123,007

166,678 1,578

8,607 1,756
117,470
46,388
10,959,260
705,828 1,696,932 11,722
385,754 '588,601 l)607
4)801)481
l',438)583
93,369
145,084 1,096
8,125,697
420,001 4,855,109 17,759
'636)100
23)486
54,510
'221
7,025)658
126)214
929)01C 3,576
1,038,414
10)410 6,178
502)266
53)366)816 1,421,781 8,434)122 33,118

16,961
136,329
766,227 13,431,730

3,063
13,704
339
623)485 2,475)984 26,105

23,469
2)100

468
65

13,802
1.713

338
34

13
23
742
83
149

147
6,760
100,343
304,406
5,505
614

1
191
940
11,328
69
142

97
2,075
54,295
259,201
4,666
466

1
118
515
10,891
17
141

61
2,960
22,669
'621
79

3,854

31

25,013

973

22,522

918

365

32
145
8
1,232
190
(IS)
475
9,165
73,416 1,871,987

42
12

_

_

500

2,606,348
96,240 1,614,566
65,298
160,831 2,737
2,223,286
92,465 1,436)917
76)259
291,705 2)790
38,659
1,913
4,960
860
4)458
70
1,069,129
27,140
711,950
19,977
66,251
800
1,242,630
32,086
694,866
17,226
172
56)645
11,499,029
171,021 5,433,270
57)968 3,355,818 2,207
54,294,668 1,853,348 27,979,208 1,332,112 6)7S0)l74 52,727
12,546,509
368,078 6,195,207
267,588 2,361,252 9,117
575,377
26,336
181,141
21,291
18,177
149
2,162,480
121,237 1,515,065
722
100,097
100,232
62,907,778 2,049,882 35,366,816 1,421,781 8,434)122 33,118

5,958
46,779
8,443
282,882
78,971
4,875
86,474
5,614 20,895,102
958,492
3,680
182,500
6,156 6,681)689
450)877
3,341
64,118 10,854 4,251,686
222,004
21,238
200,675 20,532 18,809,515
520,418
550
75,212
250 1,356,612
62,870
9,535
520,982 16,458 10)257)l82
190,448
10,288
9,585 17,548 1,333,059
567,026
47,346 1,079,254 61,524 62,907,778 2,049,882

9,687
1,327

6,035,574
57,055
2,520
352
58,669
2,740
721
26,453
90,524
1,231
1,794
86
397
24,639
133,836
1,178
5,896
2
65,024
1,057
61
5
36,906
944
604
101
558,869
11,015
7,041,314
76,942
988,882 37/3.822
983,366 52/5*834
11,451
712,954
93,281
5,156
571,509
669,945
—
518,937 37/3,822

11,742

Transportation

No net

84,540
13,585
27,117
89,636
13,937
353,567
2,798
74,241
14,231
350,765
5,250
137,133
22,845
445,489
9,505
17,270
110,575 1,674,603

20
5

27
234
20
10,776
4,744
489
47,706
73,120 11,055,477

Net

20,352
94,283 1,376
401,750
14,759
33,558 1,380
235,411
17,065
300,055
801
3,269,348
10,706
41,055
489
500,793
47,711
115, a o 1,997
1,079,780
3,264
104,427
31
1,080,632
28,647
937,461 1,359
2,289,785
24,427
4,083 2,977
64,854
142,587 1,991,704 6,033 10,407,545

4,599
1,064

75
20,074
7,317
22,919
8,030,195

Public utilities
Total public
utilities

1,784
302)727
6,135
456
51,804
87,152 21,519,915

969
1,651
3,421
75)633
6
l)013
6,536
35,026
808,298 14,040,218

1

5,440

43

(IS)

3

(15)
28
175
4

940
60 (15)
170
172,635 (15)
1
l)586
5,776
314
5)279
657,046 2,688)748 26,967

7,731,696
166,139 2,937,599 8,029 15,687,986
151,132 1,862,998
54,741 1,345,594 68,063
151,004
10,427
95,801
2,099
9,115
22
8,537
2,605
132
146
4,678,021
59,131
1,547
3,310
7,265
805 11,450,571
535)999 8,281)423
451)390 1,187)980 18,727
537
10,993
16,695
16ÿ,929
52,215
3,067
57,048
4,680
45,081
4,558
132,682
17,331
95,924
11)618
*457
15,673
37,597
1,655
7,640
118
52,546
1,592
14,0t>6
7,954
1,149
960
648,248
28)439
575)413
26)797
47)530 1,360
185,336
1,910
85,858
63
235,530
3,547
24,825
674
19,559
1,246
24,572
5,610
21)622
4)750
l)S65
'620
461
6,157
3,523
21
3,146
145
1,120
16,346
300
948
11,584
4,695
160
4)982
2)l31
68
22,458
1,479
5,581
65
41,820
1,635
7,416
5,802
552
918)148
43,192
406
50S,191
31,880
62,109
570
188,230
3,789
46,675
222
323,877
4,183
63,889
29,565
1,604 1,324,227
1,523
44,364
738,278
55,240
169^555
638
5,302
2
13,805
47
10,668
26
3,509
17
1,886
47
18)076
68
4*497
2
6)963
51
104,000
3,770
32,398
168
104,559
2,686
25,222
1,126
16,567
1,578 1,076,148
40,762
388,120
28,983
240)695 1,196
477
601
593
(15)
2
15
11
414
15
1 (is)
1
25,415
600
8,863
71,674
19,506
14
1,302
83,506
1,457
7,230
137
5,705
215)635
145
2,389
171^799
795
812
4,745
1,196
1,704
6,862
3
218
1^701
89
1,365
1,434
4l)968
35)104
21)057
17,754
56
2,489
895,232
28,667
181,051 1,281
978,067
21,067
304,783
13,245
174,913 12,036 1,227)466
115,715
94'447
559)924
222)859 3,897
9,431,239
224,012 3,546,900 10.669 22,259,198
249,888 2,381,083
79,639 1,658,921 93)212 17)250)506
889)582 11 ,473)092
718*994 1,958*772 27*612
333,483 37/538
1,624,239 37/14,309
2,088,725 37/10.471
338,731 37/6)225
213,066 32*3.060 4,269,410 57/81,284 2)567)126 £7/61,948 '729)976 57/645
1,623,352 52/14,317
335,444 12/558
2,088,250 37/10,471
338,611 52/6,225
212,993 ¡£fc)o72 4,262,650 ¿7/8l)476 2,565,051 37/62,066
729*916 £7/645
2,739
231
2,671
1,986
1,650
15,959
12,870
592
_ 1,415)421
238,679
1,165,733
1,521,395
217,005
126,777
1,885)187
247,487
•
167,440
35,854
214,629
42,762
50)l04
813)760
*421*951
131*516
11,316
2,876
12,092
1,978
2*049
2)835
2.450
*260
922,987
187,796
«
'_
1,180,935
175)043
lOo) 869
1,565,070
1,164,'l97
210,821
1,101,744
226,526
1,407,657
153,022
219,782
1^588^597
842,597
2^581,665
522,495 37/14,309
106,957 12/538
681,068 37/10,471
118*948 52/6,223
80)044 ¡2)6,060 1 )887)746 £7/81,284
'978)529 £7/61,948
387)379 £7/645

_

_

199,904
8,572

479
51

32,010
1,558

3
(15)

287,154
5,281

701
45

45,548
4,960

131
8

27,382
7,24»

748
5

1,213,347
22,078

7,591
92

366,712
S'S45

1,165
' 17

365,698
'421

FP* 29-50.

Table 3. - Corporation income and declared value excess-profits tax returns 1/ with balance sheets, 1944, b y major industrial groups, for returns with net inrame and r e t u r n with no
........
...
.
,lt
t lo3s
income or deficit, and dividends paid by type of dividendi also, for returns w i t h net income1

Net^nerati^^s’
Met operating ion»

22
-

n

Corporation«« own atocle_________ »___________ 1
For footnotes, see pp.

4,S6l|

-|

8,572|

5l|

1,5S8|(1S) |

8,28l|

451

4,96p|

e|

7*249|

t|

22^078 |

9g|

’ 17¡

3*54s|

*4211

- |64

29— 30.

Table 3. - Corporation income and declared value excess-profits tax returns 1/ with balance sheets, 1944, b y major industrial groups, for returns with net inrame and r e t u r n with no
assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns ith
deduction, adjusted excess profits net income, income tax, declared value excess-profits tax, excess profits tax, total tax, and compiled net profit less total tax - continued

‘

operating loss’
p
g

e

(Money figures in thousands of dollars)
groups ¡¡i/ - Continued

Public utilities-Con*

i
2
3
4
5

6

7
8
9
10

11
12
13
14
15
16
17
18
19
20

21
22
23
24

25
26
27
28
29
30
31
52
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59

Humber of returns with balance sheets 397
Assetsi
Cash 40/
Notes and accounts receivable
Lesst Reserve for bad debts
Inventories
Investments, Government obligations 41/
Other investments
Gross capital assets 42/ (except land)
Less: Reserves
Land
Other assets
Total assets 43/
Liabilities:
Accounts payable
Bonds, notes, mortgages payable:
Maturity less than 1 year
Maturity 1 year or more
Other liabilities
Capital stock, preferred
Capital stock, common
Surplus reserves
Surplus and undivided profits 44/
Less: Deficit 45/
Total liabilities 43/
Receipts:
Gross sales 17/
Oross receipts from operations 18/
Interest on Government obligations (less
amortizable bond premium):
Wholly taxable 19/
Subject to declared value excess-profits
tax and surtax 20/
Subject to surtax only 21/
Wholly tax-exempt 22/
Other interest
Rents 25/
Royalties 24/
Excess of net short-term capital gain over
net long-term capital loss 25/
Excess of net long-term capital gain over
net short-term capital loss 25/
Net gain, sales other than capital assets 26/
Dividends, domestic corporations 27/
Dividends, foreign corporations 28/
Other receipts
Total compiled receipts 10/
Deductions:
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 30/
Bad debts
Interest paid
Taxes paid 51/
Contributions or gifts 32/
Depreciation
Depletion
Amortization 33/
Net loss, sales other than capital assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss (38 less 53)
Net income or deficit 2/ (54 less 28)
Net operating loss deduction 54/
Adjusted excess profits net income 11/
Income tax 3/
Declared value excess-profits tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax (54 less 61)
Dividends paid:
Cash and assets other than own stock
Corporation’s own stock

For footnotes, see pp. 29-30.

Net
income
1,909

No net
income
666

830,951
494,664
29,240
290,927
491,120
2,709,941
19,565,287
5,990,050
176,058
567,183
21,106,840
238,310

No net
Net
Income
income
19,356
86,837

28,204 3,355,438
13,416 4,629,112
177,124
983
6,363 5,731,286
14,689 2,282,138
110,847 1,903,737
488,509 4,932,617
91,374 2,456,330
804,439
4,896
679,235
20,418
594,984
28,243

149,806
234,067
8,363
209,265
38,150
65,170
373,180
1*63,314
52,142
39,482
989,584

3,386,478
89,528
140,039
80,102
54,413
375,231
13,185
216,873
215,465
989,584

Net

Net

Net
25,979

5,752

3,457

1,274,087
2*414*702
80l349
2,439*248
*806*980
883¡095
1,173*683
*546*814
164*544
268¡238
8,797*415

71,729
133¡018
2¡936
90¡056
20¡418
32¡176
158¡740
55¡468
14¡962
19¡316
462) 011

148,784
288)895
7¡992
43 ¡053
89¡803
175¡783
50¡606
21¡715
7¡143
21¡716
796)076

12,404 1,125,303
2l)776 2)125,806
72,357
272
3,274 2,396)195
717,177
1,986
707,312
3¡617
8)269 1,123,078
'525,099
2,169
157,401
'657
246,522
2,316
51,858 8,001,339

1,634,293

128,393

237,948

17,225

643,201
470,058
882*105
453¡764
2,062,322
*379¡694
2,393¡092
*121¡113
8 ,797)415

48,077
64¡036
30¡534
26¡026
152¡826
3¡025
118¡451
109¡337

32,353
40)608

156,806
8,238,910
1,291,607
2,668,219
5,828,709
666,001
2,302,514
284,235
21,106,840

30,846
240,943
43,516
127,539
82,658
39,163
60,658
58,582
594,984

47,665
4,594,340

2,918
116,638

6,227
344

130
31

21,726
1,263

6,733
*455

336
16

47
4,625
43,088
22,536
218
69

(15)
73
399
262
49
1

292
1,369
43,403
124,517
6,417
928

47
519
21,949
22¡801
3¡099
*467

15

7

22

73

704
135

4,948
1,753
171
53

2,126

56

23,381

310

798

73
54,568
3,536
11,499
4,790,949

6,405
75

462)011

55)880
45¡979

152)199
30¡309
215)822
15,'022
796) 076

2,269,998 27,296,192 1,183,840 1,095,214
*615)348 *103)962 '328)483
888,162

1,452

10,156

,423,727
362,899
980,558
718,819
161,374
56,608
95,630
541,927
44,181
258,796
1,447
3,510
24,755
,241,455
,915,684
,285,926
,284,557
16,948
,595,272
558,530
17,334
,319,570
,895,434
,390,493
637,756
43,067

1,799
'135

593
25

70
371
2,066
7,485
383
150
9
8,284
14,142
11,206
151 ¡311
28,165)182 1,303)243 1,453)963

4,586
29
46,047
3,250
22,170
5
485,740
446
124,286 58,201,610

33,104
1,293
1,981,167
65,882
1,201
27,140
25,305
282
239
1,386
6,669
9,385
350,848
10,743
8,486
416,414
14
6,616
10,582
447,333
588
16,531
1,596
43,024
15,314
18,423
17,371
444,683
142,977
3,818,642
972,308 37/18,691
37A8.764
967,683
•
498
•
222,279
•
260,293
124
190,053
450,470
521,838 37/18,691
480,956 I
18,314

961,386
1,165,185
2,297,557
1,142,844
5,426,119
1,051,875
6,618,747
565,640

25)756

1,184

22,522

1,396,344

1,501,111

71,767

767,674

230,268
1,606
4,137
83,935
3,458
209
364,277
4,854
306
74,821
49,050
639
489,360
6,250
254,956
2,414
41,217
708
37,620
712
16,589 1,112,133
2,543

187,492
29,912
70,702
78,673
71,047
241,052
60,191
417,056
43,992
1,112,133

63 ,698 26,200,978 1,120,142 24,735,350
201,822
56,711
286,866
47,251

819,076 8,820,327
26,258
39,300

29,982 5,465,646
20,702
443

»ackage Liquor
8tores
Slo net
Net
.ncome jjccme
195
1,264

468
6,351
3,893
240
5,492
1,819
6 (lb)
374
6,680 26,964 1,956
12
740
338
52
601
1,276
671
6,326
20,536
217
2,465
9,632
20
317
2,064
132
1,807
1,370
31,643 42,454 3,334
8,857

1,053

2,394
4,083
4,758
4,670
3,904
2,650
304
1,175
8,890
13,958
166
259
4,494 11,885
486
6,341
31,643 42,454

581
365
319
46
1,029
(15)
283
342
3,334

8,478

149,422 155,998 11,283
809
1,810
7,221
7

22
1

6,140
428

314
15

13,555
707

142
27

9,195
309

6
1

433
134

5
1

(15)

40
445
17,001
21,049
2,928
413

15
22
541
1,521
116
122

218
755
17,619
88,624
2,631
343

3
6
523
3,078
66
107

135
320
6,674
46,165
1,183
116

-

(15)

(15)
20
169
21

30
101
851
3,746
446
15

-

(15)
162
278
20
14

(i&)
15
325
7
8

33

9,358

278

9,662

223

2,858

714

107
383
237
8,706
3,657
(15)
121,120
10,470
873,642 9,047,130

695
1,180
3
348
8,963
31,023 5,503,658

1,986
346
1,996
344
17,322
18,272
3,67b
9
8,134
299,449
8,959
127,170
2,247
113)788 26,711,218 1,189,455 25,393,717
25
38

-

17,683
2,866

111,167

733,168
45,812
876,570
67,870
35,254
3,570
88,938 1,116,916
768,163
12,896
408,499
22,724
165,325 1,483,884
701,075
76,364
291,702
27,962
159,962
14,913
366,507 5,102,534

1,113
3,154
1,261
749
8,474
183
3,385
4,272
16,589

_
_

3,616
160

59,324 1,801,011
111,242 1,817,583
78,045
2,664
86,782 2,793,565
18,432 1,315,242
728,498
28,559
130,471 3,265,792
53,298 1,643,853
546,746
14,305
356,735
17,000
410,152 10,903,274

No net
income
10,844

30,338
29,092
281,138
61,138
31,344
636,119
20,972
291,809
159,612 1,220,003
386,621
5,138
67,957 1,515,278
25,200
81,758
366,507 5,102,534

59,319 22,592,765
23,616,807 1,066,022 1,024,042
135,849
52,326
98)047
*233¡896
73)263
381,765
6,111
50)988
33)019
432¡753
82,206
1,216
7)579
7,895
90)102
37,584
90
1,138
38,722
2,809
14,707
320
2)677
1,482
16¡189
36,407
329
3)530
5,265
4l)672
152,279
620
11,956
8,229
164)235
13,429
1,616
33
118
15 ¡045
59,044
2,710
373
6,381
61)754
801
5
39
'840
1,690
2,553
243
(15)
2,796
108
6,098
193
1,797
698
6,796
15,486 2,058,744
165,722
120,611
2,214,466
332,
26)936)072 1,327)833 1,361,841 116,420 25,574,252
2,517,
92,123 37/2.632 1,136,987
l)229)l09 37/24.589
37/58,
92,050 37/2.632 1,136,541
l)228)591 37/24)611
37/58,;
4,679
1,149
5,828
565,094
36,527
601,622
189,409
15,927
205,356
5,377
397
5,774
462,598
30,492
493,090
657,385
46,816
704)201
479,602
45)307 37/2,652
524)909 37/24,589
37/58,130
192,584
26,006

Net
income
50,372

234,945
41,148
611,114
54,366
26,597 1,246,944
588,058
23,709
135,411 2,813,747
597,120
2,665
112,674 3,505,054
194,819
97,586
410,152 10,903,274

610,848
6,929
429,450
9)671
826,225
3,936
407,785
2,317
17,415 1,910,123
349,385
360
5,757 2,177,270
106,091
11,752
51,858 8,001,339

1,882,
107,

_

No net
income
4,568

Food store a, ineluding market
silk dealera
No net
Net
Net
No net
income
income
income_ income
1,052
3,424
465
4,335
General
merehanlise

Total retail

)ther wholesalers

Commission
merchants

Total wholesale

Total trade

Other public
utilities

1,701

174,901
23,139

15

22

308,092
12,744

1,135
176

161,788
4,190

162
*

34,575
157

-

11
77

2
3
•

68

2

27
7
36
13
~
14
155
638
157,715 158,165 12,120

23,751 4,410,646 123,688 125,392
598,146 5,745,684
1,006,703 17,256,219
5,961
1,529
9,807
248
27,542
9,892
94,568
40,937
7,222
32,685
3,299
1,164
76,145
36,223
26,907
442,474
2,761
2,387
620
60,741
197,014
26,487
587,951
6,362
223
760
106
18,041
38,826
5,185
106,766
2,719
22
1,846
233
278
8,774
33,614
2,732
2,357
277
4,970
264
132
22,409
46,279
3,769
3,201
2,543
41,616
1,103
448
142,969
13,466
331,880
7,609
80
2,226
19
14,320
123
26,073
85
477
1,372
32,265
274
9,861
65,102
171,761
6,008
2
IS
1
125
39
416
(15)
1,686
2
81
104
•
81
568
108
7
416
1,610
305
2,967
4,981
15,990
1,605
740,230
20,322 11,108
4,796
171,205 1,791,073
105,125 4,480,825
32,lie 5,356,777 159,824 151,644
897,825 8,117,420
1,211,412 23,595,384
6,521
146,880 37/2,109
929,710 37/1.092
37/21.957 1,798,333 37/24.183
6,515
146,779 37/2,109
929,389 _S7/l.093
37/21.979 1,797,578 37/24.189
96
1,217
350
8,745
845
55,452
908,179
584,053
1,398
32,947
127,902
297,320
—
81
560
4,599
9,808
764
46,721
485,360
756,607
2,244
80,228
617,86]
1,063,735
4,277
66,652 37/2,109
311,848 37/1,092
37/21,957
734,598 37/24,183
1,914
16C

(15)

20
2

271
8

9,425
710
673
209
22
4
26
266
2

54
1
990
12,381
37/261
37/261
•
*
*
37/261
6
•

Table 3. - Corporation income and declared value excess-profits tax returns 1/ with balance sheets, 1944, by major industrial groups, for returns with net income and returns with no net incomet 2/ Number of returns
assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns with net incomet Net operating loss *
deduction, adjusted excess profits net income, inoome tax, declared value excess-profits tax, excess profits tax, total tax, and compiled net profit less total tax - Continued
(Konev figures in thousands of dollars)

Drug stores

Number of returns with balance sheets 397
Assetst
Cash 40/
Notes and accounts receivable
Least Reserve for bad debts
Inventories
Investments, Government obligations 41/
Other investments
Gross capital assets 42/ (except land)
Less! Reserves
Land
Other assets
Total assets 43/
Liabilities!
Accounts payable
Bonds, notes, mortgages payable!
Maturity less than 1 year
Maturity 1 year or more
Other liabilities
Capital stock, preferred
Capital stock, common
Surplus reserves
Surplus and undivided profits 44/
Less! Deficit 45/
Total liabilities 43/
Receiptsi
Gross sales 17/
Gross receipts from operations 18/
Interest on Goverment obligations (less
amortizable bond premium)!
Wholly taxable 19/
Subject to declared value excess-profits
tax and surtax 20/
Subject to surtax only 21/
Wholly tax-exempt 22/
Other interest
Rents 23/
Royalties 24/
Excess of net short-term capital gain over
net long-term capital loss 25/
Excess of net long-term capital gain over
net short-term capital loss 25/
Net gain, sales other than capital assets 26/
Dividends, domestic corporations 27/
Dividends, foreign corporations 28/
Other receipts
Total compiled receipts 10/
Deductions!
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 50/
Bad debts
Interest paid
Taxes paid 31/
Contributions or gifts 52/
Depreciation
Depletion
Amortization 33/
Net loss, sales other than capital assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss (38 less 53)
Net income or deficit 2/(54 less 28)
Net operating loss deduction 54/
Adjusted excess profits net income 11/
Income tax 3/
Declared value excess—profit s tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax (54 less 61)
Dividends paid:
Cash and assets other than own stock
Corporation *a own stock____________________
For footnotes, see pp. 29—30.

Table 3.

Apparel and

Net
No net
income income
550
2,810
694
624

Retail — Continued
Automotive dealer
Filling
stations
No net
Net
No net Net
No net
income
Income
Income Income
2,289
5,662
1.207

Furniture a n d I Eating and

Net
income
8,206

No net Net
income income
3,363
1,013

No net
income
689

Net
income
5,059

4,528 80,647
5,77] 172,284
236
8,526
12,816 132,223
958 83,414
2,581 36,929
6,67£ 88,359
3,254 38,760
418 17,938
1,088 15,565
31,548 579,873

5,825
11,905
979
8,419
2,737
1,530
4,881
2,202
1,561
974
34,650

66,221
23,947
287
56,361
27,925
17,306
236,579
129,139
27,468
15,638
542,019

6,018
4,459
59
8,649
1,767
4,096
48,903
20,294
7,896
2,865
64,520

106,084
83,392
3,455
142,547
52,688
28,536
132,948
64,791
29,575
16,440
523.964

50,816
28,609
472
115,118
17,751
11,898
85,500
46,210
3,649
8,624
275,283

4,163
48
175
3,940
2,069
113
305
7,988

224,551
195,303
8,151
348,977
142,966
61,679
231,890
128,378
29,935
46,773
1,145,544

36,465

2,581

164,545

8,328

37,209

4,818

43,843

14,456

52,826

6,404
31,406
554
16,953 1,090
56,080
53,239
788
171,220
16,681
320
75,329
72,635 4,175
246,451
71
14,321
49,403
85,620
599
369,807
5,035 2,189
18,696
275,283 7,988 1,145,544

2,337
4,646
2,529
3,716
12,427
324
5,930
8,890
31,348

15,595
18,652
76,787
39,189
169,867
19,955
217,012
14,392
579,873

2,644
4,577
3,554
2,492
16,406
179
7,147
5,947
34,650

12,574
30,676
45,610
16,505
86,642
7,801
109,380
10,811
342,019

6,249
19,749
8,111
5,067
15,920
3,210
6,537
14,960
64,320

43,476
39,714
41,923
12.656
159,884
6,919
190,576
24,009
523.964

838,379 31,262 2,913,962
4,888
266
18,799

67,055 718,272
1,998
7,105

124
6

1
(15)

1,115
32

(IS)
5
418
1,500
255
11

-

6

9
58
1
(IS)

1,264
16,411
289
25

254

3

513

(IS)

22

45
8
85
1,036 (IS)
2,677
(IS)
6,883
234
53,733
853,805 31,843 3,008,934
569,083
2,029
17,658
31,001
3,837
226
906
10,481
503
5,930
2
1
303
160,069
802,028
51,777
51,772
249
23,998
8,629
269
20,125
29,023
22,763
8,603
103

28,639
3.296

168,789 1,065,684
15,333
39.656

15

26
82
2
-

15
1,284
2,940
30
16

4
72
171
28

4
36
218
3,975
63
54

11

311

26

1,400

27

994

9

17
206
10
592
(IS)
3,395
5,005
43,758 1,085,005

68
8
1,370
186,588

145
490
1
10,393
,123,425

50
13

68
13
634
3
1
(IS)
946 51,094
70,138 782, 609

246

239
23

12
6
(IS)
1
32
915
20
9

22,495
584,675
97,015
384,099
369
18,720
10,198
1,423
31,738
35,996
3,088
7,409
51,577
1,915
8,638
24,673
2,837
150
12,593
2,112
547
566
114
4,015
550
1,857
1,561
853
13,601
24,452
5,266
673
614
1,046
6
34
326
14,590
4,549
3,244
7
8
4
1
51
2
1
(15)
580
168
3,490
205
223,302
15,034
277,878
57,701
45,741 1,022,786 192,795
697,270
62,219 37/6.207
85,339 37/1.984
85,323 37/1.987
62,182 37/6.208
1,355
435
24,151
22,943
11,274
20,827
417
355
20,216
19,458
40,702
51,845
44,636 37/1,984
30,374 37/6,207
17,648
1.014

98
165

9,707
34
155 __ as)

No net
1,170

5,068

18,456
15,486
68
638
1,840 35,198
8,507
280
1,763
4.022
10,636 17,671
5,792
8,634
2,022
3,775
1,018
2,153
16,068 95.996

538
930
23
2,012
106
99
884
351
142
182
4.517

103,266
142,275
6,616
153,742
53,216
50,351
2C2,891
116,261
54,036
17,933
654.833

6,704
13,819
716
10,181
5,872
28,274
15,425
7,843
2,056
60.296

103,561
115,721
7,653
180,011
47,210
29,980
113,421
58,179
11,633
22,838
558.544

822

55,476

8,473

88,380

38,793

5,568

IS

3.023
499
3,328
284
157
5,833
1,875
109
40.830 3,281
1,003
1
34.830
824
2,919 1,458
95.996 4.517

26,467
26,826
53,626
23,463
264,557
16,362
226,738
18,682
654.833

4,896
9,442
2,927
3,215
30,029
434
14,399
13,519
60.296

17,259
33,788
72,427
23,258
148,936
22,219
176,105
23,827
558.544

2,275; 12,168
3,875 22,570
3,115 35,461
1,625 14,763
18,393 111,408
9,931
228
5,597 128,772
5,117
9,446
33.672 368.749

2,489
2,471
2,627
877
9,820
175
4.770
3,698
23.100

14
IS
16
17
18
19
20
21

6,695 1,163,665
48
16,481

96,042 1,244,751
4,642
22,153

63,932 949,679
8,290
1,943

56,543
1,097

23
24

470
20

405
29

216
38

3,238

8,193

426
46
1
35
1,907
5,447
167
53

11

(15)

( 15 )

8
245

59
1,574

not allocable

5,219

66,693 180,432 32,358 177,579
2,172
3,520
991
1,076

808
28

Retail trade

194

3,486
3,587
720
4,819
5,928 2,196
2.208 12,121 1,119
1,156
1,378
425
19,556 42,594 7,145
126
2,136
41
10,488 23,996 3,505
8,356
1,653 2,321
38.983 101,346 16,068

4
(15)

23,389 1,899,801
44,387
179
7,246
1,258
1,530
78,118
3,469
1,353
143,606
4,698
216
83
9,911
32
6,588
221
94
3,831
237
383
33,849
1,043
5
3,787
5
289
15,645
501
1
14
(15)
1
5
3
18
3,321
544
5,035
571,259
15,779
32,392 2,776,980
72,363
37/549
231,953 37/2.225
37/549
231,931 37/2.225
•
1,053
121,883
•
33,833
1,532
101,015
156,379
37/549
95,574 37/2,225
3

59,020 1,040,978
991
52,434

11,360

Other retail
trade

1,657

2,246
2,124

6,455
7,908
374
9,965
1,691
1,421
14,128
6,090
2,571
1,307
38.983
5,400

Building materlals. fuel, and ice

12
192

246
433

10

371
113

23
82
(15)
(15)
1,080
645
248
2,242
71,298 185,680 53,847 181,828

758,278
50,705 132, 975 24,686
20,807
2,426
1,167
596
51,891
4,489
3,040 1,135
20,127
1,912
2,218 1,019
5,350
343
1,310
174
2,395
233
142
63
3,587
398
341
141
13,548
918
2,861
657
764
15
62
3
7,460
677
3,077
659
13
6]
83
7
8 (15)
563
122
76
51
175,087
11,112 26,865 5,653
,059,743
73,364 174,141 34,844
63,682 12/2,066 11,539 37/997
63,647 37/2,066 11,532 J57/997
902
123
12,196
4,188
14,419
2,480
362
47
10,352
3,580
25,133
6,107
38,550 37/2,066
5,432 37/997

126,960
498
9,479
3,009
377
424
356
2,343
165
883
1

(15)
(15)

1
116
599
6
21

1,282

51

30
51
974
23,580
168,104 7,046
13,723 37/228
13,722 37/228
69
2,502
2, 954
182
2,156
5,292
6,432 37/228

3,367

3,913 60,907
5,690 66,057
204
3,142
10,487 108,886
1,364 29,113
2,564 23,524
9,759 120,841
3,435 61,079
1,259 13,697
9,945
2,274
33.672 368.749
8,009

30
1,737
2,460

95
81
160
625
(16)
4
1,107
13,795
102,664 1,286,882

(IS)
104
150
(IS)

1

513

2
2,925
4.770
S
343
4
6,917
S
1,601
6
657
7
9,785
8
5,188
9
1,347 10
630 11
23.100 12

22

25
26

(IS)

(15)

147
1,851
3,610
119
43

367
898
5
48
11,962
6,816 1,200,927
5,089
14
507
208
13
33
23
91
1

1,688

987

28

1,100

25
151
2
18

2,288
25
19

27
28
29
30
31
32

366

S3

104
488
3
915 13,023
67,163 975,669

10 34
13
563
58,466

35
36
37
38

872,969
74,690
51,158 767,606
878,054
47,667 39
10,461
3,866
7,365
1,107
3,625
611 40
38,714
4,608
42,157
3,212 17,631
1,649 41
6,037
991
1,676 10,888
34,300
862 42
7,275
798
3,466
2,720
186
223 43
3,830
604
2,737
2,067
140 44
212
2,667
599
2,026
274
202 45
1,491
14,856
1,441
19,859
8,901
640
538 46
887
17
8
1,111
519
3 47
9,857
1,413
6,555
5,371
507
498 48
7
49
10
177
7 49
(IS)
129
64
102
50
(IS)
786;
419
734
225
27 51
121
164,230
16,724
201,529
9,967 114,616
7,119 52
1,132,747 106,241 1,200,005
69,172 935,737
59,546 53
68,180 37/3,377
86,877 37/2,008; 39,932 37/1,080 54
68,033 37/3,378
86,847 37/2,0081 39,904 37/1,080 55
861
1,614
443
56
13,415
33,537
9,016
57
16,010
15,593
9,053
58
516
537
349
59
11,427
27,886
7,548
50
27,953
44,016
16,951
51
40.226 37/3,377
42.862 37/2,008 22,981 37/1,080 !6>2
11,913

Number of returns,
Corporation income and declared value excess—profits tax returns 1/ with balance sheets. 1944. by major industrial groups, for returns with net Income and returns with no net incomei %J Net operating lose
__
x* ______ 4
naif! h v tvD« of dividends also, for returns w i t h net income:

¡3
4

a nd assets other than oun stock
»oration's own stock

8,603 I

___ 1

3

-1

losl

28,639
3.2961

246

-1

98

17,648
1.0141__

9,707
1551

1651

1

34

(15)1

7,925
807

9

14,536
465

,7

11,913
1.534

.4

industrial groups, for returns with net income and returns with no net lnoo
Corporation Income
and uooxaj-eu
declared value
excess—profits
returns
1/ with
balance
sheets,
1944,
majo —
— --------- —
--- by
« --«
,
,, *
., ,
.
j __j .
iiuuiua euiu
vaiuo dav
.o o q — ui ui a u" tax
“““ ‘
"
— — ----~ jj
* “ „
for returns w i t h net li
assets andd liabilities, com
compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and di
e 8
^ ^ ~
i
a.
* rnr
&
ess profits net income, income tax, declared value excess-profits tax, excess profits tax, total tax, and compiled net profit less total tax - Continued
deduction, adjusted excess

(Money flaires ip thmiwands of dollars)

Trade not
allocable

Total service

Nat.
1
2
3
4
S

6
7
8
9
10
U
12
13
14
15
16
17
18
IS
20

21
22
23
24
25
26
27
28
29
SO
31
32
S3
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
SI
52
53
54
SS
56
57
58

Number of returns with balance sheets 397
Assetss
Cash 40/
Notes and accounts receivable
Lessi Reserve for bad debts
Inventorie s
Investments, Government obligations 41/
Other investments
Gross capital assets 42/ (except land)
Least Reserves
Land
Other assets
Total assets 45/
Liabilitiesi
Accounts payable
Bonds, notes, mortgages payablet
Maturity less than 1 year
Maturity 1 year or more
Other liabilities
Capital stock, preferred
Capital stock, common
Surplus reserves
Surplus and undivided profits 44/
Least Deficit 45/
Total liabilities 43/
Receipts!
Gross sales 17/
Gross receipts from operations 18/
Interest on Government obligations (less
amortisable bond premium)t
«holly taxable 19/
Subject to declared value excess-profits
tax and surtax 20/
Subject to surtax only 21/
Wholly tax-exempt 22/
Other interest
Rents 23/
Royalties 24/
Excess of net short—term capital gain over
net long-term capital loss 25/
Excess of net long-term capital gain over
net short-term capital loss 25/
Net gain, sales other than capital assets 26/
Dividends, domestic corporations 27/
Dividends, foreign corporations 287
Other receipts
Total compiled receipts 10/
Deductions!
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 50/
Bad debts
Interest paid
Taxes paid 31/
Contributions or gifts 32/
Depreciation
Depletion
Amortisation 35/
Net loss, sales other than capital assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss (38 less 53)
Net income or deficit 2/ (54 less 28)
Net operating loss deduction 54/
Adjusted excess profits net income 11/
Incase tax 3/
Declared value excess-profits tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax (54 less 61)
Dividends paidt
Cash and assets other than own stock
Corporation's own stock____________________
For footnotes, see pp. 29-30,

Net

Net

10,486
280,341
396^827
18*730
498*473
159*916
292*144
493*142
265*663
93*149
54,262
1,983*861
251,075
83,239
84*013
168,508
101^022
550^049
75*061
720^602
49*708
1,983*861

2,760

19,906

32,265
33^180
1*857
30* 271
4^835
10^271
69*115
31*483
9*217
5*253
16l)o67

501,807
433)063
16*770
558^708
246*174
591* 779
2,567)064
1^193^611
*482*582
175*910
4,146)705

35,518

340,014

98,622
11,113
930^313
14,865
443)045
18^225
215)882
7*415
905)751
62*795
5*022
205,429
30^485 1,280*514
24*369 '272)864
16l)067 4,146,705

9,485

2,624

No net Net
income income
5,094
912

7,355 62,422
97,353
54,189
4,414 55,878
52,569
69,759
507
1,623
6,167
4,946
5,291 31,858
42,847
32,510
762 23,176
42,098
12,429
4,630 30,684
59,663
50)690
427,568 1,086,915 142,476 370,370
51,860 197,674
463,482
172,025
218,734
35,474 30,745
86)781
32,281
4,555 20,759
34)945
591,898 1,162,812 150,786 426,595
33,871

9,183

33,581
44,186
494,546
217,155
93,977
105,618
85,729
37,872
221,976
184,648
29,772
10,588
284,399
132,225
146,707
213)115
591,898 1,162,812

15,830
94,660
29,040
6,042
32,284
2,411
31,807
71,823
150,786

14,443
40,844
38,845
29,293
139,303
8,513
141,334
19,851
426,595

3,859
10,501
5,562
3,941
28,634
168
10,558
17,840
54,567

1
7
1,132
31,470
408
83

(16)
(15)
74
4,848
1C
2

3,563

174

10,492

574

4,550

24

313
1,911
99
6,329
897,664

77
5

1,813
169
31,618
161
5,470
1
55,885
2,328
281)998 4,944)367

548
210
226
14,470
536)239

62,120
354,262
3,550,702 218,511
229)268
7)065 2,220,958
54*435
34,081
10)320 '18l)909
105*351
31,389
181)972
40*766
3)448
9)056
74)280
15)886
l)469
2,796
8,327
6*805
l)l05
43)426
9,323
l)054
7*679
126,707
16,653
3)296
45)812
110
29
5)840
5*065
19,856
114)472
3,674
25)281
S3
6
'341
*191
93
1,088
1
146
5,280
11,307
411
1,970
155,352
40,970 1,005,132
546*161
575)410
4,384*228 291)356 4)330)022
*258)484 37/9)358 *614)344 37/39.171
614,216
37/39.179
37/9.372
258)389
—
12,141
2,376
241,259
83^472
115,054
55)874
1,951
1^752
199,775
69*875
316)779
127*498
130)986 32/9,358 297)565 37/39,171
37,080
4.317

372
70

112,868
3*294

1,459
12e

306
554
1
4,165
1,281
87,157 765,129

14,688
158, 325
23,485
198,708
2,133
16, 915
6,449
42,122
33,245
3,639
1,378
1,791
5,014
22,214
4,705
40,338
14
952
5,556
39,952
6
(15)
32
331
1,700
1,868
25,676
241,316
94,470
797,064
100,600 37/7.313
100,593 37/7,313
5,795
30,058
21,983
238
25,243
47,465
53,135 37/7,313
10,731
567

63,991
371,073
43,765
20,488
11,193
2,010
2,750
17,877
785
18,088
28S
99
723
152,323
705,454
59,675
59,652
1,435
13,976
12,907
337
11,865
25,109
34,566

25
26

26
3,805
22,821
774
34

27
28
29
30
31
32

65

1,894

53

26
28
2
29
1,266
561
35,4 U 138,512

554
25,737
5,136
23,446
91
16,047 1,473,142

34
35
36
57
38

15
(IS)

(16)

(15)

2
74
1,601
1,377
57

2
113
3,358
2
15

(15)
10
1,515
33
U

1,673

97

425

18

192
43
4 2,690
230
(15)
7,046
553
111,792 929,173

127
44

17,620
51,396
7,389
4,127
1,768
322
597
2,848
24
3,165
4
1
287
26,529
116,07f
37/4.286
37/4.287

12

647
23

47

3
8
489
11,230
1,568
154

11

23
24

837

19
128
6,797
69)569
l)915
288

IS

2,136

7
8
9
10

9.937
16,980
5,945 1,371,262

5
38
959
4,788
238
78

(IS)
13
226
987
53
44

8,592

107,866

6

15,400 55,313
17,819 101,539

1
1
64
262
(15)

27
95
3,835
13^091
*687
118

2
3
4
5

131,346
945
97,518
1,940
2,573
63
1,306 <244,268
87,756
62
384,865
191
584,920
4,655
290,907
1,927
159,654
452
65,806
357
7,917 1,462,653

14
IS
16
17
18
19
20

4
23
282
1,871
110
55

173
30

6,521

1

12,108
15 ,568
350
6,953
5,556
1,790
26,413
12,975
1,235
2, 211
58,487

17,553
770
283,102
1,693
132,546
8a
47,169
734
255,357
3,532
27
126,940
544,967
921
52,847
2,748
7,917 1,462,655

19
2

8
2

2,145
3,398
131
1,599
201
1,252
27,848
11,987
10,217
1,688
36,230

2,527
2,577
4,617
17,634
3,372 10,498
824
2,020
10,419 14,855
345
2,724
5,076 15,937
11,485
1,936
36,230 58,487

33
49

1,221
15

fiscalla neous
repair services, Motion pic
hand trades
No net
Net
Net
income
inoome
.ncome
2,865
366
932

4,118
2,801
13,298
30,897 19,691
33,441
6,344
7,355
85,949
8,846
4,101
31,833
29,662 21,973
127,150
665
4,603
IS, 778
21,405 20,500
137,882
5,847
23,702
14,978
521,555 101,410 80,538

331
65

136
58

534
2,969
10*210
34*980
4,642*712

8,993

8
2

2,751
'166

40

19,542

072
77,756

1

1,438
*103

91,201

17,113 10,062
23,460 12,100
310
631
2,856
6,388
2,336
5,063
3,742
14,079
47,153 55,225
15,416 27,260
1,724 15,238
3,018
6,010
101,410 80,538

29,410 58,871
81,395 851,970

25,570 122,405
55,257 634,332

304,200
546,927

629,312

96,705
142, 513
4,139
15,060
42,280
81,430
189,864
82,980
11,474
29,547
521,555

53,601
63,100

103,188
403,378

267,081

4,332
8,055
282
3,448
844
2,117
65,514
37,3S3
4,761
3,350
54,567

10,536

10)718 4,128)144

4,500,069
70^992

No net Neb
income income
3,637
1,789

53,899

84,362

groups 8/ - Continued
benne
iutomoti re re­
pair ser rices
and gara zee
No net
No net Net
income
income Income
943
1,670
1,908

Business
service

Personal
service

Hotels and other
lodging places

41,573
504,429
55,684
14,782
5,018
1,651
1,653
14,187
958
12,187

137
423
197,558
850,222
78,950
78,912
1,169
23,666
17,889
556
19,730
37,975
37/4,28t 40,975

97
37
1,783
1,211
90,075 121,982

9,381
4,663 34,817
9,410
a , 337 34,299
7,761
2,273
7,656
4,769
9,118
2,282
502
1,352
718
242
120
302
519
473
885
1,294
1,526
2,904
7
79
10
1,562
3,891
2,555
4
1
7
14
134
28
1,245
7,080
23,726 18,218
37,054
96,512 U S , 601
37/6.436
8,381 37/1,642
8,379 37/1,642
37/6,438
—
405
1,208
1,780
79
1,002
2,860
32/6,436
5,521 37A,642

29S
9,946
116 18,892
307
____ fits ______ ;____ ili _____ 26

»745
38

62
5

40
1

(IS)

(IS)
1
59
169
"*

57
(15)

21
22

10,890
6,829
22,290
719,952
4,661
69,136
22,080
8,5S6
1,585
74,304
1,530
329
14,995
83
940
1,298
34
161
13,034
106
287
32,822
353
2,293
1,720
79
27,063
1,916
299
7
1
52
226
(is;
7,897
54
65
280,428
3,06C
15,523
17,404 1,206,542
123,043
266,601
15,469 27 A , 551
266,575
15,468 37/1,35'
897
241
118,606
8,74C
46,413
1,738
251
284
98,982
6,963
145,646
8,984
120,955
6,485 37/1,35'

39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62

61,356
392

63
64

1,122
636

6

Tabla 5. - Corpor.tlo. I n » » —

J S " *

*“

S S l S * • S . ' Î S Î

m

ÎÎ î î »

«t

W

(Money fleures lu thousands of dollars)
Servie e— Continued
Service not
Other service,
including schools allocable

otal finance, insurance,
real estate, and lessors
of real property

Total finance

Net
income
1 Winnhar of rat.urna with balance aheets 59/
Assetsi
Cash 40/
2
Notes and accounts receivable
3
Less: Reserve for bad debts
4
Inventories
5
Investments, Government obligations 41/
6
Other investments
7
Gross capital assets 42/ (except land)
B
Less: Reserves
9
Land
10
Other
assets
U
Total assets 45/
12
Liabilities!
Accounts payable
15
Bonds, notes, mortgages payable!
Maturity less than 1 year
14
Maturity 1 year or more
15
Other liabilities
16
Capital stock, preferred
17
Capital stock, common
18
Surplus reserves
19
Surplus and undivided profits 44/
20
Less: Deficit 45/
21
Total liabilities 45/
22
Receipts!
Gross sales 17/
Gross receipts from operations 18/
Interest on Government obligations (less
amortizable bond premium):
Wholly taxable 19/
Subject to declared value excess-profits
tax and surtax 20/
Subject to surtax only 21/
Wholly tax-exempt 22/
Other interest
Rents 25/
Royalties 24/
Excess of net short-term capital gain over
net long-term capital lose 25/
Excess of net long-term capital gain ovar
net short-term capital loss 25/
Net gain, sales other than capital assets 26/
Dividends, domestic corporations 27/
i
Dividends, foreign corporations 28/
'
Other receipts
I
Total compiled receipts 10/
Deductions!
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 50/
Bad debts
Interest paid
Taxes paid 51/
Contributions or gifts 52/
Depreciation
Depletion
Amortization 55/
Net loss, sale8 other than capital assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss (58 less 55)
Net income or deficit 2/ (54 less 28)
Net operating loss deduction 54/
Adjusted excess profits net income 11/
Income tax 3/
Declared value excess-profits tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax (54 less 61)
Dividends paid:
Cash and assets other than own stock
F or footnotes,

1,598
57,085
40,365
I,
6,788
17,987
14,909
99,542
43,474
10,072
12,229
194.124
18,579

1,473
7.255
15,983
2.351
576
4,140
2,751
15,691
39,855
15,566
4,331
8.352
78.460
9,557

59

45

1,029
1,323
1,188
243
423
2,967
1,461
288
870
6,861

,344
542
5
56
450
54
616
559
261
141
3.083

32,250,829
23,727,464
62,176
23,401
93,484,748
45,990,048
10,777,652
2,501,195
2,883,034
5,232,243
209.806.046

804

654

1,262,512

8

No net
income

900,961 30,377,975
988,508 23,012,824
51,528
29,673
6,092
11,988
1,822,192 72,868,117
2,572,967 20,847,827
1,457,003
4,326,615
267,397
1,025,787
192,313
I,
375,607
1,076,219
293,329
11,236,707 149.519.447
548,843

717,200

No net
inconB

Net
income

60,646

53,174

48,686
564,955
183,307
317,428
1.164.202
138,907
1,815,715
422,638
3,871,205

37,102
117,553
57,186
69,858
150,036
11,385
110,814
143,061
424,027

“

17,162
41,047

160 25
348 24

5,388
865

96
15

2,571
448

386 25
54 26
5 27
24 28
3,345 29
707 50
233 31
71 52

321,997
871,441
592,075
609,865
1,692,723
5,697,305
5,991,826 127,872,080 2,725,555 127,360,908
193,768
359,908
1,976,971
599,406
2,728,355
933,810
6,421,408
2,538,443
932,690
133.984
1,482,087
254,334
4,865, SL7
598,868
9,157,888
1,714,903
8,087
672,351 1,084,866
2,700,425
4,788,107 136,072,952
149.519.447
II,
236,707

349
3,791

55,230
3,257,882

6,655
525,129

26,089
585 ,576

212
26,371

566,291

171
24

55
4

929,973
509,172

17,328
4,592

637,640
238,234

14,442
1,987

619,914
233,151

12,894
1,910

102

16,535
209,808
1,834,127
996,147
101,597
15,038

512
8,385
49,260
238,285
7,884
872

13,833
145,978
946,165
99,337
36,558
12,412

131
6,817
37,286
9,433
3,241
314

13,038
141,508
766,415
82^ 014
1,049
7,401

117
5,546
21,815
4,986
148
104

5
17
6,868
860
87
137

175,286

3,839

137,026

1,465

71,507

847

1,262

154
217
1
6,459
552,149

30

(IS )

(15)

95,282
572,572
17,748
118,521
8,703,517

206
(15)
71
1
1,941
63,542 11,370 4,170

5,010
11,602
29,924
208,992
6,618
17,277
3,020
10,684
647
2,408
301
796
404
900
1,509
6,075
14
271
1,923
4,657
10
14
41
219
197
104
22,158
55,048
69,776
319,046
53,1C6 57/6,255
33,075 57/6,239
710
15,591
5,255
215
12,397
17,866
15,237 57/6,235

782
5,304
583
263

199
635
389
287

121

11

15
90
196

21
4
88
2
38

12
191

1
(15)
2,777 2,635
10,344 4,311
1,026 37/140
1,026 37/140

11
265
215
231
450
57/140

13,519
14,107
357
20,138
910,864

4,910
34,754
19,024
72,208
¿5/48,767
¿5/401,901
34,074
135,888
30,707
72,786
43,067
81,072
147,506
482,227
113,513
453,929
414
15,618
84,744
264,258
2,439
21,760
232
1,168
110,759
74,134
509,893
3,231,499
¿6/5.341.202 ¿6/1,150,029
¿7/239,165
3,362,315
¿7/247,550
3,152,507
38,621
67,250
484,058
2,616
57,362
544,057
¿7/239,165
2,818,278
971,840
32,885

3,620
381

51,996
1.158

54,479
443,172
15,267
68,657
3,460,424

4,183
6,448
243
7,308
119,881

19,368
278
2,887
18,645
16,171
272,363
2,972
51,308
15,888
1,502
33,062
75,829
261,711
37,613
138,886
7,867
12,069
95
54,996
5,545
3,629
413
156
63,650
26,676
57,398
995,083
192,480
1,981,561
1,478,863 ¿7/72,599
1,332,885 ¿7/79,416
12,594
12,860
277,265
1,282
10,945
289,492
1,189,371 37/72,599
712,472
29,561

14
15
16
17
18
19
20
21
22

5,268
12,232

1,183
9,956

255

L3

110,526
275,095
125,444
196,883
319,968
61,855
222,353
405,074
941,975

72,810

276,285
150)596
76)057
111)521
9,617
185)996
31,882
163)672
2'l67
1,066,650

5,004
55,402

547

34,927

55,906
577,990
104,000
1,304,656
2,050,917
535,890
2,056,710
150,554
6,446,544

10,610

27,219
51,381
21,489
10,027
53,080
4,512
34,055
21,870
194,376

19,119
525,949

100

95,028

14,503

188.984

1,271,125
7,239,538
171,621,193
2,389,342
10,472,927
1,647,824
15,578,210
1,676,626
209.806.046

4
45
446

7
8
9
LO
L1
L2

6,836
42,980
9,100
1,517
16,632
4,612
110,682

15
950
989
48
655
105
265
578
3.083

(15)

2

25,041
80,636
4,434
186
33,313
743,617
67,347
34,908
20,560
10,616
941,975

227,332
9,830
342,149
45,711
9,552
4,819
2,274
193,245
18,150
306,559 5,426,522
192,343
26,495
49,870
5,200
57,780
11,813
64,523
15,488
424,027 6,446,544

113,383
750)572
22,636
1,935
104,464
90)360
23)446
10,676
2'3 07
13,694
1,066)650

984
5,452
618
7.256
858
16,016
641
4,394
39,925 1,537
101
1,372
986
14,550 1,499
182
20,061
78.460 6,861

6

157,476
8,297
138,944
42,175
17,255
1,636
564
395,826
3,650
3,108,294
9,131
72,574
2,192
22,493
741
13,622
491
24,218
1,653
65)776 3,871,205

556,675 19,186
649,591 29, 710,616
359,197 58,002
688,764 21 440,181
273
21,809
1,581
,410,359 71 663 996 1,259, 297 10,755
357 861 85,887
,723,893 11 364 177
9,133
50 774
1 044 990
255,945
8 943 2,046
137 689
92,435
10 070 5,044
86 292
80,801
8,689
39 ,015
900 390
91,417
,788,107 136,072 ,952 2,623 946 194,376

5,478
17,991
27,946
8,097
50,629
II,
62,407
8,989
194.124

28
228
1,041
210
15

ther inve. tment
empentes, includjig holdin
omnanies [}/.liZ_
No net
Net
income
income
496
1,382

nvestment trusts
Long-term credit Short-term credit
ind investment
agencies, mort­ agencies, except
¡ompanies 12/
gage companies, banks
except banks
No net
Net
No net
Net
No net
Net
income
income
income
income
750
2,165
859
2,179

15,147
459

,461,694
35,005
138,507
28,399
99,460
139,119
,625,946

11,964

2,883
16,097
828
45,089
2,366,186

147
864
3
2,844
64.788

201

130
7,200
1,242
593
12,707
11,937
3,551
54
2,130
30

212,602
58,250
11,827
61,596
194,044
111,778
10,124
45,618
158

10,340
22,187
488

1,969

8

4,963

1,069
31

50

3,783
152
5
15

25
1,045
24,604
559
4,817
2,654

3
286
762
24
596
51

SO
751
50,790
7,894
1,132
499

1,102

14

45>,051

163

10,711

218

35

158
1,948
55
146
4,302

726
261,827
10,635
6,090
412,313

228

54
35
56
37
58

*

11,842
2,059
8,572
1,468
796
1,753
25,232
8,070

2,122
2

(15)

1
(15)

1

25
40

_

1,861
23,806

8,507
195'l95

580
9,631

486
3,954
562
131
187

7,232
14,318
6,245
'308
9,685
17)876
6)432
'473
1,949
r 3

1,559
2,024
441
23
1,538
1,119
323

2,866

855
46
320
15

L

100

(15)
3
139
12,743
58,190
1
8,415
25,259
757,169
9
77,575 17,976
1,501,555
5
5,850
¿7/12,787
864,631
0
5,813
723,123 37/18,133
404
8,190
142
5,310
1,558
196,390
14
781
122
4,543
1,695
201,713
6
4,135 37/4,336
662,917 ¿7/12,787
252,643
26.766

3,519
364

1,632

5
0

174
240
4,425
75,917
11,531
140)679
54)516 37/1 .90C
54)436 37/Í.901
406
5,365
18,086
45

2,866
20,995
•
33)517 37/1,90C
22,046
731

306

6,345
153,968
5,728
'2,743
251,775

2,686
186
1,596
10,227

30
31,8761,74.
190,05
188,9832.
9
9,95
5'
7
10,07 l
179,95 8 ¿7/5,996

3,191
957
136
3,370
43,560
111,492
300,821
500,071
1,242
522
34,95'
292
447
35,69'
265,124

226 39
13 40
1,175 41
131 42
112 45
3,087 44
12,767 45
1,312 46
28 47
539 48
20 49
50
1,737 51
6,622 52
27,767 53
37/17.540 54
37/17,564 55
56
57
- 58
59
60
61
37A7,S40 62

1,365
f

255,53S
1.51C

1,196 65
54 64

-

5,7862C
7!
1,70
14,10
4,05]
345
404
2,47

161,891

12

663
63

20
2,676
3,167
376

1
120
272
481
2,459
10,298
37/5.996
¿7/6,282

688

pp. 29—SO.

WÊÊÊÊÊ
w A s s - n w i f l t s tax returns 1 / with balance sheets. 1944. by major industrial groups,

Ml

6

80
88,008
l)045
14
398

306

489
148

3,552
8,725
22,260
2,053
7,257
6,780
65,776

92,501

12

(15)

11,210

3
4
5

■Mi

for returns w i t h n e t income and returns w i t h no n et incomet 2/ Number cf returns,
,^
a___ *4*
. ai
w i t h net income* Net operating loss

Net
Number of returns with balance sheets 59/

Assetst
Cash 40/
Notes and accounts receivable
Less: Reserve for bad debts
Inventories
Investments, Government obligations 41/
Other investments

Gross capital assets 42/ (except land)
Less« Reserves
Land
Other assets
Total assets 43/
Liabilities i
Accounts payable
Bonds, notes, mortgages payablet
Maturity less than 1 year
Maturity 1 year or more
Other liabilities
Capital stock, preferred
Capital stock, common
Surplus reserves
Surplus and undivided profits 44/
.Least Deficit 45/
Total liabilities 43/
Receipts!
Gross sales 17/
Gross receipts from operations 18/
Interest on Ooveriment obligations (less
amortisable bond premium)!

Wholly taxable 19/
Subject to declared value excess-profits
tax and surtax 20/
Subject to surtax only 21/
Wholly tax-ex«pt 22/
Other interest
Rents 25/
Royalties 24/
Excess of net'short-term capital gain over
net long—tens capital loss 25/
Excess of net long-term capital gain over
net short-term capital loss 25/
Net gain, sales other than capital assets 26/
Dividends, domestic corporations 27/
Dividends, foreign corporations 28/
Other receipts
Total compiled receipts 1C/
Deductions!
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 30/
Bad debts
Interest paid
Taxes paid 51/
Contributions or gifts 52/
Depreciation
Depletion
Amortization 53/
Net loss, sales other than capital assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss (38 less 53)
Net income or deficit 2/ (54 less 28)
Net operating loss deduction 34/
Adjusted excess profits net income 11/
Income tax 3/
Declared value excess-profits tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax (54 less 61)
Dividends paid:
Cadi and assets other than own stock
Corporation's own stock
_________

No net
Income

No net N
income i
305
855

76,790
182,595
610

9,850
9,111
101

443,915
559,607
33,249
16,916
14,820
48,187
1,341,637

65,208
95,755
6,234
2,449
411
3,610
187,630

340,297

11,590

15,355
20,734
190
1,157
9,887
30,059
62,079
21,880
482
4,424
7,750

5,310
415,652 133,841
5,340
9,629
806,968
5,194 13,308
72,327
3,498
4,947
22,257
24,660 51,926
66,725
2,600 15,666
10,921
18,947 33,189
116,888
23,777 13,905
10,378
1,341,637 187,630
4,400

7,137
3,601

745
1

715
1,917
2,817
1,292
39
792

(15)
977
1,126
117
17
19

(IS)
79
540
3,680
28,816
33

3,765

37

258

3,416
231
311
11,397

6,892
21,920
3,329
253
182
5,513
5,440
291
1,037
3

252
2,221
537
227
303
902
501
2
248
1

54

3,402

1,435

43,369

28,133

2,903

67,314

77,432
143,805
1,376

7,283
19,613
317

272,034 19,824
265,340 50,993
20,214 47,982
9,292
2,603
4,953
2,164
55,408 18,36¡J
679,872 352,663

884
7,011
8,031
1,490
350
3,796
45.162

382,422
512,211
8,640
12,291
246,538
008,036
,319,026
,961,613
,496,252
171,373
,177,876

158.722
245,880
7,236
8,994
134,701
487,584
2,890,352
794,392
1,175,651
94,662
4,394,908

59,554
56,624
632
5,017
45,278
260,060
,566,892
252,695
179,008
76,886
,997,994

162,928

24,081

340,682

282,136

41,702

7,576
14,449
27,207
15,754
63,243
10,595
66,679
5,748
352,683

1,768
5,836
4,757
974
12,557
281
6,472
10,559
45.162

16,786
246,829
575,322
,352,652 2,376,771 1,199,714
140,608
468,389
416,881
101,048
183.722
287,226
,233,301 1,107,359 1,099,582
23,014
106,565
132.129
598,529
680,400
,806,678
222,989
746,994 1,057,264
,177,876 4,394,906 2,997,994

21,484
704,832
137,037
54,102
415,984
13,503
250,026
321,952
,328,659
314

233,324 186,546

28,682

74,597
19,613
317

1,353,445

20,324,814
23,874,124
434,730
19,490
15,481
1,907,765
48.110.729

272,919
272,352
28,246
4,092
2,514
59,204
725.034

20,304,990
23,823,131
386,748
10,199
10,528
1,889,403
47,758,046

37,180 128,166

56,235

162,928

24,061

42,406
55,494
40,684
13,816
120,206
15,618
72,363
62,755
405.997

12,512
114,870
32,552
23,228
165,620
9,627
55,975
219,814
250.584

17,831

15
2, 044
2,691
2,229

1,275
51,200
568
824
145
400
8,606
3,048
551
(IS)
1,818
89

3,915

7,576
14,449
43,191,624
24,097
718,637
10,595
4,015,115
34,292
48.110.729

1,763
5,836
660,846
1,673
81,290
281
185,609
236,344
725.034

1,913,176

262,006

1,726,630

288,506
70,354

1,882
2 ,119

288,263
70,331

1,868
2,114

2,414
62,940
866,723
134,348
184
342

359
1,428
3,889
1,926
16
196

62,916
865,665
133,195
114
295

1,427
3,832
1,817
(15)
189

24
1,058
1,153
70
47

57
109
16

7,172

1,000

6,631

940

541

60

43,164,417
8,344
655,393

656,088
699
68,733

3,958,436
28,544
47,758,046

180,137
225,785
679,872

53
5,891
103
3,041
283,907

86
109,579
926
3,248
,270,289

19,944
35/48,778
20,696
1,189
1,543
1,872
85,678
1,414
26,626

6,084
35/8,421

398
5/10,219
14,943
951
836
1,126.
81,445
932
25,305
9

5,625
1,327
2,515
72
271,287
1,802,357
4,298
16,498
16,344 36/2,011,440 36/306,132
24,095
1,457,815 ¿7/22,225
10,637 37/11,733
1,394,874 37/23,653
10,058 37/11,879
2,013
603
20,611
578
92,143
2,397
118
27
17,540
463
109,801
2,887
1,348,014 37/22,225
7,750 37/11,733

1,260
,706,188
',843,613
.426.676
,363,760
1,593
15,674
84,654
24
13,355
98,033
1,328,643

5,869
467

105,972
1,586

455
2,819
507

41C
.610

303
1,077
276
47
3,844
3,018
535

12

5,013
191

4,499

118,929
1,777

23,418
759.130

6,129
236,753

5,723

3,224
449

981
479

603
135

84
777
19,634
631,272
1,864
2,060

20
133
7,830
202,443
546
330

113
1,605
130,190
62,991
204

255
24,483
4,281
S3

26,168

1,242

4,920

152

39,910
14,749
182
26,829
,549,770

8,902
1,682
U
9,259
476,540

592
1,609
1,153
14,226
224.069

(IS)
530
30,535

4,285
11,079
10,053
33,619
6,961
123 19,545
23,215
77,036
7,451
35/970 38,559
27,021
59,542
1,354
5,752
1,600
28,407
56,676
86
238
378
8,692
3,562
276
707
444
89,590
180,161
268
746
3 79
91,765
214,455
544
4,233
8,521
275
1,946
h
482
21
75,879
175,543
218
1,321
609
124
458
3
23L
527
6
65,514
8,131
33
67
5,593
175,223
407,036
16,463
254,824 96,169
600,274
32,669 .,229,770
36/273.463 167,828
320,000 37/123,733
37/20.388 31,139 37/1,837
319,223 37/123,867
37/21.815 31,114 37/1,838
22,801
420
19,022
4,937
81,600
«
7,489
1,146
94
16,456
4,185
99,202
- 11,768
220,797 37/123,733
87/20,388 19,370 37/1,837

4,307

347

(15)

301
113,042
1,145
8,609
3,469,255

618
1,058
6
1,582
34,732

386
626

6,661
157
1,265
4,675
6,728 14,335
47,512
27,236
12,060 30,383
93,637
37/662 20,816 37/17.644
31,581
29,663 377λ639 20,737 37/17,658
188
1,235
1,998
es:
6,777
7,142
33
52
1,692
73!
8,502
7,921
57/662 12,315 37/17,644
23,65!
6,123
42.

t re a te
245

1,430,878
143,805
1,376

8,244
33,771
44,606
11,646
53,018
9,857
59,953
74,787
183.487

property, except
buildings

1,438

19,710
102,746
10,056
615
20,813
72,650
41,766
23,493
18,930
6,903
250.584

-

7,525
1,321
2,394
327
435
384
300
1,078
58
2,145

No net
Income
1.680

Net
income

eluding lessors of
buildings

brokers, etc.

57,838
79,847
1 ,011
746
46,033
183,121
19,190
5,827
11,965
12,095
403.997

9,846
27,000
275
216
3,091
95,340
52,037
15,183
1,893
9,520
183.487

8,927
6,444

49,498

42, 726
7,346
59
3,512
125,218

Total insurance
carriers, agents,etc.

Finance not
allocable

Other finance
companies

Security and com­
modity exchange

214
49
3,463
5,864
219
102
5,361
1,191
253,075 198,966

5,794
465

12,957
191

27
1,850
30,832

75,270
1,514

10,101
186

960
3,724
1,127
2,342
334
1,034
593
139
19,655
38,482
4,814
14,910
11
189
2,494
7,094
1,899
17,661
500
(15)
12,923
1,027
5,985
27,024
51,143
118,431
105,638 37/20.608
105,525 37/20,615
1,214
14,757
33,050
70
12,421
45,542
60,097 37/20,608
65,169
__ 34

Number of retui
ule 5., — Corporation income and declared value excbss—profits tax returns ¿/ with balance sheets, 1944, by major industrial groups, for returns with net income and returns with no net income: %J
Net operating loi
ssets and liabilities,compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns with net income:
eductjLon, adjusted excess profits net income, income tax, declared value excess—profits tax, excess profits tax, total tax, and compiled net profit less total tax ■- Continued
(Money figures in thousands of dollars)

No net
income
3,654

214,414
455,364
4,925
122,896
132,722
123,545
363,901
195,187
57,-228
64,591
1,514,548

48,408
105,301
1,122
23,844
26,295
25,209
124,810
67,724
11,360
17,818
514,200

106,215
154,672
1,482
137,843
93,066
124,100
632,732
293,258
208,470
31,666
1,194,023

10,850
21,148
250
21,945
5,613
41,240
109,894
55,440
61,298
7,402
241,700

99,450
145,701
1,448
132,955
88,495
117,850
575,760
280,319
201,424
29,436
1,109,284

9,248
16,458
212
20,901
3,433
38,984
90,562
50,249
56,697
6,953
212,776

158,998

59,448

119,587

34,951

114,008

96,926
66,890
249,753
35,825
256,305
48,760
421,873
20,782
1,514,548

29,341
33,850
41,133
12,470
96,114
7,801
81,654
47,612
314,200

46,037
91,574
74,317
52,604
464,811
55,458
375,254
65,619
1,194,025

14,820
49,754
16,830
9,370
123,736
4,618
60,554
72,932
241,700

44,609
81,725
63,494
29,075
428,710
53,541
341,829
47,707
1,109,284

308,287
2,287,901

93,982
346,923

671,094
86,971

72,313
17,441

1,529
142

505
26

872
517

56
5

6
248
1,727
9,014
244
135

1
67
449
2,326
58
155

4
173
1,934
8,440
2,000
151

7
510
1,932
549
125

4
160
1,695
8,131
1,882
143

8,661

1,789

7,628

275

736
4,828
135
29,275
2,652,669

814
180
1
6,102
453,157

1,487
6,982
9
12,740
801,001

272
281
4
1,828
95,378

227,414
1,895,674
97,969
10,053
13,291
2,672
5,935
31,506
2,071
26,489
158
1,233
518
167,734
2,482,718
169,951
169,703
3,600
72,291
29,045
954
58,653
88,653
81,299

75,982
310,584
27,001
2,966
4,262
1,008
2,165
6,522
62
9,611
44
63
2,937
41,438
484,644
37/31.487
37/31.553

436,643
28,707
20,753
10,666
11,813
3,419
5,798
20,191
882
23,189
1,099
12
1,363
105,448
669,982
131,019
130,846
2,510
39,320
28,465
752
32,837
62,054
68,965
29,503
669

Net
Number of returns with balance sheets 39/
Assets «
2
Cash 40/
Notes and accounts receivable
5
Less: Reserve for bad debts
4
Inventories
5
6
Investments, Government obligations 41/
Other investments
7
Gross cspital assets 42/ (except land)
8
Less« Reserves
9
Land
IO
Other assets
11
Total assets 43/
12
Liabilities:
Accounts payable
15
Bonds, notes, mortgages payable:
Maturity less than 1 year
14
Maturity 1 year or more
15
Other liabilities
16
17
Capital stock, preferred
Capital stock, common
18
Surplus reserves
19
Surplus and undivided profits 44/
20
Less« Deficit 45/
21
Total liabilities 4£/
22
Receiptst
Gross sales 17/
25
Gross receipts from operations 18/
24
Interest on Government obligations (less amortizable
bond premium)«
Wholly taxable 19/
25
Subject to declared value excess-profits tax and
26
surtax 20/
27
Subject to surtax only 21/
Wholly
tax-exempt 22/
28
Other interest
29
Rents
25/
50
Royalties 24/
51
Excess of net short-term capital gain over net long­
52
term capital loss 25/
Excess of net long-term capital gain over net short­
55
term capital loss 25/
Net gain, sales other than capital assets 26/
54
Dividends, domestic corporations 27/
55
Dividends, foreign corporations 28/
56
57
Other receipts
Total compiled receipts 10/
58
Deductions«
Cost of goods sold 29^
"
59
Cost of operations 29/
40
Compensation of officers
41
Rent paid on business property
42
Repairs 50/
43
Bad debts
44
Interest paid
45
Taxes paid 51/
46
47
Contributions or gifts 32/
48
Depreciation
49
Depletion
Amortization 55/
50
51
Net loss, sales other than capital assets 26/
Other deductions
52
Total compiled deductions
55
54 Compiled net profit or net loss (38 less 53)
55 Net income or deficit 2/ (54 less 28)
56 Net operating loss deduction 34/
57 Adjusted excess profits net income 11/
58 Income tax ¿/
59 Declared value excess-profits tax
60 Excess profits tax 4/
61
Total tax
62 Compiled net profit less total tax (54 less 61)
Dividends paid«
Cash and assets other than own stock
65
___Corporation’s own stock---------------------------------

Aericulture. forestry. and fisherv
Forestry
Agriculture and
service«
No net
Net
No net
Net
income
income
income
income
1,628
148
121
5,119

Total agrieulture,
forestrv.anid fisherv
No net
Net
income
income
3,385
1,839

Construction

6,672

X

—
¿7/31,487

1,742
23,489
5.216 _______ 134_

No net
income
90

1

11,067
33,087
553
3,020
1,496
35,907
71,804
18,928
14,228
9,677
160,806

2
5
4
5
6
7
8
9
10
11
12

31,383
43,159
748
8,489
10,336
46,299
52,595
19,844
17,791
17,009
206,470

1,246
2,884
17
257
169
826
15,252
3,711
4,383
311
21,601

2,296
1,507
IS
1,594
1,980
1,712
10,044
3,411
1,526
538
17,773

356
1,805
21
787
11
1,430
4,080
1,481
218
138
7,322

28,835

3,362

3,407

2,216

2,709

30,621

36,282

13

14,518
44,224
13,529
8,358
108,273
3,641
49,095
57,698
212,776

1,064
8,758
9,459
3,254
29,977
1,162
26,633
16,893
66,966

217
4,807
1,938
914
13,854
946
9,658
14,120
21,601

363
1,091
1,364
276
6,124
765
6,592
1,019
17,773

85
722
1,363
98
1,610
30
1,821
1,115
7,322

15,726
16,347
28,469
7,433
62,110
4,778
61,816
20,830
206,470

13,216
59,985
19,119
17,913
161,774
14,341
44,628
206,451
160,806

14
IS
16
17
18
19
20
21
22

651,867
78,493

67,576
14,054

8,337
3,252

1,530
1,776

10,890
5,226

3,407
1,610

72,971
50,727

5,958
6,358

23
24

823
513

35
3

28
4

1

21
(15)

105
6

21
1

25
26

2
”

5
21
1,652
3,667
696
166

(15)
2
223
497
83
10

27
28
29
30
31
32

’

5,534

263

2,059

9

34

4

1,069

28

33

614
6,853
9
11,982
768,701

199
280
4
1,633
86,627

813
53
(15)
355
15,483

71
1
92
3,622

60
76
(15)
403
16,816

2

834
946
14
4,065
136,943

99
137
(15)
886
14,302

54
35
36
57
38

62,856
10,730
3,182
1,305
1,731
296
2,701
2,421
11
3,523
336
21
2,992
14,970
107,053
¿7/11,675
¿7/11,682
37/11,675

421,665
24,724
19,570
10,416
11,133
3,370
5,177
19,360
852
22,480
509
12
1,356
102,517
643,141
125,560
125,400
2,000
38,343
27,403
735
32,024
60,162
65,598

58,308
8,515
2,923
1,235
1,537
277
2,489
2,171
10
3,278
46
21
2,194
13,643
96,647
37/10.020
37/10.027
-

7,169
1,173
546
73
68
43
544
563
. 10
312
590
(15)
3
1,299
12,393
3,090
3,077
442
11
690
6
10
706
2,384

1,373
1,249
99
37
17
14
186
178
86
290
798
550
4,878
37A . 256
37/1,256
—
37/1,256

7,809
2,810
638
176
613
5
77
268
20
396
4
1,631
14,448
2,368
2,368
68
966
372
11
802
1,185
1,183

1,259

28,300
669

261

947

996

256

-

- .
—
37/10,020

with balance sheets, 1944, by total assets classes,

Number ^

'

(15)
16
89
(IS)
2

-

13
223
221
118
6

(lb)

22
86
22
12

(15)

7
288
1,844
527
113

(15)

Pox* footnotes, see pp. 29— 30.

noi-noration income and declared value excess-profits tax returns 1/

Net
Income
118

Nature of
businc ss not
»Hoc:ÈlS________
No net
Net
income
in99Bg__
2,224
1,545

4,468
7,464
22
3,295
2,691
4,558
46,929
9,528
5,520
1,692
66,966

--------------------------------------------------------------T n h l« 4 .

Fishery

-

(15)

(15)
104
5,129

3,155
59,378
965
19,396
160
10,889
1,657
51
177
1,115
492
5
26
1,052
71
2,953
167
1
159
2,053
125
- 29
346
777
21,463
121,115
5,528
15,828
37/399
15,807
¿7/899
878
3,537
3,215
120
2,887
—
6,223
9,605
¿7/399
3

3,191
65

4,843
2,013
2,460
475
260
279
1,100
661
5
91448
2
2,128
5,248
20,435
37/6,153
37/6,135
—
¿7/6,133

39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62

777 63
55 64

85 I

■134.

Corporation»s own stock
or footnotes, see pp. 29—30.

Total

1
2
S
4
S
6
7

8
9
10
U

12
19
14
15
16
17
18
19
20

21
22
28
24
25

Number of returns with balance sheets 59/
Insets:
Cash 40/
Notes and accounts receivable
Less: Reserve for bad debts
Inventories
Investments, Government obligations 41/
Other Investments
Gross capital assets 42/ (except land)
Less: Reserves
Land
Other assets
Total assets 45/
Liabilities:
Accounts payable
Bonds, notes, mortgages payable:
Maturity less than 1 year
Maturity 1 year or more
Other liabilities
Capital stock, preferred
Capital stock, common
Surplus reserves
Surplus and undivided profits 44/
Less: Deficit 45/
Total liabilities 45/
Receipts:
Gross sales 17/
Gross receipts from operations 18/
Interest on Government obligations
(less amortisable bond premium):
Wholly taxable 19/
Subject to declared value excess-profits tax
and surtax 20/
Subject to surtax only 21/
Wholly tax-exempt 22/
Other interest
Rents 25/
Royalties 24/
Excess of net short-term capital gain over
net long-term capital loss 25/
Excess of net long-term capital gain over
net short-term capital loss 2§/
Net gain, sales other than capital assets ¿6/
Dividends, domestic corporations 27/
Dividends, foreign corporations 28/
Other receipts
Total cooplied receipts ¿fl/ *
Deductions:
Cost of goods sold 29/
Cost of operations 29/
Compensation of officers
Rent paid on business property
Repairs 50/
Bad debts
Interest paid
Taxes paid 51/
Contributions or gifts 82/
,
Depreciation
Depletion
Amortization 58/
Net loss, sales other than capital assets 26/
Other deductions
Total compiled deductions
Compiled net profit or net loss (58 less 55)
Net income or deficit 2/ (54 less 28)
Net operating loss deduction 54/
Adjusted excess profits net income 11/
Income tax jj/
Declared value excess-profits tax
Excess profits tax 4/
Total tax
Compiled net profit less total tax (54 less 61)
Dividends paid:
c . h «ad assets other than own stock
Corporation's onn stock
For footnotes, see pp.

29-50*

565,056

Under
50
176,212

50
under
100
56,851

100
under
250

Total assets classes ■
500
250
under
under
1.000
500

1,000
under
5.000

5.000
under
10.000

10,000
under
50.000

56,782

26,496

17,625

21,590

3,646

2,942

1,150,144
1,552,588
44,912
1,220,181
505,792
580,996
4,647,098
1,908,706
955,224
527,961
8,964,164

1,199,044
1,562,565
44,165
1,262,575
800,446
845,168
4,401,645
1,874,778
841,449
528,684
9.522.250

1,805,716
2^012,178
55,098
1,508,198
1,745,806
l',228,189
5,140,707
2j279,8U
884,860
400,165
12,590,911

7,776,662
6,651,599
125,571
4,252,455
U , 262,045
5,414,599
15,807,358
6,097,721
2,002,060
1,165,600
46,107,085

4,054,692
5,228,925
58,502
2,065,824
7,172,570
3,184,216
7,548,557
5,105,510
771,667
623,009
25,285,428

8,741,132
7,085,195
122,221
4,664,160
16,248,985
9,719,991
19,155,546
8,054,868
1,US, 050
1,713,465
60,260,451

50.000
under
100.000
415

100,000

and
over___
517

5,927,248 22,921,707
22,108,055
2,985,165
141,654
35,492
8,244,584
2,111,649
65,765,668
7,491,649
48,805,258
4,248,506
68,056,065
10,474,828
5,524,676 21,655,455
714,086
525,784
4,624,125
950,561
28,955,021 219.462.255

52,782,955
48,566,504
672,202
26,476,556
111,218,745
74,592,221
157,020,547
50,225,511
8,351,400
10,451,116
418,524,088

624,124
676,491
24,824
558,506
75,459
155,957
1,890,250
875,007
295,835
151,666
5,528,257

584,465
728,571
25,985
588,805
152,548
211,541
2,120,514
888,801
429,585
147,884
4,050,525

17,805,078

694,527

524,965

981,245

879,291

* 955,034

2,439,261

1,050,408

2,655,856

7,055,756
42,455,922
200,550,056
15,112,184
64,785,290
12,199,956
67,556,665
9,194,819
418,524,088

272,514
613,759
354,861
U5.778
1,917,725
25,666
820,794
1,286,985
5,528,257

224,544
746,484
547,420
127,495
1,555,048
41,479
1,005,841
520,948
4,050,325

479,815
1,773,783
841,651
359,050
2,916,487
140,799
2,540,505
849,166
8,964,164

459,172
1,627,556
1,296,546
598,826
2,656,954
222,548
2,529,972
728,035
9.522.250

560,205
1,627,117
5^005^026
557,001
2,926,042
354,885
3,167,654
'740,052
12,390,911

1,506,095
5,964,608
19,513,655
1,663,506
7,691,585
1,474,447
9,666,076
1,812,124
48,107,085

636,230
1,891,069
U , 857, 480
876,752
5,627,445
945,588
5,086,500
685,844
25,285,428

1,523,899
4,826,916
27,436,802
2,608,475
8,485,588
2,466,842
U , 645,709
1,189,637
60,260,451

1,109,825
485,660
21,759,445
3,625,387
12,951,217 122,965,619
6,885,476
1,559,827
4,260,097 28,768,524
5,296,645
1,251,257
4,207,445 27,088,371
966,382
415,647
28,955,021 219.462.255

207,008,234
42,120,957

6,950,951
1,742,885

6,522,545
1,126,725

15,064,194
1,962,260

12,590,496
1,855,280

14,350,757
l'781,052

55,888,944
4,561,127

15,768,262
2,519,116

32,806,949
6,506,952

12,739,270
5,992,678

56,525,887
16,494,885

1,092,289
550,156

1,152
87

1,645
95

4,886
458

7.510
941

16,644
2,4 U

104,825
18,801

67,612
14,742

155,589
45,722

68,922
21,669

665,707
227,212

18,428
241,056
2,164,805
2,017,118
240,485
25,649

55
180
8,615
175,050
8,846
1,909

45
269
U,135
157,957
6,595
1,184

123
4S7
27,496
519,208
14,605
1,814

150
1.511
50,705
122,494
17,595
1,683

276
5,291
49,452
U7,701
17,759
1,559

1,850
26,501
228,450
219,420
49,956
5,557

980
16,871
112,704
96,494
50,951
1,900

2,925
55,879
255,976
187,286
42,150
5,922

1,277
16,478
U8,258
116,600
12,806
1,417

10,788
142,818
1,524,017
506,929
59.485
4,946

585,108

15,052

10,847

22,196

25,516

35,904

77,281

57,872

78,165

19,256

69,040

1,074
112,946
15,336
US, 049
17,551,056

15,665
752,599
94,382
249,408
76,919,765

1,071,779

6,554,952

152,145
1,407,0 U
144,686
1,555,556
258,879,617

17,858
4,127
89
80,972
9,005,766

11,542
5,627
40
75,243
7,929,464

18,850
15,652
357
156,318
15,586,872

15,094
18,445
797
115,750
14,777,765

14,206
29,617
694
125,808
16,544,869

25,460
150,186
6,677
515,097
41,475,869

5,097
79,835
5,588
127,045
18,684,049

U,298
241,980
22,727
214,846
40,606,164

159,192,585
25,986,109
5,666,954
2,444,179
2^541,725
525,594
2,256,207
5,884,547
251,887
5,890,71S
'697,582
974,107
454,954
25,918,647
252,425,770
26,455,847
26,212,792
141,974
12,755,684
4,512,460
97,001
10,559,618
14,769,079
U , 684,768

5,216,252
961,410
581,856
244,340
59,844
16,905
57,802
155,505
3,780
105,279
5,561
455
33,559
1,528,568
8,746,652
257,U 4
256,954
25,620
15,967
86,564
4,656
14,688
105,709
151,405

5,057,607
662,644
583,437
125,917
47,974
17,257
42,192
150,981
4,565
97,157
5,649
1,091
U,2S2
1,015,165
7,578,886
350,578
350,510
U , 946
68,199
84,499
5,778
59,459
147,755
202,845

10,167,069
1,175,996
601,495
180,072
95,027
24,087
95,588
263,277
U , 258
192,791
U,032
4,458
20,324
1,900,791
14,739,044
847,828
847,571
17,812
508,856
165,966
6,586
262,124
452,677
415,152

9,751,450
1,050,110
445,192
144,085
90,748
21,427
85,464
258,592
15,282
177,405
14,622
8,996
20,679
1,722,867
15,782,915
994,848
995,558
12,960
495,089
170,202
6,555
411,056
587,791
407,058

U , 088,359
1,050,680
'587,055
129,985
105,248
19,754
94,305
506,242
16,950
195,U 9
25,668
15,828
29,227
1.798.620
15^240,996
1,505,875
1,500,582
12,986
727,451
216,545
7,455
592,775
816,569
487,504

27,414,100
2,485,566
625,936
289,371
557,501
59,03
245,844
897,581
46,662
482,247
71,081
73,770
59,999
4,572,466
57,457,558
4,018,551
5,992,250
21,429
2,356,819
612,854
22,008
1,875,810
2,510,675
1,507,858

U , 741,469
1,394,882
175,120
126,496
195,263
22,778
121,956
412,001
21,469
227,938
44,574
SI,804
48,$72
2,026,811
16,611,054
2,075,015
2,057,144
9,705
1,210,997
515,012
10,457
968,751
1,292,20C
780,816

24,565,815
5,852,964
259,505
255,258
491,680
36,295
278,458
947,669
40,406
547,769
U9,042
152,507
71,552
4,262,919
55,841,790
4,764,574
4,730,495
12,654
2,650,592
725,089
19,926
2,U2,209
2,855,224
1,909,160

9,587,455
2,594,095
65,079
U4, 926
211,966
22,595
174,249
384,228
14,742
272,750
52,998
78,278
24,605
1,987,597
15,565,165
1,985,874
1,969,596
2,570
1,055,561
514,145
5,027
849,828
1,168,998
816,876

44,625,029
9,021,761
166,500
855,754
908,472
85.485
1,060,569
2,150,682
58,775
1,592,264
573,556
586,962
115,124
5,505,245
67,061,955
9,857,811
9,714,995
16,295
5,904,192
1,627,989
10,575
5,212,940
4;8S1,506
5,006,508

5,9S7,051
254,645

65,716
2,357

63,549
4,421

145,355
14,208

161,155
14,551

214,885
18,682

684,311
54,025

587,880
29,809

1,040,855
55,776

506,458
6,672

2,686,907
54,164

Table 5. - Corporation income and declared value excess-profits tax returns, 1/ 1944, by net. income and deficit classes,
for returns with net income and returns with no net income* Number of returns, and net income or deficit; also, for
returns with net income* Total tax, income tax, declared value excess-profits tax, excess profits tax, and adjusted
excess profits net income

Net income and deficit
classes 2/

Under 1
1 under 2
2 under 5
3 under 4
4 under 5
5 under 10
10 under 15
15 under 20
20 under 25
25 under 50
50 under 100
100 under 250
250 under 500
500 under 1,000
1,000 under 5,000
5,000 under 10,000
10,000 and over
Tax on returns with no
net income 3/
Total
No income data (inactive
■corporations)__________
For footnotes, see pp. 29-30

Number
of
returns

Returns with net income 2/
Adjusted
Taxes
Net
excessincome 2/ profits
Total
Income
net
tax
taxi/
income 11/

60,378
24,693
29,574
43,451
20,853
51,719
56,067
16,091
13,761
61,821
43,619
317,576
23,286
2$5,580
13,854
239,654
9,392
210,052
21,505
757,985
14,138 1,000,470
11,342 1,772,038
4,919 1,725,829
2,817 1,967,850
2,670 5,454,440
348 2,395,884
357 10,758,631

1
22
18
21
47
625
5,109
17,223
26,136
180,313
371,084
835,083
899,854
1,065,968
2,994,193
1,222,039
5,223,928

5,139
4,976
9,217
9,553
11,779
11,340
12,499
13,015
14,721
14,108
78,624
74,862
75,707
68,190
71,198
54,045
69,174
44,903
319,587
159,806
522,717
201,453
1,016,219
314,009
1,019,160
280,400
302,362
1,168,018
3,245,478
816,806
1,367,155
376,439
5,876,703 1,608,101
104

——

—

——

162
1
533
3
424
15
498
18
572
41
942
2,819
2,243
5,274
1,664
15,489
1,320
22,951
4,409
155,372
5,292
315,972
8,821
693,390
8,019
730,742
8,891
856,765
25,454 2,403,239
6,448
984,268
21,320 4,247,282

75,011
14,607
7,547
4,645
3,162
7,961
3,218
1,754
1,082
2,362
1,168
693
206
93
50
2
2

19,992
20,945
18,447
16,116
14,123
56,191
39,235
30,215
24,175
81,831
81,268
106,471
69,660
63,745
102,426
12,106
62,315

98.668 10.451.762

123.563

819.260

104

288p904 27.123.741 12.841.663 14.884.050 4.353.620
—

Declared Excess
profits
value
excess- tax 4/
profits
tax

Returns with no net
____income 2/______
Number
of
Deficit 2/
returns

—

-

—

— i

—

54.529

—

16

- 29 Footnote* for table* in this release
The information contained in thi* release is
compiled frog* the returns a* filed, prior to revisions
that may be made as a result of audit by the Bureau of
Internal Revenue« Data are likewise prior to any
ohanges resulting from carry-backs, relief granted under
section 722 of the Internal Revenue Code, recomputetion
of amortisation of emergency facilities, or from the
renegotiation of war contracts, after the returns were
filed« The effect of renegotiation settlements reached
after the returns were filed is to be shown in special
tabulations which will appear in the complete reports,
•Statistics of Inoome, Part 2,* for each of the years
1942 through 1944.
2/ "Net inoome" or "Deficit? for 1944 is the
amount reported for declared value excess-profit* tax
computation, adjusted by excluding net operating loss
deduction and adding Government interest subject to
surtax only and excess of net long-term capital gain
over net short-term capital loss; for 1945 it is the
amount reported for declared value excess-profits tax
computation, adjusted by excluding net operating loss
deduction. See note 54.
%/ "Income tax" consists of normal tax, surtax,
and alternative tax reported in lieu of normal tax
and surtax where the income includes an exoes6 of
net long-term oapital gain over net short-term capi­
tal loss, if and only if suoh tax is less than the
normal tax and surtax. Tabulated with the income tax
for returns with net income is a small amount of tax
reported on returns with no net inoome, under the
special provisions applicable to oertain mutual insur­
ance companies, other than life or marine. Also, for
1945, tabulated with the income tax for returns with
net inoome is a small amount of surtax reported on
returns with no net inoome, where receipts for the
taxable year include interest on obligations of certain
instrumentalities of the United States.
i f The excess profits tax shown is that imposed
by seotion 710 of the Internal Revenue Code as amended
and should not be confused with the declared value
excess-profits tax. The amount shown is the excess
profits tax liability reported on corporation excess
profits tax returns, less the credit for debt retire­
ment and the net post-war refund. Throughout this
release, the tax is before the amount deferred under
seotion 710(a)(5) Relating to abnormalities under
section 722) and after any adjustments reported on
the returns under other relief provisions.

5/ The excess profits net income is obtained
from "fee normal-tax net income (computed without
allowance of credit for income subject to excess
profits tax and without allowance of dividends re­
ceived credit) by making certain adjustments, con­
sisting principally of the exclusion of long-term
capital gains and losses, and dividends received
from domestic corporations.
& / The adjusted excess profits net income or
deficit, as reported on Form 1121, is the excess
profits net income less the sum of the specific
exemption, excess profits credit, and unused excessprofits credit adjustment. For part year returns,
the amounts of excess profits net income and adjusted
excess profits net income have been placed on an
annual basis.

7/ The total amount of adjusted exoess profits net
income does not inolude the amount of deficit on the
taxable excess profits tax returns with no adjusted
excess profits net income. The taxable excess profits
tax returns with no adjusted excess profits net income
consist of returns for fiscal or part years beginning
in 1945 and ending in 1944. Returns for such periods
are taxable if they show an adjusted exoess profits
net income under ihe provisions applicable to 1945,
even though they may show no adjusted excess profits
net income under the provisions applicable to 1944.
see (5), page 5.

8/ The industrial classification is based on the
business activity reported on the return. When multiple
businesses are reported on a return, the classification
is determined by the business activity which aooounts
for the largest percentage of total receipts. Therefore,
the industrial groups do not reflect pure industry classifi­
cations. There is no change in the industrial groups
between 1945 and 1944.
9 / Total number of returns includes returns of inactive
corporations•

10/ "Total compiled receipts" consists of gross sales
(less returns and allowances), gross receipts from operations
(where inventories are not an income-determining faotor), all
interest received on Government obligations (less amortisable
bond premium), other interest, rents, royalties, exoess of
net short-term oapital gain over net long-term capital loss,
excess of net long-term capital gain over net short-term
oapital loss, net gain from sale or exchange of property other
than capital assets, dividends, and other receipts required
to be included in gross income. "Total compiled reoeipts"
excludes nontaxable inoome other than tax-exempt interest
reoeived on oertain Government obligations.
ll/ "Adjusted exoess profits net inoome," allowed as a
credit on Form 1120 in computing normal tax and surtax
net income for taxable years beginning after December 51,
1941, is, in general, equal to the adjusted excess profits
net income, as reported on Form 1121. However, in case the
excess profits tax is determined as provided in seotion 721
of the Internal Revenue Code (relating to abnormalities
in inoome in the taxable period), section 726 (relating to
corporations completing contracts under the Merchant Marine
Act of 1956), seotion 751 (relating to corporations engaged
in mining strategic minerals), or section 756(b) (relating
to corporations with income from long-term contracts), the
credit reported on Form 1120 for adjusted excess profits
net inoome is the amount of which the excess profits tax
is 95 percent. For the purpose of computing such oredit,
the excess profits tax used is the tax computed without
regard to the limitation provided in seotion 710(a)(1)(B)
(the 80 percent limitation), without regard to the credit
provided in section 729(c) and (d) for foreign taxes paid,
and without regard to the adjustments provided in section
754 in case of position inconsistent with prior income tax
liability.
12/ The industrial classification designated "Investment T r u s t e and investment companies" consists of corpora­
tions which derived 90 percent or more of reoeipts from
investments and which at no time during the taxable year
had investments in corporations in which they owned 50
percent or more of the voting 8took.
15/ The industrial classification designated "Holding
companies" consists of corporations which derived 90
percent or more of receipts from investments and which at
some time during the taxable year had investments in
corporations in which they owned 50 percent or more of the
voting stock.
14/ The industrial classification designated "Operatingholding companies" consists of corporations which derived
less than 90 percent but more than 50 percent of receipts
from investments.
15/ Less than $500.
16/ Number of returns excludes returns of inactive
corporations.
17/ "Gross sales" consists of amounts received for goods,
less returns and allowances, in transactions where inventories
are an income*determining factor. For "Cost of goods sold,"
see "Deductions."
18/ "Gross receipts from operations" consists of amounts
received from transactions in which inventories are not an
income-determining factor. For "Cost of operations," see
"Deductions."

- 30 -

Footnotea for tables In this release - Continued
19/ "Interest received on Government obligations, «holly tax­
able" ooneiete of interest on Treasury notes issued on or after
Deoember 1, 1940, and obligations issued on or after Maroh 1, 1941,
by the United States or any agenoy or instrumentality thereof, re­
ported as item 9(b), page 1, Form 1120«
20/ "Interest reoeived on Oovernment obligations, subjeot
to declared value exoess-profits tax and surtax" oonsists of
interest on United States savings bonds and Treasury bonds
owned in prinoipal amount of over $5,000 issued prior to
March 1, 1941, reported as item 9 (a), page 1, Form 1120,
21/ "Interest reoeived on Oovernment obligations, subject to
surtax only" consists of Interest on obligations of instrumentali­
ties of the United States (other than obligations of Federal land
banks, joint stook land banks, and Federal intermediate credit
banks) issued prior to Maroh 1, 1941, reported as item 32, page 1,
Form 1120.
22/ "Interest reoeived on Oovernment obligations, wholly taxexempi" consists of interest on obligations of States, Territories,
or political subdivisions thereof, the Distriot of Columbia, and
United States possessions} obligations of the United States issued
on or before September 1, 1917j all postal savings bonds}
Treasury notes issued prior to Deoember 1, 1940> Treasury bills
isaueid prior to liaroh 1, 1941j United States savings bonds and
Treasury bonds owned in principal amount of $5,000 or less,
issued prior to liaroh 1, 1941} and obligations issued prior to
March 1, 1941, by Federal land banks, joint stook land banks,
and Federal intermediate oredit banks. Interest from suoh
sources is reported under item 15 (a) of schedule M, page 4,
Form 1120.
23/ Amount shown as "Rents" consists of gross amounts re­
ceive?! The amounts of depreciation, repairs, interest, taxes,
and other expenses, which are deductible from the gross amount
reoeived for rents, are included in the respective deduction
items.
24/ Amount shown as "Royalties" oonsists of gross amounts
reoeived. The amount of depletion, which is deductible from
the gross amount of royalties received, is included in the item
of "Depletion" in deductions.
26/ "Capital gain or loss," is the amount of gain or loss
arising from the sale or exchange of capital assets. The
excess of the net long-term capital gain over the net short-term
capital loss is exoluded from net inoome for the purpose of
computing deolared value exoess-profits tax. (A net loss from
this source is not deductible for the current year, but may be
carried over and applied against oapital gains in the five
succeeding taxable y e a n to the extent not allowed as a deduc­
tion against any net oapital gains of any taxable year
intervening between the taxable years in which the net oapital
loss was sustained and the taxable year to which oarried.)
The term "Capital assets" swans property held by the taxpayer
(whether or not connected with trade or business), but ex­
cludes (1) stook in trade or other property which would
properly be included in inventory if on hand at the d o s e of
the taxable year, (2) property held primarily for sale to
customers in the ordinary oourse of trade or business, (3)
property used in trade or business, of a character whioh is
subjeot to the allowance for depredation, (4) Government
obligations issued on or afteV Maroh 1, 1941, on a discount
basis and payable without interest at a fixed maturity date
not exceeding one year from the date of issue, and (6) real
property used in the trade or business of the taxpayer.
Beginning 1942 gains and losses from (a) sale or exchange of
depreciable property and real property, used in the trade or
business and held for more than 6 months, and from (b) in­
voluntary conversion of suoh property and of capital assets
noId for more than 6 months are treated as long-term oapital
gains and losses, if the gains exceed the losses. If the
losses exoeed the gains, the net loss is deductible at an
ordinary loss. For taxable years beginning after Deoember 31,
1941, "short-tens" applies to gains or losses on the sale or
exchange of oapital assets held six months or less} "long-term"
applies to gains or losses on oapital assets held over six
months.
26/ "Bet gain or loss, sales other than oapital assets" is
the net amount of gain or loss arising from the sale or ex­
change of depreciable and real property used in trade or busi­
ness and short-term noninterest-bearing Government obligations
issued on or after March 1, 1941, on a discount basis. If the
property used in trade or business has been held for more than
6 months, speoial treatment of the gain or loss is provided as
described in note 25 above.
27/ "Dividends, domestio corporations" consists of divi­
dends reoeived from domestio corporations subjeot to income
taxation under chapter 1 of the Internal Revenue Code. This
item is reported in oolumn 2, schedule E, page 3, Form 1120,
and is the amount used for computation of the dividends re­
ceived credit.

28/ "Dividends, foreign corporations" is the amount re­
ported in column 3, sohedule E, page 3, Font 1120, and is not
used for the computation of dividends received oredit.
29/ Where the amount reported as "Cost of goods sold" or
"Cost of operations" includes items of deductions suoh as
depreciation, taxes, etc., these items ordinarily are not
transferred to their speoifio headings. However, an exception
is made with respeot to amortisation of eawrgeney facilities
reported in costs, suoh amount being transferred to "Amorti­
sation."
30/ Amount shown as "Repairs" is the coat of incidental
repairs, including labor and supplies, which do not add
materially to the value of the property or appreciably prolong
its life.
31/ The item "Taxes paid" excludes (1) Federal inooms tax
and Federal excess profits taxes, (2) estate, inheritance,
legacy, succession, and gift taxes, (3) income taxes paid to a
foreign country or possession of the United States if any portion
is olaimsd as a tax credit, (4) taxes assessed against looal
benefits, (5) Federal taxes paid on tax-free oovenant bonds, and
(6) taxes reported in "Cost of goods sold" and "Cost of operations,"
32/ The deduction claimed for "Contributions or gifts" is
limited to 6 percent of net income as computed without the
benefit of this deduotion.
33/ Amount shown as "Amortisation" is the deduotion provided
by section 124 of the Internal Revenue Code as amended with
respeot to the amortisation of the cost of emergency facilities
neoeasary for national defense.
34/ The net operating loss deduotion tabulated herein is the
amount- originally reported, consisting only of the net operating
loss carry-over reduced by oertain adjustments, and does not take
into account whatever revisions may subsequently be made as the
result of any oarry-baok of net operating loss from the two
succeeding tax years. In general, the net operating loss carry­
over is the sum of the net operating losses, if any, for the two
preceding taxable years. If there is net income in the first
preceding taxable year, the net operating loss for the seoond
preceding taxable year is reduced to the extent such loss has
been absorbed b y such net income.
35/ Amount shown as "Compensation of offioers" excludes
compensation of officers of life insurance companies which fils
Form 1120L. Data not available.
36/ See note 36.
37/ Compiled net loss or deficit.
38/ Compiled net loss after total tax payment.
39/ "Humber of returns with balance sheets" exoludee returns
of inactive corporations and returns of aotime corporations for
whioh balance sheet data sire lacking.
40/ Amount shown as "Cash" inoludes bank deposits.
41/ Amount shown as "Investments, Government obligations"
oonsists of obligations of the United States or ageney or
instrumentality thereof as well as obligations of States,
Territories, and political subdivisions thereof, the District
of Columbia, and United States possessions.
42/ Amount shorn as "Capital assets" oonsists of (1)
depreciable tangible assets such as buildings, fixed mechanical
equipment, manufacturing facilities, transportation facilities,
and furniture and fixtures, (2) depletable tangible assets —
natural resources, and (3) intangible assets suoh as patents,
franchises, formulas, oopyrights, leaseholds, goodwill, and
trade-marks. (Amounts in tables 3 and 4 of this release exclude
land.)
45/ Assets and liabilities are tabulated as of Deoember 31, Mj
or close of fiscal year nearest thereto. Total assets classes
are based on the net amount of total assets after reserves for
depredation, depletion, amortisation, and bad debts. Adjustm ents
are made in tabulating the data as followst ( 1 ) Reserves, when
shown under liabilities, are used to reduoe corresponding asset
aooounts, and "Total assets" and "Total liabilities" are decreased
by the amount of suoh reserves, and (2) a deficit in surplus, show
under assets, is transferred to liabilities, and "Total assets" and
"Total liabilities" are decreased by the amount of the deficit.
4 4 / Amount shown as "Surplus and undivided profits" oonsists
of paid-in or oapital surplus and earned surplus and undivided
profits. See note 46.
46/ Amount shown as "Deficit" oonsists of negative amounts of
earneTsurplus and undivided profits.

STATUTORY DEBT LIMITATION
AS OF SEPTEMBER 30, 1947

October 6, 1947

17

Section 21 of the Second Liberty Bond Act* as amended, provides that the face
amount of obligations issued under authority of that Act, and the face amount 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
pot exceed in the aggregate $275*000,000,000 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 option of the holder
shall be considered as its face amount."
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

$275*000,000,000

Outstanding September 30* 1947
Obligations issued under Second Liberty Bond Act, as amended
Interest-bearing
Treasury bills••••*••••««••» $ 15*724*936,000
Certificates of indebtedness
24,893*601,000
Treasury n o t e s . •
13*370»694*9QQ & 53*989*23lj900
Bonds
Treasury. ............... .
119*322,874* 450
Savings (current redemp • value) $1,758*888*035
Depositary.
•i
325*677*000
Armed Forces Leave........
1,024,910*72$

^
A
172,432,350,210

Special Funds
Certificates of indebtedness 14*7$6,100,000
29.520»281,000
Treasury notes........ .
14*764»181,000
255,941*863, H O
Total interest-bearing..................
111,708,000
Prepayments-Treas•Bond dtd.0ct*l, 1947* *•..... .
247,816,771
Matured, interest-ceased............. .
Bearing no interest
War savings stamps ..... ♦ •*
64,963* 102
Excess profits tax refund bends
13*790,251
Special notes of the United States:
Internat’1 Bank for Reconst.
and Development series....
315*785*000
1.973.538.353
Internat’1 Monetary Fund series 1* 579» OOP*000
258.274.926.234
Total...................................
Guaranteed obligations (not held by Treasury)
Interest-bearing
34*280,336
Debentures: F.H.A...........
Uemand obligations: C.C.C. ... --- 3?,826^888
^ ’a o ’/OO
Matured, interest-ceased ....... •........ . . . . * • ----- n m
____ 75.959 »
Grand total outstanding..................................2 i t 649* 114*142
Balance face amount of obligations issuable under above ^author! by.... ^16,649*114*14Reconcilement with Statement of the Public Debt September 3°* 1947
(Daily Statement of the United States Treasury, October 1, 1947/

Outstanding

.................. ........................................... 259,1 U , 588,455

Guaranteed obligations not owned by the Treasury..................
Total gross public debt and guaranteed obligations................

2 $9

o o n V /3 079
,<^u,54»,

Deduct - other outstanding public debt obligations
not subject to debt limitation.... ....................... " * ias8.-iSol885^858

TREASURY,DEPARTMENT
Washington

FOR RELEASE, MORNING NDWS PAPERS^;.
Tuesday; Bctober 7> 1947 ^
•;

.‘
,

’ '' '

>. ’PR^SS SERVICE
N o ,. S-486

The Secretary of the Treasury, by this public notice, in­
vites tenders for $l,.100,pp0,000, or thereabouts* o£ 9 1 -day
Treasury bills, for cash-, and^in- exchange for Treasury bills, m a ­
turing October 16, 194-7, to be issued on a discount basis under
competitive and non-competitive^bidding a s h e r e i n a f t e r provided.
The bills of this series will be dated October 16, 19^7 * an(^ ^dll
mature January 15> 1948,'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,r $10,000, $100,000, $500,000,
and $1,000,000 (maturity value)'..
A ••

"■

-■ .:■ *

:S;7,

''V • - ••

' * ' 7

:' '

4';'’

’

'

-,'’;-/■i‘

Tenders will be received at Federal Reserve Banks and
Branches up to the closing :hour, two o'clock p.*m,, Eastern Stan­
dard time, Friday, October ;10, 194-7-r 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 décimals, e, g., 99^9^5.
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 sup­
plied by Federal Reserve Banks or Branches on application there­
for,,. '.
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 bi l l s ■applied for, unie sp.<the tenders are accompanied by
an express guaranty of payment by -an incorporated bank or trust
company.
,*?
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 Secretary of the Treasury of the
amount and price range of accepted bids.
Those submitting tendens 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^reserva­
tions, non-competitive tenders for $200,000 or less without stated
price from any one bidder will be accepted in full at the average
price (in three decimals) of accepted competitive bids.
Settle­
ment for accepted tenders in accordance with the bids must be
made or completed at the Federal Reserve Bank on October 16, 1947>

-

2

-

in cash or other immediately available funds or inya like face
amount of Treasury bills maturing @.o'tbber 16, 1947V Cash and ex­
change 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.
Thè income derived from Treasury bills, whether interest or
gain from the sale or "other- disposition of the bills, shall not
have any exemption, as such, and loss from the sale or, other dis­
position of Treasury'bills shall not have any special treatment,
as such, under the Internal Revenue Code, or laws amendatory pr
supplementary therëto,
Thé bills shall be subject to estate, in­
heritance., ;gift or other excise taxes, whether Federal or State,
but shall be 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 author­
ity. For purposes of taxation the amount of discount at which
Treasury:;bills are originally sold by the- United States- shall .be
considered to be interest. Under Se c t i p b s '4.2 and 117-, (a) (X} °f
the Internal Revenue- Code, as amended by Section. 115 of the R e v ­
enue Act of 1941, the amount of discount a t which bills issued
hereunder are sold shall not be considered to accrue u n t i l ‘such
bills shall be' sold, redeemed or otherwise disposed of, and such
bills are excluded;from consideration as capital assets.
Accord­
ingly, the o w n e r .of1Treasury bills (other than life irisurance
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 dur­
ing the taxable year for which the-.-return is made., a s ordinary .
gain or loss.
...
:
0.-~ '
- -, - Treasury Department Circular N o . 4lB>- a s -amende'd,- a n d this
notice, prescribe the terms of the Treasury bills and.govern the
conditions of their issue. > Copies of the circular may be ob­
tained from any Federal, Reserve Bank or Branch.

rO Ü O

—

19

TREASURY DEPARTMENT

Washington
FOR RELEASE, .MORNING NEWSPAPERS,
Tuesday, October 7, 1947►

Press Service
No. S-487

The Secretary of the Treasury announced last evening that
the tenders for $1,300,000,000, or thereabouts, of 91-day Treasury
bills to be dated October 9, 1947, and to mature January 8, 1948,
which were offered October 3, 1947, were opened at the Federal
Reserve Banks on October 6.
The details nf this issue are as follows;
Total applied for - $1,595,-477,000
- 1,303,753,000 (includes $28,672,000 en­
Total accepted
tered on a non-competitive basis ahd
accepted in full at the average price
shown below)
Average price

- 99*791 Equivalent rate of discount approx
0/827# per annum

Range $f accepted competitive bids:
High

- 99.815 Equivalent rate of discount approx

Low

- 99.788 Equivalent rate of discount approx

0.732# per annum
0,839# per annum
(73 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

$

$

TOTAL

660,000
1,490,154,000
13.670.000
4.285.000
•2,590,000
1.566.000
46.801.000
1,720,000
5.445.000
4.320.000
5.480.000

660,000
1,228,025,000
8 ,103,000
4.158.000
2 590.000

.
,

1 566,000
23 ,'982,000
1 ,720,000
5 ,232,000

18.
786.000

4.120.000
5.351.000
18,246,000

$1,595,^77.000

$1,303,753,000

-oOo-

TREASURY DEPARTMENT
Washin gton
FOR IMMEDIATE RELEASE
Wednesday« October 8% 1947»

Press Service

Secretary Snyder announced today the voluntary disclosure and
payment of more than $1, 000,000 in taxes by two taxpayers to avert
prosecution for past evasion of income taxes4
Both cases resulted from the policy of foregoing criminal prosecution
in the case of tax evaders who make voluntary disclosures of their frauds
before investigation of their cases is initiated*
In one case, a large mid-western concern with an eastern office agreed
to pay $593,000 after voluntarily admitting that it had been concealing its
true profits by an intricate system of false invoices, and by switching of
funds between offices in different parts of the country.
In the second case a large confectionery concern agreed to pay
$517,000 after voluntarily confessing that taxes had not been paid on
company income that had been secretly diverted to the personal use of its
principal stockholders.
Other interesting cases developed recently in the drive against tax
evaders and reported to the Secretary by George J. Schoeneman, Gommissioner
of Internal Revenue, included:
Investigation of a "flashy" habitue of the expensive night clubs in a
large eastern city revealed that he was a "society bookmaker" and owed
$142,000 in tax and penalties for failure to pay tax on income derived
from handling gambling transactions for wealthy patrons of the night
clubs* Information so far compiled shows that this individual spent
$62,000 for expensive automobiles, clothing, night club checks, and other
incidentals of maintaining his avowed position as a "society bookmaker .
In a far Western state, investigators were intrigued by the success
of a sheep herder who reported little income on his tax returns but had
managed to increase his herds enormously in recent years. The result was
a tax and penalty assessment of $528,000.
An investigation of a western butcher shop developed this story:
The butcher’s wife was the purchasing agent for a restaurant located
next door to the butcher shop. The wife ordered the restaurant s
meat from her husband. The husband padded the prices of the meat and
his wife collected his bills for him. Then the butcher turned over
to the owner of the butcher shop the regular prices of the meat and
pocketed the difference.
The fact that income tax evasion goes hand in hand with low ethical
standards is illustrated by a recent mid-western case. A man who was in
the fish and poultry business was found not only to have cheated the
Government of $43,000 in taxes but also to have cheated his son of a
partnership Share ih hi! profit! while the fcbn was ift military Service.

-

2*2

A large ..wholesale shoe jobber was found by other investigators to
have deflauded the Government of 4282,000 in taxes by the concealment
of inventories. In this case it was found that the company had been^
misleading a reputable firm of accountants which had been preparing its
tax returns; The accountants severed connections with the company upon
learning' of the deception.

A coal company has been assessed 4322,000 for failure od pay tax
on profits from the sale of equipment and other allied transactions,
eveh though the head of the company told the agents at the beginning of
their investigation that he was Min no mood1’ to discuss his business with
tax investigators;

oOO

TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
Wednesday, October 8 , 1947

Press Service
No, 3-489

The Bureau of Customs announced today that preliminary data on imports of
cotton and cotton waste chargeable to the quotas established by the President’s
proclamation of September 5, 1939* as amended* for the period September 20*
1947* to September 27, 1947* are as follows:
COTTON (other than linters)
(In pounds)

Country of
Origin

Under 1-1/8” other
than rough or harsh
under 3/4”
Imports Sept,
Established 20, 1947, to
Quota
Sept,27,1947

Egypt aid the
Anglo-Egyptian
Sudan.......... .....
783,816
Peru................
247,952
British India.... .. 2,003,483
China............... 1,370,791
Blexico*............. 8,883,259
Brazil..............
618,723
Union of Soviet
Socialist Republie s .... ...........
475,124
Argentina. *.... .. f
5,203
Haiti...............
237
Ecuador.............
9,333
Honduras........... .
752
Paraguay............
871
Colombia..... ......
1^4
Iraq............. .
195
British East
Afric a ...... ..
2,240
Netherlands East
Indies..............
71,388
—
Barbados............
Other British
west Indies 1/.....
2 1 ,3 2 1
N i g e r i a . •
5,377
Other British
West Africa 2/......
16,004
Other French
Afri ca 2/.••••».,«••
689
Algeria and Tunisia.
14, 516,882
1/
2/

y
4/

—
186,962
—
—
8,883,259
618,723

1-1/8" or more
Less than 3/4"
but less than
harsh or rough
1-11/16" U
Imports Sept. Imports.Sept. 20,
20, 1947, to
1947, to
Sept, 27 \1947
Sept, 27, 1947

43* 574,472
1,903,999
..
—
—
-_
fci

475,124
—
—
—
—
—

177,949
—
—
—

0

te{
t?d

—
—
_
—

—
\ i

—

—
-

—

—

—
-

-

1 0 ,1 6 4 , 0 6 8

4 5 ,6 5 6 , 4 2 0

Other than Barbados, Bermuda* Jamaica, Trinidad, and Tobago,
Other than Gold Coast and Nigeria.
Other than Algeria, Tunisia, and BAadagascar,
Established Quota - 45,656,420*

Quota - 7O*QQ0,OOO

23
-

2

*

COTTON WASTES
(In pounds)
COTTON CARD STREPS 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:

• Established
Country of Origin •
• TOTAL QUOTA
«
United Kingdom.♦•.
Canada...... ...
France.
British India..... •ft
Netherlands...«,..
Switzerland,......
Belgium...........
Japan.• , • .
China......
Egypt........ .
Cuba.... ..
...
Germany........... •ft
Italy....«•»««*»»« ••
Totals

1/

Total imports
Established: Imports Sept.20;
;3 3 - 1 / 3 % of : 1 9 4 7 to oept.27,
: Sept.20,1947,
: to S ept.27,19 47 :Total Quota: 1947 1/

4, 323,4t7
239,690
227,420
69,627
63,240
44,388
38,559
341,535
17 , 3 2 2
8,135
6 , 544
76,329
2 1 ,2 6 3
5,482,509

69,627
—
—
69,627

Included in total imports, column 2.

-oO c—

1,441,152
75,807
22,747
1 4 ,7 9 6

12,853
25,443
7,088
1 ,5 9 9 ,8 8 6

wd

—
—
—
- ■
■-

TREASURY DEPARTMENT
Washington
FOE IMMEDIATE RELEASE
Wednesday, October 8 , 1947

Press Service
No. S-490

The Bureau of Customs announced today that preliminary data on imports of
cotton and cotton waste chargeable to the quotas established by the President’s
proclamation of September 5, 1939, as amended, for the period September 20,
194.
6 , to September 19, 1947, are as follows?
COTTON (other than linters)
(In pounds)
Under 1-1/8“ other
than rough or harsh
under 3 /4 “
Imports Sept»
Established 20, 1946, to
Quota
Sept »19,1947

Country of
Origin

Egypt and the
Anglo-Egyptian
Sudan. • • . * « • • • • • • • •
Peru* . . . . . . . . . . . . . .
British India.. . . . .
China . . . . . . . . . . . . . .
Mexico. ......... .
Brazil. . . . . . . . . . . . .
Union of Soviet
Socialist Repub­
lics. ...... .
Argentina.
Haiti. • • • • . . . • • • . . *
Ecuador
Honduras..........
Paraguay. . . . * .........
Colombia. ............... .
Irao...............
British East
Afri ca.............
Netherlands East
Indies • • • • • • • # • • • • •
Barbados...........
Other British
West Indies 1/ . . . . .
Nigeria* ...................
Other British
West Africa 2/. ♦ . . .
Other French
Africa 2/* • • • • * • • • •
Algeria and Tunisia
Kuwait
•*

783,816
24.7,952
2,003,483
1,370,791
8 ,8 8 3 , 2 5 9
618,723

11,630
2 4 7 ,9 5 2

1,167,578
344
8 ,8 8 3 , 2 5 9
618,723

475,124
5,081
—
—

4 7 5 ,1 2 4
5 ,2 0 3

237
9,333
752
871
124
195

-------

---------

—

Less than 3/4,r
harsh or rough 5/
Imports Sept* 20,
1946, to Sept*
19 s 1947

•

3 6 ,4 1 5 , 1 7 4
9

,2 0 9 , 3 4 6
—
—

—
45,092,788
—

—

-

—

—

31,900
—
-

-

-

-

,!•
'*

-

-

-

—

—

—

—

—

-

-

_

2 ,24-0

_

71,338
—

. —

21,321
5,377

-

—

—

mm

mm

-

-

_

16,004
689
—

—

—

-

-

—

237,600

11,409,691

45,656,420

45,330,388

14,516,882
-

1-1/8" or more
but less than
1-11/16“ 4/
Imports Sept*
20,1946, to
Sept*19* 1947

------

j

-----------—

*

- —

—

-------- ’

2/ Other than Gold Coast and Nigeria.'
2/ Other than Algeria, Tunisia, and Madagascar.'
(J established Quota - 4-5>6 56,420.
5/ Established Quota - 70,000,000.
■aSee Footnote next page.-

—

Æ 'i

-

2

25

-

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, irance,
Netherlands, Switzerland, Belgium, Germany and Italy:

•
•

Country of Origin : Established
!
•» TOTAL QUOTA
United Kingdom, .•••
Canada,............
France...... ......
British India. .....
Netherlands
Switzerland* •••••••
Belgium .......
Japan. ..............
China.••••••••••*••
Egypt
Cuba. .......
Germany........... .
X *bclly••••••••••••••
Totals

Total imports
Sept* 20, 1946,
to Sept*19«1947

Established
33-1/3$ Of
Total Quota

Imports
Sept* 20,1946 to
Sept* 19, 1947 V

1,441,152

4,323,457
2 3 9 ,6 9 0

96,778

—

227,420
69,627

—

75,807

6 8 ,2 4 0

69,627

-

—
—
—

22,747
14,796
12,853

—
—
—V
-

44,388
38,559
341,535
17,322
8,135

6 ,3 4 7

6 ,5 4 4

—

7 6 ,3 2 9

—
—

2 5 ,4 4 3

7,088

—

172,752

1 ,5 9 9 , 8 8 6

—

21,263
5,482,509

—
-

1/

Included in total imports, column 2*

#

The President’s proclamation of June 9, 194-7, prescribed a supplemental
quota of 23,094,000 pounds of cotton having a staple of 1-3/0 inches or
more but less than 1-11/16 inches in length for the period June 14 to
September 20, 1947«

0O0

S -490

mmm

TREASURE DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
Wednesday; Qctobér 8» 1947

Press Service
No.. S-491

The Bureau of Customs announced today preliminary figures showing the
quantities of wheat and wheat flour entered, or withdrawn from warehouse, for
consumption under the import quotas established in the President’s proclamation
of May 28, 1941 y as modified by the President’s proclamations of April 13* 194-2,
and April 29, 1943* for the 12 months commencing May 29* 1947, as follows:
:

Country
or
Origin

:

:
:
Wheat
:
::
Imports
:
May 29, 1947* to
: Established
:
Quota
Sept. 27, 1947
(Bushels)
(Bushels)

Canada
China
Hungary
Kong Kong
Japan
United Kingdom
Australia
Germany
Syria
New Zealand
Chile
Netherlands
Argentina
Italy
Cuba
Franc e
Greece
Mexic 0
Panama
Uruguay
Poland and Danzig
Sweden
Jugoslavia
Norway
Canary Islands
Rumania
Guatemala
Brazil
Union of Soviet
Socialist Republics
Belgium

795*000
—
- .
100
—
100
100
—
—
100
2,000
100
—
1,000
_
100

59
—
—
—
—
—

—
—
—
—
1,000
100
100

—
—
—
—
—
—
—
—
—
—
—
—
—
-

100
100

—
—

im.

800, 000

59

Wheat flour, semolina,
crushed or cracked
wheat* and similar
wheat products
: Imports
Established :May 29, 1947 to
:Sept. 27,1947
Quota
(Pounds)
(Pounds)
3,815,000
2 4 ,0 0 0
1 3 ,0 0 0

13,000
8,000
75,000
1,000
5,000
5,000
1,000
1,000
1,000
1 4 ,0 0 0

2,000
12,000
1,000
1,000
1,000
1,000
1,000
1, 000
1,000
1, 000
.1,000
1,000
. —
—

7 6 4 ,7 4 6

7,600
—
—
—
—
—
—
—
—
—
—
4

—
—
—
—
—

—

—
—

4,000,000

7 7 2 ,3 4 6

—
'7: !■

0O0-

27

TEEASUKf DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
Wednesday, October 8, 1947

Pro ss Servie ©
No, S-492

The Bureau of Customs announced today preliminary figures showing
the imports for consumption of commodities on which Quotas were
prescribed by the Philippine Trade Act of 1946, from January 1, 1947,
to September 27, 1947, inclusive, as follows:

Products of
Philippine Islands

Buttons

:
:

Established Quota
Quantity

; Quantity

850,000

Gross

:

Unit of

Cigars

200,000,000

Number

Coconut Oil

448,000,000

Pound

:
:

Imports as of
Sept. 27, 1947

. 70,458
3,I4 I,734
15*952,851

Cordage

6,000,000

h

1 , 6 9 I,O4 2

Rice

i, 0 4 0 , 0 0 0

h

50

Sugars, refined
)
unrefined)
Tobacco

1,904* 000,000

6 ,5 0 0 ,0 0 0

11

it

—

—

762,671

TRE-riSUftl DEPARTMENT
Washington

FOR M E D I A T E RELEASE
Wednesday» O cto b e r 8 , l9 A 7 ~

P ress S e r v ic e
No* S -4 9 3

>

The Bureau of Customs announced today preliminary figures showing the
imports for consumption of commodities within quota limitations provided
for-under trade agreements, from the beginning of the quota periods to
September 27, 1947, inclusive, as follows:
Established Quota
Commodity

:

: Imports as
Unit of : of Sept# 27,
1947
Quantity: Quantity:
«

Period and
Whole Milk, fresh
or sour

Calendar year

3,000,000

Gallon

5,202

Cream, fresh or sour

Calendar

1, 500,000

Gallon

1,334

Fish, fresh or frozen,
filleted, etc., cod,
haddock, hake, pollock,
cusk, and rosefish

Calendar year

23,906,423

Pound

20,023,127

12 months from
Sept* 15, 1947

90,000,000
60,000,000

Pound
Pound

31,400
137,308

year

White or Irish potatoes:
certified seed
other

Cuban filler tobacco un­
stemmed or stemmed (other
than cigarette leaf tobacco)
and scrap tobacco
Calendar year

22,000,000

Pound
(unstemmed
equivalent )

Red cedar shingles

Calendar year

1,380,300

Square

Molasses and sugar sirups
containing soluble non­
sugar solids equal to
more than 6% of total
soluble solids

Calendar year

1,500.000

Gallon

Quota
Filled
Quota Filled

521,905

TREASURY DEPARTMENT
Washington

(The following address by Secretary Snyder, accepting
the statue of Albert Gallatin, is scheduled- to be
delivered at 4:00 p,in,,. E . S . T ., Wednesday, October 15,
1947, and is Tor release at that time.)
I am happy to accept on behalf of the Treasury Department,
and in the name of the American people, this statue of
Albert Gallatin, fourth Secretary of the United States Treasury,
Qne hundred and forty-six years ago Gallatin undertook
the extremely difficult task of guiding the fiscal conduct of
a young Nation.
The account of his success is one of the
important pages of our history.
His accomplishments, his courage, his wisdom and his vision
are more and more recognized and appreciated by the generations
which succeed him.
Today, in dedicating this statue, we honor
his devoted service to the country.
It is altogether appropriate that this monument to
Gallatin stands here, on Treasury Square,
It has been placed
In distinguished company, for the figure of Alexander Hamilton,
the First. Secretary, stands at the opposite entrance to the
Treasury Building.
These two great public servants, though bitter enemies in
politics, held to one common purpose which they placed above
all other issues -- the financial integrity of the United
States of America,
That purpose is as vital today to the welfare and security
of the Nation as it was in the early nineteenth century.
Mr. Sproul has ably discussed" the life and works of
Albert Gallatin.
For my part, I should like to comment upon
certain aspects of Gallatin's career which particularly qualify
him for recognition as an outstanding statesman.
Statesmanship involves more than an able and'sagacious
performance of duties of the moment.
Statesmanship calls for
an understanding and clear vision in establishing policies
that will endure — policies that will contribute to the con­
structive development of a nation and to the welfare of a
people in succeeding generations.
Gallatin met this test.

S-4

9 4

30
2
Under his leadership an intelligent policy of disposition
of the public lands was developed, a policy that contributed
immeasurably to the growth of the Nation»
He saw to it that
the revenues resulting from the disposition of such lands
inured to the benefit of all the people.
A strong and early advocate of a national program of
public works improvements, he insisted on the application of
a part of the land sale proceeds to building of roads.
He
fathered the policy of retaining a part of the Government lands
for the use of schools.
He was one of the first and most prominent advocates of a
merit system for public service, and a strong opponent of any
political spoils system.
His theories in this respect are
found in the Civil Service as we know it today.
He established a meticulous accounting system in the Treasury,
and his clear reports on the Government’s finances are model
documents even today. It was upon this foundation that the
Treasury developed the reputation of integrity and efficiency
that has won the confidence and respect of the American people.
He was the constant exponent of detailed, specific appropri­
ations for the expenditures of Government, a theory that is the
backbone of the present Federal budgetary system. Along with
this, he pressed for economy in administration with perseverance
and authority.
He did this, consistently, at a time when a
young Government was not yet grounded in the fundamentals of
fiscal soundness,
These are but a few examples of the statesmanship displayed
by Gallatin.
But the policies and accomplishments of Gallatin that hold
most significance to us today lie within the field of public
credit. The fourth Secretary considered this field to be the
most important of all.
With the staunch support of President Jefferson* Gallatin
was first to develop the theory that during times of national
peace and prosperity, the Treasury must show ample surpluses to
be applied toward an orderly reduction of the public debt.
He
realized that the Nation must in such times prepare itself to
cope with any emergency that might arise.
He realized that our
permanent economic well-being rests upon fiscal solvency.
Gallatin/ recognized that such a goal could be obtained
only through the maintenance of a surplus of revenues over
expenditures,
Gallatin’s policy of surpluses for debt retirement took
courage, but he never wavered.

o x

- 3
Increased revenue from import duties, reflecting a
prosperous country and an expanding commerce, together with
proceeds from the sale of public lands, helped the Secretary
toward his objective.
Between 1801 and 1812, the public debt was reduced from
$83,000,000 to $45,000,000.
And in addition during this
period, Louisiana was purchased for $15/000,000,
When, in
1809, /Jefferson wrote to his Secretary that "the discharge of
the debt is vital to the destinies of our Government",
Gallatin was proud to reply, that that had been his principal
objective in office.
Gallatin was not to see realization of his goal of com­
plete debt retirement. War clouds, gathering during the later
years of his tenure,.culminated in the War of 1812 with Great
Britain.
But with the return of peace, his successors in
office proceeded with the liquidation of the again expanded
debt in line with his sound theory.
To compare this Nation of today with the Republic of
Gallatin's day would be difficult.
Proportionately, its
problems were no less or no greater than ours of today.
We of this generation face the problem of a huge national
debt resulting from the extraordinary expenditures of war,
We, too, are experiencing an unusual prosperity, which will
permit us, if we have the stamina, to reduoe that debt and
thus strengthen our financial structure.
For, as in Gallatin’s time, we are charting a c o u r s e in
an uneasy world, filled with conflicts and dissensions that
threaten our national security. We do not know what emergencies
will arise under our responsibility to an exhausted world.
If we are to help those people now in desperate trouble
who deserve aid, and have proved they desire to help them­
selves if given the opportunity, we must keep our financial
position sound.
It therefore behooves us to keep our house
in order,
Such has been the primary fiscal objective of President
Truman.
And, as Secretary of the Treasury, I have sought
always to work toward that goal. When, some sixteen months
ago, I took oath of office I stated:
"It is the responsibility of the Government to reduce its
expenditures in every possible way, to maintain adequate tax
rates during this transition period, and to achieve a balanced,
budget -- or better/"

9 9

r

- 4 Today, as in -Gallatin?s time, we are facing problems as
great or greater- than war, and only sound financial philosophy
and purpose will resolve these problems.
One thing to remember above all others:
There can be no compromise in our determination to pay that
which we justly owe* We of this generation must make it a part
of our creed, even as Albert Gallatin did, that as a people, we
stand unalterably for financial integrity in Government.

0O 0

33
TREASURY DEPARTMENT
Washington

Press Service
No. S-495

FOR RELEASE., MORNING NEWSPAPERS,
Saturday, October 11, 19^7.

The Secretary of the Treasury announced last evening that
the tenders for $1,100,000,000, or thereabouts, of 91-day Treasury
bills to be dated October 16, 1947? and to mature January 15*
1948, which were offered October 7? 1947? were opened at the
Federal Reserve Banks on October 10.
The details of this issue are as follows:

Total applied for
Total accepted
Average price

$1?393?846,000
1,104,761,000 (Includes $24,700,000 entered
on a non-competitive basis and accepted in
full at the average price shown below)
99.789 Equiv. rate of discount approx.
0.835$ per annum

Range of accepted competitive bids:
High - 99.830 Equiv. rate of discount approx. 0.673$ per annum
Low - 99.786
"
"
"
''
"
0.8W
"
(73 percent of the amount bid for at the low price was accepted)

Federal Reserve
District

Total
Applied for

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

$

1 1 , 7 5 0 ,0 0 0
1?297?751?000

1.976.000
1.670.000
2.960.000

1.870.000
35.338.000
2.139.000
4.560.000
15.451.000

Total
Accepted
$

11,642,000
1,037,664,000
1.976.000

.
.

1 670.000
2.960.000
1 870.000
12.798.000

2 ,139,000

9 ,716 ,0 0 0

3.245.000
11.451.000
8 .630.000
8 ,716,000

$1,393,846,000

$1,104,761,000

.

8 665.000

0O 0

34

TREASURY DEPARTMENT
Washington

FOR RELEASE, MORNING NEWSPAPERS,
Wednesday, October 15, 194-7«

Press Service
No • S-496

During the month of September, 1947, market
transactions in direct and guaranteed securities of
the Government for Treasury investment and other accounts
resulted in net sales of $123,096,300, Secretary Snyder
announced today.

oOo

TREASURY DEPARTMENT

35

Washington
(The .following address by Under Secretary A. Lee M.
Wiggins at the presentation of the statue of Albert
Gallatin, is scheduled to be delivered at 4:00 p.m.,
E.S.T., Wednesday, October' 15, 19^7» and is for
release at that time.)
Today we stand before this great edifice of the Treasury
of the United States to pay tribute to one of the outstanding
statesmen in our history. We welcome the opportunity to
share in the ceremony attending the unveiling of this statue
to a great American and to review his contribution to the
welding of our democracy as we rededicate ourselves to the
principles of freedom for which he stood.
Washington might well be called "The City of Monuments".
On every hand, stone and bronze replicas of the nation's
revered heroes stand as reminders of those patriots who set
the pattern of democracy in America.
They also testify to
the eternal truth of the ideals that have been translated in­
to a system of Government in which not only the body of man is
free but also the dignity of his individual life is recognized
and respected and the spirits of men may freely seek communion
with the God of the universe. These silent memorials stand
as testimony to the age-old struggle for freedom, to the
supremacy of the spirit over human relationships, to the per­
sonal sacrifice of individuals for the common good, and to the
success of a philosophy of government under which free people
are neither slave nor tyrant, but' equal in birthright, equal
before the law, and equal before their God.
These statues
proclaim to the world the success of democracy as the most
satisfying, the most productive, and the most stimulating
system of human relationships yet devised by man.
The writers of our history have largely concentrated upon
the political and military forces manifest in the progress of
the nation.
The patriots of peace, the thinkers, the toilers,
and the doers behind the colorful scene have long been neglected,
but today with the unveiling of the monument which stands before
us, we recognize such a patriot -- a man whose genius in the
fields of finance and statecraft laid a solid foundation of
financial strength and integrity of a nation whose fruitfulness
is unsurpassed in all history.
The life of Albert Gallatin, fourth Secretary of the
Treasury, constitutes one of America's oldest and most impres­
sive "success stories". Lured to America from across the seas
by the promise of freedom, he remained to lend his energies
S-497

36
-

2

-

as few men have to the complete fulfillment of that p r o m i s e .
And so it came to pass in the early years of our Republic,
there was woven into the fabric of the nation the enduring
strength of Gallatin's character, the abiding wisdom of his
great mind, and the inspiring vision of his noble spirit.
Albert Gallatin, American by adoption, peerless financier,
diplomat extraordinary, disciple of fiscal integrity, who
developed the balance-sheet system of Government accounting.-. ,
it is this great man who is honored today as his bronze like­
ness here before us becomes the cherished possession of the
America that he loved so much and served so well.
May this statue and others in this city be constant
reminders of the spirit and character of the men they represent,
of the America that they helped build, of the free democracy
that was their vision, their hope, and their prayer -- of an
America that today is the hope, the prayer, and the promise of
the World of tomorrow.

(In introducing the Sculptor of the Gallatin Statue, James E.
Frazer, the Under Secretary said:)
Many of the finest passages from American history have
been graven in enduring marble and molded in imperishable
bronze by the nation's sculptors.
Their genius, fortunately
has captured the qualities of character and integrity of the*
builders of our democracy for the inspiration and guidance of
present and future generations.
There is perhaps no living artist who has achieved greater
distinction as an exponent of American ideals as portrayed in
stone end metal than the creator of the statue around which
we are gathered. His significant works are well known to many
of us . . . they include the dignified bronze figure of*
Alexander Hamilton, first Secretary of the Treasury, which
stands before the Treasury's south portico; the massive marble
figures before the Supreme Court and National Archives buildings*
numerous imaginative sculptures, and a series of distinguished *
portrait busts.
The supreme artistry of the Gallatin statue is a glorious
tribute to its famous sculptor, M r t James E. Frazer, whom
I am happy to present at this time.
0O0

S -4 9 7

P R O G R A M O F E X E R C IS E S
ATTENDING
T H E

THE

ALBERT
N O R T H

P L A Z A .

UNVEILING

S T A T U E

OF

O F

GALLATIN
T R E A S U R Y

W A S H I N G T O N .

O C T O B E R

15.

D.

B U I L D I N G
C.

1 9 4 7

? Pw
w

A L B E R T GALLATIN
J A N U A R Y 29.

176 1 — AUG UST

1 2.

1849

B efore the T h irteen C olon ies becam e the U nited States, there w as born in
G eneva, Sw itzerland, a future A m erican citizen w h o w as to p lay a vital part in
establishing the financial soundness of the n ew nation. A lbert G allatin cam e o f
an old and noble family; he graduated w ith honor from the G eneva A cad em y,
but in 1780 he gave up fortune and social position because o f “a lo v e for inde­
pendence in the freest cou n try of the universe.” O ffered a com m ission as Lieu­
tenant C olon el by the Landgrave of H esse, w h o se hated “H essians” w ere m erce­
naries w ith the British forces, he refused sayin g “he w ould never serve a tyran t”,
and escaped the resulting fam ily indignation by secretly leavin g hom e. W ith a
friend he took passage for A m erica. His first business venture w as launched in
Boston, and he later taught French at Harvard, but soon w en t southw ard. In
O ctober 1785 he took the Oath of A llegiance in Virginia. Settling finally in
P ennsylvania, he w as a m em ber of the State Legislature before being sent to the
United States Senate. His citizenship being in debate, he w as rejected by that
body, but not before calling upon the Secretary o f the T reasu ry for a statem ent
of the debt as of January 1, 1794, distinguishing the m onies received under each
branch of the revenue, and expended under each appropriation. W hen Gallatin
w as again returned, this tim e to the H ouse, he im m ediately becam e a m em ber of
the new Standing C om m ittee o f Finance, the forerunner o f the W a y s and M eans
Com m ittee.
[ 2 1

In July. 1800, he prepared a report entitled, “V iew s o f the P ublic Debt,
R eceipts and E xpenditures o f the U nited States”. T h is report, analyzing the fiscal
operations o f the G overnm ent under the C onstitution, is still regarded as a classic.
In C ongress, he struggled su ccessfu lly to keep d ow n appropriations, particularly
those for w arlike purposes. T h e opposition party attacked him personally, as
w ell as politically, because o f his foreign birth, and Jefferson b elieved the Sedition
Bill w as fram ed to d rive G allatin from office. H ow ever, as so o n as Jefferson
w as elected P resident, early in 1801, he tendered G allatin the post o f Secretary
o f the T reasury.
G allatin to o k his oath on a “platform ” o f debt reduction, the n ecessity for
specific appropriations, and strict and im m ediate accountability for disbursem ents.
Eight years after assum ing office, his estim ates on revenues and debt reduction
had been proven u ncannily accurate. H e had succeeded in reducing the public
debt by fourteen m illions, and had built up a surplus. A t the sam e tim e, fifteen
m illions had gon e for the purchase o f the Louisiana T erritory, an acquisition
w hich established the U nited States as a great C ontinental pow er.
A m eticu lou s b ookk eeper and originator o f m any a cco unting practices
still in use in the Departm ent, G allatin also sponsored the establishm ent o f N a v a l
hospitals, the forerunner o f our present Public H ealth Service; w h ile in 1807 he
subm itted to C ongress an exten sive plan for internal im provem ents, particularly
the constructiorrfif h ighw ays and canals. H is greatest contribution, h ow ever, w as
that for the first tim e C ongress received a detailed report o f the cou n try’s fiscal
situation. Earlier Secretaries had con scien tiously reported disbursem ents, but
Gallatin gave a breakdow n o f receipts, a con cise statem ent o f the public debt, and
an estim ate o f expected revenues.
G allatin served m the T reasury until 1813, and w as offered the post again
by President M adison in 1816, declining because he thought its responsibilities
dem anded “an active you n g m an”. H e felt this even m ore stron gly in 1843, w hen
President T y ler offered him the post, but m ust have recognized this as a striking
tribute to his past achievem ents.
H is public service w as by no m eans o v er w hen he left the T reasury. T h e
T reaty o f G hent, ending the W ar o f 1812, w as considered largely G allatin’s per­
sonal triumph, for he w as the m ost effectiv e o f the A m erican C om m issioners.
T hereafter he negotiated a com m ercial con ven tion w ith England, b y w hich d is­
crim inating duties w ere abolished. H e served as M inister both to France and to
England, concluding his years in the field o f diplom acy in 1827, w hen he returned
to take up his residence in N e w Y ork.
H ere he becam e the President o f the N ation al Bank o f the C ity o f N e w
Y ork, later the G allatin N ation al Bank o f the C ity o f N e w Y ork , and n o w the
Central H an over Bank and Trust C om pany. Here, too, he participated in the
com m unity’s cultural activities. H e w as a founder o f N e w Y ork U niversity, and
of the A m erican E th nological S ociety, m aking valuable contributions on lan­
guages o f the Indian tribes. W hen, as President o f the N e w Y ork H istorical
S ociety, he presided at an anniversary celebration in 1844, John Q uincy A dam s,
long his political opponent, paid high tribute to G allatin as a patriot and citizen.
A lbert G allatin died on Long Island at the age o f eighty-eight.
A lw a y s an enthusiast for A m erican ideals on liberty, h e w as a firm be­
liever in the essential soundness o f the G overnm ent and its finances. “If I h ave
not w h o lly m isunderstood A m erica,” he w rote, “I am not w ron g in the b elief that
its public funds are m ore secure than th ose of all the European pow ers.” For
the greater part of his lon g life, he d evoted him self to m aking this ideal an actualrty. and carried ou t his vision w ith h onor to him self and for th e lasting benefit
of his cou n try and fello w citizens.

O R D E R O F E X E R C IS E S , O C T O B E R 15, 1 9 4 7 , 4 P. M.
HON. A. L. M. WIGGINS,
U N D E R S E C R E T A R Y O F T H E T R E A S U R Y , P R E S ID IN G

Music—National Emblem march .
I nvocation

. ; ........... . u. S.

Navy Band

.....................................The rev. peter Marshall. D. D.

I ntroductory Remarks by Presiding Officer . hon . a . L. M. Wiggins
UNVEILING OF S T A T U E .................

MRS. CHARLES GAY
(LOUISE GALLATIN GAY)

Presentation of the Statue by Chairman of the
Albert Gallatin Memorial committee . Mr. Allan Sproul
INTRODUCTION. BY THE PRESIDING OFFICER.
OFTHE SCULPTOR . . ■ ...............................• MR. JAMES E. FRASER

Acceptance of the Statue on Behalf of The united States
by the Secretary of the T reasury . hon . John w . Snyder
Benediction ................. ^ ............. .T he rev. peter Marshall. D.D.
Music—national An t h e m ..............................

u. S. Navy

Band

MUSIC BY UNITED STATES NAVY BAND
UNDER

THE

DIRECTION

OF

CHIEF WARRANT OFFICER RICHARD E. TOWNSEND

GUARD OF HONOR CONSISTING OF UNITED STATES MARINES UNDER COMMAND OF
LIEUT. W. H. LANAGAN FROM THE MARINE BARRACKS. WASHINGTON. D. C. OFFICERS
AND MEN OF THE UNITED STATES MARINE CORPS AND THE VETERANS OF FOREIGN
WARS AND AMERICAN LEGION POSTS OF THE TREASURY DEPARTMENT ASSISTING IN
THE UNVEILING AND SERVING AS USHERS.
CONSTRUCTION AND DECORATION OF STANDS UNDER DIRECTION OF THE SUPERIN­
TENDENT OF TREASURY BUILDINGS. MR. D. A. RIGHT. WITH THE COOPERATION OF
NATIONAL CAPITAL PARKS. UNDER THE DIRECTION OF MR. EDWARD S. KELLEY.

T H E A L B E R T G A L L A T IN M E M O R IA L C O M M IT T E E
For the purpose o f planning and erecting a suitable m em orial to A lbert
Gallatin, a com m ittee o f citizen s prom inent in business and finan ce w as brought
together in 1928 under the chairm anship o f Mr. C harles H. Sabin, o f N e w Y ork.
T h e G overn m ental authorization for the project w as conferred by a jo in t reso­
lution o f C ongress, approved January 11,1927, and funds also w ere appropriated
for the preparation o f the site and the erection o f the pedestal. Mr. Sabin w as su c­
ceeded as chairm an o f the com m ittee by Mr. L ouis W iley , and later b y Mr.
Jam es H. Perkins, both o f N e w Y ork. Mr. A llan Sproul, P resident o f the F ederal
R eserve Bank o f N e w Y ork, has recen tly assum ed this post.
T h e com m ittee com m issioned Mr. Jam es E. Fraser, the em inent sculptor,*
to design the m em orial statue. T h e design w as com pleted in 1941, but w ar co n ­
ditions d elayed the casting and erection o f the statue until 1947. T h e com m ittee
m ade itself responsible for raising the n ecessary funds through contributions
from public-spirited d onors throughout the country.
Stephen Baker
♦Perry Belmont
L. S. Cates
S. Sloan Colt
♦R. F ulton Cutting
John W. Davis
F. T rubee Davison
♦William T. Dewart
Clarence Dillon

Allan Sproul. Chairman
F rederick H. Ecker
Herbert H. Lehman
*L. F. Loree
*S. Parker Gilbert
♦Carter Glass
♦W illiam G. McAdoo
♦Gates W. McGarrah
♦James G. Harbord
George L. Harrison ♦Andrew W. Mellon
Charles E. H ughes
J unius S. Morgan
COURTLANDT NlCOLL
J esse H. Jones
T homas W. Lamont
Basil O’Connor
♦James H. Perkins
R. C. Leffingwell
C O N T R IB U T O R S

TO

♦Frank L. Polk
♦Charles H. Sabin
Charles M. Spofford
Myron C. Taylor
Allen Wardwell
T homas J. Watson
♦Louis W iley
♦Charles S. Whitman

THE

A L B E R T GALLATIN M E M O R I A L
W inthrop W. Aldrich
Henry H. Armstead
Hugh D. Auchincloss
Frederica Stevens
Auerbach
J. H. Auerbach
Charles A. Austin
Earl D. Babst
J. S. Bache
James A. Baker
Stephen Baker
Arthur A. Ballantine
Gerald F. Beal
♦Perry Belmont
Stephen Birch
George Blumenthal
N. F. Brady
A. E. Braun
William C. Breed
George P. Brett. J r.
Eugene S .^ ristol
Norman S.
Buckingham
♦M. N. Buckner
Lawrence S. Butler
♦Deceased

H. D. Campbell
Cass Canfield
H. W. Cannon
N ewcomb Carlton
Pierre C. Cartier
J. H erbert Case
Louis S. Cates
Mrs. Tobin Clark
Henry J. Cochran
S. Sloan Colt
Parker Corning
♦George B. Cortelyou
E. S. Dabney
Mrs. H enry P.
Davidson
John W. Davis
♦Norman H. Davis
W illiam A. Delano
♦William T. Dewart
W. C. Dickerman
Clarence Dillon
Robert J. Dodds
Cleveland E. Dodge
C. C. Dula

Gano Dunn
W illiam D. Guthrie
Mrs. George M. Dyott John Hays Hammond
F. H. Ecker
♦Edward S. Harkness
R. P. Esty
George L. Harrison
James A. Farrell
Leland Harrison
Hon . Lewis Fawcett
Francis R. Hart
Marshall Field
♦Charles Hayden
Herbert Fitzpatrick
Howard H einz
Robert W. de Forest E. M. Herr
Henry Fletcher
H. P. Hornell
P. A. S. Franklin
A. B. Houghtem
E. S. French
Charles E. H ughes
Walter E. Frew
Walter J ennings
M. Friedsam
David C. Johnson
W ilfred W. Fry
J esse H. Jones
J. E. Josey
John A. Garver
Estate of Otto H. Kahn
Artemus L. Gates
N icholas Kelley
Lewis Gawtry
Kenneth R. Kingsbury
E. C. Gersten
W illiam M. Kingsley
A. P. Giannini
Joseph P. Knapp
E. G. Grace
T homas W. Lamont
Joseph R. Grundy
T he Daniel a Florence AlbertGallatin Lanier
Guggenheim Found . R. C. Leffingwell

S. T homas Saltz
Wm. H. N ichols
Herbert H. Lehman
John M. Schiff
Charles F. Noyes
Breckinridge Long
Wm. Church Osborn ♦Mortimer L. Schiff
♦L. F. Loree
Lucia Macbeth
William A. Pendergast C. J. Schmidlapp
W m. A. S eifert
♦James H. Perkins
J eremiah Maguire
C. F. Shallcross
Alfred E. Marling
W m. H. Perkins
Robert A. Shaw
James D. Phelan
M itchell May
♦James R. Sheffield
Seth L. Pierrepont
♦Gates W. McGarrah
Finley J. Shepard
T homas H. Mc I nnerney ♦Frank L. Polk
Morris S hepphard
George V. Mc Laughlin George D. Pratt
Dunham B. S herer
♦H. L. Pratt
♦Andrew W. Mellon
Edwin W. Smith
Ruth Baker Pratt
♦Van S. Merle-Smith
Frank W. Smith
J eremiah Milbank
Sydney R. Prince
Ashley Sparks
Walter W. Price
A. J. Miller
♦James Speyer
John J. Rascob
C. E. Mitchell
S.W . Reyburn
Louis F. Monteagle
Mrs. Alma de
H. Pendelton Rogers Brettville Spreckels
Ruth B. Moran
r
♦J. P. Morgan
John D. Rockefeller. J Mrs. Eben Stevens
Miss Mary 0. Stevens
Charles H. Russell
J unius S. Morgan
Kenneth R. Stevenson
John D. Ryan
J. W. N eal
J esse I. Straus
Alexander A. Nelidow Arthur Ryle
♦Moses T anenbaum
♦Charles H. Sabin
H. T. N ewcomb

Herbert A. Taylor
Myron C. T aylor
Maynard T eall
A. P. T hom
Richard M. T obin
J. C. T raphagen
Robert B. T unstall
H. U rhlinger
Elisha Walker
Estate of Paul M.
Warburg
Allen Wardwell
T homas J. Watson
♦Charles S. W hitman
A. H. W iggin
♦Louis W iley
Arthur W illiams
Clark W illiams
William H. W illiams
♦W. H. Woodin
W illiam Woodward
C. W. Young

♦Deceased

J A M E S E. F R A S E R
D eriving his inspiration from the A m erican background, stud en t o f his art
briefly abroad and for lon g years at hom e, vigorous interpreter o f the ev en ts
and personalities w hich m ake up A m erican history, Jam es E. Fraser has w o n a
unique place in the field o f portrait sculpture. A s a b oy, he k n ew the vanishing
“old W est,” country of the Indian and the buffalo, the pioneer and b ack w o o d s­
man. Little m ore than a boy, studying in Paris, he w o n a first prize for an ou t­
standing w ork of A m erican sculpture. Back in the U nited States, he grew stead ily
in artistic stature, and has con sistently rem ained an exponent o f A m erican ideals,
portrayed in bronze or marble.
It is not “T h e End of the T rail,” m ost w id ely reproduced o f his im agina­
tive sculptures, w hich is his best-know n workj N eith er is it the series of distin­
guished portrait busts—A ugustus Saint-Gaudens, Elihu R oot, T h eo d o re R o o se­
v e lt— or the heroic figures before the U nited States Suprem e C ourt and the
A rchives Buildings, in W ashington. N o r is it the great m em o ria ls— the John
Ericsson M em orial, the equestrian T h eod ore R oosevelt, the A udubon, L ew is and
Clark figures, or the im pressive tribute to the C anadian dead of the first W orld
W ar before the Bank of M ontreal. But it is that m asterpiece in sm aller com pass—
the so-called “Buffalo n ick el”— w hich has carried his art into e v e ry A m erican
home. He has excelled in this field of the coin and the m edal as w ell as in the
m assive and heroic, and public taste has seconded the verdict o f the num ism atic
expert that this is indeed one of the great coins of civilized history.
B efore the south portico o f the T reasury Building stands the bronze
figure of A lexander H am ilton, in its dignity and reserve ably p rojectin g p hysical
repose and sheer intellectual pow er. T h e sculptor is Jam es E. Fraser. It is fitting
that on the north front of the building there henceforth w ill stand a tribute to
another great financier and patriot, A lbert G allatin, w h o se old w o rld aristocracy,
native integrity and A m erican idealism have been caught and interpreted in an­
other portrait statue by this distinguished A m erican sculptor.
A lexander H am ilton, the thinker and philosopher, faces the tree-shaded
park and quiet river. A lbert Gallatin, the practical man, faces the busy life of a
great city A venue. Behind both stands the building w hich is a sym bol of their
m utual d evotion to their cou n try—the U nited States T reasury.
I 6 I

(

\
B efore the Federal G overn m ent m oved from Philadelphia to W ashington,
a schem e o f buildings for the various branches o f the public serv ice w as pre­
pared. T h e site for the on e to house the T reasu ry w a s ch o se n — the northeast
corner o f the ground occupied b y the present structure, and plans w ere drawn
up by G eorge H atfield, a prom inent architect o f the period. W ork on the founda­
tions com m enced in the fall o f 1798.
T h is first T reasu ry headquarters w as, to the m odern ey e , unim pressive,
y et in 1803 a contem porary historian described it a s the largest h ouse in the D is­
trict o f C olum bia. It m easured 147 feet in length, and just o v er 57 feet in depth.
A lthough apparently the original plan had been for a w o o d en structure, F orce’s
A nnals o f the U nited States for 1820 states that the building w as m ainly o f brick,
probably m anufactured at the nearby W h ite H ou se kiln, “w ith a little ston e added.”
I w o stories in height, it also boasted a partial basem ent, used as a stable
and carriage room , and an attic w ith dorm er w in d o w s facing F ifteen th Street at
F, w hich w as the repository for in active T reasu ry files. T h e t w o m ain floors
contained fifteen room s each, m ore than adequate for the D epartm ent’s staff. Of
this, in 1812, there w ere 67 persons, and for a w h ile the building also accom ­
m odated the State and N a v y D epartm ents w ith their com bined staffs, w hich to ­
talled 20.
T h is structure w as com pleted late in 1799 and w as occu p ied in 1800 w hen
the C ity o f W ashington becam e the seat o f the F ederal G overn m ent. A lso co n ­
structed w ere four sm all brick outbuildings, w hich during S ecretary G allatin’s
[7 ]

1

/! A
years o f o ffice served as residences for D epartm ental em p loyees assigned the
dual duties o f guards and m essengers.
I he m odest building w as hardly occupied and functioning w hen fire o f un­
know n origin partially d estroyed it. T h is w as in the cold January o f 1801, and
the bucket brigade, said to have included the aging P resident John A dam s,
w orked valian tly to save both building and records. T h ey su cceeded in confining
the fire largely to the o ffices occupied b y the A uditor, but flam es, sm oke
and w ater did exten sive damage. R ecords sh o w that the first fire engine brought
to the D istrict o f C olum bia w as stow ed a w a y in the T reasu ry’s m ain flo o r corri­
dor at the tim e, but apparently it did not go into action, and to the bucket brigade
w ent all the honors o f the occasion.
1 his occurred four m onths prior to the appointm ent of A lbert G allatin as
S ecretary of the T reasury, and repairs had been accom plished by April. Secre­
tary G allatin took the oath of o ffice on M ay 14, 1801, and assum ed his duties in
the n ow fully restored building. H ere he served for his entire term of office.
W hen the British m arched into W ashington in 1814, the T reasury, in
com m on w ith other public buildings, w as put to the torch. Som e of the records
and valuable papers had been hastily rem oved to Leesburg, Virginia, and so saved,
but m ost of its official docum ents and files w ere burned.
1 he second and larger T reasury building w as com pleted in 1820, and
again in 1833 fire of questionable origin d estroyed it. Som e m onths later, co n ­
struction o f the central section of the present building w as started, and after long
d elays and m any revisions of the plans—during part of w hich tim e the Secretary
o f the 1 reasury and his A ssistants carried on in a barnlike, partly finished
structure in 1842 the T reasu ry building w as considered com pleted. Enlarged a
few years later* w ith interruptions in tim e o f w ar and progress during years of
peace, it has stood since 1869 as w e n ow see it.

I8 I

45

TREASURY DEPARTMENT
Washington

FOR IMMEDIATE RELEASE,
Wednesday» October 15, 1947

Press Service
K o . S-498

Secretary Snyder today sent the following congratulatory
message to the Coast Guard Cutter Bibb upon completion of
the heroic rescue of sixty-nine persons from a downed
trans-Atlantic plane enroute from Eire to the United States:
.To the commanding officer, officers
and crew of the Coast Guard Cutter Bibb, my
heartie'st congratulations on your magnificent
rescue* Your performance of duty is in the
finest tradition of the United States Coast
G u a r d . The Treasury Department and the Nation
acclaim your courage and seamanship. My best
Wishes to the passengers and crew of the
Bermuda Sky Q u e e n .
/s/ John W. Snyder
Secretary of the Treasury

oOo

16

T-

TREASURY DEPARTMENT
Washington

Press Service
No. S-499

FOR IMMEDIATE RELEASE,
Wednesday, October 15, 1947,

The Secretary of the Treasury today announced the subscription and allot­
ment figures with respect to the current offering of 2-l/2 percent Treasury
Bonds, Investment Series A-1965, dated October 1, 1947.
Subscriptions allotted were divided among the several Federal Reserve
Districts and the Treasury as follov/s:
Percent
of Total

Federal Reserve
District_______

Total Subscrip­
tions Allotted

Boston. . « . . . . . •
New York*
Philadelphia. • • . • .
Cleveland • • • • • • •
Richmond. • • • • • • •
Atlanta • • • • . • • •
Chicago • • • • • • • .
St. Louis • • • • • * .
Minneapolis • « . • . <
Kansas City . . . . . .
Dallas. * * * ........
San Francisco • • • • .
Treasury* • • • * . . .
Government Investment Accounts (FDIC)

$ 56,315,000
315,000
397,'
,795,000
,055,000
37,i
48,,250,000
,730,000
23,'
20 ,205,000
132,,280,000
22 ,205,000
,325,000
35,;
31.245.000
15.435.000
50.130.000
250,000

5.8
41.0
3.8
5.0
2.4

100 0 0 0 ,0 0 0

10.3

1970,220,000

1 0 0 .0

TOTAL

,

,:

,
,

2.1
13.8
2.3
3.6
3.2

1.6
5.1

.0

Subscriptions allotted were divided among the several investor classes
as fellows:

Classes of Investors

Total Subscrip­
tions Allotted

Percent
of Total

Insurance companies « . • • • • • •
1342,225,000
125,260,000
Savings banks • • • • • • • .
...
Savings & loan associations &
building & loan associations, &
9,765,000
• •
cooperative banks. • • « • • • • •
Pension & retirement funds. • • • • • a. 107,710,000
6,935,000
Fraternal benefit associations. • • • •
17,390,000
Endowment funds . . • • • • • • • . • •
440,000
• 257,210,000
Commercial & industrial banks . . .
3,285,000
a.
Unclassified. • . • . . . . . • ... • •
100,000,000
Government Investment Accounts (FDIC)

35.3
12.9

1970,220,000

100.0

1.0
11.1
.7
1.8
♦0
26*5
.4
10*3

The only subscription entered for Government Investment accounts was for
the Federal Deposit Insurance Corporation as partial replacement of a sub­
stantial amount of 2-l/2fs sold on the market in recent months.

47

TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE,
Friday, October 17, 19^7

Press Service
No.S-500

.The Secretary of the Treasury, by this public notice-,
invites tenders for $1,100,000,000, or thereabouts, of 91-&ay
Treasury bills, for cash and in exchange for Treasury bills
maturing October 23, 19 A 7 , to be issued on a discount basis
under competitive and non-competitive bidding as hereinafter
provided. The bills of this series vlll be dated October 23,
19^7, and will mature January 22, 19^8, when the face amount
will be payable without interest;
They will be issued in
bearer form only, and in denominations of $1,000, $5j000,
$ 1 .0 ,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, two o'clock p.m., Eastern
Standard time, Monday, October 20, 19^7« 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.'
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 a n incorporated bank or
trust company.
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 Secretary of_the
Treasury of the amount and price range of accepted b i d s . Those
submitting tenders will be advised of the acceptance or rejec-1
tion 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, non-competitive tenders for
$ 200,000 or less without stated price from any one bidder will
be accepted in full at the average price (in 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 October 23, 1947, in cash or other
immediately available funds or in a like face amount of Treasury

"2"'
bilis, manuring-; October 23, 1 9 4 7 . Cash and.exehahge tenders
will receive equal treatment*
Cash adjustments will be made
for differences between the par valiíé oT“maturing Tills
.
accepted in exchange and the issue price of the new bills.
1
. The income derived, from;Treasury bills, whether interest
or gain.from the sale or other disposition óf.the* bills, shall
not have.any. exemption, as -such, and-loss 'from the sale or
other.disposition of: Treasury bills shall not have any special
treatment, as such, under the Internal Revenue Code, or laws
'amendatory.or supplementary thereto. The.bills shall be
•
subject to. estate, inheritance, gift or.other excise taxes,'
whether Federal or State, but shall be 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 shall be considered to be interest.
Under Sections .42 and 117 (a) (1) of the Internal Revenue Code,
as amended by'Section 113 of the Revenue- Aet of 1941, t h e '
„amount of discount at which bills issued hereunder are. sold
shall not be considered to accrue until such bills, shall besold, 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 :
r
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. jnaturity; during the taxable year for which- the. return is
made, as ordinary gain or loss . .
;
, ' Treasury Department. Circular Ho* 4l8, as amended,’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 B r a n c h .

TREASURY DEPARTMENT
Washington

(The following broadcast by Secretary Snyder on the
Veterans Administration program "The Veteran Wants
to Know" over the Mutual Network is scheduled for
delivery at 2:45 p.nu, E.S-.T.. Sunday, OctoberU.9,
19 4 7 , and is for release at 1that t i m e .)
The importance of the well-being of veterans to the
united welfare of our country is strongly evidenced when
comparing the size of this group to our total population.
Today, veterans and their immediate families comprise ap­
proximately 32 percent of all our p e o p l e .
In enacting into law the G.I. Bill and other important
pieces of legislation, the Congress has helped to J e?P®n \ov
the veterans those fields of opportunity relinquished during
their war service to our country.
The N a t i o n ’s business has done a commendable job in.
affording veterans a reasonable chance to turn their talents
and abilities toward maximum service for themselves and to
their country.
We must continue to offer them every possible benefit
towards this attainment. Their degree of success will be
manifested in a comparable strengthening of pur country s
progress and prosperity.

Veterans are rightfully concerned with the need_for re­
ceiving that proper encouragement justly due them. But as
Americans, steeped in the self-reliant traditions of a free
republic, they are equally concerned with the need for creat
ing their own opportunities.
There is ample proof today that the vast majority of our
citizen-veterans are continuing in peace their magnificen
wartime achievements.
Some 12 million veterans are now at work for the greater
advancement of themselves and their families, with bhe con
sequent advantage to their community, their State^and their
Nation. Well over a million veterans are^enrolled in school
and colleges, preparing themselves for active and intelligent
leadership in the councils of their fellow-citizens. And th
roll of World War II Veterans who have actively assumed
positions of leadership and responsibility has already reached
great proportions.

S- 50I

2

49

That is why, if the question be asked:
"What do presentday prospects hold for the continued progress of the veteran
We are really asking:
"What do present-day prospects hold
for the continued progress and well-being of America?"
A forthright answer can be given to both of these questions.
Present-day prospects are good.
Pessimism is unwarranted.
In
spite of real and pressing difficulties, relating both to
national affairs and events abroad, the core of A m e r i c a ’s
greatness is sounder than ever before in our long history as
a nation.
Wo generation has ever before been given so wide a scale
of opportunity for self-advancement as has the present o n e .
Wever before has any generation displayed stronger proof of
its ability and power to convert opportunity into lasting
achievement.
It is indicated that the coming winter months will be
characterized by continuing high production and high employment.
This is the time for prudent veterans to plan for future
security, through systematic savings.
There is causevfor
particular gratification in the fact that so many of our
veterans have elected to keep as savings their terminal leave
bonds, for there were considerably fewer bonds cashed on
September 2 than many authorities had anticipated.
The hundreds of thousands of former service men who are
holding on to their leave bonds, as well as those who are
adding to and maintaining their holdings of United States
Savings Bonds recognize the worthwhile interest: rates these:
issues provide, as well as the fact that they are the safest
securities in the world.The well-advised veteran will retain, also, his National
Service Life Insurance.
To those veterans who are eager to start a business of
their own, I would say this:
Before taking the step, be
certain that you have sufficient experience and sufficient
assurance of capital to give you a degree of certainty of
success, and that you have properly appraised, with the advice
of competent persons, the long-term possibilities of your
particular business venture.
For men of forethought, intelligence and character, for
men with resolute faith in themselves and their country,
today’s times are good.
Our veterans have continually proved
that they have these qualities.
Through their efforts, they
will constantly energize and strengthen the prosperity of
a free America.
oOo
S-501

i 50
United. States Savings Bonds Issued and Redeemed Through September 30, 194-7
(Dollar amounts in millions - rounded ard will not necessarily add to totals)

Amount
! Amount
Issued l/
Redeemed 1/
Series A-Ds
Series A -1935 (matured)
Series B-1936 (matured) ..
Series C -1937 ......... .
Series C - 1 9 3 8 ............
Series D-1939 ...... .
S eries D -194-0.......... *
Series D -194-1
Total Series A-D ..... .

$

255
463

1,027
1>213
523

155
213
229
88

4,734

1,790

2,945

37.81

1 ,4 6 7

331
2,319
4,494
5,347
3,941

1 ,1 3 6

22.56
34.89
41*29
42.08
39.76
26.11
9.09

1/
2/
1/
U

4

/

2/

,

71.43
23*34
20.74
18.88
16.83

258

4,327
- 6,389
7,360
5,972
3,215
2,580

48,805

17,826

30,979

3 6 ,5 2

53,539

19,615

33,923

36.64

1,531
3,187
3,360
3,691
3,144
2,993
1,974

196
471
499
412
242
114
8

1,334
2,716
2,86l
3,278
2,902
2,879
1,966

6 ,6 4 6

1 ,1 3 6

19,879
•

Total All Series

9 4 .6 0

420

Total Series A«£ .......

Unclassified sales and re­
demptions ...... ..........

96.864

9

588

Total S eries E .........

Total Series F and G ,.#r

$

664

10,883
12,707
9,913
, 4,351
2,838

......
.... .
......
.... .
......
......
(9 mos)

247

438

25
168
509
815
984
435

Series E;
S eries E - 1 9 4 1 ..... *.....
S eries E -1942 ............
Series E -1943 ............
S eries E -1944 ........... .
Series E-1945 ......... .
Series E-194& ............
Series E-1947 (9 months).,

Series F and Gs
Series F and G-1941
Series F and G-1942
Series F and G-1943
Series F and G-1944
Series F and G-1945
Series F and G-1946
Series F and G-1947

1

Percent Redeemed
of Amount Issued

Amount Outstanding 2/

1,942
..... .

17,937

113

180

-68

73,530

21,738

51,793

12,80
1 4 .7 8
1 4 .8 5

11.16
7.70
3.81
*41
9.77

2 9 .5 6

Includes accrued discount,
Current redemption values,.
Includes matured bonds which have not been presented for payment,Includes Series A and B (matured), and therefore does not agree with totals
under interest-bearing debt on Public Debt Statement,

Office of Fiscal

Assistant Secretary - Treasury Department.

TREASURY DEPARTMENT

51

Washington

(The following address by Secretary Snyder before
the New York Herald-Tribune forum at the WaldorfAstoria Hotel, New York City, is scheduled for
delivery at 8:3Q p.m., E.S.T., Monday, October 2 0 ,
Î9 4 7 , and is for release at that t i me . )

The world today needs a strong America.
This is not
boastful.
It is a sobering estimate of the responsibilities
confronting u s .
Your forum this year is rightly concerned with the ques­
tion of whether modern man is to be slave or sovereign.
Critical as these times seem, this query is one that history
keeps constantly asking down through the a g e s . For man is
forever struggling -- successfully or unsuccessfully -~
against forces that would enslave him.
Today — whether modern
man is to be sovereign or .slave -- depends to a grave extent
on what we do here on this side of the Atlantic. Here in the
United States can be found that reserve of strength - - m o r a l
and physical — to balance the scales for .free men.
But such
realization would require full exercise of those virtues of
labor and thrift -- of sacrifice and cooperation -- which have
made us powerful as a Nation and vital as a progressive
influence among the peoples of the world for universal p e a c e .
For, as President Truman has said:
"We seek a peaceful
world, a prosperous world, a. free world, a world of good
neighbors, living on terms of equality and mutual respect".
To attain this assured peace and stability, much depends
upon the skill and wisdom with which we approach imminent
problems.- Mankind -- in far too many places -- is hungry.
We can and must help. For hunger is xio ally of freedom.
The
economic machinery of the world is stalled, and damaged as
a result of war.. The machinery must be repaired and started
again. We-have tools and parts. We have what is just as
important -- the "know how",; Tools and parts are not s u f ­
ficient in themselves . They may be wasted -- thrown away
without the proper guidance. And we have not time to be
either reckless or wasteful. We can supply that "know how"
and that guidance to make effective the aid we provide.
For
this aid is in our tradition -- a tradition rooted in freedom
and enlightened progress.
Freedom and opportunity - - t h e s e were the basic incentives
from which a strong America grew.
These same incentives will
furnish, us strength to uphold our significant position in
world leadership. And to the extent to which we can maintain
these incentives will lie the answer as to whether or not at
least the modern American will be slave or sovereign.
S -5 0 2

2

52

For the American interpretation of freedom encompasses
far more than mere escape from economic or political slavery.
We demand a far more positive, a far more substantial
recompense for our efforts.
We hold unfalteringly to the doctrine of man's right to
seek his own goal -- his own quest for happiness and security.
It is the American belief that individual opportunity lies
in our system of free enterprise .•
Of necessity, our pioneers formed the habit of thrift and
savings. In the American tradition these qualities played a
tremendous role in developing and insuring our vast structure
of private enterprise. The doctrine of "save and invest" has
patterned the growth of our industrial system*
It has made us a Nation of farm and home owners, of
insurance policy holders, of savings account and security owners.
It has enabled us to realize the full benefit from the great
resources of this country.- These accomplishments are the direct
result Of free enterprise -- promoted by individual and col­
lective savings.
To the citizen of this Nation, savings must be the corner­
stone of individual opportunity and individual security.
The
small businessmen of today, so many of whom become the large
businessmen of tomorrow, have started with the expedient
investment of their savings -- savings that have been built up
as a result of thrifty use of income.
I
have no fear that our social structure can be destroyed
by forces from within, or from without, so l o n g sas the tenant
can hope to become owner, the worker can aspire to management,
and the average citizen can find it possible to attain success
and security.
And, how fortunate we Americans are to be talking tonight
of. saving a part of our income, compared with the people of
the war stricken countries -- so busy obtaining food for today
that they can have no thoughts of saving, for tomorrow.
In times like these, thrift and saving go beyond individual
concern. They are a matter of National concern.
Today, the
collective thrift habits of a Nation will actively affect every
member of a Nation's society.
Saving as a National policy should stimulate and encourage
intelligent, financial thrift habits of individuals.
The Government's greatest effort to stimulate savings came
with the advent of World War II, in the promotion and sale of
Savings Bonds on a scale never* before accomplished-.

S-502

-

3

53
-

The magnitude of this achievement is.well demonstrated
hy the fact that Savings Bonds have been bought by millions
of persons
Beyond its thrift and savings aspects, the bond program
has substantially contributed to combatting inflationary
forces and to assisting in the proper management of our public
debt
I strongly recommend to tlie American people the continued
purchase of these Bonds.
As a National policy, and particularly during times of
high income, thrift requires the orderly discharge of debts,
whether it be by an individual or by a Nation.
The policy of
the Administration to reduce,our debt and to maintain our
fiscal affairs on a sound basis is the keystone to our security.
In closing, let me remind you that it required the thrift
and savings of many a person, native and foreign, to provide
the funds which built our great transportation system, our
huge steel industry, our giant oil plant, our manificent^farm,
industrial mining, and business structure.
It took thrift and
savings, together with indomitable courage and energy to
develop our vast natural resources. It took thrift and savings
together with tremendous character and vision to make our^
Nation what it is today. And it will take thrift and savings
together with constant ingenuity and stamina to conserve our
remaining resources to enable us to continue to be a great
Nation.’
At no time in our history has it been more important:,
for us, as ..a Nation and as individuals, to conserve our re­
sources; for, both at home and abroad, we face large responsi­
bilities which we cannot rightly e v a d e .
I fervently hope that this Forum will reinspire the people
of America to a continuation of their earnest efforts through
thrift and savings to help themselves, their country and
their fellowman.
0O0

S-502

54

TREASURY DEPARTMENT
Washington

FOR RELEASE, MORNING NEWSPAPERS
Thursday, October 23* 1947_____

Press Service
No. S-503

Secretary Snyder announced today that two employees of the
Bureau of Customs will receive a $375 cash award for a sugges­
tion for simplification of baggage declaration procedures
calculated to save the Department some $30,000 a year.
The award, to be shared equally by Nels H. Nelson, an entry
clerk, and Wanda A. Popiel, a clerk, both stationed at Detroit,
together with three other meritorious awards of $10, constitute
the first payments made under the Employee Suggestion Program
announced July- 30, 1947. The Treasury instituted the program
in line with an executive order of the President and legisla­
tion enacted by the Congress last year.
One of the $10 payments went to Miss Nellie F. Smith,
United States Secret Service clerk at Kansas City, for a sug­
gestion designed to effect substantial savings in mailing costs.
Another $10 payment goes to Mrs. Dorenda M. Pennington, typist
in the Savings Bonds Division, stationed in Washington, for a
suggestion designed to expedite preparation of multiple corre­
spondence .
Mrs. Helen B. Tanner, a printer's assistant in the Bureau
of Engraving and Printing, also will receive $10 for her sug­
gestion that the Bureau supply certain simple equipment useful
in the printing operation.
The suggestions made by the employees represented in
today's award list have been, or are being placed in operation.
James H. Hard, Treasury personnel director and chairman
of the Committee on Employee Awards, said that numerous other
suggestions from employees are under consideration, and that
further announcements of cash payments will be made from time
to time. Awards may range as high as $1,000.
Secretary Snyder, in announcing the four payments today,
said:
"I congratulate these Treasury employees who have made
worthwhile contributions toward greater efficiency and economy
in the operations of the Department’
. Among the thousands of
Treasury workers throughout the country there must be many with
sound ideas for improving the quality of our operations.
The
Department solicits their suggestions, and I assure every em­
ployee that such contributions will receive most careful con­
sideration .
"I urge all Treasury personnel to submit their ideas
through the channels set up throughout our organization.”
oOo

55

TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Wednesday, October 22, 1 9 k 7 .

Press Service
, S-5W^

Secretary of the Treasury Snyder today announced the offering, through the .
Federal Reserve Banks, of 1 percent Treasury Certificates of Indebtedness of
Series K-19U8, open on an exchange basis, par for par, to holders of Treasury
Certificates of Indebtedness of Series K-19H7, in the amount of $1,77^,578/000,.
■which will mature on November 1, 19u7* Cash subscriptions will not be received*
The certificates now offered will be dated November 1, 19U7, end will bear
interest from that date at the rate of one percent per annum, payable with the
principal at maturity on October 1, 19U8-*. They will be issued in bearer form
only, in denominations of $1,000, $5*000, $10,000, $100,000 and $1,000,000.
Pursuant to the provisions of the Public Debt Act of 19Ul, as amended, in­
terest upon the certificates now offered shall not have any exemption, as such,
under the Internal Revenue Code, or laws amendatory or supplementary thereto.
The full provisions relating to taxability are set forth in the official circular
released today.
Subscriptions will be received at the Federal Reserve Banks and Branches,
and at the Treasury Department, Washington, and should be accompanied by a like
face amount of the maturing certificates. Subject to the usual reservations, all
subscriptions will be allotted in full.
The subscription books will close for the receipt of ail subscriptions at
the close of business Friday, October 2iu
Subscriptions addressed to a Federal Reserve Bank or Branch or to the
Treasury Department, and placed in the mail before midnight October 2U, m i l be
considered as having been entered before the close of the subscription books.
The text of the official circular follows:

56
UNITED STATES OF AMERICA
1 PERCENT TREASURY CERTIFICATES OF INDEBTEDNESS OF SERIES K-19H8
Dated and bearing interest from November 1, 19U7

Due October 1, 19^8

TREASURY DEPARTMENT *
Office of the Secretary*
Yfashington* October 22* 19U7.

19U7
Department Circular No. 818
Fiscal Service
Bureau of the Public Debt
I.

OFFERING OF CERTIFICATES

l* The Secretary of the Treasury* pursuant to the authority of the Second
Liberty Bond Act* as amended* invites subscriptions* at par* from the people of
the United States, for certificates of indebtedness of the United States* desig­
nated 1 percent Treasury Certificates of Indebtedness of Series K-19Uo* in ex­
change for Treasury Certificates of Indebtedness of Series K-19H7 j maturing
November 1* 19U7•
II.

DESCRIPTION OF CERTIFICATES

* 19U7*
and m i l bear interest
1.
The certificates will be dated November
1
payable
with the principal
from that date at the rate of 1 percent per annum*
subject
to
call for redemption
at maturity on October 1* 19U8. They will not be
prior to maturity.
2.
The income derived from the certificates shall be subject to all taxes
now or hereafter imposed under the Internal Revenue Code* or laws amendatory
or supplementary thereto. The certificates shall be subject to estate* inheri­
tance, gift or other excise taxes* whether Federal or State* but shall be exempt
from all taxation now or hereafter imposed on the principal or interest thereo
by any State* or any of, the possessions of the United States* or by any loca
taxing authority.
3,
The certificates will be acceptable to secure deposits »f public moneys.
They will not be acceptable in payment of taxes.
L).. Bearer certificates will be issued in aenominations of $1*000* ^ * 0 0 0 *
$10*000* $100*000 and $1*000*000. The certificates m i l not be issued in regis­
tered form.
3.
The certificates will be subject to the generalRegulations of the
Treasury Department, now or hereafter prescribed* governing United States cer­
tificates.
III.

SUBSCRIPTION AND ALLOTMENT

1.
Subscriptions will be received at the Federal Reserve Banks and Branches
and at t.he Treasury Department* Washington. Banking institutions generally may

57
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2

-

submit subscriptions for account of customers, but only the Federal Reserve Banks
and the Treasury Department are authorized to act as official agencies.
2.
The Secretary of the Treasury reserves the right to reject any subscrip­
tion, in whole or in part/ to allot less than the amount of certificates applied
for, and to close the books as to any or all subscriptions at any time without
notice; and any action he may take in these respects shall be final. Subject to
these reservations, all subscriptions will be allotted in full. Allotment notices
will be sent out promptly upon allotment.
IV.

PAYMENT

1.
Payment at par for certificates allotted hereunder must be made on or
before November 1, 19U7* or on later allotment, and may be made only in Treasury
Certificates of Indebtedness, of Series K-19h7> maturing November 1, 1 9hl, which
will be accepted at par, and should accompany the subscription. The full yearns
interest on the certificates surrendered will be paid to the subscriber follow­
ing acceptance of the certificates.
V.

GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve Banks are author­
ized and requested to receive subscriptions, to make allotments on the basis and
up to the amounts indicated b y the Secretary of the Treasury to the Federal
Reserve Banks of the respective Districts, to issue allotment notices, to receive
payment for certificates allotted, to make delivery of certificates on full-paid
subscriptions allotted, and they may issue interim receipts pending delivery of
the definitive certificates.
2, The Secretary of the Treasury may at any time, or from time to time,
prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the -Federal Reserve Banks,

JOHN W. SNYDER,
Secretary ®f the Treasury.

TREASURY DEPARTMENT
Washington

FOR RELEASE AFTERNOON NEWSPAPERS
Friday, October 24, 1947________

58
Pr®ss
No#

e

Alternative methods of revising Federal income tax law with
respect to the treatment of business losses of both incorporated and
unincorporated concerns are analyzed in a study entitled "Business
Loss Offsets’1 made public through the Treasury Department today*
The study, prepared by a committee from the technical tax staffs
of tbs Treasury and the House—Senate Joint Committee on Internal
Revenue Taxation, presents factual data bearing on the adequacy of
the existing two-year carrybacks and carryforwards of business losses.
Consideration is given to various problems of equity, economics and
administration growing out of the revision proposals.
The treatment of business losses for income tax purposes is an
important issue of general postwar tax revision, due to the vital part
it plays in the year-to-year determination of net income and the
avoidance of taxation of capital as Income, together with its basic
role in the averaging of taxable income over a period of years,
lhe
information contained in the study released today was compiled wi th
a view to its usefulness in the formulation of tax policy on the loss
offsets question.
Averaging of taxable income through use of the carrybacks and
carryforwards has been authorized at various times and in various Yiays
since 1918. The revenue act of that year permitted 1919 losses to be
carried back an d deducted from the income of the prior year, and any
balance to be carried forward and deducted from income of the
subsequent year.
The carryback-carryforward devices were dropped from the^revenue
code effective with 1932, but a two-year carryforward was revived
for losses of 1939 and subsequent years, and was supplemented by a
one—year carryback for 1942 losses and a two-year carryback for
losses of 1943 and subsequent years. Thus the present carrybackcarryforward law provides a five-year adjustment period.
The report presents the following conclusions;
”1. TShile certain specific exceptions may be desirable, the
carryforward of losses is generally more desirable than the carryback,
both in its economic effects and in the equity of the adjustment.
"2. The length of carryforward should be limited primarily by
administrative considerations. However, most of the desirable effects
of a loss offset can be achieved within a period which is administratively
feasible. No information is presently available as to exact y ow
long that period should be,but five years appears a satisiactory
period with which to start, subject to later review and, perhaps,
revision.

vJ

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2

-

«3, The change from the present system to a fiv e-ye a r carry­
forward shouxd be made as promptly as fe a s ib le ."
An important equity consideration attaches to the. loss offsets,
the study observes, because in the absence of such offsets, the
business entity whose net income becomes negative in some periods is
not permitted to deduct all the expenses of earning income, aid to
this extent the tax on net income becomes a tax on capital.

Removal of impediments to risk-taking is an economic function
of the offsets, since their availability tends to encourage investments
in risky assets and ventur es.
It is pointed out that the carryforward is superior to the
carryback in stimulating the entry of new business enterprises, and
administ ratively is gener al ly le s s di ffi c ult to h indie •
Statistical information bearing on the operation of the business
loss offsets, and the history of their ,statutory development, appear
in appendices which accompany the study.

oOo

Business Loss Offsets

An important feature of the income tax relates to the
treatment of business losses of both incorporated and
unincorporated concerns.
It is the purpose of this study
to bring together the available factual information bearing
on the adequacy of the existing 2-year carryback and carry­
forward of business losses, and to discuss the various
equity, economic, and administrative considerations raised
by alternative methods of revising the present system. The
material is designed to provide a factual and analytic
background which may be helpful in formulating tax policy
with respect to this aspect of the postwar tax system.
The report was prepared by a committee composed of
the technical tax staffs of the Treasury Department and
the Joint Committee on Internal Revenue Taxation*

?llllflIiSiiilS' 111111 si
i',./v\'' fit '../\ I S H| flltipiif
Business Loss Offsets
TABLE OF CONTENTS
Page
X.
II,
XII.

Introduction • * . . . ... ■ ' . , ..................... . . . . .

1

Co n c lusions......... . ♦ . * .......... ..

1

Purposes of business—loss offsets. . . . . . . . . . . . . . .

2

A,

Equity considerations . %

.

2

B.

Economic considerations * . . . . . . . . . . . . . . . .
1.
To remove impediments to risk-taking . . . . . . . .
2*
To increase the countercyclical effect of taxes. ., •

3

Administrative considerations . . *c . .............................

3

C*
IV.

The offset of business losses.
%%

VI.
VII.

........

2

A

The direction in which losses should be carried .. . . . .
1. Equity considerations. . . . . . . . . . . . . . . .
2. Economic considerations. . . . . . . . . . . .
...
,a* Stimulating new business enterprises. . . . . .
b,
Relative countercyclical effects. . . . . . . .

3.

V,

. . . . . . . . . . . . . . .

A
A

5
5
6

Administrative considerations.

7

B.

The length of time over which a loss may offset income*

8

C.

The kind of lo ss to be carried over . . . . . . . . . . .

9

The offset of business losses against income from
another business or against other types of income.

. . . . . .

Transition to the suggested system . . . . . . . . . . . . .

12
.

Technical revisions in the law ........... ..

APPENDIX

12

13

A - Material Relating to the Length of the Carryforward «, -■ 14.

APPENDIX B - The Statutory Development of
Net Loss Carryovers-and Carrybacks. . • . , . ♦ * ♦ * .

27

62

TA RTF. OF CONTENTS - 2

Page

TABLES
I

II

III

IV

V

- Effective net operating loss deduction, all corporations
1922-32 and 1940-42 . . .......... ...........................

15

- Effective net operating loss deduction, by major industrial
divisions, 1922—32 and 1940—42 • • ....................
* *

16

— Effective net operating loss deduction, corporations m t h
balance sheets classified by size of assets, 1940-42 ........

18

— Proportion of corporate losses of each year, 1921-1942,
offset by carryforwards of various l e n g t h s ................. .

23

— Proportion of corporate losses of each year, 1922-1943,
offset by carrybacks of various lengths. . .

24

VI - Percentage reductions in corporate tax base of each year,
1922-1943, attributable to carryforwards of various lengths.
VII - Percentage reductions in corporate tax base of each year,
1921-1942, attributable to carrybacks of various lengths .

25

26

63

Business Loss Offsets

X,

Introduction

The basic tax in our fi seal structure has been,, and doubtless
m i l continue to be, based on net income* The definition of net
income poses difficult problems, a major one of which is the treat­
ment of losses from business, incorporated o r unincorporated., Issues
are raised nh ether. business losses should be offset against income of
another kind, ■whether losses from one business operation should be
offset against income from another business operation,.in what manner
these losses should be offset, and the definition of the loss to be
offset*
The income tax laws have generally provided for some offset of
business losses against business or other income. For corporations,
consolidated returns are now permitted and' have been permitted for a
major portion of the period of the income tax. . For individuals,-net
operating losses from business operations have been deductible from
current income from similar or different sources..
In addition to offsetting losses against current income, at
various periods in the past the income tax law has permitted the
deduction of business losses of other years from current income. This provision was first incorporated in the Revenue Act of 1913, which permitted 1919 losses to be carried back and deducted, from
income of the prior year, and any balance to be carried forward
and deducted from income of the subsequent year.
Beginning with
1921 losses, a two-year carryforward was permitted. . For 1930 losses,
the period wras reduced to one year, and,the entire provision was
eliminated for losses of 1932 and subsequent years,
The two-year
carryforward was revived for losses of 1939 and subsequent years,
and was supplemented by a one—year carryback for 194-2 losses and
a two-year carryback for losses of 194-3 and subsequent years.
Ytie enter the postwar period, therefore, with a two-year carryback
and carryforward of business losses* Consideration is given in this
report to the type of provision necessaiy for the permanent peacetime
tax structure. Special wartime problems connected with loss offsets
are not considered in this report.
II.

Conclusions

1.
Ihile certain specific exceptions may be desirable, the
caray forward of losses is generally more desirable than the
carryback, both in its economic effects and in the equity of the
adjustment.

64

~

2

~

2. The length of carryforward should be limited primarily
by administrative considerations# However, most of the desirable
effects of a loss offset can be achieved within a period which is
administratively feasible# No information is presently available
as to exactly how long that period should be, but 5 years appears as
a satisfactory period with "which to start, subject to later review
and, perhaps, revision.
3. The change from the present system to a 5-year carry­
forward should be made as promptly as feasible#
The present 2-year
carryback should be repealed as of the end of the year in which
legislation is enacted, and the carryforward should be extended to
5 years beginning with the losses of the year following enactment
of the legislation.
4. Certain technical amendments should be made in the
car ryf orwa r d#
III.

Purposes of business-loss offsets
A#

Equity considerations

In the absence of the loss offsets, the business entity whose
net income becomes negative in some periods is not permitted to
deduct all the expenses of earning income. To this extent, the tax
on net income becomes a tax on capital# The owners of such a firm
are discriminated against, because higher taxes are levied on their
net income than on the income of owners of businesses with stable
income.
B#

Economic considerations
1,

To remove impediments to risk-taking

Without loss offsets, investments in assets with less risk of
loss are favored over those in which the risk may be greater. Thus,
the absence of loss offsets will reduce the relative investment in
risky assets and ventures# Investment in such assets and ventures

65
- 3 -

nay be particularly desirable in the economy. Ventures nay bw risky
■because they ere new firms challenging established ones or introducing
new products. If successful, they may bring reduced prices in the
industry they enter, or may create employment in an entirely new
industry. They may be faced with a period of hard sledding and losses
in their early years. If losses in this period cannot be offset
against income of future periods, the prospective return from the
investment is reduced relative to the return connected with a safer
haven for their funds.
2.

To increase the countercyclical effect of taxes

Absence of loss offsets may also contribute to cyclical instability.
In years of losses, expenditures will bo held to a minimum.
-¿he makung
of these expenditures may be unprofitable when the firm bears their
full cost but must pay a. tax on the additional income they would bring
in. Yet, they might profitably be made if the cost of the expenditure
could reduce taxes through loss offsets.
C.

Administrative considerations

Additional loss offsets would simplify some aspects of tax
administration and conplica/te others. Some methods of loss offsets
would be more difficult to handle than would others.
Loss offsets, by reducing the significance of the annual accounting
period, tend to reduce the number of points in time in which contro­
versies over valuations and accruals may arise. However, unless the
system of loss offsets is perfect and complete, these points in time
may actually be increased, particularly in periods of consecutive
losses.
A perfect loss-offset system would also eliminate problems
connected with tax-benefit rules (e.g., bed-dcot deductions). But
incomplete loss offsets may make the problem even more complicanted,
since the deduction would have to be chased through several, years
of income to see if a tax benefit from it had arisen.
Even a perfect loss-offset system increases the auditing problem.
Either every year of every taxpayer must be audited (about double the
present load), or the audit of the loss year is postponed until it
serves as the basis of a deduction.
In the latter event, the audit
is made more difficult by the passage of time.
Another area in which administrative problems might increase
under a perfect loss—offset system would be the depreciation deduc­
tion. When losses cannot be offset, taxpayers may be restrained

1

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DD
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from extravagant demands for depreciation rates ‘because they may
lose a higher percentage of the depreciation deduction in years of
loss than they would if rates were lower.
If the depreciation
deduction could never "be wasted, as would "be true under a lossoffset system, provided the firm expected on "balance to earn income,
this retarding influence would "be lost, and controversy might "be
sharpened.
IV.

The offset of "business losses

The desirability of increased loss offsets is evident from consider­
ation of equity and economic effects, with administrative considerations
a negative item. These major questions still remain:
(l) In what
direction should losses ho offset?
(2) For how long .a period should
they he offset? and (3 ) How should they he determined?
A.

The direction in which losses'should he carried

The carryforward permits losses of one year to he carried forward
as a deduction from net Income of future years.
The carryback permits
losses of one year to he carried hack as a deduction from net income
of past years. The choice, based upon the purpose of loss offsets,
must he made between these two devices»
1.

Equity considerations

The equity problem in the case of corporate income is to define
and tax net income as correctly as possible over time so that stock­
holders in different companies will receive equal treatment. The equity
goal clearly is not permitting all losses to he deducted from all
income over a corporation1s life»
Since stockholders change, it would
mean that some costs incurred and losses sustained by one group of
stockholders would he deducted from income received by another group
of stockholders. Under no definition of income would this he correct.
It should, he recognized, moreover, that most ’’losses” .are forward
looking. Most dollars spent by a business enterprise are for the
purpose of bringing in future, not past, income, and should, therefore,
he deducted from future, not past, income»
If all revenue and all
expenses were allocated with perfect foresight, losses would arise
only when the firm was making ”capital” outlays to increase future
income* Most ’’losses” would then he carried forward. A similar
conclusion would hold if all expenditures were .deducted when made.
Carrying losses forward would result in a more correct statement of
income than carrying them backward.
Income would not he taxed until
all capital was recovered.

67
- 5 Under the present concept of taxable income there are three
major exceptions to this simple rule. Costs obviously of a capital
nature must be spread over the f,usefuln life of the asset.
Changes
in the useful life ©f the asset can then give rise to obsolescence
losses which are properly deducted frt$a past, not future, income*
A further qualification arises in connection with inventories.
Purchases of goods are expensed only to the extent they are not,on
hand at the end of the year. Most methods of valuing Inventories
result in an overstatement of income when prices rise and an under­
statement when prices fall. Resulting inventory losses are directly
related to the inventory previously arising* Bad debts, arising
from sales of an earlier period,are related to the sales of that
earlier period.
It should be noted that, since devices are available to correct
most of these aberrations from the simple doctrine, these costs are
insufficient grounds for espousal of carrybacks.
Increased depreci­
ation, a different method of spreading capital costs, or the carry­
back of the unrecovered cost of depreciable assets, could adjust for
obsolescence.
Inventory reserves or last-in-first-out Inventory
valuations would substantially remove the possibility of inventory
losses associated with past income. Accrual of potential bad-debt
losses adjusts for this lagged expense.
It would, anpear, therefore, that the carryforward would be
more equitable than the carryback, since it would generally result
in a better determination of income.
Its major.weakness is found in
connection with liquidation losses arising because assets may be of
greater value to a going concern than when disposed, of in a forced sale.
It is not believed that this problem is of sufficient importance
to justify, by itself, a general carryback.
In the first place,
stockholders whose stock becomes worthless may, subject to certain
restrictions, deduct this loss from income otherwise taxable.
In
the second place, the carryback necessary to secure even an approximate
offsetting of losses for the liquidating firm would be extremely long.
Ho one has yet suggested a carryback of such length.
Such a drastic
step as dissolution generally follows a period of protracted and
sustained losses.
2

*

Economic considerations
a.

Stimulating new business enterprises

The carryforward is obviously superior to the carr7rback in
stimulating the entry of new business enterprises. Any initial
losses the new enterprise sustains in order to enter an industry

68
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6-

are really capital costs of earning future income. Only by means
of a carryforward can they "be offset against that income.
\

Moreover, so long as a carryback is permitted,' even if a
carryforward can also he made, the new enterprise would he at a
disadvantage.
If the entry of such an enterorise were followed
hy s h a m competitive warfare which results in losses in the industry,
the established company would he able to recoup a portion of its
losses from the Government hy way of the carryback, hut the new
enterprise c^uld not. The latter would have to wait for future
profits to recover a portion of its losses. Yet the prospect of
future profits is made more uncertain because the Government would
partially underwrite its competitors.
?or the purpose of stimulating the entry of new business units,
the carryforward seems clearly preferable to the carryback.
b.

Pclative countercyclical effects

Both carryforwards and carrybacks would have some counter­
cyclical effect. Both would, stimulate business expenditures somewhat
in periods of losses (d.epres si ons) because the opportunity of off­
setting such expend.itures against taxable income would reduce the
cost of the outlays.
The effect of a carryback would be more certain than that of a
carryforward. The firm could be sure at the time of making the
outlay that the carryback would, reduce taxes already paid in prior
years. A carryforward would reduce taxes only if profits were
realized in future years. Because of the greater certainty of the
tax effect, ca.rrybacks might stimulate business expenditures during
a period of losses somewhat more than Carryforwards* Presumably,
however, business expenditures are nearly always made with the
expectation that they will result in later profits, and the difference
as to- certainty of tax benefit is probably not very significant.
There would, also be differences in the timing of tax reductions
attributable to carryforwards and carrybacks.
The timing of ta,x
refunds attributable to carrybacks would depend, on the speed, of
administrative action. Under normal administrative procedure, there
may be a considerable delay in payment of refunds resulting from

carrybacks* However, tentative adjustments for carrybacks, similar to
those initiated as an emergency reconversion measure by the Tax
Adjustment Act of 19^5* ma7 ^ feasible as a means of. speeding refunds
and making them available shortly after the end of the loss year* Under
carryforwards, tax reductions would occur 'when profits sufficient to
offset losses were realized* A carryback system with speedy refunds
would grant the largest tax reductions during periods of business
decline or depression* A carryforward or carryback without speedy
refunds would grant the largest tax reductions during periods of
business recovery*
In any case, however, the difference in timing of tax reductions
and the effects on ca.sh resources are not likely to have great signi­
ficance for the amount of investment outlays. The reduction in
investment during a depression does not seem to be caused primarily
by a shortage of funds, but by the lack of profit expectations. It
appears that since 1 9 2 2 periods of low economic activity have been
accompanied by excessive rather than deficient business liquidity,
It appears that carrybacks may stimulate business expenditures
during a depression to a slightly greater extent than carryforwar s.
It seems unlikely, however, that the difference between carrybacks
and carryforwards in this respect will be very great, or that either
carrybacks or carryforwards will have an important countercyclical
effect*
3

,

Administrative considerations

The carryback is generally more difficult to handle administra­
tively than the carryforward. Under the former, the returns of past
years must be kept open. Sven if they were closed, to be reopened
only for purposes of a carryback, a proolem would be presented.
Compromises are a give-and-take proposition in which a result satis­
factory to the Government and the taxpayer is reached. The final
result might differ if at the time of making the compromise it were
known that a carryback would arise.. In many ca-ses, therexore, com­
promises would be postponed, or an agreement reached which would not
have been reached if future events were then known.
The carryforward, on the other hand^ requires audit of losses
which were previously pa,ssed over,
If the carryforward period is
long-, either the sta/tute of limitations itfust be extended or the rule
adopted that a net operating loss deduction represents an election by
the Government to waive the statute for the years in question* The
audit of losses sustained a considerable period in the past ~s, of
course, difficult,
l/

A, Lutz, Corporate Ca,sh Balances., '19lMy*^5> (National Bureau of
Economic Research, 19yp) •

70

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3

*

The length of time over which a loss may offset income

In terms of the purposes of loss offsets, there appears to be
no theoretical limit to the length of time losses should be carried
forward. However, business plans are made, generally, for a rela­
tively short period* The desirable stimulus of loss offsets can be
achieved by a period considerably shorter than, say, 1 0 years*
Furthermore, the absence of a theoretical limit to the length of
carryforward can be qualified, Future income cannot be clearly
foreseen, and unduly long carryforwards might in some cases result
in tax reductions that would do no good from the point of view of
incentives. This would be the case where the profits of a depressed
industry suddenly increased and went untaxed because of the carry-^
forward of losses of years long past* An example of such a situation
is the wartime increase in the earnings of railroads after the
difficult period o£ the 1930!s* 1/
There are serious administrative
objections, moreover, to lengthy carryforwards as has been indicated
earlier* Some compromise must be made, along the lines of choosing
a period which will offset the bulk of losses and yet be adminis­
tratively feasible*
There are no data conclusively indicating the effectiveness
of different periods for offsetting losses* Available information
is briefly reviewed in Appendix A. It does appear that a 2-year
period is inadequate* A study of ^K)0 large corporations for the
period 1 9 2 9 -I 9 3 S by the Machinery and Allied Products Institute
indicates that ^4-2 percent of the companies would have had complete
loss offsets with a 2-year carryforward* However, only 19 percent
of the capital goods companies included in this sample would have
had complete loss offsets with such a carryforward* A study of a
small sample of 6 0 Wisconsin corporations for the period 1930-194-2
by Harold M. Groves indicates that kk percent of these companies
would have had complete loss offsets with a 2 —year carryforward*
A study of aggregate data for all corporations for the period 1921—19^-2
indicates that a 2 -year carryforward would have offset only 3 percent
to 2 6 percent of losses of a given year, depending on whether general
depression or an upswing followed the year of loss* During the same
period, this study indicates, a 2 -year carryback would have offset
only 2 percent to 1 1 percent of losses*
if The net operating loss deductions of transportation and puolic

utility corporations in 1 9 ^0 ' ,,^ 2 alone were ¿?2 3 b miilioi^ as compared
with $ 2 3 1 million for the entire period 1 9 2 2 - 1 9 3 2 * 3T°:r no other
industry group was there an absolute increase in the sise of net
operating loss deductions between these two periods* With- a longer
carryforward, the increase in operating loss deductions of trans­
portation and public utility corporations would have been greater*

71
-9 f)—vspir period would T>ermit a substantially larger portion, of
losses to'be offset. The Machinery and Allied Products Institute
study indicates that 7 0 -percent of the large companies studied would
have had full loss offsets in the period 1929-1938 under a 5-year
carryforward* A study of 3,28U large corporations for the period
X9 1 7 - 1 9 U2 by the Bureau of Internal Revenue indicates that 62 per­
cent of the companies would have had full loss offsets under a
5-year carryforward. The study of all corporations for the period
1921-19^3 indicates that a 5“'yea*’ carryforward would have permitted
offsets of 10 percent to Ul percent of the amount of losses, or an
average of 1 9 percent* A 5-year carryback would have permitted
offsets for 9 percent to 2U percent of the amount of losses.
Since the average business cycle does not anpear to exceed
about 8 years in length, l/ a 5~-y®o.r period would be long, enough _
to allow all losses attributable to general depressions to be applied
against income of generally prosperous years* However, a 5r'Jrear
period night not be long enough to meet the requirements of new
firms and of firms whose profits fluctuate over a cycle longer than
the general business cycle.
The study of all corporations for the period 1921-l9^-2 indicates
that extending the carryforward from 2 years to 5 years would have
increased the percentage reductions in the corporate tax base of
each year from a range of 1 to 8 percent to a range of 5 i° ^9 "oer~
cent. Extension of the carryback from 2 years to 5 years would have
increased the reduction in the tax base from a range of 1 to 8 per-­
cent to a range of 5 to 15 percent*
It is believed that a 5-yea? carryforward would be
a desirable start. This period might need later revision in the light
of experience.
C.

The kind of loss to be carried over

There are two sharply conflicting theories on the question of
the kinds of losses and the kinds of income which should be used
in calculating the loss offset. One approach is to determine them
in the same way as taxable income is determined, This process
excludes from the calculation such items as tax--exempt Interest

l/ Alvin H. Hansen, Hiseal policy and Business Cycles (1 9 m ) ,
pp. I8 -1 9 . Otper students focus attention on a cycle of only
^■0 to 50 months’ duration.
See, for examnle, Arthur E. Burns
and Wesley 0^ Mitchell, Measuring Business Cycles (national
Bureau of Economic Re search, 19^6) , pp. 7 8 , 4oirUl2*

72
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and 8 5 percent of intercorporate dividends which were not used in
calculating taxable income or net loss for the purposes of the
original tax. It is argued that because they were omitted in that
connection they ought not be used.in calculating the loss which is
to be carried over, or net income against which the loss is o e
offset.
The opposing view starts with the presumption that a loss
offset should not come into operation until a "true" loss has been
sustained, i.e., until total net -income is negative. According to
this view, an operating loss is not a 11true” loss if in the year
in which it is incurred there is, for instance, income from taxexempt securities which can absorb the "loss '1 in whole or in par .
It is only the excess of deductions over total income, including
income which is ordinarily excluded from the calculation of taxa e ^
income, that should be counted as a loss for the purpose of off­
setting income of another period* As a corollary, it fo
in the year in which this "true" loss is applied, it should be
counted against total net income accrued, not merely taxable income.
In practice, this means that the taxpayer will have to show a
deficit in taxable income in excess of the income which is
ordinarily excluded from the calculation of taxable income before
any benefit will be received.
While the present law is not a perfect application of either
theory, it is drawn primarily in terms of the "true" loss idea, 1 /
The net operating loss which may be carried over is^the excess of
allowable deductions (the excess of percentage or discovery-value
depletion over cost depletion having been eliminated; over statutory
gross income plus net tax-exempt interest and, in the case of
individuals, 5^ percent of net long-term capital gains. In tne case
of corporations 1 0 0 percent of intercorporate dividends are included
in the computation instead of 1 5 percent as in the ordinary
computation of taxable income. In each of the years to whicn t is
loss is carried it is reduced by the amount of these same items 0
exempt income in such years. As a result the income taxed over the
period of loss offset is a different kind of income from that which
is taxed in a single, year.
The existing law falls short of the total-income theory in ^
that total income is understated by the omission of such exempt items
as recoveries of certain bad debts, taxes, -etc., certain forgiveness
of indebtedness, receipts from life insurance poll ios, military pey
and allowances, the surtax exemption for certain preferred-dividend .
payments of public utilities, and other similar exemptions* The
total income used is overstated by the non-deduction of capital
losses In excess of gains, and business expenses deemed extra„ordinary
or unnecessary or otherwise not deductible.
_!/ For a brief history of this provision* see Appendix B.

73

- ii Advocates of the taxable-income approach place primary emphasis
upon the inconsistency of granting a concession to such items as
interest from exempt securities, long-term capital gains, intercorporate
dividends, and percentage depletion, in calculating annual taxable
income, and not permitting the same concession in determining income
over a longer period of time when such income fluctuates. As they point
out, this leads to inequities as between taxpayers with fluctuating and
stable incomes. Thus, where tv© mining companies, perhaps direct
competitors, have equivalent production and income over a period of
time, one will be denied percentage depletion whereas the other will
obtain it. Similarly, where tv© corporations each receive the same
amount of dividends from domestic corporations, one must include
1 0 0 percent of such dividends as taxable income, while the other need
include only 15 percent. Advocates of the taxable—income approach
believe that such discrimination cannot be reconciled with the
previsouly stated purpose of the loss carryover which is to define and
tax net income as correctly as possible over time so that different
taxpayers will receive equal treatment.
Advocates of the total-income approach point out that the basic
purpose of the loss offset— to prevent the taxation of capital as
income— is satisfied by this method; that the cancellation of the tax
exemption under the total—income theory does not result in the taxation
of income at rates higher than the statutory one. Moreover, they hold
that whether or not undesirable discrimination results from the totalincome approach depends on the standard of comparison. If the taxpayer
with tax-exempt income whose income fluctuates is compared with a
taxpayer with no tax— exempt income, the law would still favor the
former•
Advocates of the total—income approach point out that a transition
to the taxable-income approach would bring additional averaging benefits
not available under existing law to taxpayers with tax-exempt income. In
view of the advantages now accorded to taxpayers with tax-exempt income
the question is raised whether a special case exists for the extension
of averaging to these taxpayers so long as there is no general system of
averaging under the income tax law. However, such an extension is viewed
by the advocates of the taxable-income approach as necessary to prevent
discrimination against taxpayers with tax-exempt income.

74
-

Vv

12

-

The offset of business losses against income from
another business or against other types of income

If taxes are imposed on net income* the tax base should equal
income received plus or minus changes in net worth for the period
of assessment* These changes in net worth are brought into income
when the change takes place in one department of a single enterprise*
‘provided^- if a decrease* the income of other departments can absorb
it* If separate departments were conducted under separate corpo­
rations.*.-the decreases in net worth in one department would not reduce
current enterprise income (for the corporate tax) unless a consolidated
return were filed by the parent; and if the enterprise were conducted
thiou^hr common owrnership and not, by a parent company* decreases in
net vorth i n one department would not reduce current enterprise income,
Unless Icnss--off sets could be made on a departmental basis* their
denial currently against other income of the enterprise would appear
to be highly discriminatory*
It is not recommended* therefore, that
-a change in present practice be made.
,
- The-individual owners of business enterprises must include the
change in .net worth in their income if partners or proprietors* but
not if stockholders*
It seems reasonable to permit partners and
proprietors to deduct losses from other income as long as all profits*
whether distributed or not* are included in income.
These losses when granted to the individual might be carried
forward or,-carried back against the individual *s income.
This method
would not create inequities similar to those arising under the corpo­
ration carryback* since it would not result in the refund of taxes
originally borne by someone else* Generally* the carryforward is
favored for the reasons previously given* 1/
VI.

Transition to the suggested system

It is important to extend the carryforward period as soon as
feasible* It is recommended that when legislation on loss offsets
is enacted the 2— year carryback be repealed as of the end of the
year in which the legislation is enacted and that the 5—year carryforward
begin with losses of the next follow, ng year*
Thus* if legislation
were enacted during 194-7* the carryback would terminate with the losses
of 194-7 and the 5~*year carryforward vrculd begin with the losses of 194-8*
±f

However* there might be case for a carryback of losses in the
event of death* though it must be recognized that a reduction
in estate taxes may mitigate this inequity to some extent.

/

75

- 13 -

V II .

Technical revisions in the law

There are several technical corrections in the law which require
amendment# Among these corrections are:
1# The recent decision in the Moore case that income
and deductions fo r the year in which the lo ss arises are
to be computed under the law applicable to the year to
which the lo ss i s ca rrie d , rather than under the law
applicable to the e a r lie r year, i s cle a rly in co rre ct.
2* The operation of the present statu te disallows
items o f tax-exempt income tw ice , under certain circum­
stances. This resu lt was unintended.
3.
The present law i s not a thoroughgoing appli­
cation of the theory th at to t a l income should be brought
into the picture in determining the lo ss o f f s e t . Moreover,
there may be simpler methods o f s ta tin g the deduction. In
the event that the theory underlying the present law were
to be continued, the provision might be generally reconsidered
from these points of viewT.

- Ik APOT^rr A
Material Relating to the Length of the Carryforward

A few studies have "been made on the length of the carryforward
necessary t© offset business losses. T^ese are reviewed briefly "bel­
low, with a summary of the statistical information on the historical
operation of loss offsets.
I*

Statistical data on carryforwards.

In ^able I is presented the net operating loss deduction taken
corporations in the period 1°22-12 and 1 < * 0 ^ 2
As will he noted,
in the first tvo years following its introduction m 1.21, * © e”*
duct ion was larger than at any oth^r time in its history , r earn, ng
almost $ 6 0 0 million in 1 9 2 3 . It remained relatively stable, reaching a new peak of nearly $^00 million in 1929, ano then dropp ng
off, sharply, both because of a reduction in the length ©-*. t e
carryforward period and a reduction i n income against which to
offset losses. Following its réintroduction, the carryforward
reached a peak ®f nearly $U00 million in 1^-2, largely because
of increases in income against which t© offset losses.
Table II compares the total net operating loss deduction for
t^e tvp periods, lQ22-^2', and IQU 0 -U 2 , with net income in the same
period, with deficits which could form the basis for »'the deduction
(1921-TL and IP^Q-Hl), and with the excess of each -ear s deficit
over the lowest deficit in each of these periods,
T’~e idea under­
lying this latter adjustment is that a substantial volume of
chronic loss is sustained by corporations whicU Will never earn
income and which will never, therefore, receive a net operating
loss deduction. This part of total deficits may be termed inactive.
As will be noted, the net operating loss deduction.as a per­
centage of net income decreased substantially between these two
periods, prim arily because of the increase in net income available
to absorb the deduction. Attention is, however, directed to the
transportât ion and public utilities industry,
¿.his group s net
operating loss f i c t i o n as a Percent of net incone more than fo-ole*
Moreover, the total deduction taken in. the 3 years, 1Q4ÇM+2, was
greater'absolutely than the total deduction in the 11-year period,
1922rr32*

77

/

- 15 -

Table I

Effective net operating loss deduction, all corporations
1922-32 and 1 9 U 0 -U 2

Year

1922
I9 23
192U
I925
1926

I9 2 7

]_Q2^
1929

;

Amount (in millions)

$

502
57S

220
2U3

236
2UU
301
792

I93O

15%

1931

136

1932

gg
3,099

Total 1922-32
19^0

123

I 9 U1

33O

19*'-2

37S

Total 19^0-U2

B3I

78
- it
Table II
Effective net operating loss deduction, "by major industrial divisions
1 9 2 2 - 3 2 and 1940-42

Aft a percent ,-oX
Major
industrial
division

Amount

Het income

:
¿

• «»
/
Deficits &/

•
;

Active
deficits b / .

[^uiä2a=-1adaa=3ni23S=1ü(In millions;

Mining

$

202

$ 3^

6*5

2,9.

Manufacturing

1.525

311

3*9

1 .0

3.5
5*5
5*2
14.1

1 .1

Food, beverages,
and tobacco
Textiles
Leather
Bubber
Forest products
Paper
Printing
Chemicals
Stone, clay and
glass products
Metal and product s

203

37
^5
3
3

191

33
72
90

^5
33
143

*

41*3

12 *6

35^

32.9

8 5 .9

13*7

2 5 .2

33*5

3 1 .3
6 3*6
70 n

2 .2

9*o

3^-9

1 5 .9

3,0

3 O.O

1 6 .3

2 ;1

5.9

2.5

9

4.4
1*9
'2*5

l.C

29

21.7

.9 .

2*7

. 20
11

1 1 .9

6

1*7
"7
•7

1 7 .5

9*3
1 6 .5

Ilo
25*4

c/ 28i0
l4¿7

464.7 c/
5 1 .2

2 6 .6

3 2 .6

42*0
83.7
79.7

9*3

1 3 .2

24.1

ii.9

3 2 .1

23*9

36
5^

2*4

•6

1 0 .5

1 6 .6

1 9 .5

126

3.9

.3

1 5 .8

6 0 .2

33*0

Dohstruction

103

23

775

1 5 .9

3 O.I

4 9 .5

9 9 .6

Transportation and
public utilities

23I

236

1*5

3*2

9*1

29*9

1 9 .O

72.3

Trade

462

109

M

1 .8

9.2

19.9

2 1 .9

S9*3

Service

99

31

4.4

3*5

8 *1

II. 3

1 3 .7

7 2 .2

Finance

402

68

3 .0

1 .0

I
I
*r*7

2 .2

8 .8

‘1 1 * 9

3 .0 9 9

831

3 .6

1 .6

9 .1

I3 . 5

24.3

101.4

Total

e;

J

79.^
1 1 1 .5

1921-31 f°r
a/ Deficits eligible for the net operating loss computation;
first period; 1 9 3 9 ~ ^ 1 for the second*
Aggrègate excess of each year’s deficit over the smallest deficit for the
historic period*
°/ This result is explained primarily by a war loss deduction taken subsequent
to filing a return*

-

79
- 17 Although the importance of the loss deduction generally de­
creased re la tiv e to income, the percentage of the d e fic it o ffse t
between the tM> periods increased fo r every major industrial group
except finance. For manufacturing, 35 percent of the to ta l d e fic it
was deducted in the period from
whereas only 2 percent of
the d e fic it >as deducted by the finance group. Part of th is la tte r
resu lt is a conseouence of adjusting the d e f ic it 'f o r p a r tia lly and
wholly tax-exempt items of income.
I f the active d e fic it is compared with the net operating loss
deduction, even higher percentages r e s u lt. As between the two
periods in which the carryforward was in operation, every one of^
the in d u strial groups shows an increase in the percentage o f active
d e fic it s deducted. For the iqhO-U2 period, the o ffs e t of a ctive
d e fic it s among the major groups was complete for construction, nearly
Q/lO for trade, over 5/6 for manufacturing, and as low as s lig h tly
over l/lO for finance.
In Table I I I th is same analysis is made V asset classes for
t>e period 19UO-U2. It shows that t ’- e net operating loss deduction,
even"on a lim ited two-year b a s is , is of much greater importance to
small than to larve corporations. The deduction as a percent o f net
income is 10 percent for the smallest group (under ¿ 50,000 of a sse ts),
decreasing in every size class to l/2 c f 1 percent in the next, tp t^*e
largest class ($50-100 m illio n ), and. then r isin g to o u?r 1 percent'-or
the largest cla ss. This e ffe c t is p a rticu la rly sig n ific a n t when ^
account is taken, of the tendency of corporations tp s h ift upward, m
the size scale in the period under consideration—1939~^2. In a
period of increasing economic a c t i v i t y , the resu ltin g increase in
assets mov?s corporations up into larger size cla sse s, Vhea. a d e fic it
is sustained, therefore, it may be reported in a smaller cla ss, but
the deduction nay be reported m a larger c la s s .
A further analysis of the reason fo r the increasing r e la tiv e
importance ©f the net operating loss deduction for the largest corpo­
rations reveals that it is almost wholly a ttrib u tab le to the trans­
portation group, in general, and railroads in p a rticu la r, When the
transportation group is excluded, the net operating loss deduction
for. th is group re la tiv e to net income decreases more than the decrease
noticeable when the transportation group is included. The computation
of -he 1QU2 deduction as a percent of net income, including and ex­
cluding the railro a d s, indicates that a l l asset classes, except t-e
top three, remain unchanged. These three classes show a marked de­
crease in the relative importance of the net operating lo ss dec ictio n when railroads a.re excluded.

Table III

Effective net operating loss deduction* corpor C o ons v/ith balance sheets
classified by size of assets, X94o~42

Size o f assets

1940-42 as ,a percent of
19^2 as a percent of net income
:
. D e fic it {1939-41) :
Net income
*
Amount
: ( ln m illlo n s ) Including : Excluding : Including : Excluding:
Excluding
Including
trans- :
j - trans:
: transtrans.
railroads
railroads
p a r t it io n :.
y
w ..pnyi3>«i hwi u iLviu i ; nortfitifin
■■^

~X"In fhousahis^
Under $50
$ 50 to 100
100 to 250
250 to 500
500 to 1,000
1,000
5,000
10,000
50,000
100,000

to 5,000
to 10,000
to 50,000
to 100,000
and over
Total

$ 69

10,1
5.6

m
75
58
Go

3+9

12s
5?
7^
24
229

1+5

812

2.7
2.2
'

^ « i v . >

.■

i a .2
5*7
3-9
2*7
2.2

-**

9:9
l^.f)
17.7
17.6
15.5

10.1
5.3
3.5
2.3
1*7

9.8
l4 ,4
17.6
17.5
15.7

10.1
5.3
3.5
2.3
1.7
1.4
1.1
•6
.5
1.7

1.4
1 #1
*5
•3r
•6

1.6

1 .2

1.2
-.7
-5
1.3

X .5
L*2
-7
-4 ,
-5

l'4.5
l 4 .i
10.1
6.3
23.4

13.9
13.9
9.8
5.8
11.8

1.5

1+3

i 4 .s

12.7

Cfc
»

CO

- 19 An important Q u alificatio n should be made in these data When
comparisons arc made between the two h is to r ic a l periods, le t income1
anr1 d e fic it s in the early Periods are computed without including ingross income dividends received from domestic corporations. l^et
income is understated and d e fic its are overstated as comp*"'red with
t^e la te r period vrhich includes th is item in income. A lso , these
data f a i l to re f]e ct a l l the reductions in the net operating loss
for various items of tax-exempt income. P a rticu la rly for the
fin a n cia l group th is adjustment is important. T^ere seemed to he
no basis for making a sa tisfa cto ry correct'on for either of these
fa c to r s .
I I 4 Machinery and A llie d Products study
The Machinery and A llied Products In s titu te issued a report on
the subject o f the lo ss carryforward, based on a study of Uoo large
Companies for the period 1Q29 to 193'^* !_/ ^ s y concluded t -at a
lo ss carryforward of at le a st 6 years was necessary to o fî s et the
losses of the majority of companies producing capital goods. Their
conclusions were based on the following resu lts o f th eir study:
Percent o f companies fu lly o ffs e ttin g losses
under various carryforward periods aJ

Carryforward
period

:
:
:

219 capital
goods
companies

Total

2 6$

ii

59

2

19

69

35
U2

3

ii
Up
67

75

51

1

U
6
7

66
60

S

9U

9

1/

1 S1 con—
:
sumption goods :
companies
:

Ug$

0

y

:
:
:

100

62

61

65
66

70
75

91
qU

gi

100

100

65

Including those reouiring at least as long a.s the period
unabsorbed loss
indicated, i.e., those which still had an :
at the end of the period.

Capital Goods Industries and Federal Income Ta ration, July I 9 U0 . ’"

-

20

-

Although this study is a large sample, it was not a random
selection. Therefore, the results should "be used with caution.
Moreover, t^e companies studied are large companies for which pub­
lished financial reports wore available-, hence, conclusions regarding
small companies_cannot he ma^e. Finally, the study was limited to
the number of companies receiving a loss offset under various carry­
forward periods, Ho indication is given regarding the amount of the
loss offset by various carryforward periods, nor is it possible to
Judge from this report the relative importance of the loss not fully
offset. Finally, it must be borne in mind tuat the period studied
was t^e most drastic period of deflation in "scent economic history,
III,

(xroTres* study of Wisconsin corporations

A recent studv has been made by ^erold M, Proves of the conse­
quences of loss c a r r y f o r w a r d s on 6 0 Viisconsm corporations in the
period 1^30^-19^2, l/ This study, follows closely the method and
formulation of thetnreceding study with one important addition ~ the
attempt to estimate the revenue consecuences from lengthening the
loss-offset period.
The data, developed in the study are summarized in the fable below:

Humber of
years of
loss
carrvfor* •rard

lgio
hU

%

¿2

6

TO
yli
gU
g9

g
10
12

T/

Percent of
;
companies
: Percent of
:offsettable a/ :
with full
:
loss offset :loss deducted

2

0

a/

:
:
;
:

0
30
55
go
96

Percent re—
duct ion in
tax base
0
k

7
11

99

13
13

100

Ik

Heh’e defined to mean the total losses which could be
offset und er a 1 2 -vear carryforward,

Harold M, Groves, Postwar T axation and Economic Progress,

83

-

21

-

These data indicate that for the period of the study, expansion
of the length of the carryforward would have substantially increased
the percentage of losses offset* An increase from 2 to 4 years would
have nearly doubled the amount of loss offset; from 2 to 6 years,
nearly tripled it; and from 2 to 8 years, something more than triple*
From 8 years on, however, the increase in losses offset declines sharply*
The conclusions of these data are subject to similar qualifi­
cations as those for the preceding study* Although the sample was
selected at random, it is extremely small (1 4 * 4 5 1 Wisconsin corpo­
rations filed Federal income tax returns in 1941* of which 7,753 had
net income). Moreover, the effect on tax revenues from increasing
the carryforward period may be substantially understated* Since the
period was 13 years in length, a full 1 2 -year cariyforward was only
possible for 1930 losses. Hence, Groves is comparing one observation
of a 1 2 -year carryforward with three observations of a 1 0 -year carry­
forward, etc., with eleven observations of a 2 -year carryforward*
The tapering off of the increase in revenue loss does not necessarily
follow from these data.
IV.

Bureau of Internal Revenue study

An unpublished study by the Statistics Section of the Income Tax
Unit, Bureau of Internal Revenue, was made of 3*284 large corporations
for which data were available from 1917 to 1942. l/
The results of
this study are indicated below*
Percent of companies receiving full loss
offset under various carryforward periods
: ConCa rry- :
:
Manu­ :Publi c :
forward: Total: Mining: factur­ :utili- :Trade Service :Finance :struc- ‘Agricul* ture
: tion
pe ri o d :
:
ing
: ties :
0
16.43 7.9#
4
55.9 47.2
5
62.1 56.2
6
65*4 5 7 . 3
7 or
more 9 7 * 4
94*4
Number
of companies 3* 284
89
Percent 1 0 0 $
2*7$

16.1$
63.9
69.6
72.6

18.2$
47.7
50.0

12.83
41.0
46.0

68.3

40*4$
62.5
64.8
65.7

5 2 .3

5 0 .8

9 8 .1

97.7

9 9 .0

95.5

9 3 .8

1,737
52.9#

213
609
6.5# 18.5#

15.1$
57.9
6 4 .9

44
.3 #

1

564
17.2$

1 0 .5#
4 7 .3

57.8
57.8
1 0 0 .0

19
.6 $

11.1$
33.3
55.5
55.5
8 8 .9

9
.3 #

1/ Data were available for all years for 2,224 corporations and for
25 of the 26 years for the remaining 1,060. For this latter group,
it was assumed that the missing year was a year of loss of such
magnitude as to be absorbed by one year's income*

84
-

22

-

The difference "between the totals and 100 percent represents
the number of companies with, unabsorbed losses at the end of the
period under consideration. However, if these losses were sustained,
in a year 7 years or more before t^e end of the Period, they were in­
cluded in the carry£or ward period of 7 or more years.
The same qualifications must he made regarding this study as
were made for the preceding ones, except that a substantially longer
period is co^ered by it. As will be noted, from the sample, jumping
from no loss carryforward t o a H—year carryforward increases the
percentage of companies that were taxed only on net income from lo
to ^6 percent. These percentages can,be compared with IS and 62
percent for the Groves * study, and 2b and 6l percent for the Machinery
and Allied. Products Instituted study. These studies, respectively»
indicate that the percentage of companies with full— loss offset within
a 6— year period would be 6 5 , 70 and 75 percent f
Y.

Treasury Department, Division of Tax Research, study

•An unpublished study of aggregate data from corporation tax
returns for the period 1021-19^7, made by the Division of Tax Research
of the Treasury Department, estimates the proportion, of corporate losses
that would have hear offset and the reduction in the tax base bv
carryforwards and carrybacks of various lengths during that period.
TablesIY and Y show the estimated proportion of losses, off set, and
Tables YI and YII show the estimated percentage reductions in the tax
base, for carryforwards and carrybacks of 1 to 6 veers.
Thè findings of this study are subject to important reserva­
tions, arising out of the aggregate approach. The estimates of the
proportion of losses offset and the percentage reductions in the taxbase are both overstated by an unknown, but perhaps considerable,
margin. The method used dees not drop out of the losses carried
forward those losses sustained by firms that go put of business,
and it includes in losses carried, back those losses sustained by
new firms not in existence during the whole of the carryback period.
Moreover, the method of estimation shows absorption of a part of the
losses .sustained Ty firms that stay in business but that never
realize net income.
In both cases, the aggregate approach includes
in the estimated loss offsets some losses that could in actual
practice never be offset. The findings of this study, like those of
the other studies mentioned, are influenced bv the particular economic
conditions of t^e period covered.
The particular pattern of economic
fluctuations in the period 1921—IPh^ accounts for the differences
between the effects of carryforwards and carrybacks.

85
- 23 -

Table IT
proportion of oorporate losses of each year, 1921-1942,
offset hy carryforwards of various lengths

Year
of
loss

* 1 year

: 2 years :

1922

,0 & 5

.030
.034

1923
1924
1925
192b
192?
192S
1929
1930
1931
1932
1933
193U
1935

,04l

.0 9 1

1921

.

Length of carryforward

,037

3

1 5 years * 6 years

1 \i

years * 4 years *•
.113
.1 3 2

64
.177
.130
.194

.207
.217
.227
.2^5

.2 0 3

.1

,246
.2 6 2
.2 7 6

.0 5 2

.101

.0 5 2

.0 9 2

.138
.1 U 5
.1 U 9

.cU9
.057

.103

.1 6 0

.189

.2 3 1
.2 0 5

.1 1 6

.1 6 4

.1 7 4

.187

.0 6 3

.0 9 6

.147
.ll4

.1 2 5

.1 3 9

.035
.020
.012

.0 5 U

.0 6 5

.101

.1 5 9
.1 2 6

.0 3 2

.0 U 7

.0 9 5

.0 5 0

.0 1 6

.023
.039

.030
.069
.077

.0 6 6

.n 4

.1 6 0

.l4i
.170
.189

.0 2 3

.0 5 0

.098

.1 7 5

.2 1 5

.023

.078
.100
.085
.031

.1 2 6

.1 U 5
.157
;-i7^
.131

.1 9 7

.2 U 5

,224

.3 0 0

.2 6 1

>357
.427

.0 5 1

1936

.0 5 2

1937
193S

*0 3 5
.0*4-3

1939

.0 6 0

.152

19^0
19Ul
1 9^2

.0 9 S

.2 1 5
.2 6 5

.1 3 0

,1 5 5

.1 0 5

.1 3 2
.1 2 9
.1 3 6
.1 9 3
.2 6 2

.337

.2 2 1
.2 9 8
•3 7 6

.124

.3 2 2

.'407

.271
.246
.2 1 5

86
- 24 -

Table

V

Proportion of corporate losses of each year, 1922-19^-3>
offset "by carrybacks of various lengths

fear
| 8

less

•

LerLgth Of carryback

* 1

-f
year * 2 years ] 3 years * 4 years ] 5 years * 6 years

1 .9 2 2

.0 2 3

1923

*022
*021
.020

.0 5 9
.0 5 6

.051+

.097

.0 1 9

.0 5 1

.0 9 2

.1 3 1

.018

,048

.087

.12*+

1928

.0 2 9

.0 66

1929
1930

.035

.0 6 8

1924
1925
1926
1927

.0 3 1

.0 7 2

.o4o
*o4i
.041

.101

.2 0 5

.159

.275

.124

.1 7 6

.2 7 2

.193
.184

.237
.227
.19 6
.171
*137

.1 6 0

.0^9

*057

.0 9 0

1936

*0 3 2

.0 5 0

1937
193s
1939

.018
*010

.029
.024

.0 1 3

.0 3 2

.0 5 6

.018
.022

.o4i
.064
.079

19U 2
19U 3

.0 3 8

• 035

.060

.2 6 2

.2 2 5

.212

,133
.150
,i4o
,109
*0 6 l
• o !+3
.044

19^1

.246

• 159

1932
1933
19 3U
1935

19U 0

.148

.183
.173
.197

.101
.112
.ll6

.082
.082
.091
.107

1931

.1 3 2

.085
.1 0 9
.1 0 7
.0 9 5

.159
.121

.2 ^ 7
*208

.187

.0 7 6

.098

.1 2 6

.064

.0 9 1

.142

.0 6 9

.117

.103
.133
,i4o
.148
.142

.1 5 3
.1 6 6

.1 6 9
*188
.2 1 4

.202

.2^5
.30 0

.2 2 7

*357

.185

87

- 25 ~
Table VI
Percentage reductions in corporate tax base of each year, 1922-19*+3>
attributable to carryforwards of various lengths

:
Year

1922

) 1 year

Length of carryfbrwe.rd
V
•
’ 2 years ; 3 years ■ U years * 5 years * 6 years
•
*'
■•

1926

2.1$
1.2
1.1
1*2
1.1

3.2$
2.2
2.3
2.2

1927

1 .2

2 .2

1928

1.3
1.3

2 .U
2 .6

3 .6

1 .6

2 .8

U.o

2 .6

U.2
6.3
7.9
7.1
5.2

1923
192H
1925

1929
1930
1931
1932
1933
I9 3 U
1935
1936

3-9
U .2
3.0
2.3
2.5

U.l$
3.3
3*2
3.3
3.4

.

'4.5
5.0
9.3

5 .9 #
5.2
5.3
5.5
5.S
7.5
1 0 .U

1 0 .U

1 1 .9

1 3 .0

1 0 .8

13.3

7
15.3
19.^
15.5
11.3
9.2

1 2 .8

9.3
9.3

1U.7

6 ,8

1 0 .U

1937

1 .6

193s

1 .6

3 .1

1939
1 9 U0

1.9
1.3

3.*+

19^1

l. k

3 .1
2 .6

19^2

1 .0

2 .2

U.2
3*2

.6

l.U

2 .5

U *

2.9
T

U.2
U .2

5.h
8 .1

5 .5
^ .0

19^3
Average

r-

0•*-7°

5.3
U .8

u.u

7.9
6 .8

5.6
5.U
3*3
6 *0

7 .5

7*036
6 .2

6.3
6 .8
2 .3

11.4
1U.1
1 5 .6
1 6 .7
2 2 .6
1 9 .9

l6 . 0
12.3
9*6

S.k

8 .1

5.5
U.5

G.k

7.7

9 .^

5.3

- 26

Table VII

Percentage reductions in corporate tax base of each year^ 1921—194-2*
attributable to carrybacks of various lengths

Length of carryback
Year

1921
1922

1923
19241925
1926

1927
1928

1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940

19a
194-2

; 1 year : 2 years : 3 years : 4 years : 5 years : 6 years'

1 .1
1 .2

2 .2$
2 .2
2 .2
2 .2
2 .A

1.3
1.3

2 .8

1 .2$
1 .1
1*2

1 .6
2 .6

3.8
A.2

3.1
2 .2

1.9
1 .2

1.7
2 .1

1.5
1 .6
1 .1

•6
.5

2.5
4.0
6 .3
7.9
7.2
5.4
4-.1
3.0
2*43.6
3.6
3.0
2,7
1.7
1 .1

3.3$
3.1
3.3
3.4
3.6
3.9
5.1
7.3
1 0 .2
1 0 .8

9.5
7.3
5.3
4.1
3.8
5.0
5.1
4.2
3.3
2 ,2

4.2$
4.1

4*4
4.5
5.0
6 .1

5.1$
5.2
5.5
5.8
7.0
9.0

8.3

1 1 .8

1 1 .0

13.0
13.0
11.4
8.5
6.4
5.4
4.8
6 .5

13.6
15.1
14.7
12.5
9.7
7.7
6.4
5.9
7.5

6 .2

6 .8

4.7
3.7

5.2

6 .1$
6 .2

6.7
7.7
9.9
12.3
1 4 .2

15.5
1 6 .8
1 5 .8

13.6
1 1 .0

8.7
7.3
6.7
8 .0

7.2

89
~ 27 -

APPENDIX B
The Statutory Development of Net Doss Carryovers
and Carrybacks

I ,

Bevenue Act of 1918

Net losses sustained in one year were first recognized as a
deduction in the computation of the income tax for another year in
the Bevenue Act of 191$, It provided that any-taxpayer (individual
or corporation) who had sustained a net loss for any year beginning
after October 31» 19^-8 and. ending prior to January 1, 1920, could
apply the amourt of such loss against the net income of the prior
taxable year. If the net loss was greater t Ian the net income of
the prior year, the taxpayer was allowed to apply the excess against
the net income of the succeeding year.
Por the purposes of this one year carryover and carryback, the
term Mnet loss” was restricted to net loss resulting either from the
operation of any business regularly carried on by the taxpayer or from
the salt by the taxpayer of certain war facilities.
So limited,
the net loss was the excess of the deductions allowed by law over
the sum of the gross income plus any tax-exempt interest.
In addition,
the deduction allowed, to corporations for dividends received from
ot^er corporations was excluded, from those deductions which were
taken into account in determining the amount of the net loss to be
carried, over ©r back.
In 191$ there were no special provisions for
capital gains and losses; accordingly, there was no adjustment with
respect to such gains and losses.
It should be noted that under this
first provision no adjustment for tax-exempt income was to be made
with resnect to the net income for the years in which the net loss
deduction was to be taken.
II,

Bevenue Act of 1921

#The 191$ Act provided only for net losses of taxable years
falling within the 1^— month period, October 31, 191$ and January 1,
19 2 0 , There was no provision for any net losses which arose in 1920,
The Bevenue Act of 1921, however, did provide a two-year carryover
of net losses arising after 1^20, The provision contained in the
19lg Act with respect to losses resulting from the sale of war
facilities was not continued in the 1921 Act, The other limitations
that were in the 191$ Act were continued with certain additions.

-

2S -

Ret losses resulting from the operation of ©, trade or "business
were specifically stated to include losses from the sale or other
disposition of capital assets used in the conduct of such trade or
"business, The Bureau of Internal Revenue had construed the provisions
of the 191?? Act to exclude such losses from the computation of the '
carryover and carryback« TKe 1921 Act also refined the tax-exempt
interest limitation somewhat "by providing that the net loss should
he reduced only Ty the.excess of such tax-free interest over the
interest paid on indebtedness incurred or continued to purchase the
tax-exempt obligations.
Two additional limitations were incorporated by the 1921 Act*
Pirst, the net loss was to be reduced by the excess of the losses not
sustained in the trade or business over gains or profits not derived
from such trade or business; and * seco'ndly, the net loss was to be
further reduced by the excess of the discovery— value depletion d.e—
dnction over cost depletion* In 1921 there was no special adjustment
for capital gains or losses* At that time, capital net gains were
for the first time taxed at a reduced rate, .Capital losses were
required to offset gains to the extent thereof, and, if they
exceeded gains, they were deductible in full,
III,

The Revenue Act of 192^

The Revenue Act of 192U is the first act containing a somewhat
mature system for carrying over net losses. The provisions of t m s
Act follow the general outlines of the prier acts, but srell out the
limitations more accurately. Thereunder, a net loss is defined as
the excess of the deductions ov-r the gross income, subject to the
following adjustments:
(l)

Reductions not attributable to a trade or business
are allowed enly to the extent of the gross income
n*t derived4 from such trade of business;

(?)

In the case of Individuels, capital losses are
allowed only to the extent of capital gains;

(3)

The excess of ^isco very— value depletion over cost
déplétion is not allowable;

(li)

In the case of corporations, the deduction for
dividends received is not allowable; and

(5 )

Tax-free interest (decreased by the interest paid or
accrued to carry the tax-exempt securities) is
included in gross income*

~

25 -

The provisions of the 192^ Act form the "basis for the rrovisions
of the next two revenue acts. The only new limitation appears in
the He venue Act of 1 9 2 S, to the effect that in computing the net loss
for any year a net loss for prior years shall not he allowed as a
deduction.
Since this limitation had "been applied hy the Bureau of
Internal Revenue ever since the introduction of the net loss carry-»
over in 1 9 1 S, it meant no change in policy.
IF.

Revenue Act of 19 3 2

The Revenue Act of 1 Q32 continued the prior provisions for a
net loss carryover with the same limitations, hut the loss .was per­
mitted to he carried over f?r onlv one year. This Act also cut down
the net losses arising in 1230 dnd 1931 to a one-year -carryover# The
carryover of losses arising in 1°32 and subsequent years was elimi­
nated. hy the National Industrial Recover:''’’ Act of 1933*
F#

The Revenue Act of 1939

T^.e net loss carryover did not again appear in the law until
the Revenue Act of 1939» This Act added to the Internal Revenue Cod.e
a new section to provide for a. two-year carryover of net operating
losses, which has remained in the law basically unchanged hy any
later acts. The definition of net oneratiEg loss under section 122
is substantially the same as the ’’net loss” in the 1932 Act, with the
same items offset against, the loss.
For the first time, the carryover provisions, as added to the Code
by the 1939 Act, required that the adjustments (except the adjustment
relating to deductions not attributable to a trade or business) be
made in the computation of the income of the year to which, the loss
is carried as well a.s of the year in Which the loss occurred# The
loss was not oermitted to offset taxable income until after it bad
offset the items of tax-exempt income eliminated, in the year of loss
(with the exception of partially tax exempt income of individuals).
FI#

The Revenue Act of 19U p

-he last changes made in the net operati rg loss Provisions wero
enacted as a part of the Revenue Act of lQb-2, which "permit,^ ed a twoyear carryback of the net operating loss, in addition to the two-^ear
carryover#
The other changes were of a technical nature, amending
the limita.ti.on with respect to capital gains a.n^ losses in ort'er to
conform to the more lenient treatment of capital apins and losses
und.er the 19U2 amendments to the Code.

92
- 30 -

Generally speaking* the net lo ss o ffs e t under the statute has
followed the total-income theory, th at i s / i t has brought in items
of tax-exempt income in determining whether or not a lo ss has been
sustained* and in determining the amount of deduction in any year.
Certain additional adjustments might also be made i f the above p o licy
were to be followed s tr ic tly * For example, an adjustment night
be made in the case o f the Western Hemisphere Trade Corporations to
take in to account the income excluded from the surtax; and a sim ilar
adjustment might be applied in the case of public u t i l i t i e s with a
surtax cre d it fo r preferred dividends* These and other adjustments
Thich might be made would probably be in ad visab le, fo r they would
achieve l i t t l e more than complexity.

October 194-7

93
TREASURY DEPARTMENT
Washington
(The following address by Edward H. Foley, Jr*,
Assistant Secretary of the Treasury, at a
testimonial dinner honoring officers and crew of the
Coast Guard Cutter J I B B in the main ball room,
Copley Plaza Hotei, Boston, Massachusetts, is scheduled for
delivery at 7:00 p.m*, E*S»T*j Wednesday« October 29s 19.^.7 *....—
and is for release at that time*)

The Secretary of the Treasury, the Honorable John W. Snyder, could
not be here tonight but he has asked me to represent him and give you
this message:
UI want to express to the people of Boston, as
represented by the Maritime Association of the Boston Chamber
of Commerce and the other organizations sponsoring this
dinner, my very deep appreciation of the spirit in which this
honor is being paid to the personnel of the United States Coast
Guard Cutter BIBB, who are with you tonight. And while you
are honoring individually these men of the BIBB, I feel that
you are also honoring through them the entire Coast Guard* I
sincerely regret that a previous engagement prevents my being
at your dinner and telling you of my appreciation in person*
«This occasion is a testimonial in which every American
can join.
I will long remember that morning some two weeks
ago when I received an operations report from Coast Guard
Headquarters that an air-liner with 69 persons aboard had
been forced down in the vicinity of the Cutter BIBB. For an
entire day and night we all awaited the outcome of the
careful plans laid by Captain Cronk and his crew to ensure
the safe transfer of everyone aboard the aircraft. Winds of
gale force, an extremely rough sea, and the fatigue and
sickness of many of those on the plane rendered the rescue
problem most difficult and hazardous.' The fact that all
sixty—nine persons were saved without loss or injury is
stirring proof of the valor, seamanship and stamina of the
men on the BIBB*
I should like to add that Captain Cronk
has recommended a number of his officers and men for
decorations in recognition of their heroism and outstanding
service, and I look forward to the pleasure of presenting
these docorations ana congratulating their recipients
personally. To all hands I say again .*— well done.’
"My best wishes for a very pleasant evening."

;

The Coast Guard enjoys a long and heroic record in the
saving of human lives, of which the BIBB1s rescue and the
assistance rendered even more recently by Coast Guard
vessels to the residents of Bar Harbor are current chapters*

S-506 ••

94
-

2

-

The people of Boston — th* men of the fishing fleet especially —
have witnessed many other examples of the Coast Guard's readiness in all
emergencies* The tribute you are paying to .these Coast Guardsmen^ tonight
may well be regarded as honoring also your seafaring tradition, since
one-third of the BIBB’S personnel are from New England* And,
incidentally, most of the New Englanders on the BIBB are from the
Commonwealth of Massachusetts.
This occasion gives further evidence of
the close connection that has always existed between New England and
the Coast Guard since the founding of the service in 1790. ^ It is of
interest, I think1
, to note that the first commissioned officer in the
Coast Guard was a New Englander — Captain hopley Yeaton of Durham,
New Hampshire* He was only the first of a long list of outstanding
officers and men from this area who have served their country bravely
and honorably through the Coast Guard. And I can assure you that the
Coast Guard has always relied on the cooperation which they have un­
failingly received from the people of -New England.
Today the Coast Guard has heavier responsibilities than it^has
borne at any time in the past, and it is operating under more difficult
conditions. For more than 150 years, the Coast Guard has given many
types of assistance to mariners as well as having served^with the Navy
in every war in which our country has been engaged. Until 1939> however,
there were few changes in its organization. In that year the former
Lighthouse Service was made a part of the Coast Guard. Shortly there­
after began the greatest expansion the Coast Guard has ever experienced
as the Nation prepared to defend itself against aggression*
From a prewar strength of approximately 12,000 the Coast Guard
expanded to some 170,000 during ¡/forId Mar II* In 1942, the Coast Tuar ,
by Presidential Order, took over most of the' functions^and personnel of
the Bureau of Marine Inspection and Navigation, and this move placed
under one organization for the first time both the regulatory au o n y
to promote maritime safety and the rescue facilities to cope with
disasters.
During the war, the Coast Guard continued prectically^all of its
peacetime tasks o n ,a greatly expanded scale. In addition it took over
such strictly wartime functions as escort and convoy duty, u
manning
of troop and cargo transports, and the operation of landing era
on
invasion beaches*
With the end of the war the Coast Guard faced major problems.
n
the first place, there wqs a very rapid demobilization. In the course o
a single year the personnel of the Coast Guard 'was reduced by over
7/8ths to its present strength of approximately 20,000^ officers and men.
The Coast Guard, in common with the rest of the Executive branch of the
Government, was determined to reduce its expenditures to Jie owes
possible point consistent with service. Many of its wartime functions
should have been, and were, quickly eliminated.
But the Coas
usr
greatly enlarged peacetime responsibilities. Many of these u les were
the result of wartime technological developments. Some of
xe mos
important of these are the ocean weather station program m
0

95
- 3 maintenance of Loran stations —
range position-finding at sea.

the war-born electronics system of long

In addition to the enlargement of its traditional functions because
of war time developments the Coast Guard has had entrusted to it
important new statutory duties including the inspection of merchant ships
and the licensing and documentation of merchant marine personnel, formerly
performed by another Government Department# It is evident that the
Coast Guard of today cannot be compared with the 1939 model#
I have previously mentioned the ocean weather station program as one
of the wartime developments which has enlarged the peacetime
responsibilities of the Coast Guard# It was this program that made
possible the rescue of the passengers and crew of the Bermuda Sky Queen*
The BIBB was not in mid-Atlantic by chance when the Sky Queen landed
beside her, some 800 miles East-Northeast of Newfoundland#
She was posted
there as weather station 11Char lie", a link in a carefully thought out
chain of ocean station vessels which someday we hope will extend across
the Atlantic in positions such that no aircraft would ever be more than
one and a half hours flying time away from a source of rescue.
The weather ship operation began in the winter of 194-0 — one of the
most vicious seasons ever recorded in the North Atlantic# The Coast Guard
cutters assigned to this duty clung to their stations through long sieges
of dirty weather and their reports made it possible to furnish accurate
aerological reports to the bombers and transports flying to the British Isles.
After V —E Day it required twenty—two ocean stations, thirteen of which were
operated by the United States, to assure the safe redeployment of planes
and personnel across the North and South Atlantic for the war against
Japan# A similar operation was maintained in the Pacific# These stations
were a major factor in enabling us to make thousands of transoceanic
flights with only negligible losses. By May 194-6»
demobilization
program forced the Coast Guard to discontinue all but one of its ocean
stations# In September of the same year, the Provisional International
Civil Aviation Organization, known as PICAO, took steps to provide a
permanent network of ocean weather stations in the Atlantic# The present
program is sponsored by the ten nations most interested in the trans—
Atlantic route — the United States, the United Kingdom, oanada, Ireland,
France, Belgium, the Netherlands, Norway, Sweden, and Portugal. The
Chicago Convention on International Civil Aviation, drafted in December
1944- and later ratified by the United States Senate, provided that^
Governments interested in maintaining radio aids to aerial navigation
and other facilities on the high seas might enter into joint support
arrangements to provide these facilities# The International Agreement ^
on North Atlantic Ocean Weather Stations is such an arrangement, and this
Agreement was accepted for the United States by President .Truman in
September of this year.- The United States is thus committed to maintain
seven stations entirely with our own resources and one station join y
with Canada, out of a total of thirteen# So far, Congress has
appropriated funds to maintain only two stations out of our total commitment
of seven and one-half in the Atlantic. The two American stations are now operat
ing# .The BIBB was on one of those stations* -W© intend to submit ..to the next

-

u

-

96

regular session of the Congress an urgent request for the additional funds
necessary to operate the other five and one-half stations#
The other nations involved are also taking steps to provide their
portions of the pro gran. The United Kingdom is operating one of its two
stations* France is expected to place her station in commission next month*
and the station operated jointly by Belgium and the Netherlaids is now
functioning#
I know that the offic c-rs and men of the BIBB would want me to say
something of the doily work of all the ships of the Weather Patrol#
This work has on many occasions been the means of averting the necessity
for such dangerous missions as the BIBB has recently carried out# Timely
’weather reports or welcome beacon signals from weather station vessels
have often meant the difference between a successful crossing and possible
disaster#
,
Three ships are required to man each weather station and each ship
usually remains at sea about a month# These vessels have a crew of
approximately 125 officers and men* including the medical staff* plus
four United States Weather Bureau observers and meteorologists# All
vessels have a complete array of scientific meteorological equipment*
comparable,in scope to that found at a first-class airport* . They also
carry air and surface radar* a radio beacon* ‘
and all the equipment needed
to perform rescues at sea* In the course of future operations* it is the
Coast Guard’s intention to rotate all its major cutters on weather station
duty — basing them in Boston* New York and Norfolk#
For these of you who haven’t done it* life aboard these Coast Guard
weather ships* maintaining a position within an area of 10 miles square*
is lonely and trying* both physically and mentally#
Rarely in the
North Atlantic do stretches of good weather appear — for the most part
the days are overcast and stormy* with high seas running* and the constant
pitching and rolling of the cutter makes even sleep difficult# In spite
of the fact that the, food is as good as we can make it and all passible
recreation is provided* the duty is dreary* monotonous and routine#
Howqver* the men on these vessels realize that theirs is one of the most
important* as well as one of the most difficult* of all Coast Guard
assignments#
It is the responsibility of the Weather Bureau personnel on ocean
weather station duty* assisted by Coast Guardsmen* to obtain and transmit
twice daily* reports through Coast Guard Radio Washington to the
Weather Bureau for distribution through its normal channels# This weather
information is also sent by short wave to Europe# Part of this work
entails surface observations every three hours* and observations for the
purpose of recording the temperature, humidity and pressure cf the upper
air at various altitudes* obtained by means of radio transmitters suspended
from large balloons. The aviation companies engaged in ocean traffic^
make wide use of the information so received* basing their flights largely
upon these weather reports# Ultimately* when all thirteen ocean weather
stations are completely manned* the pay load cf commercial airliners
should show a marked increase ever that now carried. It will no longer

97
- 5 be necessary for airliners to carry such large quantities of extra fuel
simply because of unknown weather conditions along many parts of their
route»
Surface vessels, too* benefit from the various services offered by the
ocean station vessel, receiving the latest weather information and using
the radio beacons, to check on their position aid speed. The proposed net­
work of ocean station vessels will provide the best distress listening
watch across the Atlantic ever offered to merchant ships#
All of these services are, if I may borrow a term from medicine,
"preventive" measures — that is, measures’designed to prevent accidents
by providing the most modern scientific aids to safe navigation#
Although we are making every effort to prevent accidents, we must
always be prepared to bring our rescue measures into play, Such was the
BIBB* s mission#
The Bermuda Sky Queen had left Foynes, Irelaid, for Gander,
Newfoundland, at 3:^0 P.M. on October 13th. The plane was picked up on the
BIBB’s radar as she passed over. Some 100 miles to the west, and beyond
the point of no return, Captain Martin of the Sky Queen found that
violent headwinds had eaten so deeply into his fuel supply that he
concluded he could not risk going on to Gander. He then made the
decision to double back to the BIBB* At about 7 A.ivI*, the BIBB received
a report that the Sky Queen vías returning to Weather Station "Charlie"
for a landing.
A short time later the aircraft was sighted and radio
communication was established for landing# After a perfect landing on a
sea where the wav^s were running as high as thirty-five feet, the drama
of the rescue began#
The forecast indicated moderating weather. This would have materially
reduced the hazard of rescue both to those on the Sky Queen and to those on
the BIBB. Because of this forecast, and since it was evident that the ^
plane was in no immediate danger of sinking, the officers and crews o
both the BIBB and the Sky Queen commenced to lay plans to begin the
rescue as soon as the weather moderated. By three o ’clock in thé
ernoon,
however, the weather had' shown no signs of moderating as forecast and
the plane was beginning to leak. As a consequence, the signal Wc.s given
to begin the transfer immediately despite the high seas which were still
running. Three merchant seamen who were aboard the Sky Queen volunteered
to make the first trip in a small rubber life raft, and they were Picked
up successfully by the cutter# After that, the race against time an
wind and water was on. A bigger raft was Drought into use and comp e e
three trips safely. On the fourth trip, with lb persons aboar ,
e
raft broke adrift# a motor surfboat was sent to the raft's aid a m both
were swamped# As the surfboat began to break up, the BIBB moved in
with seamen over the side on landing nets. The lifeboat by ihis
time was completely awash and several pers:ns were overboard.^
y
miracles of courage and effort ail those on the surfboat and in he

"tiçu'lurly dis t in gu:
water were rescued# ’ Several of the BIBB* s c r e w ____________
themselves in this phase of the rescue and all accounts speak highly of
the calmness ard cooperation displayed by those from the aircraft*
By this time darkness had fallen arid operations were suspended with 22
persons still on the plane* Early the next morning the BIBB radioed
‘‘all passengers and crew safely aboard” ,and four days later she steamed
proudly into Boston Harbor with a broom lashed to her masthead©
We all join in congratulating Captain Cronk for the cool calculation*
daring and skill with which he conducted the operation* the entire ship’s
company for their courage ard steadfast devotion to duty;and ail hands who
in the life boats* on the landing nets* m d in the water willingly risked
their lives that others might live*
The Treasury Department once more has occasion to be proud that the
Coast Guard is one of its components# I join Secretary John W. Snyier
in saying to you men of the BIBB that your performance;in the rescue
of all the persons aboard the Bermuda Sky Queen was in the Coast Guard’s
finest traditi on*.
It is equally in the finest tradition of this great seaport that it
should have been alive to the significance of this rescue" and arranged
this splendid dinner in honor of Captain Cronk and his gallant crew©

99
TREASURY DEPARTMENT
Washington

FOR RELEASE, MORNING NEWSPAPERS
Tuesday, October 21, 1947._____

Press Service
No. S-507

The Secretary of the Treasury announced last evening
that the tenders for $ 1 ,100 ,000,000, or thereabouts, of 91day Treasury hills to he dated October 23, 194-7, and to mature
January 22, 1948, which were offered October 17, 194-7, were
opened at the Federal Reserve Banks on October 20*
The details of this issue are as follows:
Total applied for - $1,513,865,000
Total accepted
- 1,103,005,000 (includes $31,192,000 entered
on a non-competitive basis and accepted
in full at the average price shown below)
Average price

-

99*784 Equiv. rate of discount approx.
0 .855^ per annum

Range of accepted competitive bids:

(Excepting one tender of

$50,000)
High - 99.813 Equiv. rate of discount approx. 0.740$ per annum
Low - 99.781
"
n
"
"
"
0*866$
”
"

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

Total
Applied for

Tòtal
Accepted

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

$

$

TOTAL

5,555,0 0 0
1,3 9 0 ,5 2 2 ,0 0 0
11,2 8 5 ,0 0 0
2 , 480,000
5,36 0 ,0 0 0
3 , 591,000
33 , 075,000
2 , 455,000
10 ,2 5 0 ,0 0 0
16 ,9 3 7 ,0 0 0
7 , 445,000
2 4 , 9 10,000

$ 1,5 13 ,8 6 5 ,0 0 0

0O0

,

5,555,0 0 0
9 9 8 ,9 12 ,0 0 0
11,2 8 5 ,0 0 0
2 , 480,000
5,36 0 ,0 0 0
3 ,o 4 i,o o o
18 , 045,000
2 ,3 5 5 ,0 0 0
9 ,3 5 0 ,0 0 0
16 ,2 7 7 ,0 0 0
7 ,4 3 5 ,0 0 0
2 4 , 9 10,0 0 0

$ 1,10 3 ,0 0 5 ,0 0 0

TREASURY DEPARTMENT
Washington

FOR RELEASE, MORNING NEWSPAPERS,'
Friday, October 24,,1947.

Press Service
No 4 S-508

The Secretary of the Treasury, by this public notice,
invites tenders for $1,100,000,000, or thereabouts, of 9 1 -day
Treasury bills, for cash and in exchange for Treasury, bills
maturing October 30, 1947, to be issued on a. discount basis
under competitive and non-competitive bidding as hereinafter
provided. The bills of this series will be dated October 30,
19^7, and will mature January 29r 1948, 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, $10,000,
$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, two o'clock p.m., Eastern
Standard time, Monday, October 27, 1947.
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 com­
petitive tenders the price offered must be expressed on the basis
of 100, with not more than three decimals, e-.g., 9 9 *9 2 5 .
Fractions may not be used.
Jt 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 appli­
cation therefor.
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.
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 Secretary of the Treasury
of the amount and price range of accepted b i d s . 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, non-competitive tenders for $200,000 or
less without stated price from any one bidder will be accepted
in full at the average prico (in three decimals) of accepted
competitive bids.
Settlement for accepted tenders in accordance
with the bids must be made or completed at the Federal Reserve

2

■ -

Bank on October 30 , 1947, in cash or other immediately avail­
able funds or in a like face amount of Treasury bills maturing
October 30, 1947.
Cash and exchange tenders vil1 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 , shall
not have any exemption, as such, and loss from the sale or
other disposition of Treasury bills shall not have any' special
treatment, as such, under the Internal Revenue Code, or laws
amendatory or supplementary thereto. The bills shall be sub­
ject to estate, inheritance, gift or other excise-taxes,
whether Federal or State, but shall be 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 shall be considered to be interest.
Under Sections 42 and 117 (a) (l) of the Internal Revenue Code,
as amended by Section 115 of the Revenue Act of 1941, the
amount of discount at which bills issued hereunder áre sold
shall not be considered to accrue until such bills shall be
sold, redeemed or otherwise disposed of, and such bills are
excluded from consideration as cap3_tal 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 loss.
.
Treasury Department Circular No. 4l8, as amended, 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.
0O0

*

*

101

'

TREASURY DEPARTMENT
Washington

FOR RELEASE, MORNING NET/SPAPERS
Saturday, October 25, 1947.

Service
No* S--509

Tress

/

Secretary Snyder today announced the adoption of amendments to the
Gold Regulations issued under the Gold Reserve Act of 1934* These amend­
ments are In furtherance of the request of the International Monetary Fund
that its members take measures to prevent international transactions in
gold at premium prices. The amendments supplement the statement made by
Secretary Snyder and the Board of Governors of the Federal Reserve System
asking American individuals, banks and business enterprises to refrain frpm
encouraging and facilitating this premium price traffic in gold. The amended
Regulations come into effect on November 24, 1947,
Fine geld in bar form, which the Treasury has licensed for export for
industrial, professional or artistic use, has been sold in some instances
at premium prices for hoarding* Accordingly, the present .amendments permit
only semi-processed gold to be exported for industrial use except in cases
in which the gold will be refined or processed and returned to the United
States *
The amended Regulations permit the export of gold refined from imported
gold-bearing material only when the refiners in the United States do not
participate in the sale ?»f the refined gold.
In addition, such gold may be
exported only when the exportation of gold-bearing material from the country
of origin and the importation of the refined gold into the country of
destination do not violate the laws of those countries.
In effect, the amendments implement the request of the Monetary Fund
by preventing persons and organizations within the United States from
participating in the export of gold for sale at premium prices. It is
expected that other countries will take measures of a similar nature to con­
trol activities of persons and organizations within their jurisdiction and
thereby reduce the traffic in gold at premium prices to a minimum. The
Treasury is also continuing its Study of gold transactions in which persons
within the United States may be participating.
The present amendments also make several changes of an administrative
nature in the Gold Regulations,
One effect of these amendments is to
dispense with the requirement that applications and reports under the G©ld
Regulations be sworn to before an official authorized to administer oaths*

oOo

102
.AMENDMENTS TO THE GO ID REGULATIONS

The Provisional Regulations issued under the Gold Reserve
Act of 1934 are amended, effective November 24, 1947, as followsi
1*

The title of the regulations is changed to read, ’’Regulations
issued under the Gold Reserve Act of 1934«”

2«

The following amendments are made to section 4:
(a) The definition of "fabricated gold" is amended to
read as follows;
"Fabricated gold" means gold which has, in
good faith and not for the purpose of evading, or
enabling others to evade, the provisions of the
Act or of these regulations, been processed or
manufactured for some one or more specific and
customary industrial, professional, or artistic
uses, provided that not more than 80 per cent
of the total domestic value of the processed or
manufactured gold is attributable to the gold
content thereof; but the term "fabricated gold"
does not include gold coin or scrap gold.
(b) Insert the following new paragraph between the
definitions of "fabricated gold" and "scrap gold"?
"Semi-processed gold" means gold which has,'
in good faith and not for the purpose of evading,
or enabling others to evade, the provisions of
the Act or of theso regulations, been processed
or manufactured for some one or more specific
and customary industrial, professional, or artis­
tic uses, provided that more than 80 per cent of
the total domestic valud of the processed or manu­
factured gold is attributable to its gold content;
but the term "somi-procossed gold" docs not includo
gold coin or scrap gold«
(c) The definition of "scrap gold" is amended to
read as follows;
"Scrap gold" moans gold sweepings and any
semi-processed gold or fabricated gold, tho value
of which depends primarily upon its gold content

*

2

-

and not upbn its form, which is no longer held
for the use. for which it was processed or manu­
factured*
(d)

The penultimate paragraph is amended to read

as follows:
"Wherever reference is made in these regulations
to equivalents as between dollars or currency of
the United States and gold, $>1 or $1 face amount
of any curroncy of the United States equals fifteen
and five twenty-*firsts (15-5/21) grains of gold,
nine-tenths fine*
3.

Section 5 is amended to read as follows:
General provisions affecting applications, statements^
and reports.--Every application, statement, and report re­
quired to "be made hereunder shall he mado upon the appro­
priate form proscribed by the Secretary of tho Treasury*
Action upon any application or statement nay bo withheld
pending the furnishing of any or all of tho information
required in such forms or of such additional information
as may be deemed necessary by tho Secrotary of the Treasury,
or the agency authorized or directed to act horeundor*
Thoro shall be attached to the applications, statements,
or reports such instruments as may be required by tho
terms thorcof and such further -instruments as may be re­
quired by the Secretary of the Treasury, or by such agency.

4,

Section 7 is amended to read as follows?
General provisions affecting export licenses*_--At
the time any license to export gold is issued, tho^Federal
Reserve bank or mint issuing tho samo shall transmit a
copy thorcof to the Collector of Customs at tho port of
export designated in the license. No Collector of Customs
shall permit tho export or transportation from tho conti­
nental United States of gold in any form except upon
surrender of a license to export, a copy of which has "been
received by him from the Federal Reserve bank or the mint
issuing such license:
Provided, however, That the export,
or transportation from the continental United States of
fabricated gold may bo permitted pursuant to section 16.
And provided further,
That gold held by tho Federal Reserve
banks under article“ IV may bo exported for tho purposes oi

103
- 3 -

such article without a license*
The Collector of Customs
to whom a license to export is surrendered shall cancel
such license and return it to the Federal Reserve bank or
mint which issued the same. In the event that the ship­
ment ds to be made by mail, a copy of the export license
shall be sont to tho Postmaster or the post office desig­
nated in the application, who will act under tho instruc­
tions of the Postmaster General in regard thereto«
5.

Section 9 is amended to read as follows:
Forms available»— Any form, tho use of which is
prescribed in these regulations, may bo obto.incd at, or
on written roquest to, any Unitod States mint or assay
office, Fodoral Reserve bank, or the Bureau of tho Mint,
Treasury Department, Washington 25, D. C.

6.

Section 15 is amonded to road as follows;
Gold situated in tho possessions of tho Unitod States.—
Gold in any form (other 'than United States gold coin)
situated in places subject to the jurisdiction of the
United States beyond the limits of tho continental Unitod
States may bo acquired, transported, molted or treated,
importod, oxported, or earmarked or hold in custody for
tho account of persons other than residents of tho conti­
nental Unitod States, by persons not domiciled in the
continental Unitod States:
Provided, however,
That gold
may bo transported f ron dho continental United States to
tho possessions of tho Unitod States only undor license
for export issued pursuant'to sections 25(3), 32, 33, or
34, or, if fabricated gold, pursuant to section 16*

7*

Section 16 is amended to road as follows:
Fabricated gold*— Fabricated gold may bo acquired, *
transported within the United States, imported, oxported,
or hold in custody for foroign or domestic account without
tho necessity of holding a license therefor.

8,

The last sontonco of the socond paragraph of section 19 is
amondod :to read as follows:
Such rotort spongo
by tho United States or
form TGL-12 modified to
TGL-14, but by no othor

nay bo acquired from such persons
by persons holding licenses on
deal in retort sponge, TGL-13 or
person.

104

9,

Section 25(3) is amended to read as follows:
(3 )
No liconso on f o m TGL»Í2, TGL—13 or TGL-14 shall
authorize the licensee to export or transport gold in any
f o m from the continental United States, without a supple­
mentary liconsc on f o m TGL— 15 issued by the mint which is­
sue^. tho liconso on form. TGL-12, TGL-13 or TGL-14 except
that fabricated gold nay bo exportod or transported from tho
continental United States pursuant to section 16. Export
licenses on form TGL—15 shall be issued only with the ap­
proval of tho Director of the Mint and upon application mado
on f o m TG-15 showing to the satisfaction of the mint and
tho Director that the gold to be exported is soni-procosscd
- gold and that tho export or transport from the continental
United States is for a specific and customary industrial,
professional, or artistic uso and not for the purpose of
using or holding or disposing of such semi—procossod gold
boyond the limits *of tho continental United States as, or
in lieu of, money, or for tho valuó of its gold content:
Provided, however,
That export licenses may be issued au­
thorizing the exportation of gold in any f o m for refining
or processing subject to the condition that tho refined
or processed gold (or the equivalent in refinod or processed
gold) bo returned to the United States, or subject to such
other conditions as the Director may prescribe.

10»

Section 32 is amended to read as follows:
Gold imported in gold-boaring materjais for reexport«-The United States assay office at New T'ork or the United
States mint at San Francisco, with the approval of the
Director of the Mint, shall issue licenses on f o m TGL-1S
authorizing the exportation of gold refined (or the equiva­
lent to gold refined) from gold-bearing materials imported
into the United States for refining and reexport^to the
foreign exporter, or pursuant to his order, provided the
Director and such assay office or mint are satisfied that:
(a) the imported gold-bearing material eitner
(i) was imported into the United States from a
foreign resident or a foreign organization, or (ii)
vías mined by a branch or other office of a United
States organization and imported into the United
States from such branch or office;
(b) the importer has no right, title, or interest
in the gold refined.from the imported gold-bearing

205
- 5

material other than through its branch or office
which is the. foreign exporter as provided in
subparagraph (a)(ii) above, and the importer'
will not participate in the sale of such refined
gold or receive any commission in connection with
the sale of such refined gold;
(c) the refined gold is to be reexported to the
foreign exporter or, pursuant to his order, to
a foreign resident or foreign organization; and
■(d) the exportation of the gold-bearing material
from the country of origin and the importation of
the refined gold into the country or countries
of importation are authorized under the applicable
laws and regulations of such countries;
provided, further, that such gold is imported, acquired,
and hold, transported, melted and treated as permitted in
article II or in accordance with a license issued under
section 23 hereof and subject to the following provisions;
(1) Notation upon entry»--Upon the formal entry into
the United States of any gold-bearing materials , the importer
shall declare to the Collector of Customs at the port where
the material is formally entered that the importation is
made with the intention of exporting the .gold refined there­
from to the foreign exporter, or pursuant to his order. The
Collector shall make on the entry a notation to this effect
and forward a copy of the entry no the United Stores assay
office at New York or to the United States mint at San
Francisco, whichever is designated, by the importer ,
(2)
. Sampling and assaying!--Promptly upon the receipt
of each importation of gold-bearing material at the .plant
where it is first to be treated, it shall be weighed,
sampled, and assayed fop the gold content; A reserve com^
mercial ,sample shall be retained by such plant for at least
1 year from the date of importation, unless the assay is
sooner verified by the Bureau of the Mint*.
(3) Plant records¿— The importer shall cause an exact
record; covering each importation> to be kept at the plant
of first treatment. The records shall show the gross wet

108
-

6

-

weight of the importation, the weight of containers, if
any, the net wet weight, the percentage and weight of
moisture, the net dry weight, and the gold content shown
by the settlement assay. An attested copy of such record
shall be filed promptly with the assay office at New^York
or the mint at San Francisco, whichever has been designated
to receive a copy of the entry. The plant records herein
required to be kept shall be available for examination by
a representative of the Treasury Department for at least
1 veer after the date of the disposition of such gold.
(4 ) Application for export license.--Not later^than
3 months from the date of entry the importer shall file^
with the New York assay office or the mint at San Francisco,
whichever has been designated to receive a copy of the entry
an application on form TG-1G for a permit to export refined
gold not in excess of the amount shown by^the^settlement
sheet oovering the importation. The application shall oe
accompanied by two duly attested copies of the settlement
sheet.
(5 ) Issuance of serial numbered certificates.——If
the a s s a y office or mint is satisfied as to the accuracy
of the data shown on such application, it^shall issue to
the importer a dated serial numbered certificate, which
shall show the amount of gold specified by the applica­
tion and the amount specified by the settlement sheet.
The Director of the Mint shall prescribe the form of such
certificate•
(6) Issuance of export licenses.— Upon delivery of
the serial numbered'certificate to the assay office at New
■York or to the mint at San Francisco, whichever issued the
certificate, within 120 days from the date the^certificate
was issued, and upon satisfactory compliance with^the
nrovisions of this section, the mint or assay office, with
the approval of the Director, shall issue to the importer
an export license or licenses on form TGL-16 to export
refined'gold in a total amount not exceeding the amount^
specified in the settlement sheet as shown on such certifi­
cate «
(7) Exportation^ prior to receipt of settlement sheet.
Upon a showing in the application that an exportation writh
resoect to any gold-bearing materials imported into the
United States for refining is necessary prior to the time
the settlement sheet can be procured, the assay office at

107
- 7 -

New York or the mint at San Francisco, whichever was
designated by the importer, may receive the application
with duplicate certified copies of the report of the
applicantTs actual test assay.
If prior reports of
such applicant have been approximately substantiated by
the settlement sheets, a license or licenses m a y b e
granted to export up to 90 per cent of- the amount of
gold which such report estimates will be realized from
such gold-bearing materials,
(8)
Number of licenses to be issued.--No more than
three license^ will be issued in connection with each
importation of gold-bearing material,
11,

Section 38 is amended to read as follows:

Gold recovered from natural deposits in the United
States or any place subject to the jurisdiction thereof,—
(l) The mints shall not purchase any gold under elapse (a)
of* section 35 unless the deposit of such gold is accompanied
by a properly executed statement as follows:
4 statement on form TG-19 shall be filed with
each delivery of gold b y persons who have recovered
such gold by mining or panning in the United States
or any place subject to the jurisdiction thereof.
A statement on form TG-20 shall be filed with
each delivery of gold by persons who have recovered
such gbld from gold-bearing materials in the regular
course of their business of operating a custom mill,
smelter, or refinery,
A statement on form TG-21 together with a state­
ment giving (a) the names of the persons from whom
gold was purchased; (b) the amount and description
of each lot of gold purchased; (c) the location of
the mine or placer deposit from which each lot was
taken; and (d) tho period vdthin which such gold was
taken' from the mine or placer deposit, shall be
filed with each such delivery of gold by persons
who have purchased such gold directly from the per­
sons who have mined or panned such gold.
In addition, such persons shall show that the gold was
acquired, held, melted and treated, and transported by them
in accordance with a license issued pursuant to section 23

108
-

8

-

hereof, or that such acquisition, holding, melting and
treating, and transportation is permitted under article
II without necessity of holding a license.
12.

Section 39 is amended to read as follows:
Unmelted scrap gold.-»No deposit of unmelted scrap
gold shall be accepted unless accompanied by a properly
executed statement on form TG— 22, In addition, the de­
positors of such gold shall establish to the satisfaction
of the mint that the gold liras acwuired, held, and trans­
ported by them in accordance with these regulations or a
license issued pursuant thereto,

13.

Section 40 is amended to read as follows:
Imported gold.--The mints are authorized to purchase
only such gold imported into the United States as has been
in oustoms custody throughout the period in which it shall
have been situated within the customs limits of the conti­
nental United States, and then only subject to the fol­
lowing provisions:
(1) Notation upon entry.— Upon formal entry into the
United States of any gold intended for sale to a mint
under this article, the importer shall declare to the Col­
lector of Customs at the port of entry where the gold is
formally entered that the gold is entered for such sale.
The Collector shall make a notation of this declaration
upon the entry and forward a copy to the mint designated
by the importer.
(2) Statement by importer.--Upon the deposit of the
gold with the mint designated by the importer, the importer
shall file a statement executed in duplicate on form TG-23.

14.

Section 43 is amended to read as follows:
Authorization to sell gold.— Each mint is authorized
to sell gold to persons holding licenses on form TGL-13
or TGL-14, or to persons authorized under section 21 of
these regulations to acquire such gold for use in industry,
profession, or art: Provided, however, That no mint may
sell gold to any person in an amount v/hich, in the opinion
of such mint, exceeds the amount actually required by such
person for a period of 3 months. Prior to the sale of any
gold under this article, the mint shall require the pur­
chaser to execute and file in duplicate a statement on form

\

TG-24, or, if such purchaser is in the business of
furnishing gold for use in industries, professions,
and arts, on form TG-25. The mints are authorized to
refuse to sell gold in amounts less than 25 ounces, and
shall not sell gold under the provisions of this article
to any person who has failed to comply with these regula­
tions or the terms of his license.
The regulations issued under the Gold Reserve Act of 1934 a
above amended are hereby confirmed.
These amended regulations shall become effective 30 days
after their publication in the Federal Register except as to any
importation of gold-bearing material which has been entered in
accordance with the provisions of paragraph 1 of section 32 of
the regulations prior to such effective date and except as to
any application for the exportation of gold pursuant to section
25(3) of the regulations filed prior to such effective date.

/S/ John W. Snyder
Secretary of the Treasury
Approved :

/ s / Harry S. Truman
The' White House

Published in the Federal Register on October, 25, 1S47.
(12 P.R. 6949)

TREASURY DEPARTMENT
Washington
Press Service
No, S-510

FOR RELEASE, MORNING NEWSPAPERS,
Tuesday, Octoben 28, 1947._____

The Secretary of the Treasury announced last evening that
the tenders for $ 1 ,100 ,000,000, or thereabouts, of 9 1 -day
Treasury bills to be dated October 30, 1947, anc^- to mature
January 29, 1948, which were offered October 24, 1947, were
opened at the Federal Reserve Banks on October 27.
The details of this issue áre as follows:
Total applied for
$l,44i, 104,000
Total accepted
- 1,101,584,000 (includes $31,440,000
entered on a non-competitive basis and
accepted in full at the average price
shown below)
Average price

- 99.779/ Equivalent rate of discount
approx. 0 .873$ per annum

Range of accepted competitive bids:
High

Low

- 99.815 Equiv. rate of discount approx.
0 .732 $ per annum
-99*777 Equiv. rate of discount approx.

0.882$ per annum
(69 percent of the amount bid for at the low price was accepted)
Federal Reserve
District

Total
Applied for

Boston
New York
Philadelphia
Cleveland
Richmond

$

Atlanta
Chicago

St. Louis
Minneapolis
Kansas City
Dallas

San Francisco
TOTAL

1 ,270,000
1 ,302 ,202,000
1 7 .794.000
7 .820.000
5 .668.000
1 .639.000

Total
Accepted
$

1 ,270,000
1,001,742,000
2 .794.000
7 .820.000
5 ,6 68,00 0
1 ,639,000
1 1 ,320,000
3 .089.000
5 .605.000

32.240.000
3 .189.000
5 .605.000
14.835.000
1 2 .625.000
36 .217.000

14.835.000
1 2 .515.000
33.287.000

$1,441,104,000

$1,101,584,000

TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
Wednesday, October 29, 1947 o

111
Press Service
Noo S-511

Secretary Sryder announced today that income tax agents are
investigating a number of automobile dealers alleged to have evaded
income tax on unusual profits from the resale of used cars taken at
nominal trade-in values from persons seeking new cars0
Reports to the Secretary from George Jo Schoeneman, Commissioner of
Internal Revenue, indicate that, in at least one large Eastern city,
evidence has been uncovered of several automobile dealers who were
victimizing their customers by undervaluing trade-in cars, reselling
these cars at high prices, and then attempting to evade income taxes by
omitting the profits of these transactions from their income tax returns0
Other interesting developments in the Treasury’s campaign against
tax evaders follow:
One of the largest cases developed in the South concerned a building
supply company whose owner was confronted with evidence that he had
evaded taxes on hundreds of thousands of dollars profits in recent years
ty omitting numerous sales from the books of his company© Upon being
shown evidence of his fraud, this individual agreed to open a secret
safety deposit box from which he withdrew and exhibited to income tax
investigators a stack of 517 one thousand dollar bills and $34-5,000 in
bondso He agreed to post all of the currency as a bond for payment of his
taxes, interest and penalties, which are expected to amount to
approximately the same amount©
In another large eastern case, investigators found that a shoe
manufacturer was being ’'mulcted” ty associates of a portion of his illicit
gains long before Government investigators brought him to justice© This
manufacturer had arranged with related businesses to send him false
invoices for materials that were never delivered© He would then write
checks to these companies in full payment for the phantom -shipments, with
the understanding that the recipients would cash the checks and return the
money to him© However, these companies soon began keeping between 5 and 10
per cent of the money for themselves as "commissions” 0 The final bLow was
when income tax investigators discovered that the manufacturer had been
reducing his apparent taxable profits ty charging the amounts of these
false invoices on his books, and assessed him $500,000 in tax, interest and
penalties*
Investigation of a large Western concern resulted in the assessment of
$687,000 in taxes, interest and penalties after income tax agents
discovered that the principal officer of the company had been padding the
firm’s expenses by claiming 2 per cent of all sales as reimbursement for
alleged travel, promotion, and entertainment expenses© The agents found
that most of these "expense accounts” have been used by this officer to buy
jewelry, furs, farms, and other property for his personal account«.
Expenses also had been padded by entering on the books commission payments

~

%-

112

to the son of the officer0 The officer had also failed to report these
expense payments on his personal income tax return and had further
attempted to minimize his income tax by claiming huge contributions to
various wortly causes which never received the money0
A $310,000 assessment has been made against one individual who, during
the-war, obtained 3,900,000 pounds of rationed sugar ty creating an
imaginary candy manufacturing comparyo Because of the scarcity of the
commodity, this individual was able to sell the sugar at a huge profit to
bona fide confectioners© He faces criminal prosecution for failure to pay
income tax on his illicit profits0
In one of the dry states, a retail druggist has been assessed $14,000
for failure to pay tax on suspicious sales of prescription alcohol«
Investigators found that the alcohol was not only illicit, but heavily
wateredo
One of the smaller but more unusual cases developed in a southwestern
state concerned an unethical divorce lawyer who was associated with a^ ring
of girls who preyed upon young soldiers at a nearby army camp0 The girls
made a practice of luring soldiers into quick marriages and, sometimes,
quicker divorces for the purpose of getting allotment checks, etc«. Income
tax agents found that the lawyer who handled the divorces often succeeded
in getting three divorces per year for several of the girls0 Although the
Lawyer received only small fees — including a number of discarded wedding
rings — he nevertheless was found to owe over $4,800 in income taxQ
An unsuspecting pastor was used by one recent income tax suspect in
an effort to quash an investigation© The suspect deluded his pastor into
preaching a strong sermon against "tax collectors” while the investigation
was in an initial stage0 Later when the agents discovered conclusive
evidence of the man's fraud, he paid over $8,200 without further protest0
Reports also were received of a $1,650,000 case against three
midwest liquor black marketeers! a $119,000 case against a southern
jeweler who was conducting his business in the same office building
where the income tax agents are regularly stationed! a $182,000 case
against a large southern farmer! and a $100,000 case against a western
rooming house operator©
oOo

TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
Wednesday» October 29, 19¿7

113
Press Service
No. S-5L2

Secretary Snyder today commended as "an example to the nation“ the
decision of the .American Federation of Labor to promote nation-wide a
Security Thrift Program of its own, urging its 7,000,000 members to
participate in the payroll savings plan for the purchase of United States
Savings Bonds*
Mr. Snyder referred to a resolution adopted by unanimous vote at the
recent AFofL convention at San Francisco “endorsing United States Savings
Bonds for the Security Thrift Program, urging all members of the American
Federation of Labor to participate and urge employers to establish pay­
roll savings plans whore they do not now exist -“ ; which "empowered and
instructed the executive Council to prepare and distribute literature
which is, in their judgment, necessary for the promotion of this nation­
wide plan"; and to ask all members to hold their bonds, thus helping to
check "the inflationary trends thht are so apparent in the demostic market.11
The executive council’s report states that the convention endorsed
"permanent continuation of the payroll savings plan by the Treasury
Department for the purchase of U. S. Savings Bonds through labor-management
cooperation on a strictly voluntary basis. This policy is based upon
abundant evidence of the degree to which wage earners have learned to
appreciate the virtues of systematic thrift through experience gained during
the war.”
The AFofL Security Thrift Program, Mr. Snyder recalled, was initiated
last March by the Los Angeles Central Labor Union Council, •when it
appointed a seven-man committee to work with the Treasury's Savings Bonds
Division to stimulate payroll'savings, instructed local unions to appoint
a bond officer and printed and distributed a folder on the program to
500,000 AFofL members in its area. The 'West Virginia Federation adopted
the program state-wide, and distributed 150,000 leaflets on it* The
California, Ne?i Jersey, Minnesota, Pennsylvania and Massachusetts state'
federations had also adopted it and central union bodies in many of their
cities had launched their own campaigns in cooperation with the Treasury
when the action at San Francisco made the program national*
“The AFofL Security Thrift Program is most timely in view of the
present price situation and the low purchasing power of the consumer’s
dollar,“ Secretary Snyder commented,
"a dollar saved today is better
than a dollar earned, for the saved dollar does not help push prices
higher and as prices inevitably come down it will buy more in goods and
services. Invested in E bonds through the payroll savings plan, the spare
dollar grows.
"The leaders and delegates of the AFofL who are responsible for this
far-sighted program to urge their fellow, members to save all they can
through the ^payroll savings plan are. setting an example for all Americans.
The union member will profit by regular saving and the whole economy will
profit by every dollar that is saved for the future.“

oOo

I

114
TREASURY DEPARTMENT
Washington

Press Service
No. S-513

FOR I IMMEDIATE RELEASE,
Wednesday» October 29, 1947.

The Secretary of the Treasury today announced the subscription And
allotment figures with respect to the current offering of 1 percent
Treasury Certificates of Indebtedness of Series K-1948, to be dated
November 1, 1947.
Subscriptions and allotments were divided among the several Federal
Reserve Districts and the Treasury as follo-ws:
Federal Reserve
District

Total Subscriptions
Received & Allotted

$

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

38,623,000
712.781.000
34.454.000
31.188.000
48.842.000
47.518.000
203*973*000
48*659*000
46*751*000
77.449.000

47 * 110,000

TOTAL

123.307.000
5,995,000
$1,466,650,000

By arrangements made between the Treasury and the Federal Reserve
System, the Systemfs holdings of maturing certificates amounting to
$203,261,000 will be presented for cash redemption on November 1.

0O0

TREASURY DEPARTMENT
Washington

FOR RELEASE, MQRNTNG NEWSPAPERS
Friday, October 31, 19^7»' -

115

Press Service
N o . S-514

The Secretary of the Treasury, by this public notice, invites
tenders for $1,000,000,000, ‘or thereabouts, of 91-^ay Treasury
bills, for cash and in exchange for Treasury bills maturing
November 6, 1947, to be issued on a discount basis under'competi­
tive and non-competitive bidding as hereinafter provided.
The
bills of this series will be dated November 6 , :1947, and will
mature February 5, 1948, 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, $10,000, $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, two o'clock p.m„, Eastern
Standard time, Monday, November 3, 194?.
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 compe­
titive, tenders the price offered must be expressed on the .basisof 100, with not more than three decimals, e. g., 99*925, Frac­
tions 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.
- 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.
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 Secretary of the Treasury
of the amount and price range of accepted b i d s . 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, non-competitive tenders for $200,000 or less without
stated price from any one bidder will be accepted in full at the
average price (in 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 November 6,
1947, in cash or other immediately available funds or in a like
face amount of Treasury bills maturing November 6, 1947.
Cash
and exchange tenders will receive equal treatment. Ca,sh

2

adjustments will be made for differences between the par value
of maturing bills accepted in exchange and the issue price of the
new b i l l s .
The income derived from Treasury bill's, whether interest
or gain from the sale or other disposition of the bills, shall not
have any exemption, as.such, and loss from the sale or other
disposition of Treasury bills shall not have any special treat­
ment, as such, under the Internal Revenue Code, or laws amendatory
or supplementary thereto.
The bills shall be subject to estate,
inheritance, gift or other excise taxes, whether Federal or State,
but shall be 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 shall be considered
to be interest. Under Sections 42 and li7 (a) (l) of the Internal
Revenue Code., as amended by Section 115 of the Revenue Act of
19 ^ 1 , the amount of discount at which bills issued hereunder are
sold shall not be considered to accrue until such bills shall be
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 sa,le or redemption at
maturity during the taxable year for which the return is made, as
ordinary gain or loss.

Treasury Department Circular No. 4l8, as amended, 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.
0O0

TEEASUÉÏ DEPARTMENT
Washington

Press.Service
'‘ No. S-515

FOR RELEASE, M O VIN G NEWSPAPERS,

Wednesday, October ,29» 194,7» '

A study entitled “Taxation--of SmaRl Business" was made public
by the Treasury Department today* The study is one of a series
prepared by the Treasury’s Division of Tax. Research, examining.major
postwar tax revision matters* ' It makes no policy recommendations*
, Widely shared conceptions of the social, and 'economic importance
of small business have stimulated a variety of ideas for special tax
benefits, the study notes* Itranalyzes several types of special .benefit
proposals, weighs their probable effectiveness,-xri reaching declared or
implied objectives, and considers whether their adoption Would raise
new, questions or accentuate old ones of equity, •economic effects and
administration*
Suggestions to which the study .gives attention include refinement
or revision of the income tax bas:e and. rates, equalization of taxes' on
small incorporated and unincorporated businesses, arid tax exemptions
for new or small businesses or for investors in them*
There are varying definitions of "small business." ‘One gives
this classification to a retail store, or service concern 'with annual
net sales or receipts o f ■less than ^50,000, a wholesale business with
annual net sales of .less than 1-200,000, or a manufacturing establish­
ment with fewer than 1Q0 employees* Under this definition, more than
nine tenths of American businesses were "small" in 1939* They employed
about 4.0 percent of all workers and active proprietors, and had about
one-third of all sales*
The number of American business firms declined sharply during
the years 1941-43 but has since increased rapidly and by mid-1946
exceeded the pre-war peak*
The Treasury report cites two viewpoints from which preferential
-tax proposals spring* One view is that the tax system should be
deliberately biased in favor of small ebusiness; the other is that
special measures are required to assure small business substantially
equal tax treatment with larger business*
#

#

*

Dealing with specific suggestions, the study first discusses
proposals for modification of the base or rates of tax on the income
of small businesses* These proposals include: c (l) Possible changes
in the present graduation of corporation income tax rates; (2)
exemption of a limited amount of net income from the present special
surtax on unreasonable accumulations of corporate surpluses; (3)
liberalized loss offsets through extension of the carrybacks and carry­
forwards; (4) acceleration of depreciation allowances*

2

-

The study describes inherent difficulties in all systems of
graduating corporation income tax rates* It points out that
establishment of an exemption from surtax on unreasonable corporate
surpluses would give rise to important equity and administrative
problems, that improvement and liberalization of loss offsets as a
general tax measure wpula be especially beneficial to small businesses
beeaus e their ■incomes fluetuate more widefy than ir.c omes of large finns,
and that accelerated depreciation would be helpful to growing firms in
industries requiring substantial capital investments,
*

-x

f

••

' •

Two proposals intended to equalize taxes <?n small unincorporated
and incorporated businesses are discussed* They ares
(l) Partnership
tax treatment on an optional basis for certain corporations; (2)
corporate tax treatment for the reinvested earnings of unincorporated
businesses* '
Under the partnership tax treatment plan there would be no
corporation income tax for firms exercising the option, but stock- ,
holders would be taxed on their proportional part of both distributed
and undistributed profits. It would eliminate double taxation of
distributed profits of the corporations affected, but for such of
these corporations as were owned by high-income stockholders it would
increase current taxes on undistributed profits* The partnership
method would raise some difficult administrative problems, but these
would be lessened if the plan,were restricted to corporations with
few stockholders and simple capital structures.
Support for the ides of allowing corporate tax. treatment for the
reinvested earnings of unincorporated businesses rests on the claim
that it is now harder for unincorporated concerns to grow from retained
profits than for corporations to do so* The study. finds> however, that
the extent and importance of any present discrimination against un­
incorporated firms on this score are limited. In only a small percentage
of cases are the earnings of unincorporated businesses taxed at rates
higher than the corporate rates, this happening when the businesses are
owned by persons with relatively large" incomes.
:

.¿f

Under the heading of proposals for tax exemption for small or
new businesses or for investors in them, the study .analyzes
suggestions oft
(1) Tax exemption for retained earnings of small
businesses; (2) tax exemption for equity investors in small
businesses;: (3) tax exemption for new small businesses for a limited
period of years*

117
-

.'S —

Applying to all these proposals is the generalization that any
tax exemption raises fundamental problems of equity, and involves
the danger of uneconomic distortion of the business structure and of
investment patterns. Only a convincing demonstration of the social
and ecoromic desirability of an exemption would justify any departure
from uniform taxation.
Exemption of retained earnings of small businesses is sometimes
argued for as a way of meeting the difficulty that small firms have
in raising outside capital* In some cases an exemption might contribute
significantly to the establishment of a successful, vigorous enterprise,
but it might also result in a less efficient pattern of investment®
Determining that retained earnings were used for legitimate business
purposes, and not merely as..a. means4of tax avoidance, would be a grave
administrative task«
*
Similar economic, equity and administrative considerations apply
to the proposal to provide an exemption for equity investors in small
businesses.
Tax exemption of a new small business for a limited period would
have little stimulating effect in the rather typical case of a firm
which looked forward to losses for the first few years« Insofar as
it offered an incentive to the establishment'of new firms and the
abandonment of old ones, the exemption might contribute to instability
in the. small business field. It would discriminate against established
businesses© Identifying genuinely new businesses would be difficult.
#

-x -*

The study concludes with the observation that a basic policy
question is involved in the choice between special tax measures for
the particular benefit of small business and gene-ral tax revisions«
The most important condition to prosperity of both small and large
business is a high and stable level of national economic activity«
Therefore, although it may be desirable to give consideration to
measures designed especially for small business, the most important
contribution the tax system can make to the healthy ..growth of small
business as well as large business is through general tax revisions
that improve the equity of the system and minimize any adverse effects
on investment and consumer demand. Reliance on general tax measures
is likely to involve fewer economic, equity and administrative problems
than would the use of special measures.
Appendices published with the study present a variety of definitions
of flsmall business”, selected statistics on the relative importance
of small business, selected data on the financing of small business,
and a history of the graduation of the corporation income tax. In
addition to the appendices there are nine tables of "statistics*

0O0

TAXATION OF SMALL BUSINESS

Division of .Tax Besearcht Treasury Department
October I9U 7 .

, ,

_ . ,

Taxation of Small Business
,

*

'■'>.*

|

*

♦

*■

*

*♦

'|¡3

A widely shared Belief in the social’ and' ecoko-mic' impo-riance *//
of small ;Bus inesst ahd concern -about its financial problems, have
stimulated many tax’proposals for the special Benefit of small
Business» | This report; analyzes, several types of proposals that
have Been advanced. . These includ. e? proposals intended to refine or
revise the income tax Base and r a t e s p r o p o s a l s intended to eaualize
taxes on small incorporated and unincorporated Businesses, and
proposals, to nrpyidp tax phemption for, new or small. Businesses or
for investors in them.
'
M
policy recommenda.tions are made in this study, But the
probable effectiveness of the various types of proposals is
appraised and. problems that would Be raised By their adoption
are discussed*
,

The ,study ,was prepared in the Business Tax Section of the
Division ?of Tax Research. In its preparation valuable assistance
and suggest,iqn§ were-.received "from other members of the Treasury*
tax staff t ■including consultation with members of the Office .of *
Tax Begis,lativ§ Cjouns.el o.n,legal matters and of the Bureau of'
Internal ’.R^v^ntye.o 11 administrative matters*
.

' ** '->
f

*

t

C J "**

.

•' ‘

•

■

;

■;! ■

•. '
‘

•■
, * '

• •' *

• j 85 _
.• •

•

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' m U n i H H 1 mm
", • $

Division of Tax Research /
U. S. Treasury Department/

October 1*9^7, * ; ) \ v

’

'

.

/ ■’ v. ?

t'

•

Taxation of .Small Business
TABLE OB CONTENTS
Page

summary *
I*

*

•'

«

♦

Introduction ♦ . . . . . . . . . . . . . . . . . .
.A*

II*

* "> ' •

♦

•

#

#.

. . , ,f

Importance of small "businesses,* » * . .

1

/

1

» v

Problenj of defining'-small business. . » !* ; * *

C*

Relative .position of small business--. * «,. * . . . . . . , , . •

D*

Interest in the problems of small business. . . . . .

E»

Purpose and scope of the present report

A.

'2

.......

2>

**7

3;*

3
k
k

♦

Proposals for modification of. the base or
rates of taxes on income of small businesses.
1.

'i-ix

* .

B.

Analysis of..tax-proposals for the
special benefit of small business . . . . . . .

»

G r a d u M 3.an of corporation income tax rates
a> Nature of'proposals and scope of present- discussion -,
•b* Present rate schedule
„ ,
c * Justification of graduation
of corporate income tax. rates , . . . . . , , ..#
%
d.
Limited versus full graduation. •
. . .,. -, .,
e* Methods: of graduation . . . . . . . . . , V •.
.
f. Relation between the starting, rate on corporations
and the first-bracket rate on individuals
•* . .
g. The problem of split-ups r . . . .
h. Co+ieluo ions « . . . . . . . . « . . . ^ •. •.
Modification of Section 102 of the Internal Revenue Code .
a*
Nature and purpose of Section 102 . -, •... •
-,-, . ,
bV
Application of Section 102. . . . . . » ■> ••
-,. ,
c* Problems raised by proposals for
an exemption under Section 102.
-,
...
d# Conclusions *
■* *. . .
. . . .. ,
Loss offsets and the taxation of small business. .
-,
a.
Purposes of loss offsets. » * .•
-,
b. Administrative problems of loss offsets -, • . . . r* ..
c* Special advantages of loss .offsets for small business
d*
Conclusions •> * , , , , . .
.
*
.
-,
• •* •» -» ■■»

6

6
6
7
7
B

10

12
13
13
lk

1^
15
17
17
IB
IB

20
20

21

119
TABLE) OF CONTENTS - 2
Page
I-!-*

• •
• •
• •
•
• • •
B*

Accelerated depreciation, for small Business* . * * • * * •
23
a* Natiire and purposes. * ^•g*l'#:V'#
•■ * # # ♦ • ' • •
23
b# Coverage* » # #■ « v
• * # » • # « ♦ • • • • * • •
23
c# Economic effects« • » . • • • « * * ♦ « * » * . ' • * < * * •
25
d» Equity considerations # * « # • » • #
• « * * * • • « 2 6
e# Administrative considerations » • » • • * « • ♦ • • •
2S>
f* 'Conclusions « ' ♦ * * • * # ♦ * « • * '
29

Proposals intended to equalize taxes on small
incorporated and unincorporated businesses« • * « • » * » * « »

29

• 5* • Partnership tax treatment for certain corporations # • * • 3°
a» Nature and purposes • « • « ¿ » • • » > • • • * * # •
30
b# Eligibility for partnership treatment ^ • » « * • * * 3^
c# Types of corporations that would benefit
from partnership tax treatment# **.#
i» . • • * *
t • 33
d#
Economic considerations * • • * l ♦ « * «. * * * i • • 3^
I $
•
e.
Equity considerations * * • i « t # • 4 • * i * * i * 35
f # Administrative considerations * • * « i ' • « « * « *
• • 3®
g, Conclusions i « # ? # * >
3&
64
Corporate tax treatment for the reinvested
. * • • earnings of unincorporated businesses# # « • • • < » . » # • •
a# Nature and purpose of proposal* » « » • » • • • • • •
b# Extent of possible tax discrimination against retained
earnings of unincorporated firms under present la»/# •
c* Economic considerations < ,#«<> • • • • « # * > * • • •
d* Equity considerations « • « • * • • • • » •
# « • ♦ »
e* Administrative considerations # * * # • « * • « • • «
f* Conclusions » • • « * • # • # < ■ * * • • • • « • » • «

C*

Proposals for tax exenptions.for small or
new businesses or for investors in them • « * • • . . « . . • •
7«

2«

37
37
3$
4-0
^0
^1
41

4-2

Tax exemption for retained earnings of small businesses# #
a 0 Nature and purpose of proposals • « # • « » • • • • •
b. Economic considerations • • * • « • ............
c# Equity considerations * « « « • # # *
d# Administrative considerations • • » # • » • • • • • »
e # Conclusions
#« • * # # # • « # • # # « #
* # ##

4-3
^+3
44-

Tax exemption for equity investors in small businesses*« *
a# Nature and purpose of proposals • * » « » » • * • • •
b# Economic consi deratio ns # # * • • « « • « • • • . • *
c# Equity considerations • • * • • * « • # « • * « • » »
d* Administrative considerations « » 0 « » » • • « • • «
e* Conclusions « • • • • . • * • * « • • * » # • • « • •

4-6
46
4g
4g>
4g
49

46
4-6

TABLE

• .
. .

.
• ,

• *9»
V

...

Ill,

Tax
.fpr
a*
b^
Cj.
d*
e*

Of OOmtWtS *. J

èxéïiïPtàôfl fôP flew small busines-ses
a. limited -period of years. . . . . . . . . . . . . .
Hature of proposals .......................... .. . .
Economic considerations . . . .
. . . . » . , , ,
Equity considerations , , , . .
. , ... . .
Administrative considerations . . . . . . . . . .
„
Conclusions . , . ........

Choice among types of tax measures
for the "benefit of small business. « . . . ............... ..

APPENDIX A — Definitions of Small Business
.APPE3TDIV B — Selected Statistics on the Belative Importance
of Small Business 0

.

.APPENDIX Ç — Selected Data bn Financing of Small Business. 0 . . . . .
APPENDIX'D - History of Graduation of the Corporation Income Tax • « .

Taxation of Small Business

SIMMABY

X.

Introduction

A widely shared belief in the social and economic importance
of small business has stimulated interest in its problems and tax
proposals for its#"benefit» The present report analyzes a number
of- the tax proposals that have'been advanced for the special benefit
of small business©
.
!
A variety of definitions of small business have-been used, and
there is no one generally accepted measure© On the basis of any of
the definitions commonly used, however, it appears that small
businesses account for a large majority of the number of firms and
a sizable part of- production and employments
- The Department of Commerce has defined a small business as
a retail store or servies establishment with annual net sales or.
receipts of less than $$0,000, a wholesale establishment -withannual net sal es of less than $200,000, or a manufacturing
establishment- with fewer than 100 employeesc . On the basis of this
composite definition, more than nine— tenths of all business
establishments were smallM in 1939» and in that year they•employed
about bo percent of all workers and. active.proprietors and-;handled
about one-third of sal es0
A small business has often been defined as one with less
than $250,000 of total assets©
In 19^-2, four-fifths of all
corporal ions filing balance sheets with the.Bureau o f ,Internal
Bevenue fell in this category, but these corporations made only
1 5 percent of gross sales and realized only 5 percent of net
income of all corporations filing balance sheets©
In 19^-2, almost
nine-tenths of all corporations with net income reported less than
$ 5 0 , 0 0 0 of net income, but the aggregate net income of these
corporations wa.s only 7 percent of the total reported by all
corporations©. Doubtless, an even greater percentage of unincorporated
businesses fell in the smaller asset and net income groups©
Available information -indice„tes that there was a sharp decline
in the number of firms in business during the years 19^-1— 19^3? Since
then, however, the number of firms in business has increased rapidly,
and by mid-19Û6 the number of firms exceeded the pre-war peak©
Becent increhses in the number of firms have been almost entirely
among small businesses*

table

OP COPT e f t s - U
Page
TABLES ;

la

Pet Operating Loss Deduction Belated to Pet Income and Deficit,
Corporations with Balaiice Sheets Classified by Size of Assets,
19 ^0-19^20

26

® e • « > » • » » « o « » a o ® o

ec.

.»».'•

o O * • 22

Pet Income Belated to Total Assets and Gross Sales; Gross Sales
Belated to Total Assets, Pet Income Corporations with Total Assets
of Less than $250, 000, 19^-20 0 * . « • <• .’5 , \
?

3&

Importance of Small Establishments in Selected Industry Groups, 1939

hr.

Corporation Beturns in Selected Industry Groups
Classified by Size of Total Assets, 19^2* * 0 r, * «

5c

S«,

9*

* » o » • * .•

Corporation Beturns with Pet Income
Classified by Size of Pet Income, 19b-20
.

Jo-

0

F ’

•,

*

ï ---

69

72

,« 9
;

65

.

Cost of BLotatjion of Securities by Size of Issuer, 1 9 3 ^ 1 9 ^-Iû « » **

77

Average Interest Bates on Short- and Long-Term Business Loans at
Member Banks, by Size of Borrower, Povember 2 0 , 19^-6 ♦ '« - a -* «. » «

81

Average Interest .Bates on Business Loans at Member Banks,
by Size of Loan and Size of Borrower, Povember 20, 19^6« ,• o ‘

82

Beta.ined' Pet Earnings as a Percentage of Pet Income-Aft er Taxes,
Corporations with Pet Income, 1 9 3 Î4- I 9 U3 A

•

$5

121
—

II«

Analysis of tax
small Easiness

Il

-

QLs for th e tspecial .
“benefit of

. Tax proposals for the benefit of small business stem from two
different points of view0 One view is that the tax system shou^
he deliberately biased in favor of small business in order to offset
some of its non-tax disadvantages« The other view is thau tne ax
system should.’not discriminate against small business out that
special'measures, are necessary to assure substantially equal trea men ©
This section fliscwsses a number of different proJ)o,saXs_ that have
been advanced for the special, benefit of small business«
c-.pprc. ses
their probable effectiveness in reaching declared or implied objectives,
and considers whether their adoption would raise new problems.or
accentuate old problems of equity* economic effects, and administration©
Most of the proposals raise the problem of the proper definition-of
small business and how eligibility for the special crea.tment can ©
equitably and effectively determined© Moreover* the proposals would
ail result in some immediate loss of.revenue and must* therefore* be
appraised in the light of alternative tax reduction possibilities and
the budgetary and economic situation©
A©

Proposals for modification of the base or rates of
taxes on income of small businesses
1©

Grad uation of corporation income tax rates.

At the present time* the rates of the corporation income tax
are graduated for net incomes up to $50*000o The brackets are as
follows: on the first $5 * 0 0 0 of net income* 2 1 percent; on net income
between $ 5 * 0 0 0 and $ 2 0 *0 0 0 , 2 3 percent? between $2 0 , 0 0 0 and $ 2 5 ,0 0 0 ,
25 percent; between $ 2 5 , 0 0 0 and $50*000, 53 percent©
If the corporation*«
net'income is more than $ 5 0 *0 0 0 , the rate is 3 8 percent oh the whole net
income© The 53-percent rate on not income between $25,000 and $50*000,
which is the so-called ^notch" rate, is usee* to make the transition from
reduced r^tes on net incomes below $ 2 5 , 0 0 0 to the standard rate on net
incomes above $5 0 *0 0 0 ©
The relatively high notch rate on incomes between $25*000 and
$80,000 has been widely criticized and' its elimination often suggested©
Although the total tax always amounts.to less than 3 8 percent of an
income below $5 0 ,0 0 0 * the rate on the last part of income of a
corporation in the notch area is higher than that paid b r a larger,
corporation© A notch rate higher than the standard rate is necessary
under any schedule that restricts graduation to small corporations©
In the absence of the notch rate, at some point an increase in a

iii -

corporationfs net income "before tax would decrease its income after
tax* The notch rate could "be .eliminated only "by adopting a systemof full graduation which would apply reduced rates to-'-the first part
of. income of all corporations,, A full graduation system would, eliminate
the problems raised by the notch rate "but would reduce the difference
"between the effective rates of tax on small and large corporations©
In addition to the present "bracket method of graduation0 it would
"be possible to achieve graduation by means of graduated effective
rates or by an exemption of a specific amount of net income© Under
the method, of graduated effective rates, the rate applied to the
whole income would increase with size of income over a certain range©
With an exemption, the effective tax rate would, begin at zero and rise
as the exemption became a smaller fraction of the taxpayer's income©
(Graduated bracket rates are simpler than graduated effective rates,
but the. latter' may be less likely to deter expansion of income since
they d.o not call attention to the tax rate imposed, on an addition to
income© Graduation by means of an exemption is relatively inflexible,
and. the starting rate must be zero© Moreover, any schedule providing
a lower starting rate for corporations than for individuals would,
raise a problem of possible unfair discrimination against unincorporated
enterprises and would offer stockholders additional opportunities for
tax postponement or avoidance©
2©

Modification of section 102 of the Internal Revenue Code

Section 102 of the Internal Revenue Code imposes a special surtax
on corporations improperly accumulating surplus for the purpose of per­
mitting stockholders to avoid' individual income tax an their part of
profits© The rates of this special surtax are 27»5 percent-of the
first $1005000.of undistributed, not income and 3^*5 percent of any
amount in excess of $100p000©
It has been contended that fear of
application of this special surtax has prevented, small corporations
from retaining enough earnings to .provide adequate working capital
and to finance expansion© Ror this reason it has been suggested that
a limited amount of net income be exempt from section 102 Surtaxo
Section 102 is not intended to prevent retention of profits;for
reasonable business purposes, or the individual tax avoid.ap.ee or
postponement -incidental thereto 5■but rather to .protect, the individual
income tax from unreasonable accumulations of corporate surpluses for
the purpose of avoiding1surtax on stockholders©
It-appears.that the
law and regulations allow adequate accumulations for a,ll reasonable
business purposes including both expansion and working capital© ,. In

122
. „

- i v

—

the administ ret ion of section 102 ,' careful consideration is givën
,
to the circumstances:of each corporation and its -need for retainedearnings. Therefore, an exemption under section 102 seems unnecessary»
Moreover* such an exemption would seem t o ^ e an" invitât ion to tax
avoidance, and avoidance possibilities might well be multiplied by
split-ups of existing or new corporations. The remedy for any^existing
deterrents to legitimate accumulations appears to be' further dissémination
of information as- to the-purposes.and administration of section 102«
3»

Loss offsets and the; taxation of_ small business

Under oresent law a business net operating loss sustained in^any
one year may be carried back against the income of the two preceding,
years and any unabsorbed balance may be carried forward against the
income of the two succeeding years. An extension of the loss— offset^
period has often been recommended as a. tax revision that would especially
benefit small business* Moreover, it has been contended that loss carry­
forwards are more desirable than loss carrybacks#
Loss offsets have the eauity advantage of improving the definition
of taxable income and. the economic advantage of reducing tax deterrents
to risky investment* ' There is some evidence t hat.the income of small
businesses fluctuates more widely than that of large firms and hence
that liberal loss offsets are especially advantageous for small businesses
In I9UO-U2 , the then existing two-year carryforward of net operating
losses result ed, in a significantly larger d.ed.uction for small corporations
than for large corporations«, An improvement and liberalization of
present loss offset provisions would be a général tax measure that could
be expected t o be especially beneficial to small business«
Accelerated/depreciation for small business
In lieu of normal depreciation, it has been proposed, that small
businesses be allowed to take accelerated depreciation for tax purpoëes
by writing off assets in a period shorter than their normal uséful lives»
Accelerated depreciation ha.s been suggested' a3 a means of ëasing the
Capital problems of small firms and. of reducing the risks of investment
by them. As a small business measure, accelerated depreciation would be
limited to à stated amount of assets and might be restricted, as to type
of assets covered,
Accelerated, depreciation would permit a firm to recover its
invested capital more rapidly than'does normal depreciation*
Income
taxes would.-be nostroned, and d.uring the period when accelerated
depreciation was being taken the investing firm would, havé the use

— V —

of funds that woulc' otherwise he paid to the Government in taxes® Since
accelerated depreciation would permit more rapid recovery of capital, it
would decrease the risk of loss attributable to the disappearance of- an
asset's earning power during the later years of its normal life, .
Unless combined with liberal loss offsets, accelerated depreciation
would be of limited usefulness in many periods because small businesses
would not have enough income to absorb the additional depreciation
deductions* The existence of a long carryover of business losses, however,
decreases the importance of accelerated depreciation because it lessens the
danger that normal depreciation deductions will run to waste* Accelerated
depreciation would be especially helpful to growing firms in industries
requiring substantial.capital investments, but it would be less significant
for mature firms and for industries requiring relatively small investments
in depreciable assets0
Accelerated depreciation would present some administrative problems
and might give rise to some abuses, such as swapping of assets among
taxpayers to take advantage of the additional depreciation allowanceg0
Proposals intended to equalise tayes on small
incorporated and unincorporated businesses
5»

Partnership tax trea.tme.nt. for certain corporations

The partnership method on an optional basis has been proposed as a
method of eliminating differences, in. taxation of prefits of small incorporated
and unincorporated businesses3 Under this^method there would be no corporate
income tax, but stockholders would be taxed on their proportional part of
both distributed and undistributed profitsB It has sometimes been suggested
that the partnership method be restricted to corporations with no more than
a stated amount of net income or assets«, However, a stronger case can be
made for extending the option to corporations that resemble partnerships in
ownership and operation, with only secondary attention to size* The option
might be restricted to corporations with no more than 10 to 1 5 stockholders
and only one class of stock* In practice, this would make it primarily a
small corporation measure*
The partnership method would eliminate the- so-called double taxation of
distributed corporate profits* Hence it would result in an immediate reduc­
tion of taxes on the income of any corporation currently distributing all
or a large proportion of its profits* It would’also reduce current taxes
on the retained earnings of corporations owned .’by low— income stockholders,
since the individual tax rates would be lower than the corporate rates*
But in the case of corporations owned by high-income stockholders, the *
■
partnership method would increase current taxes on undistributed profits*

123

The partnership method might increase somewhat the flow of new
equity capital into small corporations, hut it would, not he especially
well adapted to short— run .solution of the capital problems of small
business* The equity problems with respect to the partnership method
would be less serious than with respect to most other special measures,
inasmuch as stockholders would be taxed at the regular individual ra.tes
on their full share of -corporate profits. The partnership'method would
raise some difficult administrative problems, but, if restricted to
corporations with few stockholders and simple capital structures,. it
would probably be feasible©
6.

Corporate tax treatment for the reinvested
earnings of unincorporated easinesses

It has been suggested that reinvested earnings of unincorporated
businesses of a commercial or industrial type be taxed at. the corporate
income tax rates# This proposal has been supporter! on the grounds that
the hig her.individual income tax rates applicable to proprietors and
partners wit^x-large incomes discriminate against unliicorporated. businesses
and make it harder for them to grow from retained profits than it is xOx*
c o m o rat ions »
The. extent'and importance of any discrimination against unincorporated
firms, however, appear to be.limited.
Warnings of unincorporated businesses
are taxed at rates higher than the corporate rates only in thè' case of
businesses owned by persons with relatively large incomes and in which
a large nroportion of profits is reinvested.
The top individual tax rate exceeds the standard 3^Pf-rcent
corporate tax rate only in the ca.se ■of ■individuals with more than
¿12,000 of taxable income.
In 19^-2, it appears that about thread-fourths
of all proprietorship and -partnership-.profit report ed.on individual tax
returns went to persons with 3.ess than ¿12,000 of taxable income© More­
over, in the latest year for which data are available less than 2 percent
of.sole proprietors filing tax returns reported hot income in excess of
¿12,000. -These figures include proprietors and partners who'withdrew
all or substantially all of their profits-from their businesses as well
as those who reinvest ed, a .significant portion of their profits« Finally,
most, businesses can be easily incorporated, if their owners prefer the
corporate tax treatment*.

- vii ~

Co-rporat e .tax .treatment for the. retained -earnings o i ■
unincorporated-.businesses, with present tax treatment for
distributed earnings, would appear to give .proprietors and
partners an unfair advantage over, stockholders» Owners of
unincorporated businesses would .escape so-called double,
taxation of profits withdrawn from the business and, at the
same time, avoid individual, surtaxes on reinvested profits,, .
Administration of the plan would raise problems .relating to
the definition of an unincorporated business.and-to the
distinction between the income and assets-of the business and
of its owners,
Co

Proposals f o r .tax '.eyor-Ption for small or new
businesses or for investors in them.,

There have also been a variety of proposals for partial or
complete tax exemption for new or small, businesses or for investors
in them. These proposals ?re intended to stimulnte investment in
such enterprises and to improve their capital position® -All proposals
for tax exemption raise fundamental, problems of tax equity because
of the strong presumption in favor of uniform taxation of persons
with the same incomes and in similar personal circumstances® This
presumption can be overcome only-by a convincing demonstration of the
social and economic desirability of the exemption® A tax -exemption
has the same immediate effect on the budget as an additional expenditure,
and it must be compered with public expenditures intended to achieve
the same or similar purposes® Moreover, a tax exemption results in a
shift of the relative tax load, and. any ttndesiHfble effects of such a
shift must be compared with any desirable, effects of the exemption,
7®

Tax exemption.-for ret ained. earnings of small
businesses ...
vv

pV,
.
■

Proposals for tax exemption for retained earnings of small
businesses are prompted by. the difficulty that small firms have-in
.raising outside capital*. The argument-.that has been advanced in :'
support of such proposals .is that at a certain stage in the establish­
ment of a fiym a rapid increase in capital becomes necessary» -If -the
«additional capital can be obtained.the firm may enter a. period.ofhealthy growth but without the additional capital it may slip backward,
into bankruptcy. It has been contended that at this critical stage
a tax exemption for retained earnings may supply the key amount of
capital and that in the long run the increase in the tax base will
make up for any immediate loss of revenue attributable to the
exemption®

.12 4

— viii

A tax exemption for retained earnings of small firms would
increase the funds at their disposal and in some cases might
contribute significantly to the establishment of a successful
and -vigorous enterprise« But a p»art of the additional internally
financed investment in firms enjoying the -exemption would probablymerely take the place of investments that would otherwise have been
made by other firms* The -resulting pattern of investment might
be less efficient than that which would otherwise exist« The tax exemption would discriminate in favor of one kind of savings as
compared with others'apd might be subject to abuses which would
accentuate the equity problems« A grave administrative problem*
which would be especially difficult in the case of unincorporated
enterprises* would be to make sure that retained earnings were
used for legitimate business purposes and not merely as a means of
tax avoidance«
8

c

Tax ex emotion for equity investors in small
businesses

Exemption from the individual, income tax for equity investors
in small businesses might apply either to the1principal amount
invested or to the return on the investment* ^hese proposals are
intended to overcome tax deterrents to risky ir.vestricn.ts. in small
businesses and to make such investments more attractive as compared
with securities of large corporations and governments* The economic,
equity* and administrative eons id.orations with respect #to these
exemption, proposals are similar to those with respect to the proposals ^
for exemption of retained earnings of small businesses* One special
administrative problem would, be the proper definition of equity capital*
9*

Tax exemption for new small businesses for
a limited period of years

Exemption from income tax for the first few years of the life of
now businesses has boen.proposed' as a means of stimulating investment
in new firms.and of permitting them to establish themselves by accumulating
capital out of earnings* A temporary tax exemption would have its greatest
appeal in fields that promise large profits at the outset but which have
a.n uncertain future«
In such fields, however, prospective returns are
likely to be so high that the income 'tax will not be a serious deterrent
to investment* The most plausible case for temporary tax exemption^is
to permit investors to recover their capital more quickly than Would
be possible With normal depreciation deductions under an incornò tax*
This objective* however $ could probably be more efficiently attained
by accelerated depreciation®

ix ~

In the rather tvpical case in which a new firm must loolg forward
to losses for the first few years» a temporary income tax exemption ,
would have little stimulating' effect» The temporary tax exemption
would offer an incentive.to the establishment of new firms and the
abandonment of old ones and thus might contribute,to instability in
the small business field® - Tax exemption for new small businesses
would discriminate against established businesses®
It would be
extremely hard to identify genuinely new businesses*
III,

Choice among types, of tax measures for the
benefit of small business
•

The assumption underlying the tax proposals discussed in this
report is that tax revisions are needed to promote the sound develop**ment of small business* Even on this assumption, however»- * basic
policy question is involved in the choice between special tax measures
for the particular benefit of small business arc’ general tax revisions
The most important cond.ition to prosperity of both small and large
businesses is a high and stable level of national economic activity©
Therefore, the most important contribution the tax system can^make to
the healthy growth of small business, as well as of large business,
is through general tax revisions that improve the equity of the system
and minimize any adverse effect's on investment and consumer demand.
Reliance on general tax measures is likely to involve fewer economic,
equity, and administrative problems than does use of special small
business measures.
It may, nevertheless, be desirable ta give consideration to
certain measures designed especially for small business.
In choosing
the appropriate measures, the soundest approach would appear to be to
begin with consideration of revisions of tax base and rated and then
to proceed to measures intended to equalize taxes on incorporated and.
unincorporated businesses* Finally, attention could be given to the
various tax exemption proposals. These exemption plans, however,^■
raise grave problems of equity and involve the danger of uneconomic
distortion of the business structure and of investment patterns,

Taxation of Small Business

I„

Introduction
A,

Importance of small~businesses

In January» 19^6* in his message on the state of the union and
the. budget, President Truman expressed, the national interest in
small business, as follows:
»A rising "birth rate for small "business5 and a favor*“
able environment for its growth, are'not only economic
necessities hut also important practical demonstrations of
opportunity.in a democratic free society » « • »"
«It is obvious national policy to foster the sound
development of small business«,
It helps to maintain high
levels of employment and national Income and. consumption
of the goods and services that the Nation, can produce«.
It encourages the competition that heeps our free
enterprise economy vigorous and expandingo
Sma.j.1
business, because of its flexibility9 assists in the
rapid exploitation of scientific and technological dis­
coveries e Investment in small business can absorb a
large volume of savings that might otherwise not be
tapped«,
niphe Government should encourage and Is encouraging
small business initiative and originality to stimulate
progress through competition«" 1_/
The President1s statement exemplifies the widely.shared belief
that the importance of small business lies not only in its economic
contribution to full production in a balanced economy«, Small busi­
ness is valued'also for its contribution to the development of
opportunity and individual initiative — to freedom in the
broadest sense*
17

”ves sage of the President'on. the St at e ^ T T h e Union and trans­
mitting the Budget,H Budget of the United. States for the ijiscal
Tear ending June 50» 19^78 p a X X X I I «,

~

B0

2

-

Problem of defining snail 1)115111635

Respite widespread interest in small."business and its role in
the economy, there is no settled definition of sma,ll business
Many different definitions.have been used« I /
Perhaps the most common definition is based on total assets $
with ¿ 250,000 of assets the most usual dividing line between large
and small business« Pet worth or equity capital is a* related but
less often used basis of definition. Other definitions run in
terms of annual volume of sales or Receipts from operations^and
number of employees« The Federal income tax statutes contain an
implicit definition of a small corporation in connection with the
graduation of rates for corporate incomes of less than $5 0 *000*
One important source of difficulty with all general definitions,
is that smallness is necessarily a relative term« There is great^
diversity in the scale of operations typical in different industries.
For e x a m p l e , manufacturing is likely to be carried on in larger units
than retail trade« Moreover, measures such as volume of sales have
different meanings * depending on whether goods brought from suppliers
are sold quickly in their.original form or onlyrafter extensive
processing or the performance of a large number of services for
customers« Considerations such as these have led the.Department of
Commerce to adopt different definitions of smallness in certain^
broad industry grout's. It defines, a small retail store or service^
establishment as one with annual- net sales or receipts from operations
of less than $5 0 ,000, a small wholesale establishment as one with
annual net sales of less than $200,000« and. a small man.ufa.ctuning
establishment as one with fewer than 100 employees, Fven within
broad industrial groups such as manufacturing, however, ^ny one
definition of smallness will not be equally appropriate.for,all
subgroups. For example, the number of employees in a. small steel.,
mill may be much greater than in a large cheese factory» Moreover,
the measure of smallness in a retail store, for example, is to some
extent dependent on the size of the community«
1 J

For a fnl 1or~discussion, see Appendix A, ^Definitions of Small
Business0n ■ '

H Af>

1 2

b

3C„

Relative position-of small “business

/

...•;

However snail business...is defined, it.; s 6 ^ms cl ear ^t^at it occupies
an important place in the economic system« On the "basis...of; any of thp
definitions commonly used, small "businesses account for a large majority
of the number of firms and a sizable..part, of production;'and „employment JJ
Op the basis.of; the composite definition .of the' l)'eprbrtmeht,o f ;
Commerce, more than nineteenths; of all business establishments in . ■
1939 vrere ’’small11* These establishments employed about 40 percent of
workers and active proprietors and. lap0 0 unted for about a third of the
value of output or sales,, 2/ In 19^2, four-fifths of corporations
filing balance sheets with the Bureau of Internal Revenue had t ^ a l
assets of 1 2 5 0 , 0 0 0 or less« mhese smaller firms, however, made only
1 5 percent of total gross sales: and realized cply 5 percent of
aggregate net. ..income« 3 /. In 1 9 .^2 , almost nine— tenths of all corporations
with net income reported less -than.$50,000 of.net income« The aggregate
net income of all these corporations amount ed'-to only- 7 percent of. the
total report ed by all corporations*--U/
Evidence on trends in. the development of small business and;its
relative position is not entirely satisfactory® The following general­
izations, however, are based on the work of carefill invest 1 gatorSe
(l)
Prom 1 9 1 S to I 9 2 9 , the. number, of business firms increased faster
than the population, but the proportion of business in the Hands of *
very large firms increased rapidly« (2 ) ■ During tne period 1929 to 19 1»
the number .of, firms decreased sharply up: toi-1933» but 'by I^Hl the ratio ,
between the number, of businesses and- the:-population had risen .past that
o f -1 9 2 9 o Probably small business somewhat increased its Share‘of total
business*
(3 ) Prom 19^1.through 19^3, the number of firms decreased
sharply* The proportion of -business done, by small, firms., but not. the
absolute amount, declined« 5J
(^0 Since 19^3» the number- of firms in
business has increased sharply» By mid-19^, all of the wartime

Ï7

This Section is based on statistics given in greater detail in
Appendix B,.. ’'Selected. Statistics :on the Relative Importa.ii.ee of
Small Business «,’1
■
.
.
Based on census. data*- See Appendix B, Table 3«
u
Spe Appendix B ,
1 / Bas.cd Ön .Statistics of. Income for 1 9 ^ » 'Peft 2 <
Table h„
r
H./. .Ibid, Table 5. • ■
\\
',
‘
**.. •
-•
Howard:
R
%.
Bowen,
’
’
Trends
in
the
B
u
s
i
n
e
s
s
Pop'ulä.t.ib.h,1
1
Survey,
of
5/
Current Business,. March, 1 9 ^ *
See Appendix S fôr more d.etail»

_ k ^.. . ...

•

:

decrease in the number offirms'bad been wiped out, and the .number of
firms in operation ..exceeded, the prewar peak* ■ The increase in the number
of firms- in the period l^b-b^r^b^ was' almost entirely among small
businesses,, "!_/
; ' ■:
D*

Interest in the, •problems of small business

:during recent years there has been widespread interest in theeconomic problems of small business and in all kinds of proposals for
its assistance* There has been much;discussion of the financial problems
of small-business and means of solving them, .and of technological, and
managerial problems and ways of helping small business in these areas*
There has also been a great deal of discussion of the tax problems of
small business, expecially as taxation relates to small-business finance®
Businessmen, legislators,- and tax administrators- are agreed on the
importance of. the subject* nevertheless, no generally accepted
conclusions have been reached, as to -the effect of the present tax system
on small business, the proper objectives in. taxation of;small business,
or the,most desirable ways of reaching objectives once agreed upon*
Purpose and scope.of the present report .

-

.

The present report analyzes a number of tax proposals that have
been advanced for the special benefit of small.business * : The purpose
of the report is not to make recommend at ions but to present .'an
objective appraisal of the effectiveness of the various proposals', in
reaching their avowed, or implicit objectives.' The report also -considers
whether the proposals would, raise now and: .difficult problems of equity,
economics, or administration*
•
<■
H.*

Analysis of tax proposals for the special benefit
of small business
^

•

/. -'ll: '
....■

.. Tax proposals that have been advanced, for the special benefit- of '
small business stem from one of two points of view. One point, of view'is that, small business is so essential to a. prosperous and -democrat ic- ‘
free-enterprise economy that the .tax system should be deliberately ’
biased in. fa.vor of--small business in order to offset some of its non­
tax disadvantages, such as difficulty in securing cnpitalc 'The -other ;>
17

Bonald,W. f’aden arid •111ce Nielseh, ^Becent Trends in the Business
Population,” Survey of Current Business* May, lib-6, ppt l6— 2b;
Melville^J0 TTlmer, r,The Postwar Business Population,” Survey of
Current Business, January, I 9 U 7 , pp* 9-1-3, “See Append.iT¥7

*

127
- 5 point of- view is merely that the tax system should not discriminate
against small business, hut that to assure this certain,spes*§J
measures are necessary#
Since, .however, the objective of a n y o n e
proposal is subject to different interpretations, no attempt is made
in this report to classify proposals on the basis of the point of
view that they represento
This section discusses some of the principal types of tax
proposals that have been. made for the special benefit of small
business«, These proposals may be divided into three -groups——A,,
proposals intended to make refinements or changes in the base or
rates of taxes on net income; P , proposals intended to equalize
taxes on incorporated and unincorporated businesses; C,- proposals
intended to offer exemptions to new or small businesses .or to
investors in such enterprises, for the purpose of stimulating
investment in them#
Of course, no sharp lines can be drawn between the various
types of proposais, and the following classification is to soiii.e
extent arbitrary* The
group of proposals, as here classified,
includes two proposals with respect to corporations only —
Cl)
graduation of corporation income tax rates and \2) modification ofsection 102 surtax on corporations improperly accumulating surplus —
and two pro no sals with respect to both incorporated and unincorporated,
business— (3 ) loss offsets and (^) accelerated depreciation» The >
«B» ‘group includes two opposite approaches to the problem of equalizing
taxes on incorporated, and unincorporated, business— (5 ) partnership
treatment for certain corporations and (6) corporate tax treatment for.
the•reinvested earnings of unincorporated businesses» The **0° group
includes^ (7) tax exemption for retained, earnings of small businesses;
(g) tax exemption for equity investors in small businesses; and (9)
tax exemption for new small businesses* for a. limited period of years©
Proposals for reduction of the general*level of individual and corpora­
tion income tax rates are not considered, in this study©
Po attempt is made to mention every variation of the
major proposals nor to list every person who had. publicly
particular proposal© ' The discussion is confined to broad
tax policy and tax structure, with particular rotes, size
and. the like mentioned, primarily for illustration©-

different ad.va.uced a
mat.tors of
limitations,

-

6-

Most of the proposals are intended to he restricted to small
businesses and hence raise in-more or less acute form the-problem o f ’
the proper definition of small business« As has - already been indicated,
there>are a, great variety of definitions of small business, none of them
wholly satisfactory*
Moreover, all of the proposals would involve some immediate loss
of revenue* Hence they must be considered in the light.of the general'
budgetary and economic situation and must be compared with alternative
tax reductions« •
.
;
V
A,

Proposals for modification of the base or rates
of taxes on income of small businesses

lo

Graduation o f corporation income ta x rates
a,

Mature of proposals and scope of present discussion

A number of proposals lor the benefit of small ircorporated business
call for changes in the present method and extent of graduation of
corporation income tax rates. There have been proposals for further
reductions in rates on small corporate incomes in order to widen the
difference between rates on small and large incomes. Several proposals
call for reduced rates on the first $1 0 0 , 0 0 0 of income, rather than on
the first $f>0,000, as under present law. The present notch-rate system
for making the transition from reduced rates on small incomes to the
general rate on incomes in excess of
has been a target for
criticism, and its elimination has frequently been suggested, l/
L / O n the graduation of corporation income tax rates, see, among others,
the suggestions made ini Smaller War Plants Corporation, Taxation
(Economic Beport, 19^5); ^Digest of Suggestions for Belief of Small
Business in Matters of Taxation,” memorandum from Mr, Ban Eastwood
to Bepresentative Wright Patman, Select Committee on Small Business
of the House of Representatives, February 1 7 , 1 9 U5 ; J, Keith Butters
and John Bintner, Effects of Federal Taxes on Growing Enterprises
(Boston, IQU 5 ); Hearings of the House Small Business Commit.too;
letter from Mr, A, ¥« Kimball, Birector of the Washington office of
the Motional Small Businessmen*s Association, to Representative
Charles B c Bobertson, May 20, 19^-7 (Congressional Becord, SOth Cong,,
1st Session, vol, 9 3 , p, A 2 5 1 5 ),

12
- J

-

The following, discussion of, graduated corpomt?^. income
m i e s concerns' mainly the, general structui*n.l guest-ion of how haie
graduation can be -achieved juid briefly considers^ ddvhniago$ and.
-<
disadvantages of various .
;m et hods of graduai iode • Specific schedules
referred to ..are Int ended-mefely for illustration*. .No. attempt is .made
to settle on a method- of graduation or a recommended rate schedule*,
•h*

Present -rate schedule

..

••

At the present time, ra.te graduation in .the -corporate tax Is, ■%
restricted to. corporations- with net income of less- than ¿ 5 0 ,0 0 0 *.
For corporations with net income in excess of ¿ 5 0 ,0 0 0 , the tax rate
is 3 8 percent of the entire net income« 1J For ..corporations, with
net income of le.ss than ¿ 2 5 ,0 0 0 , the .-following t h r e e bracket „rat es- . ...
are provided; On the first ¿5,000 of net income, 21 percent; on the.
nèxt ¿1 5 ,0 0 0 , 2 3 percent; on the next ¿5,000, -25 percent, Xj On net,,
income in the so-galled notch area, between ¿ 2 5 , 0 0 0 and ¿5 0 ,0 0 0 , the
rate is 5 "^ percent* 1 /
'
y
-v
LŸ
,

c*

Just if icat.ien of graduation of .corporate
income tax rates ;
•• ^

■ sr

- .During most of the life of the corporate income,.tax, its ^
effective rat es have been -graduated.- to some extent,, ,-by means either,
of an exemption or a schedule-of graduated bracket rates* 2/ Yet
there is no general agreement as to.-the. justification of graduation, »,
or its purposes*

' y

The usual justification of graduated, income-tax rates for
individuals, based on the'doctrine of ability to pay,.measured in
terms of personal sacrifice, is clearly not applicable .to corporations
as such* For can graduation of corporate tax rates be readily defended
as a means of achieving greater•graduation of taxes on stockholders.
It is true that stock in small corporations is more iikely to be owned
by persons with- small- incomes than by. persons with large incomes, but^ .
low-income stockholders as a group.probably,reçoive a greater proportion
of their-dividends from large corporations than from small corporations» 3/
Combined normal tax and. surtax rates*.
For a brief history of graduation of the corporate income tax,,
since-: 1909, see Appendix D*
,.?•
’'
; ■< •
2/
Data for 1 9 3 6 on -dividends reported on individual tax returns,
<
classified bv size of assets, of the corporations raying the dividends,
' appear to offer some, support for -this generalization*
In that year,
■ a significantly greater proportion of reported dividends came from
, small-corporations -in the case of individuals with net incomes of less
than ¿ 5 , 0 0 0 than in the case of individuals with higher incomes*
Nevertheless, a much greater proportion of total dividends reported
by individuals with net incomes below ¿ 5 ,0 0.0 came from the largest
corporations than from small corporations* Treasury Bulletin.,

TJ
2f

January, 19^-3* PP* 3-6®

-g -

It is, nevertheless, often cent ended that Vi g corporations have '
greater ability to pay taxes than small corporations» Presumably,
this argument means that big corporations can pay with less harm to
their business operations» Graduation of corporate income tax rates
seems to have the same fundamental-purposes as other tax measures for
small business*-~ê'ither- to 'favor?-small busaj$§gs or to offset It's
comparative disadvantages© The benefits of graduation, it should be
noted, are available to all corporations with small incomes in any
year, whatever their invested capital, sales, or relative position in
their industry»
Strictly speaking, graduation .is a small corporation
measure only if smallness is defined annually in terms of net income©
Graduation of corporate tax rates offers a tax advantage to
small corporations as compared with large corporations, but it raises
certain economic problems© In some instances, a sharply graduated
tax may be a greater deterrent to efforts to expand the corporation’s
net income than a flat— rate tax would be« Moreover, under graduated
rates, a risky business with widely fluctuating income will be taxed
more heavily than a stable business realizing the same total income
over a period of years© A loss carryback or carryforward.will help
prevent this $ but loss offsets will be less effective in maintaining,
the incentive to invest under a graduated tax than under a flat— ratetax© Under a flat-rate tax, if losses on an unsuccessful investment
can, be offset against taxable^income from other sources, the Govern­
ment shares equally in gains from successful investments and losses •
from unsuccessful investments© Under a graduated tax, however, the
income against which a loss is offsetis likely to be subject .to, a
lower tax rate than would have applied to the last part of income
if the investment had. been successful© Hence, under a graduated
tax, even,with loss offsets, the Government’s share in losses will
be smaller than its sh^re in gains©
d,

Limited versus full graduation .

•

There are two basic approaches to graduation of.corporate tax
rates* The limited, graduation approach, which is followed in present
law, applies a. reduced rate only to corporations with small incomes; i
above a certain amount of income, the effective tax rate is the same
on the whole income, regardless of its size© ' The full— graduation
approach would..apply reduced rates to the*first income- earned by all
corporations, regardless of the size of the total income; as income
increases the effective tax rate would, approach but. never quite
reach the rate applied to the last part- o-f income© The full-graduat io-n
system would be somewhat similar to .the method'af graduation’used, in the individual income tax ».but most proponents of full graduation would
favor use of a much smaller number of brackets in the corporation tax •
than in the individual ta3c*

129
- 9Limited graduation permits the tax benefits to "be confined
strictly to-busines-ses which it is desired to relieve* Thus,
limited graduation offers a relatively greater advantage to small
corporations than does full graduation. Limited graduation also
involves a slightly smaller revenue loss«,
Limited graduation plans, however, are somewhat more complicated
than-full graduation and are less readily understood by taxpayers*
More important is the fact that limited graduation requires a higher
rate of tax on the last part of incomes of intermediate size than on
the largest incomes. An arrangement of this nature is necessary to
provide a smooth graduation of effective, tax rates and to avoid the
anomaly of an increase in income before taxes resulting in, a decrease
in income after taxes at some point $
The necessity of a special rule for incomes of intermediate
size under a limited-graduation system may be illustrated by
examination . of the present notch rates on incomes between $2 5 , 0 0 0
and 550,000«, The present rate schedule results in a tax of $5»750
on a net income of $ 2 5 ,0 0 0 , or-an effective rate of 2 3 percent«
Under the general rule, the tax,on a net income of $50,000 is 3& per­
cent, or $19,000e I n order to bring the tax up from $5 » 7 5 0 on a net
income of $ 2 5 , 0 0 0 to $1 9 , 0 0 0 on a net income of $ 5 0 ,0 0 0 , it is necessary
to assess the $1 3 , 2 5 0 difference in taxes against the income between
$25,000 and $50,000« This requires a rate of 53 percent on bhis second
$ 2 5 , 0 0 0 of income. Or to put the matter “another way, since the effective
rate of tax of 2 3 percent at an income of $ 2 5 , 0 0 0 is 1 5 percentage points
less than the general effective rate of 3 & percent, it is necessary to
impose a rate 1 5 percentage points higher than the general rate on
income between $25,000 and $ 5 0 , 0 0 0 to bring the tax to an effective
rate of 3 8 percent at $50,000.
If no notch rate were provided, a
corporation would find that-an increase in its net income from $ 5 0 , 0 0 0
to slightly mare than $50,000 would actually decrease its profits after
taxes, ly Although the tax rate is higher on the last part of income
of corporations in the notch area than on larger incames, the effective
tax rate is always lower on net incomes below $50,000 than on net incomes
above $ 5 0 ,0 0 0 «
I./

This anomaly may be illustrated by_.assuming the present notch rate
to be eliminated and the 25-percent bracket rate extended to cover
incqme between $25,000 and $50,000. Then the tax on an income of
$50,000 would be $1 2 ,0 0 0 , leaving’the corporation $ 3 8 »GOO, after
tax. But on an income of $51,000 the tax at n: 3&HPercent rate on
the whole income, would- be $1 9 ,3 ^0 , leaving the corporation only
$ 3 1 , 6 2 0 aft er- tax.
/

- io Although any limited graduation system necessarily reauires a
notch rate higher than the standard rate, flexibility in the notch
rate.can he obtained, by varying the width of the notch area* The
wider the notch area, the less the notch rate needs to exceed the
standard, rate» For example, if the notch area were extended, to •
cover net income between $2 5 , 0 0 0 and $‘7^,000 instead of the present
$ 2 5 , 0 0 0 to $5 0 , 0 0 0 and rates were otherwise unchanged, the present
notch rate could be reduced to ^5»5 percent; if the notch area were
extended to $100,000, the notch rate could be reduced to U 3 percent*
A limited graduation system, however, must always impose a
higher top rate on incomes of intermediate size than on larger • •
incomes. This feature has been criticized as inequitable and as
a deterrent to expansion. The necessity of its use is a disadvantage
of limited graduation.
e.

Methods of graduation

Three methods of obtaining.graduation, under
or full— graduation approach, are possible. These
bracket rates; (b) graduated effective rates; and
The different methods may be combined in a single

'either the limited
are? (a)#grad.uated
(c) an exemption.
schedule«,

The method rtf graduated bracket rates divides' net income into
brackets and imposes higher rates on the upper, brackets of income
than on the lower brackets. This method is now used for both the
corporate-and- individual income, taxes.
If the low rates on the first
brackets of income are restricted to taxpayers with net incomes below •
a certain size, as-•in the Present corporate tax, the bracket method
results in limited graduation«»
If, however, the low#rates on'the
first brackets are ¡available to all taxpayers, as in the present .
individual income tax, the result is full graduation» The bracketrate method has the advantage of flexibility, since•any desired
number of brackets and rates can.be used.
It is reasonably, simple,
especially if the full graduation approach is followed:. The bracket
system, -however, has the-disadvantage of forcefully calling .the
taxpayer’s attention to the fact, that an expansion of income may
raise the corporation into a higher tax bracketand. hence-it may
have bad. effects on business incentives.
. The method/ of graduated effective rates is mire complicated,
and is not used in the present tax system, jjnd er ’thi s method g the
effective rate'of tax nn the whole income-of a -corporatier would
increase in direct proportion to income over some r^nge«. 'For
example, the corporate tax rate, might, be stated as a rate equal

130
- ii -

to that proportion of 3^ percent which the corporation’s net income
bears to $50*000, but in no case more than ^8 percent^ Thus, if the
corporation’s net income were $2 5 *000, which is- One-half of $5 0 ,000,
its tax rate would be 19 percent, which is one-half of J 8 percent«
If, however, the corporation’s net Income wore in excess of $50,000,
•its tax rate would be 38 percent* This, schedule would be an example
of limited graduation obtained by graduation of effective tax;rates*
One advantage of the method of graduated, effective rates is that it
provides smooth graduat ion without any .sharp upward jumps in t'op
rates such as occur under a bracket system* Another:advantage-is
that it does not specifically call t.he taxpayer’s -attention tofthe
proportion of any additional income, taken by taxation and hence is
less likely to have an adverse effect on the incentive to expand
income than is the bracket system* The chief disadvantage of the
method of graduated effective rates is. that i.t" in complicated,
each taxpayer being required to compute his own-rate*
An exemption is-a* third, method of .achieving graduation* With
a constant nominal tax,-rate, an exemption of any given amount of
income will reduce the effective-rate of tax to zero in the cas.e of
the smallest net incomes* As the income increases in size, the..
exemption will be a smaller proportion of the total income, and.the .
effective rate of tax will gradually increase until it approaches
'
the nominal rate0 Any exemption that is available to al| corporations
will result in full graduation, although, the significance of a smallexemption may be negligible for the largest corporations* If' it is ;;
desired to limit the graduation to corporations with net incomes
below a certain size*-/the exemption can be made to decrease as income
rises and finally to disappear entirely* This is ordinarily called, a
vanishing exemption, l / . A constant exemption is simple, but a
17

A vanishing exemption plan may be illustrated- ns7 follows: An
exemption of $5*000 for all corporations with net incomes of less
than ..$2 5 ,000;: no exemption for corporations w i t h .incomes of $50,000
•' or more; for corporations with incomes between4$25,00 0 and $5 0 ,060,
an exemption'of-$5,000'le'Ss that proportion- of $5,000 that the
excess of income over $25,000 bears to $25,000* Under this
particular schedule, a corporation with a net income of $5,0 0 0
would pay nd: tax; a corporation with any income between $ 5,0 0 0 ■ I
and $25,0 0 0 would deduct a $5 ,0 0 0 exemption from its taxable
'
•'
income; and a/ corporation with an inednie of $56,000 or more
•- • .*
would, be taxed on its whole income* A corporation with net
income of $3 0 ,000, for example, would have an exemption of
$U,f)00; with A net income of $U0 ,000, an exemption of $2 ,-000* f*'*’
-'e* •*

-

12

-

vanishing exemption is likely to he rather complicated» If the
exemption is small, this method of graduation is not likely to
offer any important deterrent to expansion of corporate income«
The exemption method, however, has the disadvantage of being
relatively inflexible* The starting rate of tax is always zero,
and the speed of graduation is rigidly fixed by the size of the
exemption* If greater flexibility is desired, an exemption
must be combined with one of the other methods of graduation,»
"Moreover, the exemption method.would raise a problem of
unfair discrimination against small unincorporated businesses
as compared' with small corporations,, Under the exemption method,
part or all of profits retained in small corporations would be
wholly free of current taxation, while profits reinvested in
small proprietorships or partnerships would, be currently taxed,
if in excess of the owners1 personal exemptions and credits for
dependents*
It would be very-hard to work out a feasible method,
of offsetting the corporate exemption against the personal
exemptions of stockholders»
f*
1

Keletiori between the starting rate on
corporations 'and the first-bracket rate
on individuals

Although the present discussion is' concerned mostly with the
method of graduation rather than with specific rate structures, the
relation between the starting rate on corporations and the firstbracket rate on individualsrequires mention* The starting rate on
corporations has usually been equal to, or greater than, the first
bracket rate oh individuals* Most proposals far rate changes1 appear
to be intended to preserve this relationship* Some proposals, however,
call for a starting rate on corporations lowér than the first—bracket
rate of the individual income tax* This is always true of the exemption
plans*
*
'
The relation between the two rates raises the problem'of
discrimination between incorporated and unincorporated, businesses*
Under the present system, .owners, of small unincorporated businesses
have the benefit of personal exemptions,"which give them a zero
starting rate, whereas the starting rate on corporations is now
21 percent* - however,-with'present low personal exemptions, the
extent of discrimination on this account is not great* 'Moreover»
stockholders in small corporations usually have income other than
dividends— even if it is only s a l a ^ from the corporation.— -against
which their personal exemptions may be applied* A starting rate

- 13 -

on corporations lower than the first-bracket rate on individuals
would wid-en the area in which retained corporate profits are taxed
'more lightly than income reinvested in an unincorporated business
and would offer stockholders additional opportunity for tax post­
ponement,or avoidance» These considerations suggest the advisability
of keeping the starting rates on corporations at least as high as the
first— bracket-rate on individuals©
go

The problem of split-ups

All methods of graduation of the corporate tax raise the problem
of split-ups of existing or n eyr enterprises, motivated by the owners*
desire to take multiple advantage oi the low rates© Different de­
partments or branches of many enterprises can easily be incorporated
separately in order to reduce taxes,. This problem would.be likely to
be most serious under a system providing a sizable exemption©
h0

Conclusions

Graduation of corporation income tax rates is well— established
in practice, although its basic justification is open to question,,
Graduation can offer a tax advantage to small corporation, but it
raises, certain economic and equity questions, especially with respect
to taxation of fluctuating incomes*
Graduation may be limited to small corporations, 'Or may be
Limited
graduation restricts benefits to snail corporations' and. involves some­
what less revenue loss than full graduation,, Limited graduation,
however, is more complicated- and requires imposition of a relatively
high rate on the last part of incomes of intermediate size, which may
discourage corporate expansion©

extended to all corporations under a. full— graduation system©

Limited or full graduation may be achieved by means of graduated
bracket rates, graduated effective rates, or an exemption© .Graduated
bracket rates are simpler than graduated effective^rates, but the
latt er have the advantage of not calling attention ..to high rates
imposed on an addition to income© Graduation by means of an exemption
is relatively inflexible, and the starting rote must be zero© More-^
over, an exemption under the corporote tax raises an equity problem
of possible unfair discrimination against unincorporated enterprises©

~ lU ~
2<> Modification of Section 102 of the Internal
Revenue Code
It has "been complained that the surtax imposed under Section 102
of the Internal Revenue Code on corporations improperly accumulating
surplus is a deterrent
the growth oif small corporations} which have
more to fear from it thin large widely held corporations#
It is argued
that fear of application of the surtax keeps many small corporations
from retaining an adequate portion of their earnings to finance expansion
and for contingencies* l/ For this reason, it has "been suggested that
some limited amount of net income he exempt from‘Section 102 surtax,*
a#

Future and purpose of Section 102

Section 102 of the Internal Revenue Code imposes a special surtax
on the undistributed net income of a, corporation ’’formed or availed of
for the purpose of preventing the imposition of a surtax on its share­
holders} or the shareholders of any other corporation,,through the
medium of permitting earnings or profits' to accumulate instead of
being divided or distributed* „ #
The surtax is 27©5 percent of
the first $10 0 ,0 0 0 of undistributed net income and 3^*5 percent of
any amount in excess of &100»000o In computing the undistributed
net income» deductions ore allowed for Federal income taxes, dividends
paid*, the net operating loss carryover» and certain items not allowed.
&S deductions for purposes of the corporation income taxo The fact
that the earnings or profits of a corporation are permitted to accumulate
wbeyond the reasonable needs of the business1' is held to be determinative
of the purpose to avoid surtax on the shareholders, unless the corporation
can prove the contrary by a clear preponderance of the evidence#
The necessity of a. provision in the tax law to prevent the use of
corporations for purposes of individual income tax avoidance on the
part of stockholders has been recognized ever since the present income
tax was first enacted in 1 9 1 3 « Prior to 1 9 2 1 » the statutes required»
in cases of■improper accumulations, that there be included in the
stockholder5s income the share of nrofits to which he would have been
entitled if there had been a distribution*
Since 19215 a penalty tax
has been imposed on the corporation that improperly accumulates
surplus a Z j %

1~J Edwin "B* George and Robert J6 Landry, nThe ’Shadow of *1025 on
2/

Dividend Policies»** Run *s Review, Supplement» 19^7«.
For a brief legislative history, see Jacob Mertens» The law of
Federal Income Taxation (Chicago» 19^3)» Fol# 7» pp®~328^ y * jo 0

132
-'1 5 Section 102 is intended merely to. strengthen:the individual
income tax by. preventing, accumulation of p r o fits in a corporation
for the Puroose of avoiding individual income tax* The sectio n ,
however, does not attempt to prevent tax avoidance or postponement
incident to the retention and reinvestment of corporate p r o fits fo r _
ordinary business purposes, 'A,sharp lin e is drawn between accumulation
of Profits fo r reasonable, business purposes and improper accumulation
for purposes of tax avoidance. ' In th is respect. Section 102 d iffe r s
fundamentally from an. undistributed p r o fits tax of the type that was
in e ffe c t in 1936 and 1937« ^hich, with minor exceptions, did not
distin gu ish among uses of retained profits®
b„

Application of Section 102

In applying Section 102* both the Bureau of Internal Revenue and
the courts have liberally construed «the reasonable needs of the
business. 11 Undistributed income is held to be properly accumula e.
if retained for working capital needed, b*’ the business, or if inves e
in additions to plant reasonably required.by the business, or if put
into a sinking fund for retirement of bonds in accordance with a
contractual obligation of the corporation. 1/ In 19^U ? the Treasury s
policy was authoritatively stated to be such that, "So operating^
corporation accumulating surpluses and using the same in the business
in which it is engaged should be apprehfensive.n 2 /
Collectors- of internal revenue and other officers and employees
of the Bureau of Internal Revenue have been instructed to give close
attention to the returns of the'following types -f corporations m
determining whether Section 102 is applicable;
(1 )

C o r p o r a tio n s which have not. distributed at least
70 percent of their earnings*
(2 ) ' C o r p o r a tio n s which have invested -earnings i n
securities or other property unrelated to their .
normal business activities;
(3) Corporations-which have mode loans to officers or
shareholders out of funds from which t a x a b l e
dividends might have been declared;
(k )
Corporations, a majority of whose stocky is hold by,:
a family group or other small group of individuals
or by a trust for the benefit of such groups;.
r

l / Regulations 111 rela tin g to the income tax , se c. 29e l02- 3.
2 / Treasury press release, December 17? 193ac

(5)

Corporations whose distributions exceed 70 percent
of their earnings hut which, nevertheless} appear
to he inadequate in the light of the nature of the
business and. its financial condition* 1 J

It has been contended that the. 70—percent distribution and
closely held, stock criteria, discriminate against small corporations}
which need to retain a larger portion of their earnings than do oig
corporations and' which are usually owned by a small number of stock­
holders » These and other t ests » however, are not applied in a
mechanical way but are intended merely to d.irect the attention‘of
collectors to cases that may need, careful consideration.-,
In actual practice, the Section 102 surtax has been imposed, in
only a relatively small number of cases, and in only a small portion
of these cases have the corporations involved been ordinary mercantile
or industrial businesses*
In a large percentage of the cases in which
the surtax has been at>plled, there has been evid.ence of flagrant
avoidance schemes, such as loans to officers or stockholders, large
accumulations of cash, or investments in securities unrelated to the
business«
During recent years, the great uncertainties of the war and.
transition Periods gave at least the semblance of reasonableness to
most accumulations of earnings by ordinary business firms0 kith the
end of the war and the immediate transition, however, many of the
'grounds on which large accumulations of earnings had been justified
during the war became no longer -valid* The Pureau of Internal Devenue ,
has not changed its long-established policies with respect to Section
1 0 2 , but »n effort is being made to revert to normal peacetime standards®
Desalte the lack of a

substantial foundation for such an attitude,

it may be true that officers and directors of some small corporations
are so apprehensive about Section 102 that they are failing to retain
earnings for legitimate business purposes« Sut it is hard to see.how
this situation, if it actually does exist,, can be r e m e d i e d by legislative
action, without encountering problems of the type mentioned below*

l7

tT d T W * . d u ly 26, 1 ^ 3 % Cum ulotive B u l l e t i n , 1.939-2,
PP, 1 OS-110j August 12, 1 9 UU, Cumulative Bull et in , 19liU,
p* 19^0’

133
- 17 -

Co

Problems raised by proposals for ftn
•ek'enPtion under Section 102

In order to prevent possible -discouragement to legitimate
retentions of profits, it has been proposed that a limited amount
of net income, s a y '$2 5 ,000, be exempt fromtthe surtax imposed by ■
Section 102, Such an exemption, however, would raise grave problems
of tax avoidance and unfair discrimination* At present high individual
tax rates, a. flat exemption under Section 102, without regard to the
use made of the retained/funds, would be an AT)en invitation to tax
avoidance, The amount of tax avoidance or postponement possible under
such an exemption would vary directly with the size of the stockholderfs
income, being much greater foh those with.high incomps than for those
with lower incomes. There would, be no legal obstacle to prevent wealthy
persons from separately incorporating a number of enterprises, or
different -parts of the same enterprise, and retaining the exempt amount
of income in each corporation, . This would be an especially attractive
possibility in view of the general expectation that tax rates will
decline in future years, IBut even if tax rates did not decline, there
would be possibilities for realization of the retained earnings in the
form of capital gains through sale of stock, subject only to the
,
25—percent maximum rate on long—term capital gains, and for withdrawing
dividends in wears in which the stockholders 1 taxable incomes were low#
The only advantage that could be offset against such inequities
and tax avoidance possibilities would be the elimination of fear of
the application of Section 102, which is alleged to deter desirable
accumulations of profits. Yet, neither Section 102 itself nor the
record of its past application gives any substantial basis for such
a fear®
•
d.

Conclusions

A provision with the#sane general purposes as Section 102 has
been recognized by the Congress as a" necessary feature of the tax
structure ever since 1913*
Section 102 and. Treasury policy with
respect to it allow ample leeway for retention of corporate earnings
for all reasonable business purposes» An exemption under Section 102
would open the way for flagrant tax postponement and avoidance.
It
would appear that any d.etcrrent to legitimate retention of' earnings _
for business purposes can best be rcjno'ved-<by further diffusion of
information about the purposes of Section 102 and its administration*

v

-

3«

IS

-

Loss offsets and the taxation of small 'business

An extension
the period dating-which operating losses may "be
offset against taxable income ha.s often been recommended as a tax
revision that would especially benefit small business, l/ Present
law allows a two-year*..carryback; tód//á.Jk,M~yéar- carryforward of net
operating loss, ' 2 j Proposefe"chcmggs.Ic'aXiiboJQh‘for-'extending the
period during Which loss offsets may be made and for shifting,.the
emphasis toward carryforwards and awáy f^om:carrybacks®

These-- proposed, changes, u n lik e Others d is c u s s e d in, t h is report.«.
would not be r e s tr ic te d to sm all.-bu sih esees. They would be general
taje r e v is io n s , w hich, however** are regarded as' e s p e c ia lly b e n e fic iá is „ ^
to sm all business«
/'•” - '!
. v
'/■'/_• ..
,, This report does not attempt a complete analysis o f l o s s offsets«./.
It’first .discusses briefly the purpose of loss' offsets* . Then it
examines-the proposition that loss'offsets 'are especially important.
for small-businesses«
'
j
i . ...

a0

Purposes of loss offséts

7

5

V /'/.

The' primary .-equity advantage of loss offsets is an Improved/
?*£! i
definition, of taxable income®' ;If loss offsets are *riot allowed,
/ ,
firms that 'sustain losses will' not have the opportunity to .deduct . .Vi
all costs but may nevertheless pay a tax supposedly based on net. ,
/
incbjne«.',. In consequence,« the tax will fall'partly on capital rather .
than, exclusively on- net Income«" There will be a discrimination
against businesses with fluctuating incomes as compared with.
businesses:.with' stable’.incomes, ■*
'
,
_/ ,
1/

2/

Letter of. Representative Patman' to""Representative bought on,, op,.
cit«; digest o f .350 letters on'taxation receiver, by the Hous.e '<
Small. Business Committee, on, city;’ 'Smaller War Plants Corporation,
Taxation, op« cit«; Pesearch Committee of the Committee on Economic
Development, Postwar Federal Tax Plan for High Employment; Deport
of the Small Business Advisory Committee'bo the"Secretary of
Commerce, May 2S5 1 ^ 5 ? P* 8© This recommendation, has also been
made.by many witnesses- at congres'siorlál hearings and by -jnany .
writers on taxation®
’
/ ..-'
Internnl Revenue Code, sec® 122«

134
- 19 The chief economic purpose of loss offsets is to reduce tax
impediments to the incentive for teking 'business risks*
If loss
offsets are not allowed,%the tax system will reduce possible returns
from successful risky investments ‘but will not reduce losses from
unsuccessful investments. This loading .of the scales may often tip
the balance against investment© At best, failure to allow adequate
loss .offsets^will result in a Change in the quality of investment
in the direction of conservative investments and away from venturesome
undertakings* Still worse is the probability that the aggregate
amount of investment will be reduced* If, on the other hand, all
losses may be offset against taxable income, a proportional income
tax will not reduce the possible percentage return on the net amount
at risk*
Complete loss offsets, therefore, would eliminate a
principal tax deterrent to investment* 1J
It must be recognized,
however, that loss offsets are possible only if the investor has
enough taxable income to absorb the loss during the allowable period©
In eases of single Ventures by corporations or individuals idth little
taxable income from other sotibdes, statutory provisions allowing ldss
carrybacks or carryforwards have little or no effect on the anticipated
risk of investing©
Loss offsets or their absence may affect not only the aggregate
amount and overall quality of investment but also its distribution
among types of firms* The basis for urging loss offsets as a measure
especially beneficial to small business is the belief that failure to
allow adequate loss offsets discriminates against; small firms and
promotes concentration of investment, thereby, adding to rigidities
in the economic system«
1J

See A* P* ^Lerner, "Functional Finance and the Federal Debt,"
Seeial Research, Vol* 10 (19^3) > PP* U5-^-6j Fvsey F* Dormar and
Richard A, Musgrave, "Proportional Income Taxation and Risk
Taking," Quarterly Journal of Economics, Vol* L Y H I (19^)»
pp,
Losses from one venture may .sometimes be deducted
from income from other ventures, in the same year, even.though
carryforwards and carrybacks are not allowed* This is the case when
the different
ventures are carried, on by the same taxpayer or
when consolidated corporate returns are allowed©

-

*.

20

~

Adm i n i s t , Q , f |

The primary limitation on the period daring which losses sustained
in one year may he offset against income of other years arises out of
the administrative difficulties of a long offset period* The longer
the period» the greater the problems of keeping open or reopening
returns and of auditing transactions of years long p^st* In general,
such administrative problems would he greater for carrybacks than for
carryforwards, and this consideration argues in favor of carryforwards
in preference to carrybacks*
In the final analysis, however, the
length of period required and whether the emphasis should b e #on carry­
forwards or carrybacks must be decided in the light of economic apd
equity consequences as well as administrative cons id.erat ions 0
c*. Special advantages of loss offsets for small
business
1
It is generally assumed that loss offsets are more important for
small firms than for large* One reason for this belief is the fact
that large firms are more likely to be diversified as to activities
and as to marketsc This suggests that the income of large firms- is
less likely to be subject to fluctuations arising out of‘conditions
peculiar to one line of activity or to one locality* losses sustained
from one activity or in one locality can often be offset in the year
of occurrence against income from other, sources’
* Moreover, large- . t
firms may be in a better position .to .stabilize their incomes by use
of trademarks, advertising, and established distribution'arrangements.
There is some statistical evidence indicating that the^profits of
small corporations have in fact fluctuated mors widely over a period
of years than the profit's of large corporations* !_/ The interpreta­
tion of such; statistical data, however, is open to question because
of the.difficulty of making a proper allowance, for the earnings of
active stockholder-managers of small corporations*
An analysis of loss offsets taken in 1-9^0-19^2 Under the twoyear carryforward allowed for thos.e years indicates that'the net
operating loss deduction wais much more important for small corporations
than for large* Table 1 shows that in IPUO—U2 the deduction was 10
percent of net.income in the smallest asset group (under $ 5 0 f0 0 0 ) and ..
that it decreased in every larger asset class until it reached % of
1 percent in next to the largest class and then rose to more ,than
■•
. T m i a r n

L, Crum,'Corporate Size and. Earning Power (Cambridge, 1939 ;

p* 2^9. •

•

• ..

135
-

21

1 percent in the largest class» 1_/

Further analysis shows that the
increasing -importa.nce of the loss deduction in the largest asset class
was attributable almost entirely .to the transportation industry
expecially the railroads* Table 1 shows the figure, both' including
and excluding the transportation industry»

-•'This.;.statistical evidence' is- not- conclusive, but“'it-does support
the reasonable...deductive, argument that small firms would be more likely
than-big-firms to benefit from liberalized loss offsets,
.The relative advantages of carrybacks as opposed to carryforwards
.of npt operating losses are not discussed in d e t a i l in this report.
It- should -be noted, however, that new firms co ul d- b en ef it only from
carryforwards6 Carrybacks would not o n l y b e of no value to new firms
but.might be positively disadvantageous, in that they would _give
■established .firms a competitive advantage© On the other hand, carrybadks may be-especially helpful to established small¿firms because
t b e ’.resulting tax refund may come, in a period of losses when the,
fihm'ss cash position is likely to.be weakest©
>*

d©

Conclusions

.

•

Liberal opportunities to offset operating losses .against taxable
income are^a" desirable feature of any income tax© Loss-offsets make
the' income fax more equitable and lessen its possible.restraint -on
investment» Loss offsets over a period of years' are especially
Important ;fo.r small, undivers if led firms; large firms producing.a
varied output can often offset losses against other income in the
same year«
Improvement of present provisions for loss offsets would..be_a„
highly desirable kind of 'tax relief for small business. The change
would prob-hly benefit srv^ll business more than big business, but it
also merits support on other grounds,
lj: This finding is more striking when it is remembered that.in

the period under consideration (1939-19^-2) many corporations
were shifting upward in the asset sc^le because of a general
expansion of business activity» Therefore, the operating
losses wore often reported as deducted in a larger asset class
than that in which the deficits to which they related were
report edc

-

22

-

_ .. Table 1 .

..

^

F e t O p e ra tin g Loss. D ed u ctio n R e la te d , to ITet Income
and D e f i c i t , C o rp o ratio n s w ith. B a la n ce Sheets;
C l a s s i f i e d by S iz e of. A s s e t s , 1 9 U0 *«.19^-2

ITet operating, lo ss deduction,
___
. 1 9 UQ-U 2 -, as a percent of'. •
Deficit,
1939-41
Amount
,
iqUa-I|2
Î
;
ITet
income
5,
(in mil­ i Including: Excluding : Including î;:Excluding
2 tra.ns—
s trnns-*
lions) •> trans-r- î t runsrportnt.ion
portât!on
* portâtion* portation :
;

Size of assets

(in thous ends)
Under t
-ÇO'tô
100 to
2 5 0 to
5 0 0 to

50 ' &
100
'250
500

i ,000.

5 ,0 0 0
to
5,000 to 1 0 , 0 0 0
1 0 , 0 0 0 to ■50,000
5 0 ,0 0 0 'to 1 0 0 , 0 0 0
1 0 0 , 0 0 0 and over

1 ,0 0 0

To ta1

't ■. : > ♦5 j

75
5S

10,1
■ 5^6
3? 9
2,7

60

2*2

69

Uh"

,10*2
. 5.7
'3 « % ,
2,7 * ,•
2 ,2

12S

1.5

1 * 5

52
7U
2U
229

1 ,2

1*2

*7 .
,5
U3

-

£12

.1*5

■
■

*7
»5 .
1,3

'

...9*9
lU„5
17?7
1 7 o6
1 3 ç5
1

K

•

.1 7 * 6
tl»5
1 5.7

13*9
. 13?9

5

i M
,10ol
. . 6,3
,2 3 cH
i M

5 .8

lift-

'

^.na^g^^cgaagz?aga>^
Sources Derived from Statistics, of Income,?.

9*0S
l%h-

12«, 7 •

136
- 23 H0

Accélérâted dépréciâtion for small Easiness
a?

Wature -and purposes

-

For purposes of the income tax* depreciable property used
in a trade or business may be dèpreciated over its useful life© 1J
It has been proposed, howevers that both incorporated and
unincorporated businesses be allowed to take accelerated
depreciation, th-°t is, to write off assets for. tax purposes over
a shorter period .than their anticipated useful lives* 2J Accelerated
depreciation has been proposed' as a means of easing the capital problems
of small business and of reducing the risks of investment by small firms*
b0

Coverage

'

This report treats accelerated depreciation as a special measure
restricted primarily to small business*
It does not consider the
broad, revenue and economic problems that would be associated with
general accelerated depreciation* The discussion relates to the
probable effectiveness of limited accelerated depreciation plans in
meeting the economic problems of small business and the equity and
administrative issues connected with such plans*
Accelerated depreciation plans of the type considered here would
be limited in two respects; First, as to thé amount of assets eligible
for accelerated depreciation; and, second, as to the tjrpe of assets
eligible*
l7

2/

Depreciation must be spread over the whole useful life according
to a reasonably consistent plan-; but not necessarily at- a uniform
rate each year, Regulations 1 11? section 29°23(l)-l* The usual
procedure, however, is the straight-line method*
For examples of accelerated depreciation proposals, see the
testimony of the following persons in the H earings of thé House
Small Business Committee on#the financial problems of small
business; .Charles W* Neumann, Argus Fngineering Company, Hartford,
Connecticut, p p 0
S 8 Abbot Smith, Thomas Strachan Gompany,
Boston, Massachusetts, p* 909; Frederick S„ Blackall,.Jr*, Taft—
Pierce Manufacturing Company, p p c 96l“ 9É>3»
Fineberg, Standard
Valve Manufacturing Company, Boston, Massachusetts, p*
See
also;.Smaller War Plants Corporation, Taxation, ope cit„, p* 37®
Plans for formal acceleration of depreciation, such as are discussed
in this section, may be distinguished from proposals to allow tax­
payers great or unlimited freedom in selecting their depreciation
rates, which, on the average, would probably also result in
depreciation over a shorter period than the normal useful lives
of assets*

As to the amount of assets eligible* the limitation would he set
no higher than necessary to meet the needs of most small businesses
of the type to be assisted© This figure would have to be originally
decided largely on the basis of opinion* and then tested by experience
To make the following discussion more concrete*, it is assumed that the
maximum amount of assets subject to accelerated depreciation at any
one time would be limited to-a total of about $ 5 0 , 0 0 0 worth of assess
acquired after the .inauguration of the plan© However* there is no
intention of implying that .$5 0 » 0 0 0 would actually prove to be an
appropriate limit, if some accelerated-depreciation plan were adopted«
As to type of assets covered» two questions would arise in the
formulation of a limited accelerated-depreciation plan« The first
question, would be whether the plan should extend to all types of
depreciable assets or whether it should be restricted to machinery
and equipment* with buildings and patents and other intangibles
excluded« In favor of excluding buildings, it may be argued that
their long lives and the lumpy character of investment in them
would give rise to special problems if they were eligible for^
accelerated depreciation« As is pointed out in the next section,
any accelerated-depreciation formula which permitted all types of
assets to be written off in the same fixed, period would favor
long-lived assets and might give windfalls to investors in assets
such as buildings© Moreover, buildings probably preseht a less
serious financial problem for small business than other^assets
because of the possibility of renting and because of relatively
well-developed mortgage lending facilities for credit purchases
of land and. buildings © On the other hand, buildings are an
important, part of total investment and their useful lives are
>f machinery© Patents and
no longer than those,of many ;ype
other intangibles are probably on the whole relatively unimportant
for small businesses© The second question wrould. be whether
accelerated depreciation should be extended to both new and
secondhand assets or only to newly produced assets©
Since a
significant part of investment ,■by small firms takes the foym oi
purchase of secondhand, assets, it would probably be a&vxsable
to include both newr and secondhand assets in any limited
accelerated, depreciation plan for the special benefit of small
business» As is pointed out in the .discussion of administrative .
considerations in a later section, however, inclusion of second­
hand assets would give rise to troublesome administrative problems©

~

c.

25

-

Economic effects

in the early1 years of life of eligible assets» accelerated
depreciation would reduce taxable income below net income as
determined for other purposes* Hence* it would reduce taxes in
these years, In a sense, it would be equivalent to an advance
from the Government, to be repaid, in the form, o.f higher^tax
liabilities in later years when depreciation of the capital asset
had been completed* If, however, a business.purchased assets at
a constant or continuously increasing rate each year, it could
indefinitely defer repayment of this advance* S.uqh ^advances
could be very helpful to small business because of its traditional
difficulty in obtaining capital and its consequent reliance ©n
expansion from earnings* Borrowed money* when available, is likely
to be loaned on terms shorter than the lives of necessary machinery^
and equipment, and accelerated depreciation would assist in permitting
amortization during the terms of the loans*
Since accelerated depreciation allows more rapid recovery of
the original cost of a depreciable asset, it reduces the risk of the
investment® So long as an investment has not been fully recovered
through depreciation, there is always the possibility tha,t. an
asset may lose .its earning power with the result that any remaining
dépréciâtion deduct ions will be wasted because of lack of taxable
income against which to apply them*
Shortening the depreciation
period for tax purposes would be especially advantageous to certain
types of small businesses, where prospects for immediate profits are
good, bHit the long-run future of the Businesses are uncertain*
Accelerated depreciation would, also improve, somewhat, the yields
on investments in depreciable assets* I f •the .dépréciâtion- allowed•
on an asset shifts taxes from the present,to .the-future, interest
can bo earned, on the funds pot used to pay taxes, increasing the
yield on the investment by that amount* This is not so important
for small business, however, as the problem of availability of
funds, and this increase in yields might, not alone be sufficient
to attract an appreciably greater amount of capital into small
business©
The increase in availability-'ofcapital', decrease in risk,
and interest gain from postponement of taxes would be greater the
shorter the depreciation period in relation, to the useful lives of
assets* If the accélérâted-d.eprecia.tipn .plan, provided the. same
abritrary period for all kinds' of assets regardless of their normal

- 26

lives— for example9 one year or five years— it; would stimulate
investment in long-lived assets more than in short-lived, assets©
Since there are marked differences in the average Useful lives
of assets in different' industries and among firms of different
sizes, such a plan would affect the direction of flow'of invest­
ment funds© If, however, accelerated depreciation took-the form
of a stepping— up of normal depreciation rateé— for example,
double depreciation— such an ëffeet would." be less pronounced©
One limitation on the usefulness'of accelerated depreciation
arises out of the f a c t ‘that the additional d.apreciation is of no "benefit to a taxpayer unless it offsets income that would other—
wise "be taxable* For example, a small manufacturer starting in
"business would have to make profits of ¡20 percent on his invest—
ment in depreciable assets in each of the first 5 years in order
to take currently full advantage of
accelerated depreciation*
The magnitude of this problem Is lessened as the depreciation
period is lengthened, as the ratio o f tdepreciable assets to total
assets declines,' and as the ratio of newly acquired depreciable
assets to all capital 'assets declines*
Accelerated' •dépréciation would need tò be sebrnhihed'with
liberal loss offsets, "because investments by small business tend
to be lumpy» Unlike a large* business, a small'business does not
ordinarily make a steady stream of capital asset purchases-,' The
capital asset unit is large in relationto the total assets of the
business, and. capital "investment for a. poniod'' of years is'likely
to be 'concentrated in a’ single purchase* 'There fore, income would,
often not be large enough to absorb the additional depreciation,
unless a carryover were" allowed* T t 'should be 'not ed, however,
that the existence of a long carryover of business losses lessens
the danger that"normal depreciation deductions will run to waste
and hence decreases- the importance "of accelerated dépréciât ion*
Furthermore, to the ext ent that "a" long carryover of "losses" is
•
necessary to absorb the additional 'depreciation allowances unáéi* "
an accelerated dépréciation pian, thé -diff-érenee'between accelerated
and normal depreciation is materially""reduced*
d.

Equity considerations

Limitation of: the" amount of assets eligible for accelerated
depreciation would raiàë à problem of discriminât ion.against larger
firms, but this i s 'K rproblem commoh to all special measures for the
tax benefit of small business© "Among "small businesses às a gròupj
however, accelerated depreciation would offer unequal advantages to

138
r ?7 different firms and industries* Accelerated depreciation would be
distinctly less advantageous to firms in industries requiring
relatively sinall investments in capital assets than for firms in
other industries* ;Mfide differences among industries are shown in
the-following figures on capital assets less reserves and. less land
as' a percentage of total assets for corporations with àssets of .less
than $ 5 0 , 0 0 0 in I 9 U 3 . l/

i Capital assets as

' Industry

All industrial groups
Mining and. quarrying
Manufacturing
Public utilities
Wholesale trade
Retail trade . .
Service
Finance, insurance, etc*
Agriculture, forestry, and fishing

:
:

percentage of
total assets
30*3

percent

55^

2 9 rH
12*U
18*3
Ho. 3

*4-2*3
39-3

These figures indicate an important limitation on the effective­
ness of accelerated depreciation as an aid to small business* Of an
estimated, total of 2,758,000 small "business establishments 2/ in the
fields of manufacturing, wholesale and retail trade, service, hotels,
construction, and amusement in 1 9 3 9 * 1»686,000 or over 6 0 percent,
were engaged in wholesale and retail trade "jjj in which accelerated
depreciation of machinery and equipment would be of limited value*
While the effects of accelerated',depreciation would be unequal,
businesses helped most would be the ones that are most likely to be
handicapped by the present tax system* First, accelerated deprecia­
tion would favor businesses with a high proportion of their capital
T]

2/

l/

Returns with balance sheets, Bureau of Internal Revenue,
Source Book, 19^3o
Small•according to the composite definition of the Department of
Commerce? manufacturing, less than ICO' employees; wholesale trad,e?
annual net sales of^less than $200,000; other industry groups,
annual net sales or receipts from"operations of less than $ 5 0 *0 0 0 *
Appendix B, Table 3*

in depreciable assets. This cah.be 'defended 'on. the grounds that
it .is more difficult for small business to get long-term capital
for investment in capital assets than..to borrow short-term working
capital.
Second, accelerated depreciation would favor.new and
expanding businesses, since they are in greater need of capital
and since a higher share of their capital assets would, be eligible
for the accelerated rates® In defense of this it can be argued
that existing taxes make it hard for new and small businesses to
expand through earnings to a position equivalent to that of their
better established competitors® Third, accelerated depreciation
would favor the more risky enterprises, since it gives investors
an opportunity to clear the cost of their investments more rapidly
than would .otherwise be possible® This would counteract a tendency
present taxation of high yield.s from speculative investments has- to
discourage development of the more risky types of enterprises.
e®

Administrative considerations

Accelerated dépréciât ion would not simplify the déterminâtion.
of proper depreciation allowances, so long as the deductions were
related to the useful life of depreciable assets in any formal way®
Use of a single, arbitrary depreciation period would, elimina/te the
problem of determining useful life for eligible assets, but it
would be weighted heavily in fa.vor of businesses acquiring longlived assets.
Since the value of assets eligible for accelerated depreciation
would be limited for each business,#there '.is danger that corporations
would form subsidiaries in order to take accelerated depreciation on
a greater .share of their facilities® Another danger is that acceler­
ated depreciation allowances might be used to convert ordinary income
into capital gains, since a businessman might, sell a fully depreciated
asset that, still had a substantial value, paying a tax on the .capital
gain and avoiding the taxes-on its income that were deferred during
the period of accelerated depreciation. This type of avoidance could
be overcome by requiring that if the taxpayer elects to useacceler—
ated depreciation, gain to the extent of the excess of accelerated
over normal depreciation must be treated as ordinary income®
If all newly acquired capital assets, including used facilities,
were made eligible for accelerated depreciation .there is a possibility
thgt businesses would swap old facilities in order to make them eligibl
Prevention of this abuse would be difficult since no clear line would
be drawn between legitimate business trade, and trades for the purpose
of increasing depreciation deductions®

139
- 29 Businesses might use acccLerated depreciation to avoid taxes
hy" timing their investments so that the highest depreciation allowances
would he taken in years in 'which income falls in the higher tax brackets.
And, even without-careful timing of the investments, many individuals
would he able to deduct from other incomes accelerated depreciation in
excess af the profits of the unincorporated businesses in which the
investments were.made,
fa

Conclusions

Accelerated depreciation would help solve some, hut not all, of
the tax problems of small businesses. Accelerated depreciation for a
limited amount of assets would help small business finance capital'
outlays in manufacturing and other industries in which relatively
.large amounts of depreciable assets are required, . Risky and growing
enterprises would be especially benefited, Accelerated depreciation
would, be less helpful to mature and stable businesses and to.all
firms engaged in wholesale and retail trade and other industries
requiring relatively small investments in depreciable assets«» As
a means of improving the accessibility of capital and of removing
tax deterrents to.risky investment, accelerated depreciation would
be more effective than a reduction in tax rates costing the same
amount of revenue, ^o prevent the additional depreciation allowances
from being wasted, accelerated depreciation would need to be combined t
with a liberal carryover of net operating losses,, but the existence
of such a. carryover lessens the importance pf accelerated depreciation,
Sven in combination with a liberal carryover, the usefulness of
accelerated depreciation would be limited, in many cases by the fact
that profits.of small businesses would be insufficient to absorb
substantially more' than normal depreciation,
B,,. Propos&1s 1
;intended to equalize taxes pn small
incorporâted .and imincorpor.ated businesses
Under the present tax system.,,..earnings .of•••incorporâted, businesses
are subject to' thè’corporation income t'nx, an3 dividend income of
stockholders is subject to the regular individual income tax, Earnings
retained in the corporation for reasonable business purposes are subject
only to the corporation income tax.
In the case 'of unincorporated
enterprises, all earnings,' whether reinvested in. the business or with­
drawn, %re. included in the income of the proprietor or partners and
.are subject' to the regular individual income tax»

-

30

-

existing differences in taxation of profits of incorporated
find unincorporated "businesses hove "been criticised as inequitable
and as a handicap to investment and expansion* While those critiT
cisms have not "been confined to the'taxation of small businc-sses*
thev have most often "been addressed to this aspect of the problem*
This section considers two proposals intended to equalize^taxes on
incorporated and unin’
c orporated enterprises, which are mainly, "but
not exclusively, small "business measures» One proposal would
approach the*problem of taxing certain types of corporations like
partnerships© The other proposal would, take the opposite approach
and. tax the retained earnings of incorporated enterprises at the
corporate tax rates* The present report docs not consider several
other approaches' to the objective of reducing or eliminating existing
differences in taxation of earnings from incorporated and. unincorporated
businesses, since these other approaches are not primarily concerned
with the tax problems of small business* 1J
5*

Pa.i'tnership tax treatment for certa.in corporations
Wature and purposes'

The partnership method has often been proposed, as a means of
eliminating differences ■in taxation of profit’s of small incorporated
and. unincorporated businesses* 2J TJnder the partnership method,
no tax would be imposed on the corporation as such, b u t ■stockholders
would be taxed, on their proportionate part of both distributed and.
undistributed corporate profits* TTnd.er the cure partnership method,
stockholders would also take account of their proportionate part of
corporate losses* Dividends paid from profits previously taxed, to
stockholders would not be subject to individual income tax* In
determining the amount of capital gains or losses for tax purposes,
the basis of stock would be increased by the amount of undistributed
profits taxed to stockholders and. decreased by the amount of operating
losses and. dividends paid from profits previously taxed to stockholders*
V/

2J

Dor a'discussion.of’several approaches to the general pro clem,
see The 'Postwar Corporation Tax Structure, Treasury.Department,
Division of Tax Research study (19^£)*
See, for example: National Tax Association," Committee on Federal
Taxation of Corporations,”Final Deport,” Proceedings of the
National Tax Association, 1939*» Richard. W* Lindhclm, The Corpoivt^e
Franchise as a Basis pf Taxa.tion (Austin, Texas, 19^')* P° 2^-6}
testimony of Clifford McAvoy, representing the CIO and. 15 other
national organizations, Senate Finance Committee Hearings on the
Devenue Act of 19^-5» PP* 101* 272; Randolph Po Paul, Taxation for.
Prosperity (Indianapolis, 19^-7) i P<* 37^«

140

31
Although there have “been Proposals-hot h for mandatory and for
optional partnership treatment of certain types of corporations,,
the present discussion approaches the matter.from the •standpoin
of a t'ax^helief measure. :and concentrates attention on the-op iona
partnership treatment* The objective of an option for certain
•
corporations to he taxed like partnerships would-be to give sucncorpo rat ions and their" stockholders the opportunity of,p^ i^
more tax than owners of unincorporated enterprises on; both and undlstriV-.ited profits, This otjective Involves.: (l)
of so-called double taxation of distributed profits, and ( )
of undistributed profits .at'‘theIndividual rates of stockholders
instead of the :corro rate rates, in cases -where this would l e ad ,.n
geouso In contrast to thè optional or tax-relief approach, the
mandatory partnership method could -also prevent^tax. avddance^or ^
postponement with respect to earnings retained in Corpora i P •
by stockholders subjeci *to. .individual income tax-rates highet
the corporate rates*
-ba

.

....

Eligibility for partnership treatment •

.Some have suggested that partnership treatment be ,madP
available Only to corno rat io ns with no more than some stated. .
amount of net income or assets* l/ Others have -suggested more
general application of the partnership treatment, but h^ve4_^“ f^ ed
as to thè basis for determining eligibility* - One view-is t, a
e
partnership method is the id eal method, of tailing all corpora ions
and their stockholders, although administrative difficulties may
prevent its application to corporations with many stockholders
and complicated' capital structures0-g/ The-other view is. that

u

2/

For example, McAvoyV loc. citft> suggests t h a t ; p a r t n e r s h i p
option be restricted to'corporations with no more than $100,000
of-net income«
■ _
«
The National Tax Association Committee.on Federal Taxation of
Corporations recommended that the partnership method be extended
to the limits of its- legai and administrative possibilities,
Proceedings * 1939» Po 555« ‘

- 32 the partnership method is appropriate only for corporations with
th,e characteristics usually associated with partnerships, such
as ownership» by a small number of persons Who are in a position
to take ah active part in control of the enterprise« 1J. L
Por "both conceptual.and practical reasons,, there would seem
to he a'stronger case for determining eligibility for the partner­
ship, treatment on the basis of characteristics such as ..distribution
of. ownership.and capital structure than on size as measured by.net
income or assets# Fet. income» in particular, w u l d be an. Unsatis­
factory basis, because of its year— to— year fluctuations and the
objections to moving in and out of the partn ership .option»
The exact standards of eligibility under any partnership
option would necessarily.be to some extent arbitrary.;» but two
types of criteria seem ¡reasonable. First * the partnership
option rtlght be restricted to corporations^ with, no mòre than*
say, 10 to 1 5 stockholders in which all or a large majority of
the stockholders consented to partnership treatment« . .Second,1
the option might be restricted to corporations..wit.h^ònly onè
class of .stock outstanding,., none of which is o w e d by another
corporation., These Criteria- would ¡help confine the option to

1

Randolph,Paul recommends the partnership method for Corporal;ions>
that do not derive sufficient advantage •from ..economic separateness
of stockholders, and the corporation to justify separate taxation«
6e states as ,fa;guiding principle « * « a selection between
corporations which are economically, not merely, legally, separate
from their stockholders and those which■are not« There are,,r he
says, "several possible tests for. this selection« lo. the stock­
holders* have a real voice in the formulation of important corporate
policies, such as wage, price and dividend, .policies? Does the
fact of incorporât ion'bestow substantial economic advantage., such
as accessibility to national, and perhaps'worid, capital markets?
Are corporate characteristics— such a s .limited.liability of stock­
holders, easy transfer of ownership and perpetual life— essential
to the very manner of doing business? These attributes suggest
the economic separateness of the corporation and justification
for a corporation tax«
If they are missiag to a parked, degree,
the imposition of a corporation tax'istmuch more questionable»”
"Taxing for Better. Living .J1 address before the Tax Executives
Institute, Few York, May 15, 1PU6 (mimeographed), reprinted in
Commercial and Financial Chronicle, May lb, lfW-b«

141
- 33 -

corpo rations similar in many essential respects to genuine
partnerships and would greatly simplify administration* 1/
Thus restrict eel, the partnership option would not he purely
a small "business measure, hut its application would he mainly to
small corporations. Certain large enterprises would "be; eligible
for partnership" treatment ? hut it is doubtful that many of them ,
would elect it, since the individual income tax on retained earnings
would he likely to he considerably' higher than the corporate rate*
e«,

Type's of_ c o reo rat io ns that would benefit
from partnership tax treatm ent

Two types of corporations would benefit from partnership tax
treatment* These are: (l) all .corporations currently distributing
a large proportion of their rrofits; and (2) corporations retaining
a large proportion of their profits, provided the marginal income
tax rates of their stockholders were lower than the corporate tax
rat es„
The partnership method would, reduce the total tax on the
distributed part of profits of any corporation. Distributed profits
would, he subject only to the individual income tax rather than to
both the corporation income tax and the individual income tax. The
amount of reduction would, of course, depend on the alternative
corporate tax rate in comparison with the tax rade on stockholders*
The partnership method would red.uce the total tax on a dollar of
profits distributed to a low-income stockholder subject to a low
marginal tax rate more than on a dollar of profits distributed to a
high— income stockholder subject to a high margina.! tax rate* 2/
1*7

2/

The reason for the re-quireiiient as to capital structure is largely
administrative* It would be almost Impossible to allocate corporate
income satisfactorily among owners of various classes of stock* In
many cases the claims of owners of different Glasses of stock to
earnings do not become definitive until long after profits are earned-,«
Dor example, common stockholders, as resid.ua! owners, would presumably
be allocated any profits retained in any year ^fter satisfaction of
prior claims of nreferred, stockholders.
In later years, however,
these earnings might be distributed as preferred dividends.
This is due to the fact that stockholders subject to high marginal
tax rates would nay in personal taxes a. large part of added profits
made available by elimination of the corporate tax. Stockholders
subject to low marginal tax rates would pay in personal taxes only
a small part of their share of the corporate profits previously
taken by the corporate tax* Hence, low— income stockholders would
enjoy a greater percentage 'increase in net yield from stock.

But the partnership treatment woulc1 always he advantageous to all

stockholders o f any corporation that currently distributed a l l or
a large proportion' of its profits®
Whether the partnership treatment would reduce current taxes on
undistributed corporate profits would depend on the relationship
between corporate tax rates and marginal tax rates of stockholders.
Generally speaking, the partnership method would reduce taxes on
undistributed profits of corporations owned‘b y .low-income stock­
holders but would increase taxes on undistributed profits of
corporations owned by high— income stockholders* Tinder the present
system, high— income stockholders derive at least a temporary tax ^
advantage from retention of earnings in corporations® But graduation
of the corporate income tax considerably narrows the area of tax
advantage of the partnership method for stockholders in.small corpora­
tions that retain a large proportion of their profits. In contrast
with the partnership method, graduation of the,corporate income tax
may offer a tax advantage with respect to retained earnings in small
corporations owned by high— income stockholders* Lnder the present
system, it is true that if retained earnings are finally, paid o u g
in dividends they are taxed under the individual income tax* But
this does not wholly cancel the tax advantage enjoyed, by high-income
stockholders* Stockholders have had the advantage of tax postponement
and perhaps of an informal averaging of taxable income. The corpora­
tion'' has 'had* the use of the,retained earnings® Moreover, retained,
earnings may be made a permanent part of a corporation’s capital and
never paid out in dividends®. Although earnings are permanently
retained, in the corporation, the individual stockholder can realize
on them by selling his stock* . If he has held.the stock longer than,
six months ,• he-is subject only to the low-rate tax on long-term
capital gains»
.
dd

Economic considerations

The partnership method, probably would offer its greatest
economic incentives to investors looking for regular dividend income
from small corporations* As already indicated, partnership treatment
would .be advantageous in any case in which the corporation regularly
distributed the major Dart of its profits* But, in the past, small
corporations as a group have retained a significantly larger percentage
of their profits than have large corporations* It is^not possible to
say what' proportion of stockholders in small corporations arc subject
to marginal individual tax rates lower than the graduated corporate
rates* Usually, however, more concern is shown for the effects of
taxes on incentives of high— income"investors than of •low— income
investors*

- 35 ~
Partnership treatment of corporations retaining a large propor­
tion of their profits probably would be advantageous only for lowincome stockholders. Mandatory partnership:treatment „might even
discourage investment in small-corporations by high-income
investors. Many high-income investors may now be attracted by the
possibilities of realizing their returns in the form of capital
gains, based on retained prqfits, rather than as dividends paid
from current profits. The opportunity of deducting corporate
operating losses from other income under the partnership method,
however, might appeal to high-income individuals contemplating
speculative investments in new enterprises,
.The partnership option might somewhat increase the flow of
new equity capital into small corporations« However, it would not’
be especially well adapted to short-run solution of the capital
problem of small business*
e.

Equity considerations-

The equity problem of reasonable classification arises in
connection wi.th every proposal for tax relief of small business.
It seems, however, that this equity problem would be somewhat less
serious in connection with the partnership method than in connection
with most other proposals.
The partnership method, like other
proposals discussed in this report would be a valuable tax concession
to many stockholders* But, unlike most of the other proposals, the
partnership method has strong claims to being regarded as an
equitable tax method in its own right*
In this respect it is
superior to proposals based solely on expediency.
The partnership
method would come closer to equal treatment for all stockholders.,
of small corporations, who have equal incomes.
It would not create
new kinds of inequity.
There would be less chance for abuse of
the partnership method by splitting up large corporations owned
by wealthy investors than there would be under other tax-relief
proposals* Therefore, the equity problem raised by the partner­
ship method -would be almost entirely a classification problen?—
a problem of where to draw the line between those to whom the treat-,
ment would be.extended and those to whom it would be denied.

-

f.

A d m in is t r a t iv e

36

-

c o n s id e r a tio n s

An important techni cal problem under the paj^fftc?-sl\ip method
would to that of allocating corporate profits and losses among
stockholders.
Strictly construed, the partnership method would *
require th<at every person who was a stockholder at any- time
ng >
the taxable year he allocated his exact, proportionate part of pro! its.
or losses. ,-Moreover, the strict partnership method would require .l
separate allocation .to individual shareholders of peculiar kinds of
income and deductions, such as wholly, or partially tax-exempt interes
capital gains and losses, excess of percentage depletion over cos
depletion, charitable contributions, and foreign tax: credits. But
such a refined allocation would be extremely burdensome*
If the partnership method is viewed primarily as a means of
tax relief for small business, it might be acceptable to overlook
many refinements appropriate to the method as a general means of
equalising taxation of stockholders and other income recipients.
The less exacting requirements of tax relief for small business
might well be met by a procedure that allocated profits and losses
only to shareholders at the close of .the taxable year. ITo a emp
would be made to allocate a share of profits or losses to stock- holders who had sold their shares before the end of the tax yeoJV
Kor would special items of income and deductions be traced through
the corporation to stockholders.
g.

Conclusions

By reducing taxes on distributed profits, the partnership
method might make it somewhat easier for small corporations to
get outside equity capital® The partnership method might also<
reduce taxes on retained earnings of corporations owned by lowincome stockholders. It seems unlikely, however, that the partner­
ship method would greatly ease the financial problems of most grow­
ing small corporations, which ordinarily retain a large portion of
their profits.
On the whole, it seems that the method would be
most likely to be attractive to mature small corporations aole and
willing to pay out most of their profits as earned.

143
- 37 -

The partnership method would appear to "be more in harmony with
usual standards of equity‘than most other proposais for tax relief
of small "businesso It would not open the way for tax postponement
or avoidance« The partnership method would minimize the problems
arising out of splitting lip-of large businesses in- order to take
advantage of tax relief intended for genuinely small businesses*.Any refined partnership method would give rise to very difficult
technical-and administrative problems. Viewed, however, as a tax
relief device, the partnership'method might be simplified;enough to •
make it workable» At best, administration of the method would be
difficult*
6,

Corporate tax treatment for the reinvested
earnings of unincorporat ed. busi nos s es '
a*

future and purpose of proposal

It has been suggested that the reinvested earnings of unincor­
porated businesses be taxed at the corporation income tax rates in
order to prevent an unfair discrimination against-unincorporated ■
businesses* !_/ In support of this proposal, it is pointed out thatall earnings reinvested In an unincorporated business' are subject to
the top individual income tax rates applicable to the income of the
proprietor or partners, which may reach a maximum of 85<>5 P er,cent,
whereas the retained earnings of- corporations are subject to a maximum
raté of 3 8 Percent» "For this reason, it is argued that the tax system
makes growth from reinvested earnings harder for proprietorships and
partnerships owned by persons with high incomes than for corporations*
Thé remedy that has been proposed is to segregate the business
income of persons engaged in capital— using businesses of a commercial
or.industrial nature from their other income^and t o •allow them the
option o f 'being taxed at the corporate rates on the portion of their
business income reinvested"in the enterprise, Earnings currently
withdrawn from the business would presumably be taxed.only at the
regular individual rates, but it is not clear-how withdrawals of profits accumulated in prior years would be treated* Active, proprietors
and partners would be required to include in their taxable personal
incomes an amount equivalent to reasonable compensation, for.T services*
1j

7

P. P. Bàrd, HFederal Taxation of Proprietor and Partnership Venture
Capital on a Corporation"Basis,” Hearings_ of 'the Sena.te Finance
Committee on the Revenue Act of 19^+5» Pp.; 2 6 7 ^ 7 0 .

The suggestion to tax reinvested earnings of unincorporated
businesses at the corporate rates is the opposite of the.more usual
proposal that small corporations be taxed as partnerships. Partner­
ship treatment for small corporations has been suggested^'on the
grounds that it is unfair to impose a heavier tax on profits merely
because the business is carried on in the corporate form« tOther
proposed revisions of..the corporation tax structure are based on a
similar view, at least with respect to distributed profits* On the
other hand, the .proposal under discussion in this section is based
on the view.that it is unfair to deny owners of unincorporated
enterprises a tax opportunity with respect to retained profits,
which is now open to stockholders in corporations*
b.

Pxtent of possible tax discrimination
against retained earnings of unincorporated
firms under present law

Any possible tax discrimination against the retained earnings
of unincorporated firms under present law appears to be limited in
extent*
Income taxes are significantly higher on the profits of
unincorporated firms than on corporations only in the case of firms ..
which are owned by persons with relatively large incomes and. in
which a large proportion of the profits is reinvested in the business.
There.is no possibility of discrimination against an unincorporated
business unless the income of the owners is subject to a marginal tax
rate higher than the corporate rate applicable to a corporation with
the same amount of income as the proprietorship or partnership*
Individuals with surtax net incomes of less than $H , 0 0 0 pay a lower
margina.1 rate than corporations with net incomes of less than $.2 0 ,0 0 0 ;
individuals with surtax net incomes of less than $ 6 , 0 0 0 pay a lower
marginal rate than corporations with net incomes of less.than $25,000;
individuals with' surtax net incomes of less than $1 2 ,0 0 0 .pay. a lower
marginal rate than corporations with net incomes of more than $ 5 0 ,0 0 0 ;
and individuals with surtax net incomes of less than $ 2 0 , 0 0 0 pay a...
lower marginal rate than corporations with net incomes between $2 5 * 0 0 0
and.$5 0 ,0 0 0 .
In 19^-2, it appears that more than one— half of all proprietorship
and partnership profit reported on individual tax returns went to
individuals who probably had less than $U,Q0 0 of surtax net income,
a little less than two— thirds of the total to individuals with less
than $ 6 , 0 0 0 of surtax net income, and about three— fourths to individuals

144
- 39 -

with less than $12*000 of sort ax net •income, l/ Moreover, in .19^3
• *(the latest ..year for which such data are available), more than 9 Ó percent
of the number of persons reporting business profits had total net incomes
*' of less than $ 5 *0 0 0 , end more than 9 8 percent had net incomes of less
than $12,000» 2/ These figures, however,, may give .an exaggerated
impression of the possible area of appeal of option for unincorporated
commercial and industrial enterprises to be taxed at the corporate rates
on .reinvested profits, inasmuch a s 'á considerable portion of the partner­
ship profit, reported in- higher income brackets is doubtless from, profes­
sional and. other personal service activities''áñd would not come within
the scope of the option« '¡J
-":
Purtliermorej even in cases Where owners of unincorporated businesses
pay tax rates on reinvested profits that’ áre higher than the corporate
rates,, they may suffer no net tax disadvantage with respect to their
whole business incomes. The individual tax is the only tax imposed on
the portion of profits withdrawn from an unincorporated business, whereas
distributed corporate profits’ are subject to bbth the corporation.income
tax and.the individual income tax. This freedom;fromrso— called double
taxation of profits withdrawn from the business will iptmany cases .
counterbalance the effect of a higher tax rate on reinvested earningseven in.the case of proprietorships and partnerships owned by individuals
with large income,Finally, most businesses can be incorporated rather easily
at no great- expense if their proprietors wish to take advantage
tax treatment of the corporate form. There are some incidental
conveniences related to doing business a s a corporation,.but in
1/

2/
1/

,an4
.of the
in­
most

Statistics of Income for 19^-2, Fart 1 » The'statements in the text-,
assume that persons who reported-profits from unincorporated
business had an average of $1 , 0 0 0 Of personal exemptions and
credit for dependents* ThiStfigure "is close to the average for...
a l l .taxable returns but is low for the classes near the breaking
points mentioned in the text*
-• - •
'fflví
Statistics of Income for 19^-1 * -Part 1 ,..ji«...23»..
In 1939» 22 percent1 of partnership returns« with ordinary net
income in excess of•$,5 , 0 0 0 fell^ ilf'bheí‘l^ugí^icew. ciassifiicktion*
Computed from-Supplement to Statistics of Income, 1939* Part 1,
p. 9* * ■'’
.’-.v* ", ■ '• - ’ '
'
’. . ‘
,- ’

- Ho -

cases, they do not seem serious« 1 J In some few fields, as for example,
stock brokerage,, incorporation may be barred by law or custom, but the
plan under discussion is apparently not intended to cover such businesses,
c.

Economic considerations

It seems that the limited area likely to be covered by a plan
granting optional corporate tax treatment for the reinvested earnings
of unincorporated .enterprises would mean that such a plan would .not
have major economic significance.
It might stimulate some firms to
disincorporate e, and in some instances it might improve the incentive
to invest and also increase investment funds. Unless, however, the
plan were very liberally drawn, it seems unlikely that its effect on
investment or saying would be important,
’
da

Equity considerations

Despite its probably limited applicability, an çption to owners
of unincorporated businesses to be taxed on reinvested earnings at the ■
corporate rates would raise some questions of equity« Even if a case
can be made for allowing an option for unincorporated businesses,,
equity would seem to demand that the choice be between the present,
treatment .and the full corporate treatment, Under'the plan that has
been suggested, proprietors and partners would have the best of two
worlds. They could continue to escape so-called double taxation on
profits withdrawn from the business and, at. the same time, aVoid
individual surtaxes on profits reinvested in the business.,,
The option that has been proposed would, discriminate against
corporations. The plan would also discriminate in favor of the
savings of. individuals already in business as compered with the
savings of others who are accumulating capital to go into business.-*... ■
It would offer individuals with large incomes a privilege not .available
to persons with sm^ll incomes« It would:decrease the over-all progrès—
sivity of t h e .individual income tax# • w •'•••’ *
Ï7

Bard, loc« cit, , asserts, 0 Operating- as a proprietor or partner
has certain advantages and conveniences which,#while not
contributing materially to. the profit of the operation, may
contribute materially to the. ease of operation , 11 Among these
advantages and conveniences,’he mentions freedom from interference
by minority stockholders, flexibility of management, freedom from
certain regulations and record-keeping requirements, and taxes.
He also contends, °It is un-American to force anyone to carry on
, their business in a prescribed way by a threat of heavy taxation , 0
(

145

- Ul e,

Adminlstrative considerat Ions

A n y _plan for special tax treatment of the reinvested earnings of
unincorporated "businesses •would raise some very serious administrative
problems* The major problems would be related to (a) the definition
of an unincqrporated business enterprise, and (b) the distinction
between the income and assets of the business and of its proprietor
or partners 6
’
There is no clear-cut distinction between business activity and
personal activity* This problem would be most difficult in the case,
of personal service businesses,,and would be less serious if the tax
plan were restricted to commercial and industrial enterprises * as its
sponsors apparontly contemplate* nevertheless, many close questions
would doubtless arise*
The absence of difference in legal title to business and personal
income and assets in the case of proprietorships and partnerships would
complicate the necessary segregation*
Certainly, rather full and
elaborate records would, be essential*
In. particular, the concept of
distribution of earnings is ambiguous in the case of an unincorporated
business* Legally, all of the assets of the business ^re at the
personal disposal of a sole proprietore Business debts and personal
debts may be recovered, from any assets to which the 'oroprietor has
title* Problems would arise in determining the amounts of capital
gains or losses, and. ordinary gains or losses at the time of termination
or transfer of an unincorporated business*
The spirit of the present income tax system would, require that
only earnings required for the reasonable business needs of an
unincorporated enterprise could be retained and taxed, at the corporate
rates, ly But such a proviso would, give rise to all the difficult
determinations now necessary under Section 102 of the Internal Revenue
Code, which imposes a surtax on corporations improperly accumulating.,
surplus*
#
• !
• '
f o .Conclusions

.

The proposal to offer an option to unincorporated, businesses to
be taxed at the corporate rates on reinvested, earnings seems to be .
addressed, to a problem of relatively small importance* Unincorporat ed
businesses suffer a net tax disadvantage, as compared with corporations,

only if they are o w e d by persons with relatively high incomes and if
a large proportion of the profits are reinvested in the "business*
Moreover, most businesses can be incorporated with little difficulty
or expense. The option would, probably have limited, economic signif—
icanee* On the basis of equity, it is hard to justify allowing owners
of unincorporated businesses to continue to escape so-called double
taxation on earnings withdrawn from the business, and, at the same time,
to avoid individual surtax on reinvested earnings. The plan would, be
hard, to od.minister because of.the difficulty of defining an unincorporated
business enterprise and of distinguishing between the income and. assets
of the business and of the proprietor or partners.
It would also be
hard to determine whether amounts reinvested were reasonable in the light
of the%needs of the business.
C.

Proposals, for tax exemptions for small or
new businesses or for investors in them

The proposals discussed in this section go beyond those considered
in the ^receding sections» They call for partial or complete tax
exemptions for new or small businesses or for investors in them. These
proposals are intended to, stimulate investment in such enterprises and.
to improve their capital position. One group of proposals calls for
exemption or reduced— rate taxation of the retained, earnings of small
businesses* Another group of proposals suggests partial or complete
tax exemption of equity investors in small businesses« The exemption
might be in the form of either a ded.uction^ from taxable income of the
principal amounts invested or an exemption of part or all of the
return on investments in small enterprises, A third group of proposals
calls for tax exemption for new small businesses for a. limited, period
of years. Presumably, all three groups of proposals might apply to both
incorporated and unincorporated businesses.
All such proposals for tax exemption for certain kinds of income
raise fundamental problems of equity, There^is'a strong presumption
in favor of uniform taxation of all persons with the same amount of
income and in similar personal circumstances. This presumption can
be overcome only if it is determined that the end^sought by tax
exemption has great social importance and th^t tax exemption is an
effective means of promoting the social objective.
This report does not attempt to evaluate the social importance of
small or new businesses.
It is appropriate to note, however, tha.t
recently .there has been a rapid growth i n t h e number of new small

146
.. - H.3 bus iness eb, without •the b enefit-» of any tax. exempt ton, 1 / Moreover,
there is some statistical evidence that small firms, grew relatively
more during the war years than did large firms., 2j
.....
Some-'Spec if id. comments on. the .probable effectiveness of the
exemption 'schemes, will- be made* in. the discussion of the particular
types of *proposals* At this •point, two types of general considerations,
applicable to all of the exemption plans, should, be mentioned« First ,
the direct effect of a tax- exemption, is. a decrease in revenue, Unless
this decrease is made up by increasing some taxes, the tax exemption
has the same immediate effect on the budget, as an increase in Government
expenditures. Hence, the effectiveness of tax *exemption may be compared
with, alternatives such as increased Government expenditures .for direct
and guaraftteed- loans, services to business,.and similar purposes«
Second, a tax exemption results in a* shift in^the tax load away from
the exempt businesses to non-exempt businesses.
If tax rates are
increased: to maintain revenues, the possible deterrents to taxable
enterprises and investors must be offset against .any additional
incentive's to those enjoying the .exemption,, Even if taxes are. not
increased'to maintain revenuesp taxable, enterprises may suffer a
competitive disadvantage, which will cause them to curtail their
investment programs.
In either case, additional investment in
tax-exempt businesses- vftll'hot'"’all be- a'-net."gain to .thev.eeonomy.
"■■ 7.
¡T .

.Tax exemption for retained .earnings of
small-businesses .
-\ f m
■ ■a.

Uaturc and purpose-of proposals

.

Several proposals have been! made to attack the capital problems
of small businesses by exemption orr low—-rate.taxation, of their
,
retained: earnings. These .proposals, differ .SdmeVhat, fro'm the proposalto tax the reinvested, earnings of unincorporated^ businesses a„t the
corporate rates 3/-in that they,.arP np^:•'presented .as methods of
equalizing taxes on different form’
s of businesses but. rath.cr as
proposals for especially favorable tax rates for small businesses.
— " I 1 * !- '■
■
■ f h i i rf ' J , , 1.1■/‘ ■¡■■I i"t .. ■—

— .« I

I

.........

............................. J"J'

*

» 1■
»*»■>■% m mu Hiri. «1»

1/ See; Appendix. B 0 .
T
V
. " . r.
'.
,
2J .,.-F„ .Qv-Dirks, .'TWartime. Earnings, of ’.'Small Business,,’’ Federal Deserve
" Bulletin. -January, .19^5,.pp. i.6^26,7 and ’’Wartime Financing of
'Manufacturing and.. Trade Concerns ft*’ .Fed.eral_ Hese.rve Bulletin, April,
19^5, p p . 313-33°; Hoy. A, Foul'ke, ’’Expansion from Eet'a'ined.. Earnings,”
; D u n ’s Review,- November, and. December, 19^5*
j/ See Section II, B, 6® ; . s. •
V,
. .t

- bb -

Some of the exemption proposals are intended to apply to hoth
incorporated and unincorporated businesses and others, to only one
or the other type <5f firm»

. '■

Some proposals merely call for a tax credit with respect to
retained earnings of small business without specifying any limitation
so .long as a business is eligible» \ J
Other proposals would limit the
amount of retained earnings on which credit would be allowed 2/ or woul.
extend the plan only to new’corporations-for a limited period of years» 3/
b„.

Economic "considerations

;'r,.o'V

Small businesses-are especially dependent on retained
for additional capital» furthermore, it is obviously trpe that they
would, be able to retain more earnings and grow more rapidly if they,
did not have to pay income tax on their business savings«
is ype.
of interference with private plans is the universal and. inev a e
feature of any tax system* As has been pointed out in the genepa, .
discussion of the exemption proposals, a more compelling kinewof
argument is necessary to support removal of taxes in one particular■
area»
Small Business, Add itfonai Report of th;e-,;Special
Commit tee' to Study and Survey Problems of American Small
Business, Senate Report Po, 12, 7Sth Congress, 1st Session,
January iS, I 9U 3 , p, 1 1 \ and statement of Charles C, Fichtner,
department of Commerce, in Hearings before the Special Senate
Committee to Study and Survey Problems of Small Business.
Enterprises, United States Senate, 77th Congress, 2nd Session,
Marriner S, Heel es, Chairman, .Board of Governors, •federal Reserve
System, suggested in his testimony before H o u s e ■Small_Business
Committee, (Hearings, op«, cit», p. 1206) that all corporaltions be
given a tax credit for dividends paid and that the ^irst>$50,000
of retained income be., given^ the same treatment as divi. en ..s 0 ^
protect small corporations in need of funds for capital expansion,
Harold M* Groves i't i Production0 Jobs and Taxes suggested tha ?m
enterprises be allowed to- reinvest all or a port Ox their et.rnmg
free of the withholding .tax he proposed for other corporations.
In 1 9 U 5 , Representative Patman, in -a letter to .Representative dough
1 / op. cit., outlined a plan for issuance of certificates to-.small
businesses that would permit them to retain eprnings free of tax
for three years and at reduced,rates far the next twi years, wi
the regular tax rate applicable thereafter.

i/

»

The argument that has been advanced in favor of a tax exemption
for retained earnings of small businesses is that.kat a certain stage
in the establishment of a firm a rapid increase in both fixed .capital
and working capital is likely to become necessary#
If the firm, can
obtain the required capital, it may be able to enter a period of
healthy growth and to establish itself firmly#
If, however, the key
amount of additional capital cannot be obtained, the firm may not only
be unable to grow but may slip backward into bankruptcy«, It has been argued that a tax exemption f^r reinvested earnings at this critical
stage may help supply the additional curdtal and thus mean the difference
between successful growth and failure.
It has been contended that in
the long run the enlargement of the tax base that occurs when the small
firm is successful will more than compensate the Government for the
revenue cost of the exemption.
In the tyne of case just described, as well as in other less
spectacular instances, the increa.se in funds at the disposal of small
firms, which would result from tax exemption for .their.retained earnings,
could be expected to increase investment by s.uch firms.«» . Doubtless,
however, a part of the additional internally— financed, investment in
small firms would merely lake the place of investment ,in larger firms. .
ar in small firms financed from outside sources# ^He tax exemption
might stimulate a pattern of investment different from that which
would otherwise obtain« It would favor investment in established and
profitable small businesses as compared, with new or less profitable
small enterprises. It is often argued that internally-financed
investment, especially when it depends on tax advantages, is likely
to be poorly allocated and relatively inefficient0
Co

Equity consid-erations

The general equity problems with respect, to tax exemptions have
already been mentioned# One specific aspect of the equity consider­
ations, however, merits further mention. The proposals for tax
exemption for retained earnings of small, businesses would discriminate
in favor of one kind of savings as compared with all other types of
savings. The plan would discriminate in'favor of owners of small
businesses as compared with persons w h o rchoose to provide for their
future through other forms of savings, such as investment in Govern­
ment securities. This would be true even if it were possible to
administer the exemption so that all retained earnings were used for
legitimate business purposes and. not merely as a means of tax
avoidance or postponement. The inequity would b o more glaring,
howeverj ,if in actual practice the exemption plan were abused or used
as a cloak for retention of earnings not used for ordinary business
purposes#

- - W

-

' Administrative considerations
Although not all proposals'are é x p U c ^ q p this .point, the

.

economic rationale for tir? "exemption,plans '^ p W - .
retained’earnings he axOmpt only i f . f o p t W g n a 1©
, . .
purposes. tìowèver,’.supervision of the exemption to proven
retention of n a m i n g s for purposes p^t.fPc a v o c a n e e wpw.
• T j. '
rise to the sanie difficult, problems how encountered in the admins
istratiòn of section 102 surtax o.n corporations improperly
;
accumulating surplus. As was pointed opt in the discussion p.
the plan to tax reinvested earnings ‘of Proprietorships and
partnerships at'the' corporate nates, the administrative problems,
would be especially-aifficult in the case of unincorporated .
businesses, where there is no legal distinction e ween
&
■business and its owners, It would be. optimistic indeed to^ __
.
suppose that an exemption, for retained earnings could '
be confined
to cases of. genuine need with tolerable efficiency, an . un,. . *
.
■» ■

■
■

e*

.. :

■
;

'

Conclusions ...

*

ih t n P

»

/- ■W'

-

'? ■

v*

*

t

'Compelling evidence of need and social d esirability is
necessary to justify a t a x ’exemption for the retailed, earning - ■
of small businesses. In some instances., an exemption.^ight h^.
;
small firms' obtain an indispensable., increase in capital . w i t h •
to finance a healthy growth but without which a deciine a n .
^
failure would result, :A part of the, investment, s imulated by the,
tax exemption would, however, merely replace.investment m.other. .
firms. Moreoverf it is possible that the i n t e r d i r f i a n c e *
investment so stimulated would be less efficiently al->other investment.
Exemption of'^ètained e a r n i n g would .di scriminateci n favor
of one*hind of-‘savings as compared with other kin s. ‘
1 ’ ■ •• ,
and efficient administration would .be difficult, especially, in
the case-of unincorporated enterprises.
g0
" 1 ''

Tax exemption for equity
investors in .small businesses
a.

Eat uro, and purpose of proposals

Proposals for tax. exemption for-equity investors in small,
businesses, 'like plans for exemption of retained..earnings,, have
.
the aim of helping solve the capital problems of such enterprise *
Proponents of such pl^ns contend that a tax concession is desirable,
to overcome deterrents to investment in small businesses, such a

risk and high taxes, and to make such investment mòre attractive
as compared with securities of large corporations and governments*
The proposals that have "been advanced have "been intended to apply
mainly or exclusively to small corporations, hut much the same
.v
arguments pro and con might be used'with respect- to s m a l l unincorporated
businesses©

7/

.

. There are two types of exemption proposals intended to give a tax
incèntive to -equity investors in small business* The first type o
proposal would exempt from the individue! income, tax amounts inves e
in-..small business through the purchase .of certain types;Of securities*
The second type of proposal would exempt from tax part or all of
e
income received on equity investments in small business* The second
tyoe would allow the taxpayer to.be taxed at one-half the effective
rate applicable to his total income on the amount of dividends received
on new equity issues* X j ' A less specific proposal of this ty*pe ca^ s
for exemption of some unspecified percentage of the return on equity
investments in small business* 2 j Another proposal would provide .or
issuance of 5—E ear tax exemption certificates to investors in
#
stock*of corporations with equity capital not in excess of $20,00.0* . ¿ I
It is not .clear whether the certificates issued under this proposal
would provide tax exemption only .for the amount invested °r for
p.
earnings on the investment, or both* Another, proposal would partly
or wholly exempt dividends received from investment companies investing
in the securities of small business*, ^his suggestion was made in
conjunction with a proposal to exempt the investment companies them­
selves from.the corporate income tax* ”U/'"
l/

Louis H e Kimmèl, P o s t w a r Tax P o l i c y and~^usiness Expenditure,
Pamphlet Ho. 5^, Brookings Institution (Washington, "I9U 3) * P* 33*
2/ . Statement of Charles.C, Eichtner* Hearings before the Senate
Special Committee to Study.and Survey Problems of Small^Business
Enterprises, op* cit » , p* 7^9» also referred, to in Am eri can Small_
Business, Senate Report Ho# 12,
Congress, 1st Session,
op* cit*, p* 11*
*
3 / Letter of Representative Patman to Representative Doughton, 03?«,cit
Ì/ Elisha M. Eriedman in testimony before the House Small Business^
Committee suggested that stockholders of such investment companies
be .exerni^t. .from.normal tax' on dividends received. Hearings y op*cit*,
p* 1 7 2 » ;

'

r’

-7.. - ■-

■ .h;:./'

''

Ido' Economic considerations
It is usually argued that the primary need of small "business is
more equity capital rather than more "borrowed capital °r credit«,
Certainly excessive fixed commitments arising out of "borrowing
endanger any "business. However* some questions have "been raised
about the appropriateness of equity issues for small corporations
and. the willingness■of the small "businessman to accept new equity
capital. Revised bankruptcy and reorganization laws have facilitated
readjustment In cases where credit obligations cannot be met. Many
owners of small business are reluctant to cede control over their
firms to acquire equity capital and prefei* long-term loans, l/ If
loss of control to absentee owners is the'price of new equity capital,
small business may lose many of its unique advantages.
Considerations with respect to the effect of tax exemption for
investors -on the volume of investment in small businesses-and in the
whole economy are much the same as those with respect to tax exemption
for retained earnings of small businesses. The plans would probably
somewhat stimulate investment in the particular firms benefite&r but
it is less certain that they would materially increase total invest­
ment, The exemption plans would introduce a new factor into the
allocation of investment among different typos af enterprises, and
it is not clear that the resulting allocation would be more^efficient
than the present one. There is danger that wasteful expansion of
some businesses would be encouragofat the expense of others,
c,

Equity considerations

The equity questions raised by Proposals to. exempt certain kinds
of investments or their proceeds from 'individual income tax are
similar to those with respect to proposals for special tax treatment
for retained, earnings of small businesses„ discussed in an earlier
s.ection, These include discrimination among types of savings and
savers and. among#different types of businesses,
. d,

Administrative considerations

One administrative problem in connection with a plan to provide
tax exemptions for equity investors wouldielete to the definition
of equity capital. Equity capital is not a clear and unambiguous
1J

Walter C, Louchheim, ’’The Problem of Long-Term and Equity Capital,’1.
Law and. Contemporary Problems, Vol, XI (Summer—Autumn, 19^5)*
Butters and Lintnerj Effect of Federal Texes on Crowing Enterprises.«

149

-

1*9

~

term* Corporate securities cover a whole range of types of claims
on earnings and assets, and it is often hard to draw a'fixed line
"between equity and "borrowed capital* Probably the most feasible
distinctiqn would turn on the question whether the return on thè
securities was deductible for tax purposes by the corporation
paying it* However» the present difference in tax treatment of
interest and dividends paid has often been,attacked as baèed on
legalistic rather than real economic differences in security
issues*
To prevent wholesale tax avoidance it would be necessary to
try to make sure that funds obtained from equity investors were
used for legitimate business purpòses* Otherwise* some small
corporations might merely invest funds in securities or extraneous
activities on behalf of individuals in order to allow them to take
advantage of the tax exemption* #Supervision to prevent such
malpractices would be complicated and would require the Commissioner
to use a high degree of judgment* As, in the case of the other
exemption plans* an especially difficult problem would arise if the
exemption were extended to investors in proprietorships and. partner­
ships as well as4corporations*
e*

Conclusions

The considerations with resiiect to tax exemption for equity
investors in small businesses are much the same as with respect to
exemption of retained, earnings of small business* The exemptions 4
might somewhat increase investment in eligible firms, but a part
of this increase would undoubtedly merely replace other investment*
The tax exemption would, introduce a new factor into the allocation
of investment, a factor, not related to technological efficiency or
market .demand,* The exemption would raise the equity problem of
discrimination in favor of one kind of savings and investment as
compared with others* There would, be administrative problems in
defining equity capital and in preventing abuse of the exemption
for the purpose of. tax avoidance*

-

9•

50

-

Tax exemption for new small “basine_sg.es
for a limited •period, of years
a.

Nature of proposals

■•There have "been.a -number of. proposals for tax exemption fpr new
for a limited period of years. 1/ Most of these
proposals are little more than endorsements of the idea of partial
or complete tax^. exemption for new firms for the first feV years of
their-life. Details’’of possible plans are usually not^provided, nor
do their sponsors usually present any extensive analysis of the
purposes and probable results of their proposals, g j The present
discussion relates only to exemption, from net income taxes.
s m a l l . 'businesses

I T See, for examples:. Kimmel, Postwar Tax Policy and JBuginess__Egpgjision,
op. cit., p. 1 7 ; -Harold M. Groves.. Production. Jobs_and Taxe_p (hew York
l 9l4.Lt-),"pp. HU-45; and P o stvar Taxation and Economic Progress^(Hew York,
■-I9U6 ) , pp*. 102-105; Prank D„ Graham. Social Goals and Economic
Institutions, quoted by Rudolph Ih Weissman, Snail B usiness and Venture
. Capital (New York, 19^5)» P* 15^*» testimony of Jules Eschner, Treasurer,
Smaller Business a f America, Inc., Cleveland, Ohio, Hearings of the
House Small Business Committee, p. 75Qi.testimony of S. Abbot Smith,
ibid., p. 911; H. R. 365, 79th Congress, 1st Session, 1945 (Mr. Buffett;
2/ Two of, the proposals that have been spelled out in more than-average
“
detail are those.of Representative Buffett. .(H. R. 3 6 5 , 79th Congress,
1st Session, I9U5 )..and Levis H. Kimmel
(op. cit*). Representative
Buffett's bill,.which vas addressed only to the period of immediate
postvar adjustment,, covered income and excess-profits taxes, and
payroll, capital stock, and declared-value excess-profits .taxes* The
exemption was for only the first 3| years of life of nev independent^
corporations with invested capital (including borrowed capital) not in
excess of $100,000. Dividends of exempt corporations would have been
. ..limited to 6 percent per year; salaries vould have.been required to be
.:-reasonable; and payments on leases or other contracts could not have
...,been contingent upon income of the corporation. Mr. Kimmel recommended
that nev manufacturing corporations be exempt from corporate surtax for
the first three years of their life and be subject to only one-half the
regular rate for the next two years.
(The corporate surtax proposed by
Kimmel would bç only 5 to .10 percent; op, cit., p. lH.) He mentioned
certain criteria intended to identify genuinely new manufacturing
corporations.

“b*

Economic considerations

The economic effectiveness of the exemption of new small
businesses would depend mainly on the amount of investment that
is -stimulated«, Tax exemption may stimulate investment through
•its effects either on incentives or on available investment funds*
Moreover, any stimulation may be reflected mainly in ah increase
in the number of new firms that are begun or in an increase in the
amount of investment in firms that would have been in existence in
the absence of the tax exemotion*
Exemption from income tax would leave new firms that were
profitable during the first years of their lives a larger net
return than would be possible if they were subject to regular
taxes* This might improve the incentive to invest in new business
enterprises and change the relative attractiveness of investing in
new^ and old businesses*
It is clear, however, that exemption from
income tax would not change an unprofitable venture into a profitable
one* The temporary#tax exemption would have its greatest appeal in
fields that promise large Profits at the outset and in which th.e future
is highly uncertain. These in many cases would, be short-run ventures
intended to exploit some temporary market* In such cases, however, it
seems likely that the exact size of the net return would be so speculative
that a t empor aryexemption from income tax would not greatly influence
decisions to invest, unless the tax from which the exemption was mad.e
were very high* Entrepreneurs and investors in such new undertakings
are likely to be people of optimism and enthusiasm, who.will Visualize
the new business in such glowing terms that profit.' prospects will not
be greatly dimmed- by an ordinary income tax, provided all costs can
be deducted from taxable income*
In other, probably more typical, cases, investors in new businesses
must look forward to a number of years of developmental work before
sizable profits can be expected*
In such cases a temporary exemption
from income tax would have little significance* Unfortunately, there
appears to be no adequate statistical information on the profits records
of new businesses* Even if such'information .were.available, there would
be no way of knowing how many investors go into new businesses with the
expectation of realizing no profits for the first few years, .Obviously,
the significance’of tax exemption would depend to some extent on the ■
number of years of exemption allowed*

It appears that a temporary -income-* tax exemption would "be of
relatively little importance in cases where several years of losses or
very low profits were expected.
It has "been contended that tax considerations are seldom of
dominant importance in the'foundation of new firms end original
investment.in them. This may "be true despite the: fact that the
expectation of ultimate profits is an indispensable element in-the
inducement to invest^ in new businesses. 1/
A temporary tax exemption might encourage investment in new
enterprises-"by permitting recovery of capital more rapidly than
is possible with normal depreciation methods. This objective,
however, could probably,be better achieved by an accelerated
depreciation plan o f •the type that has been discussed in an
earlier section. 2/
1/ Butters andLintner summarize their conclusions from a study of a.
number of m o w and growing business enterprises as- follows:
ttl r Tax considerations seldom dominate decisions, to organize small, independent enterprises.
,
”2. In particular, taxes typically are-given little, conscious
consideration by the individuals, actually responsible for the
organization of .new enterprises.
»3 . Moreover, taxes generally appear to have relatively little
effect on the decisions,of .outsiders to invest, in new companies
during the very early stages of their development.
There is some,
evidence to indicate that outsiders usually are not interested
in a new undertaking;until a substantial amount of development
work has been successfully completed.
<-*
"U., At a later stage of development, however, the high individual
surtax rates in combination with the very favorable treatment
accorded to capital gains by the present tax law frequently act
as a positive s.timulant to investments in new. enterprises .which
offer prospects, of .large capital gains.”5»
In one respect, personal income taxes frequently have an
important, though indirect, bearing on the formation and early ‘ ■
progress of new. enterprises.
Income taxes restrict the amount
of personal funds available to. the prospective organizers of new
'businesses; they may thereby delay or prevent the organization of
new e n t e r p r i s e s . E f f e c t of Federal .Taxes on Growing Enterprises,
p. 1 3 * ,
.v
" V '
8/ See Section II, A. U.

*

‘ ’?V" T"

^

:

151

- 53 -

Retained earnings are an especially important source of capital
for new small firms 9 A temporary tax exemption would increase the
amount of funds at the disposal of profitable new firms« One argument
that has been made in favor of such a tax exemption is that new firms
should be given the same opportunity of growing from internal funds
as was open to their competitors, which were established at an
earlier date when income tax rates were low©
If the primary purpose
of tax exemption,were td'increase funds available to small, new
businesses, it would be reasonable to restrict the exemption to
retained profits« The exemiotion would, of course, benefit only
those firms that realized profits©
A tax exemption for new small businesses might introduce an
additional element of instability into the business situation©
The exemption would offer a special incentive to the establishment
of new firms and to the abandonment of existing businesses* It.
would, offer opportunities to promoters to establish new enterprises
with a ..view to early sale rather than long-range opportunities,
c*

Equity considerations

In common with the other exemption schemes already discussed,
tax exemption fot new small businesses raises fundamental equity
problems of discrimination against those not eligible for the
exemption* The exemption has been defended on the grounds that new
small businesses are of vital social importance and that tax exemption
is desirable to compensate for disadvantages under which new firms
operate* The validity of these arguments is largely a matter.of
individ.ua! judgment. It should be recalled, however, thorp has been
a rapid increase in the small business population within the last
two years, despite the lack of'any special tax concessions..
d©

Ad minlstrativeco ns i derat ions

The only difficult administrative problem und.er a program‘for
exempting small, new businesses from income taxes would be to identify
such firms« This problem, however, would .be a very difficult one.
Obviously, a new incorporation or formation of a new partnership .would
not be satisfactory proof of the establishment,of a genuinely new
business enterprise« The firm, although legally new, might be
economically a continuation of an old business« On the other hand, .
soiji.e economically new business enterprises are und ertaken. by oldfirms without any change of legal identity« A type of interpretative
problem that would often arise would, relate to the establishment of

new units or new departments in an old "business* When a retailer
opens a second store at a nevi location in a different section of
the city, has he established a new business?
If the answer to this
question is yes, would he form a new business if he merely added a
new department at his old location?
. The difficulties of defining a new business unit would be
especially great in fields, such.as retailing apd'agriculture« These
difficulties have led some to recommend restricting any tax exemption
to new corporations in the manufacturing field* X j
ouch a limitation
would somewhat simplify the problem, but difficulties would be met
,
even in the manufacturing field© Moreover, restriction of the exemption
to manufacturing corporations would seem to be unwarranted favoritism®
Tests that would deny the exemption to all old-businesses that had
merely changed their form would be likely to rule out some genuinely
new businesses, 2/
The difficulties of identifying genuinely new, small businesses
would be so great that administration of the statute would require a
great deal of discretion and. might well lead both to arbitrary findings
and. to disputes*.
In administering the exemption for new small businesses, it would
appear to be necessary to require owners of the exempt enterprises to
pay themselves reasonable salaries for their services* The exemption
would presumably ‘be intended to cover only the business income and not
to permit individuals to escape personal taxes on their earnings.
The
determination of reasonable compensation is always a difficult problem,
17

2/

Kimmel* op* cit„ 5 "Groves, Production, Jobs and Taxes«, Groves,
however, has reconsidered his earlier proposal and now suggests
that the exemption be extended to retained earnings of new.businesses
in all industries* Postwar Taxation and Economic Progress^ p* 103*
Kimmel, who does try to lay down some tests, seems to be too strict*
He says; frThis exemption should be limited to Strictly new enter­
prises* The fact that a new manufacturing corporation had b.een^
established could not be accepted as evidence of eligibility, since
such a company might represent a consolidation of two or more going
concerns* To be eligible* a new company would have to be able to
meet one of three tests; (l) operation of a newly constructed plant
or plants; (2) operation of a plant which had not previously oeen
used for manufacturing; o r ( 3 ) operation of an abandoned or dormant
plant which had not been used for manufacturing for a. period of
something like three years«1’ Op* cit», p« 17*

152

55

-

but it would be accentuated under an exemption plan inasmuch as
the increase in profits resulting from pa^Tient. of inadequate '
compensation would be free of tax. Similar difficulties x^ould
arise with respect to depreciation and other deductions.
e.

Conclusions

A temporary'tax exemption for small new-businesses would *
probably somewhat stimulate investment in such firms because it
would increase the possible rate of return and the amount of
capital available from reinvested earnings. Exemption from
income tax* however, is likely to be a factor of secondary
importance in the case of businesses intended to: exploit some
temporary market which holds promise of extraordinary profits even
after tax or where an initial period of very low profits or losses
is anticipated.
Temporary tax exemption would permit quicker
recovery of capital out of earnings, but this objective could
be achieved more efficiently by accelerated depreciation.
The
tax exemption would be a factor making for instability in the
small business field and might well stimulate an uneconomic
turnover of small establishments.
.
The tax exemption would raise the equity problem of discrimination
against established firms and other taxpayers.
There would also be an
administrative problem relating to the proper definition of a, new
business.
It would be hard to deny exemptions in the case of mere
split-ups and reorganizations without at the same time excluding some
genuinely P ew undertakings.
Ill*

Choice among types of tax measures....
for the benefit of small business

This report has dealt mainly with certain special tax measures
that have been proposed for the special benefit of'small business.
With the exception of liberalized ion of opportunities for offsetting
operating losses against taxable income., all .of the measures discussed
would- apply primarily or exclusively to small businesses.
The assumption
underlying all of the proposals is that some tax revisions ape desirable
to assure the heal;thy growth of small business.
This'assumption is,
of course, subject to debate.
There is, however, ample evidence that
small business suffers from certain handicaps and competitive dis­
advantages. - It is therefore appropriate to examine the tax system
to determine to what extent it may accentuate the difficulties of
small business and. to what extent tax revisions may properly be used
to further the national policy with respect to small business*

-

56

-

If it is decided that some tax revisions are.desirable in the
interests of small ’
business, there remains a basib policy issue of
choice between general and. special measures for the benefit of. small
business* Choice, between general and special measures depends both
on the detailed objective sought and the effectiveness of different
kinds of measures. Presumably, those who wish merely to make sure
that the tax system does not discriminate against small business,
would favor reforms:of general application in preference to special
measures, provided the general reforms were considered effective«
On the other hand* those who wish to use the.tax system to compensate
for non-tax handicaps of small business would probably expect to do
so by special, rather than general, measures* Conceivably, of^course,
some measures might be formally general but in actual application
restricted to small business* ■ •
The most important condition to the prosperity of all businesses*
small and large, is an economic system operating at high and rising'.levels of production* For this reason, the most important.contribution
that the tax system.can make to the healthy growth of small as well as
large business is through general measures that improve^the equity of
the present system and minimize any adverse effects on investment and
consumer demand. 1J
General tax revisions are likely to raise fswer problems of
equity and administration than are many special measures for small
business«' Well-conceived general tax revisions would also avoid
the undesirable collateral economic effects that might be associated
with many of the special measures that have been advanced for the
benefit of small business»
TJ

Howard R. Bowen has stated this view as follows: ’’The gain to be
realized by small business from a tax system which promotes highlevel production far surpasses any advantage to be derived from
special tax adjustments designed specifically.in the interests of
small -business«.» "The Taxation of Small Business,».- Proceedings
of the National Tax Association,- 19^6, P* .39^• Harold;M* Groves
expressed the same point, of view ab follows: »Many.of the improve­
ments in. the tax system recommended primarily for other reasons
may also be supported as aids to- small business « * * © - ^ seems
highly probable that a sensible and. well-balanced tax system.is
the best promotion government can give to business, both big and
small*» Postwar Taxation and Economic''Progress, pp. 101-102*

mi

~ 57 ~

Despite the pre-eminent importance o f !general tax' revisions,
it may "be desirable to give consideration to certain measures
designed especially for small business» Since nearly all such
measures4would result in some loss of revenue* they must be
evaluated in the light of alternative tax reductions and expenditure
policiesa
In choosing among various special measures, the soundest
approach would appear to be to begin with h careful consideration
of measures intended to refine or improve the tax base and rate
structure, Especially deserving of consideration in this category
are changes in the method and .extent of graduation of the corporate
income tax, improvements i n loss offsets, and limited accelerated
depreciation* Then attention might be given to measures intended
to reduce inequalities in taxes on incorporated and unincorporated
small businesses* Of the two measures of this type discussed in
this report, the partnership method for certain types of corporations
is the more firmly grounded on recognized principles of tax equity*
The various tax exemption proposals for the benefit of small business
are open to grave question on#grounds of equity* They raise most
emphatically the issue of discrimination among taxpayers and are
likely to be subject to abuses*
In connection with the exemption
proposals,^special attention must be given to the possibility of
uneconomic distortion of the business structure and allocation of
investment*

APFSBDTX

a

f

Definitions of Small- Business

A.

Variety of definitions of small "business

Many definitions of small "business have "been used-. These del ip.1
tions differ greatly.both as to measures adopted and as to interpreta­
tion of particular measures.
Differences in usage extend "beyond the matter of size classification
tc the question'of what -a "business unit is. Most often, the "business
unit considered is. an individual firm, although for many purposes firms
that are legally separate hut under the same or substantially the same
ownership and/or /management are considered a single business unit»
However, investigators dealing with problems of technological efficiency
have often concentrated on individual plants or establishments as the
unit of size, without regard to the number of units under the control o~
a single top management or under common ownership. 1/ Census data like
wise are for plants or establishments rather than firms.
1 .

Quantitative measures of size
a.

Assets

One of the more common measure's of size is the total assets .of a
business. When total assets are used as the measure, £230,000 appears
to be the upper limit most frequently mentioned for a small ousiness. 2/
Some classifications of small business, however, r u n u p to total assets
as large as ¿1 million,
T T

“

j/

gee T.IT.B.C». Monograph Wo. 27» ^he Structure of Industry (T^th
Congress, 3rd Session, Senate Committee Print, 19^1), p. 1;

Theodore.H. Beckman,. "Large versus Small Business After the War,"
American Economic "Review, V ol. XXHY (March, 1 9 ^ , supplement) , p .9
2/ See T .F .B .O . Monograph Wo. 17» Problems of Small Business (7oth
“ Congress, 3rd Session, Senate Committee P r in t , 19^1), tk 2S3;
Beckman, o p . c i t . , p . 93; Hudo^ph L . Weissmah, Small Business and
venture Capital (Hew York, 19^5), p* 9l C h a r le s ! . Merwin, financing
Small Corporations (Pew York, 19^-2) , p . B.
3/ Smaller War P lants Corporation, 19th Bimonthly Report to Congress
~~ (covering June and Ju ly , 19^5)»
30* toward P. Bowen has defined
a small business as "one which has ca p ita l of le ss than about a
m illion d o lla r s ." "Taxation of Small Business»" Proceedings of
the national Tax A ssociation , 19^-6, p . 39^*

\' v

b.

-

59 -

Fet worth or equity capital

A related measure ,• which is much les,s commonly used than total
assets, is net worth or equity capital» One .student has suggested
$100,000 net worth as a possible upper limit in the definition, of a
small business* l/ A bill to aid in financing small business, which
was introduced in the 78 th Congress, Fould have provided assistance
to companies with equity capital not in excess of $1 ,000,000. 2 /
c.

Annual volume of business

Another measure of size is the'annual volume of business, as
indicated by sales, receipts from operatiopsi, or value- of product.
There is, however, a wide range of differences.in definitions based
on this standard * Without specifying the industry, one definition
identifies a small business as one with an annual product valued at
less than $250,000, 3/ Another definition of small 'business suggests
an annual business volume of $1 ,000,000 as an upoer limit,^ 4/
The Department of Commerce defnitions, which are widely used,
set different standards for retailing a,nd wholesaling*- According to
the Commerce definitions, a retail store or service establishment is
small if its annual net sales or recoipts from operations are less
than $50,000, A small wholesaler; is one with annual net sales of less
than $200,000. 5 / Another set of definitions using the same approach
has identified a small retail, amusement, service, or construction
company as ©ne with annual net sales or receipts from operation of
less than $2 5 0 ,000, and a. small wholesaler, as one with annual net- sales
of less than.$1 ,000,000. 6/
•
_
l/
2/
3/
5/
5/

6j

Beckman,, op. cit., p. 95 •
"
.
S. 1777,- 78th Congress, 2nd Session (March in, 1944,), Mr. Taft.
T.F.E.C. Monograph Fo- 17» op* cit.-, p. 285*
Beckman, op. cit*, r>. 95 •
/
Jesse H* Jones, «The Fation’s Feed for Small Business«'.- (reprinted
from Few York Times, March 28, 19^3)» Department of Commerce, Bureau
of Foreign and~Domestic Commerce, Small Business— à Fational Asset,
Economic Series, Fo. 24 (July, IQ 43), p"; 2»
'
These d e fin ition s were included in two bills introduced in the 7°th
Congress providing for the transformation of the Smaller Far Plants
Corporation into a Small Business Corporation to provide loans and
other assistance to small business. H.R» U8Ò1, 7 ^ h Congress, 2 nd
Session (May 12, 19V4), Mr. Robinson; S. 1913* 7Sth Congress,.2nd
Session (May 12, I9UU), Mr. Murray.
'

«
d.

6o -

Wet in come

Het income is a fourth financial measure of size. This standard
has seldom “been suggested as the ideal "basis of definition by investi
gators and others concerned with small "business* With minor exceptions,
however, it is the "basis for special income-tax treatment for small,
corporations under Federal statutes, i f Income from unincorporated
"busines-s has always "been subject to the regular graduated individual
rates, after allowance of personal exemptions, credit for dependents,
and deductions. .Moreover, the revenue acts providing for exemption
or reduced rates for corporate net incomes "below, a certain size contain
an implicit definition of a small corporation. ■ In recent years, corporate
net incomes of less than $ 50,000 have "been taxed at reduced rates.
e,

Humber of employees

One of the most widely'used measures, of business size is the
number of employees. General definitions of small business based on
this measure range all the w'ay from a firm with less than 20 workers 2 /
to a firm with less than 500 employees. 3/ Definitions lying between
the extremes are less than 50 employees,"""^/ less than 100 , 5J and less
than 250 employees. 6 / The Department of Commerce uses 100 employees
or less as the identifying mark of a small manufacturing establishment,,
whereas it bases its definition of small retail., service, and wholesale
establishments on sales. 7/ An official of Dun & Bradstreet has suggested
that a small retail store^i.s one that employs less than three people,
including the proprietor and members of his family. 8/
1/ An exception is the treatment of mutual insurance companies other than
“ life or marine.
Those with gross receipts of $75*000 or less are
exempt (internal Revenue Code, Section 101(ll)) and those with gross
receipts~of be t e e F $75 ,OOQ and $125,000 are subject to a special
notch.rate.(internal Revenue Code, Section 207(aX(U))•

2/ T.F.S.G. Monograph Fo. 17, op» cit», pp. 28U-285»
3/ Smaller War Plants Corporation,~18th Dimonthly Deport to Congress
^
(April and May, 19^5) P* 3? H.R. 3509, 7^th Congress, 1 st Session
(October 21, I9U 3 ), Mr. P atm an; and the companion b i l l , S. V I J 0, 7°th
Congress, 1st Session (October 21, 19^3)»
Murray; S. J. Pes.
,
78th Congress, 1st Session (March 30 , 19^2), Mr. Stewart. .Two other
bills introduced in the 78 th Congress, 2nd Session, defined a small
manufacturing company as one with less than 500 employees but used. 0 or
definitions for other industries — r H.R. U801 and S. 7-913* previously
mentioned.
k f Donald W. Paden, »Industrial Concentration of Employment,» Survey_of
Current Business, April, 19^5» P» 10.
5/ Weissman, op. cit., p. 9*
Id / Beckman, op. cit., p . 95*
7/ Commerce, Economic Series» Fo. 2^, op. cit., p. 2.
?/ Hearings before the Special Committee to Study end Survey Problems of
~ Small Business Enterprises, U, S. Senate, 7 7 th Congress, 2nd Session,
Part 15 (February 23* 19^3)» P» 2125*

155
„r

2.

61,.-

Relative measures of size ■-

" •

Some investigators make no effort to formulate a general definition
of small business, but hold that a definition must be relative to the
context of discussion and must .vary from industry to industry. "This
view is given a degree of recognition by those who use different
definitions for small business in the fields of manufacturing, whole­
saling, and retailing.
The- Federal Trade Commission,! however, has
extended the principle and set up different definitions of small
companies in the fields of cement' manufacturing, steel, petroleum, sugar,
etc.- .In the. study of the relative efficiency of large, medium, and
small business, which it carried out f o r ■the T;H.E.C., the 'Commission
arrayed plants- and companies in-order of size as measured by quantity
of production-or size of investment and .then drew the -line between
size groups where a considerable break in the-series was noted. An
attempt was made to have the largest corporation in the .small group
considerably smaller than the smallest medium— sized corporation.
One historical study defined small business as the smallest 75
percent of firms or establishments, as measured by assets, net income,
or employment. 2/
‘
- ■_
,-- '
......
3»

Qualitative definitions of small business

Small business is often identified by the qualities it is Assumed
to possess rather-than by. any absolute; or-relative- qualitative- measure ■
of size. Thus,- T.F.E.-C. Monograph Ho. 17 states!
*
"The qualities implicit in small business are those ’
> of the self-determined or independent owner-management'.
The typical "small business unit is both owned and ■
directly operated by its active proprietor or<proprietors,
with no overhead.affiliations or control ., . . The
qualities of small, business are seen most clearly in
the. simple-one-man proprietorships, but they characterize-'
the small -and medium-si zed business partnerships: and " :
the smaller 'closely held1 business corporations as well." 3./
1/ T.F.E.C. Monograph Ho. 13y.Hela.tive Efficiency of Large, Medium-sized I,;..
and Small Business (7 6 th Congress, 2nd Session, Senate Committee•Print,
19^1), p. 16. J. Feith Butters and John Lintner in Effect of Federal
. Taxes on Crowing Enterprises.(Boston, 19^5), p t >; 8—9» stress, the ■
' V'.
competitive aspect of,size: "The terms small and large of -necessity •
have different meanings in different contexts. A 925 million company,
may be small in competition with a billion dollar company; a company with
a capital of $500,000 may be large in comparison with smaller competitors."
2/ Howard K. Bowen, "Trends in the Business Population," Survey of Current
Business, March, 1 9 bb-, u p . 8-13•
3/ T.F.E.C. Monograph Fo. 17, op. cit., p. 2H7 .

- 62 In this same vein, hut apparently with a more elastic definition in
mind, Senator Murray, Chairman of a Senate Special Committee to Study
and Survey the Problems of Small Business Enterprises, declared, "I
have always*, considered a concern small if it is free and independent,
and doesn't spread over a number of States, with branches, throughout
the country.rr l/
Another definition, based o n .the premise that small business is
as small business does, proposes to identify small business by one of:
the problems it faces.
"A working definition of small business which
would also cover new business'* -would,, according to one writer, include
for purposes of discussion- "any business established or'projected
which'either cannot ..obtain capital funds at all or can obtain them
only at exorbitant rates in the capital markets." Further, "A similar
definitely formula could, be based-on differential- rates for commercial
loans as between large,: and small or new business." 2 /
B.

Selection of a definition of small business
for tax purposes
1.

Relation of definition to purposes

A definition of small business suitable either for use in a tax
law or for research on the tax problems of small business should meet
fairly rigid, requirements. The character of the definition that is
appropriate for tax purposes is conditioned by the objectives of any
special tax legislation considered for small business.
If the
purpose is to compensate for certain disadvantages and disabilities
of small business, the appropriate definition of- smallness- will be
a measure that includes the area where .these problems are typically
acute enough to be considered to need correction and as little
additional area as possible..
If the purpose is to offer special
stimulation to the development, of small businesses because they are
believed to offer important social and economic advantages, the
appropriate definition of smallness must try to delimit the-area of
these peculiar advantages.
*
' iJ : \

1 / "Problems of American Small .Business-, " Hearings before •the
. ■
Committee., 77th Congress, 2nd Session, Part 2 (March p, 19^2),
p. U 3&..
2J Walter C. Louchheim, "The Problem of Long Term and Equity Coital,"
Law and Contemporary Problems, .Yol.-XI (Summer-Autumn, 19^-5)»
p.‘ 2 S3 .
.
“
V
'

2 , .Criteria 'of a satisfactory tax definition ;'
... - a. ■Objectivity , Any definition of smallness for purposes of .tax: legislation’or
for study showing the need for, and soundness of, possible legislation
should he based on an objective measure of size. This requires a
quantitative rather than a qualitative standard. The identification
of smallness may have to be based on an essentially arbitrary defini­
tion, but it should not be a matter of individual judgement.
b.

Simplicity

Simple and easily available measures are, of course, preferable.
This argues for the superiority of a definition based on gross or net
income, in preference to such measures as invested capital, assets,
and number of employees.
c.

Inderendent applicability

An acceptable definition for tax purposes should be one that can
be applied to a single firm without the necessity of comparison with
other firms.
The definition will, of course, be formulated by
examination of a large group of firms, but its application thereafter
should not have to depend on data for other firms. This criterion
bars purely relative standards of smallness and bigness.
d.

gelation to tax base

There is an advantage in a definition of sraallness measured either
by the tax base or b3r some factor closely related to the base.
If small
business is to be taxed differently under an income tax than large
business, there seems to be a. presumption that smallness should be
defined in terms of income.
Conceivably, the relation between the primary measure of size and
net income might be dependable enough to warrant translation of one into
the other. The indications are, however, that neither total assets nor
gross sales (two of the most common measures of size) bear* a uniform
enough relation to net income to justify such a translation. As can be
seen from Table 2, data for net-income corporations with total assets
of less than'$250*000 show for 19^-2 wide divergencies among industry
groups in the relation between net income and total assets and gross

sales, and between gross sales and total assets* For example, in this
asset class, in the manufacturing field, manufacturers of machinery
except transportation equipment realized net income of 23 cents per
t l of total assets, or 11 cents per $1 of gross sales.
Manufacturers
of tobacco realized net income of 9 cents per 9l of total assets, or
h cents per ¿1 of gross sales.
Among net-income corporations with
assets of less than 9250 ,000, trade corporations as a group had gross
sales (and receipts from operations) of fjiUO P^r 9l of total assets*,
manufacturing corporations, 92.73? service corporations, -1 . 5» an
public utility corporations, 9l.6l.

-

65

-

Table 2
157
Net Income Related, to Total Assets and Gross Sales,
Gross Sales Related to Total Assets
'Net Income Corporations with Total Assets.of Less than $250,000, 1942
'
Indastr- group

: Net income 1/• Gross sales ¿/
’Net income 1 /
: per $ 1 of
per $1
per $ 1
:gross sales ¿/ :
of total
• of total
: and gross
assets
assets 2 l
: receipts k f

All industrial groups

$

.1 2

$

.05

? 2a7

Total mining and quarrying

.1 3

.03

1 .5 3

Total manufacturing
Food and kindred products
Beverages
Tobacco
Cotton manufactures
Textile-mill products
Apparel and other fabrics
Leather and products
Rubber products
Lumber and timber
Furniture and finished lumber
Paper and allied products
Printing and publications industries
Chemical and allied products
Petroleum and coal
Stone, clay and glass products
Iron, steel and products
Non-ferrous metals and products
Electrical machinery
Machinery except transportation
equipment
Automobiles and equipment
Transportation equipment except
automobiles
Other machinery
Manufacturing not allocable
Total public utilities
Transportation
Communication
Other public utilities

.1 6
.2 1

’ .Ob
*0U
.10

.0 9

■ .o b

2 .7 3
3 .6 5
2 ai
2 .3 3
3 -1 9
3 .0 3
4 .1 0

.lb

.2 1

.0 7

.1 6
.1 3
»13

.05
.0 3
.03

.2 1

.OS

2 .6 1

.1 6
.1 3

„06
.05
a6
.0 6

2 .HS

.lb

2 .5 k
2 .k 0

1 .7 9

.20
.2 1

.0 7

2 .3 1
2 .7 1

o09

2 .H3

*23

ai

2 .0 1

as

.07

2 .5 6

.2 2

ao

.1 9
«19
.1 5

2 .2 5
2 .5 3

as
,1 3

.0 7
„os
ao
«09
a 6

.0 6

.1 5

Total trade
Total wholesale
Total retail

.1 2

.o b

.1 3

.0 3

3 .Ho
H .50

.1 2

.04

2 .7 2

Total service

.1 5

.OS

I .8 5

Total finance, insurance, etc.

.o k

.5 6

..OS

Construction

.1 7

2 .8 9

Total agriculture, forestry, etc.

.1 0

.1 1

.9 9

Footnotes on next page.

.1 5
.1 7
.lb

(T\

.2 3

0

2 .2 0

.0 7
.06
.os
.1 0

0

.1 1

3 .6 9

3 .0 7
1 .S0

2.40
1 .6 1
2.0 0
.SI
..43

66
Table 2

Continued

Net Income Fielated. to Total,Assets and Gross Sales;
Gross Sales Belated to Total Assets
Not Income Corporations with Total Assets of Less than $250 ,000, 19^2

Source:

Computed from Statistics of Income for 19^-2, Part 2 , Table 6 «

The amount reported for declared-value excess-profits tax computation
adjusted by excluding net operating loss deduction (items 3 1 and 2 7 ,
respectively, p. 1 , Form 1 1 2 0 ).
2/ As of^December 31» 19^2. Adjustments are made in tabulating the data
as follows: Reserves, when shown under liabilities, are used to reduce
corresponding asset accounts, and "Total assets"’and "Total liabilities"
are decreased by the amount of such reserves and (2 ) a deficit in surplus,
shown under assets, is transferred to liabilities,and "Total assets" and
"Total liabilities" are decreased by the amount of the deficit.
¿/ "Gross sales" consist of amounts received from goods, less returns and
allowances, in transactions where inventories are an income-determining
factor. For "Cost of goods sold," see "Deductions."
H J "Gross receipts from operations" consist of amounts received from trans­
actions in which inventories are not an income-determining factor. For
"Cost of operations," see "Deductions."
1/

- 6? -

158

APPENDIX B
Selected Statistics on the Relative Importance of Small Business

It appears that, on the "basis of almost any of the definitions
commonly used, small businesses account for a large majority of the
number of firms and a sizable portion of production and employment*
1,

Census data on çmall establishments,1 1939

Table 3 indicates the re la tiv e importance in 1939 0f establish­
ments which are small business according to^the composite d e fin itio n
of the Department of Commerce. 1/ These are manufacturing estab lish ­
ments with fewer than 100 employees, wholesale establishments with
annual sales of less than $200,000, and r e t a il and other establishments
with annual sales or receip ts of le ss than $50,000. In 1939» approxi­
mately nine—tenths or more of the establishments in each of the industry
groups shown in Table 3 except wholesale trade were 11sm all.'1 In a l l
seven industry groups, small business employed more than 4-0 percent of
workers and active proprietors end accounted for more than one-third of
the value of output or sa le s. Small businesses were most important in
r e ta il trade and"service, but their employment and output were a, sub­
sta n tia l portion of the to ta l in a l l of the industry groups shown.
2,

Corporate income tax returns classified by size of assets, 19^-1

Table 4 classifies corporations submitting income tax returns with
balance sheets for 1941 by size of total assets.
The most usual general
definition of smallness in terms of assets is a firm with less than
$250,000 total asse.ts. By this standard, a large majority of all corpo­
rations were small in 194l in every major industry group. However, the
preponderant amount of gross sales or receipts and of net income was
reali.zed by corporations with more than $250,000 of assets.
Small corpo­
rations, as measured by assets, were relatively most important in service
and in the' unclassified group.
3.

Corporate income tax returns with net income
classified by size of not income, 1941

' .In-Table 5 corporation income tax returns with net income for 1941
are classified by size of net income.. In that year 90 percent of all
corporate returns with net income showed less t h a n :$50,000 of net income,
which is the present upper limit for-the reduced 1income tax rates allowed
small corporations.
Yet these corporations realized less than 10 percent
of the total net income reported by corporations, with net income*
1/ Some ambiguity arises because it is not clear* whether a, small business
should be thought of as a small establishment or a, small firm.

T a ole ,T
Importance of Small Establishments in Selected Industry Groups, 1939
Department of Commerce definitions 1/
(Money fjjnjxes in thousands) __
•
Vaine of output or s;ales
:
Humber of personnel 2/
* Percent
;
Humber of establi shment s
“
■
9
'
*
•—
*
“PercenT
“
'percent”
Small
, small
Small
*
Industry
iU. S* total :
Snail
small
;U.S*
totali
:
small
business
:U*S.
total:
business *
group
business •
business t business
♦ business
• _____ ___ ,-tL
------------- ----- ----- •— ■
$ 5 6 .8 H 3 . 0 2 5 $ 1 7 ,3 6 6 , 6 9 3 ' 3 0 «6 f
2 ,3 5 8 ,9 6 s
2 9 .9 ^
7 ,8 8 6 ,5 6 7
9 1 .6 5 5
l 6 8 ,8 iU
18H.230
Manufacturing
H,ioo,HoH ... 2 i a
1 9 .H1 8 .5 H 7
3 9 .0 3 5 5 ,7 3 1
9 1 2 ,7 9 5
7 1 ,6 8 1
7 7 .2
92,79H
Wholesale trade
H 2 .H
H 2 .0 H 1 . 7 9 0
1 7 ,8 3 6 , 1 7 1
56a
3.HS7.98H
6 ,2 1 3 , 8 9 0
9 1 .2
1,770,355 1$ 6 1 4 , 3 1 0
Retail trade
2,241,709
6 5 .5
3,H20,Hi7
73.8
1.75H.538 1.29H.72H
98.7
6U6,028
637,585
Servi ce

- -— - - ••

- -

Hotels
Construction
Amusement
Total

3 6 2 ,0 H 7

1 1 1 ,1 8 3

27,987

2 5 ,2 2 U

2 1 5 ,0 5 0

200,299

90,1
93a

HH.917

Ho ,351

8 9 .8

2 5 7 ,2 0 0

i H5,6H i

2,981,361 2 ,758,264

92.5

18,687,^76

7,75H,23i

i

,300,H39

3/

3 0 .7
3 0 .2
5 6 *6

U1

.5

2 6 .6

H,519,79H

.2 2 9 , 1 6 3
1,546,275

9 9 3 ,0 7 9

332,837

33.H

. $i28aoU,so7 $ 4 3 ,6 5 3 , 2 5 7

3^a

8 6 3 ,1 5 5
2/

3H.2

Treasury Department, Division of Tax Research
Sources

Department of Commerce, Bureau of Census,

Sixteenth Census of the United_ States^ Census of _

'

*

1/ Small establishment is defined as follows:
manufacturing, less than 100 employees; wholesale trade,
»rmiinl net sales of less than $200,000; other industry groups, annual net sales or receipts from

j

2 / Including3self-employed except°in manufacturing.

|/ Humber of personnel not available.

Humber of employees plus number of active proprietors.
Percentage figure based on payroll breakdown.

^939•

!
cr,
OQ

Table

H

Corporation .Boturne ,in Selected industry.Groups
Classified by Size of Total Assets
19^2

/
i

Industry /grpup
v.i ' a n d ... '
total asset £T,ass

:
]

" H u m b e r of
returns 1 /
percent
Hummer ■- *
of total

Ali industrial groups?
0 -$ 505000
50,000 - 10 0 ,0 00
10 0 .0 00 - 250,000
250.000 and over
All classes

196,642
58,33857.365
71.189 ■
383,534

Mining and quarrying?
0
50,000
50,000 - 10 0 ,0 00
10 0 .0 0 0 - .250,000
250.000 and over.
All elapses

3.127
1,185
1,347
1 ,9 6 0
7 ,6 1 9

Manufacturing1
0
50,000
50 ,0 0 0 r 100,000
100*000 ~ 250,000
250*000 and over
All classes

3 2 ,0 6 3
lib585
1 3 ¿left
19^582
7 6 ,33“+

public utilities?
0 -$ 50,000
50 *00*0'- ,100 ,0 00
10 0 .0 00 - 250,000
250.000 and over
A H classes

9,327
• -2,239
2 ,1 1 5
3,132
-16,873

51.3*
15*2
i 4«9
1 2 .6 \
10 0 «0

:
:
;
•

Gross sales and receipts
from operations
percent
Amount . > ;
(thousands) : of total

$

95,242
... 1 0 2 ,7 9 6
‘ '2 3 3 ,2 2 2
3,372^23
3 ,2 1 0 v449

4lo0
1 5 .6
1 7 .7
2 5 .7
10 0 *0 ;"

42*0
1 5 «2
17o2
25*6
100*0

5 5 .6
1 3 .3
1 2 .5 18.61 0 0 «0

9 ,13 9 ,0 3 9
7,494,35°
1 4 ,2 5 1 ,6 2 2
1 7 U, 0 9 6 ,16-1
20U,9 3 1 ,1 7 5

.

;
.

$;

4.4$
3*6
7*0. Y
8 5*0 ;100.O r

2 /5 '
2 .7
6 .1 a.
88*7'
10 0 .0 -

2 ,009,82*+
2,173,409
4,934,895
1 0 7 ,2 6 1 , 1 5 7
116,429,285

1*7
l«9
4*3
92*1
100«0

325,352
2 5 3 ,7 9 2
420*540
1 6 ,5 9 6 ,2 7 3
17,595,957

io9
1*4
2*4

• Cont-inue-d eh. .next page

:
:
:
:

94*3
100*0

:

,
:

Het income
or; deficit 2 /
*.
Percent
Amount» v•
:
of total
(thousands),

1 3 1 ?600
270,0 20
728,137
21,816,054
22,945,211

»6$
1*2
3.2
95.010 0 .0. .

~ <8

- 3 ,0 6 1
1 .0U5
> . 8 ,6 5 4
. 3 3 4 ,6 5 6
391,264

.3
2 .2
92.3
100*0

-2 9 ,0 7 2
24,839
2 9 6 ,0 3 1
13,134,202
J1 3 5 544,145

*2
.6
2*2
97.0
100*0

. 1 0 ,7 9 2
16,ISO
38,270
. 3,556,f6.1
3,627,003

.4,4 .
1*0
92 «2
^A
10 0 .0
cn
CO

“J•

CPv
vx>
t

* Table 4 (continued)
Corporation Returns in Selected Industry Groups
Classified “by Size of Total. Assets

I
-

Industry group
and
total asset class

\

'

(“Wholesale trade:
o - 4 50,000
50 ,0 00 - 10 0 ,0 00
10 0 ,0 00 - 250,000
250,000 and over
All ¿lasses
Retail trade and trade not
allocated
1.
• ;; t>
50,000
J
50 ,0 0 0 - 10 0 ,0 00
10 0 ,0 0 0 - 250,000
250,000 and over
?
All classes

Number of
returns 1 /
Percent
Number
of total

l6 ,l6l
- .5.778
6.225
5,413
33,577

48*2
17*2
18,5
1 6 ,1
10 0 .0

53s395
1 2 ,5 1 3
9 .1^8
5,532

6 6 .2
15 -5
11.4
6 .9

8 0 ,5 8 8

1 0 0 .0

$>

*
5

$

Gross sales and receipts
from operations
:
Percent
Amount
(thousands) :
of total

1,757,537
1,824,1 9 3
3,932,252
1 8 ,5 2 0 ,6 3 1
26,034,613

6 .8
7 .0
1 5 .1
‘ 71«!
10 0 .0

3,489,164
2 ,2 9 6,3 0 9
3 .2 3 9 .6 7 4
18,741,091
2 7 ,7 6 6 ,2 3 8

1 2 .6
8*3
11*7
6 7 .4
1 0 0 .0

j,

:
:
:
:

Net income
or deficit 2 /
Amount
:
Percent
:
of total
(thousands )

$2 3 ,0 5 2
4o,6o6
115c370
840,587
1 ,0 1 9 ,6 1 5

. .. 2 . 3 $
■7 . 4.0
- 1 1 .3
82.4
10 0 .0

62*963
.7 9 ,5 6 5
148,330
1 ,2 3 5 *537
1 ,5 2 6 ,3 9 6

A

4.1

'

5.2
9 *7
81.6

100*0

V
Service:
:■
0
50,000
:( 50,000 - 100,000
-.10 0 ,0 0 0 - 250,000
250,000 and over
/
All-classes'
Pinajnee, etc.:
0 -$ 50,000
50,000 - 100,000
100 ,0 00 ~ 250,000
2 5 0 ,0.00 and over
All classes

:

2 2 ,2 6 5
3,882
3,142
2,403
31.692

^7 ,1 5 2
IS, 172
19*29 0
3 0 ,2 5 2
114,864

9-9
7-6
10 0 .0

829,44/
4 1 9 ,6 1 7
5 8 6 ,6 6 0
2,421,187
4 ,2 5 6 ,9 1 1

100*0

17*8 72
2 3 ,2 8 6
4 2 ,3 9 6
2 7 3 ,1 6 2
. 3 56 ,716?;

4i.i
1 5 .8
l6.8
2 6 .3
1 0 0 e0

129,471
6 9 ,5 6 0
1 1 7 >549
3 ,2 9 6 ,3 7 !
3 ,6 1 3 ,4 5 1

3 .6
1*9
3*3
9 1 .2
10 0 .0

- 1 5 ,0 4 3
9 ,4 3 s
3 2 ,1 5 6
2*039,570
2 ,0 6 6 till

7 0 .3
12*2

"

Concluded on next page

1 9 »5
9*9
1 3 .8
5 6 .8

:

5 .0
6 .5
11*9
76*6
100,6

~*7
.5
1*5
98.7
100*0

{
4
0
i

Ta"ble 4 (concluded)
Corporation Returns in Selected Industry Crcups
: 'Classified "by Sizg_of Total Assets
1942
Fumber of
Cross.bales and receipts
from operations
returns l/
Percent
:
Amount
:
Percent'
‘
u mber
[
of total!
: (thousands) ;
of total

Industry group
and
total asset class

Set income
:
;

Amount
(thousands)

;
;

Percent
of total

Constructions

0 - $ 50»000
50,000 - 100,000

•.7,289
1*487

- 2 5 0 ,0 0 0
2 5 0 . 0 0 0 and over
All classes

1*552
i,4oi

1 0 0 .0 0 0

1 1*7 2 9

criculturo, forestry
and fisheries;
0 -$ 5 0 , 0 0 0
5 0 ,0 0 0
« 1 0 0 ,0 0 0
1 0 0 .0 0 0 ~ 2 5 0 ,0 0 0
250.0 0 0 and over
All classes

2,846
1 ,0 2 9
1 ,0 6 9

9U9
5,693

'ature of business
not aliocable;
0 - $ 5 0 ,0 0 0
5 0 ,0 0 0
- 1 0 0 ,0 0 0
1 0 0 .0 0 0 2 5 0 ,0 0 0
250.000 and over
All classes

6 2 ,2

12o7
13*2
11.9'
100.0

bs.3

17*5
.18 . 1
i6fti *
100.0

Statistics of

67. s

2 2 ,1 6 9

13,U27

■ 565

13*0
10Ö.0 •

28,735

117,569
181,900 ‘

r 1 1 ,2 1 3
• 31*,385
284,906
; 336,^3

8.0
1

I5

.3
6 5 .3

100*0

12.2
7*4
V

1 5 .8

64,6
100.07

1 «8

ÌÌ $ 5,939

11*4

8U.139
59,167
112,736.
480, 747 •'
736,811

1-0*7
lg.5

V363

,t O -

^,555.555 ■

2,957
373

i j v J C l '.i G

*

8 .7 #
=6 . 2
13*1
7 2 .O
100.Ò

•2 8 2 , 0 5 9
59*+. 757
3 .2 8 2 . 0 5 2

Ä 46s

-,z Research
ource;

%96,6S7

$

3-3
1 0 .2

;
,

531
3*523
10,519
66,l6S
80,74i

,* 7
‘4.4
1 3 *0
31.9
. 100.0

: • - 516• ‘

,

it
!. •

* .

327

3 ^ .7

100.0

:

2 ,0 2 3

53^- '
2,366
'

-

2 1 .9
1 3 .8

65.5
22.6
100.0

i

iivR, Part 2v Table 6.

With balance sheets 9
"Not income” or #deficit?1 is the rdr-on.nt. reported for de dared-value excess-profits tax. computation adjusted by
excluding net operating lo ss deduction*

$

- 72 -

■

'

\ '

Table 5

i

; Corporation Heturns with Wet ¿Jneom©
Classified by Size of Wet Income
j
'
19 H2
Wet income
:
class
r
.(thotisends) , j
f
o ~ $ 5
$ 5 -

io ‘

.: Wuaibe£tof ^r|t m s J.L
’J
! v' Percont "
FUEibcr
i of total

t
i
i

150,095
35,^2^ /

Wpt income 2/
Amount
:
percent
(thousands)
: ‘ of "total
$

1 3 .1

:

238,585 .

l.C#

2 5 3 ,6 7 1

;1*1 .

'

10 ** 15 -

1 7 ,1 6 3

6 .3

210 s6l0

1 ,9

15 -

20

10 ,5 2 3

3.9

182,621

«8

20 -

25

:7 ,^ 5 5

2*8 -

167,082

25 -

50

17 ,^ 6 5

63 5

.6 15 ,1*33

50 and over

31,217

11« S

22,38^,357

. .?3*0

All classes

269 ,91+2

100« 0

2^,052,359

100« 0

Treasury Lep^tment, ^Divi sion of Tax liesearch '
Source:

|
,

%7
:2.5

^

Statistics of Income for 19^2, Part 2 , Table ~[

1/ With net income,
*
2] Wet incone is the amount reported for declared-value excess«profits tax
computation adjusted by excluding net operating loss deduction.

- 73 -

b.

Trends in the business .population-raid, relative
position of' small' dusinossV 1 9 Q 6 ~ 1 9 ^ o

In a study of available statistical data on trends in the business
population and the relative importance of small business*.- which. .Was
published in March 19^1, Howard R. Bowen summarized his conclusions
as follows:
"Statistical evidence presented suggests the
existence, of four clearly defined periods in the
history cf the business•population:

•

*

n(l) Pron 1900 to 1913, the number .of- business
firms apparently increased more rapidly than the human
population. 3?o comprehensive data .on the size structure
are available for this period.
"(2) Prom. 1 9 1 8 - 2 9 > the relative increase in number
of business firms continued,.but the proportion of the
economy in -the hands of very large firms increased
rapidly.
"(3) During the period 1 9 2 9 "*^!, the number of firms
declined abruptly up to 1 9 3 3 and then increased very
rapidly until, in 1 9 ^ 1 ». the ratio between business firms
and human population was greater thru in 1 9 2 9 . The rela,tive portion of the economy in the hands of small and
large firms fluctuated during this period, with a probably
slight gain for small business.
• .'
"(U) Since lf&l, the number of firms' has declined
sharply.
This decline ceased in the middle of 19^3»
however, and since then the number has remained about
stationary. During the war period the growth of large
business has been such that the proportion of the economy
accounted for by small firms has apparently declined.
These
conclusions are subject to two important qUalifications.
“"Pirst, it must be noted' that the changes in the
distribution of American business firms by size classes
have not been violent. .Throughout the entire joeriod
under study, the general pattern.of size distribution
has remained remarkably constant.
"Indeed, when the firms or establishments of the
United States are classified by size on the basis .of
assets,., net income, ..sale's,'or 'employment, the percentage
of firms within each class remains Approximately the
same even over long periods of time, . . .

- 7^ -

"Second, from the fact that the relative position in
the economy of small business apparently declined during
the periods before 1 9 2 9 and since 1 9 3 9 » it must not be •
concluded that the absolute importance of small business
also declined.
In fact, during both periods, snftll bus!**
ness at least maintained its absolute level of activity^
"Third, the conclusions presented ignore possible
increases in the economic power of large firms through
various informal controls over smaller firms, e.g.i
financial control, price leadership, and control of
dealer franchises, l/"
Bowen used as his primary definition of snail business the smallest
percent of firms or establishments as measured by assets, income,
or employment.
75

Bowen noted that the apparent decline of small business during
the war is partly attributable to the great expansion of heavy manu­
facturing which is normally characterised by large-scale production.
Increased concentration of production appears to be a. usual accom­
paniment of high-level economic activity because of the relatively
greater importance of durable goods industries in such periods* .
On the basis of his study, Bowen found "abundant evidence that
small business is an institution of great vitality
He thought it highly probable that a postwar-resurgence of small
business could be expected.
Data for the years 19*+^— 19^+6 indicate that there has been ma rapid
increase in the number of firms in business.
By nid-1946 the-business
population had surpassed the prewar peak. The number of firms in
operation at selected dates has been estimated as follows;, 2 /
September 30, 1939
September 30, 1 9 ^ 0
September 30, 19^1
September 30, 1 9 ^ 2
September 30, 19^3
September 30, 1 9 HU
September 3 0 , 191+5
June 3 0 , 19^6

3,317 thousand
if
3 ,2 9 g
3.398
3 .1 5 6
2 ,S6 l
2 ,9 2 U

3.13^
3.50^

H
tt
tr
Ttn
"

(pr<

1/ Howard E. Bowen, "Trends in the Business Population," Survey of'
Current Business, March 1 9 M+, p. 13*
2/ Melville J. Ulmer, "The Postwar Business Population," Survey of
Current Business, January 19^7» P* 18«

16
-

75-

As night he ejected, the increase in the number of firms has been
primarily among snail businesses. More than 90 percent of the net ,
increase in number of firms (excess of new businesses over discontinuance)
during the years, .-1 9 HU and 1 9 ^ 5 , was in firms with three or fewer
employees.' During that period, the number of firms with 50 or more
employees that discontinued business slightly exceeded-the number of
,
new businesses in this size group. 1 /

l/ Donaldr¥. Paden'and Alice ilielson,' nRecent Trends in the Business
Population,0 Surrey of Current Business, May 19^6', p. 20.

163
- 77 Table

6

Cost of flotation of Securities 1/
by Size of Issuer,

1938-1941
Assets of issuer
(millions of dollars)

:
:

Cost
193S
A.

Under 1
1
- 5

2/

:

as a pere ent of pro ceeds
:
194Î
1940
1939
:

Bonds
4.8

8.5
4.4,
3*0

5

‘- . ‘ 1 0

5-9.
,4.6
7-2

10

- ..- 5 0

3a

2 .8

2 -7

2 .6

2 .7
2 .1

2 .8

5*5
4.4
t 2.9
2*5
"2 . 2

2 .1

2 .1

50
1 Ó0
200

7

- 100
- 200
and over
B.

Under 1
1
5
10
50
100
.2 0 0

- 5

.

2 .1
1 .2

•*

1 1 .8

1 6 .3

1 0 .5

1 2 ,0

1 1 .7

5S2

3-5
3*4
2.3
C.

2 ,2
2 .0

Preferred stock

1 6 .3

- 10
- 50
- 100
- 200 v
and over

Under '1
.• 1 - 5
5 . 10 ‘
10
- 50
50
- 100
-.1 0 0
- 200'
7 . 2 0 0 and over

:

Zl.7
4.3
2.9

•

9*5
3*7
•3*4
4*7
•2 . 6

7*9
4*6
3*5.,
3*4 • .
—

1 5 ,6

2 0 .6

1 7 .1

1 2 .2

1 3 .3
1 3 .8

1 0 .0

IliZ

5 .6

1*7

5*1
3*0
2*3

-

-

7*0 .
1 .6

5*3

1 0 .2

.4,4
• .-3*4
• 5*2 :
• 3*3
2.3
•

Common stock

1 ,0

1 0 .2

1

ll 1

1k

1 7 ,4
1 5 .3
5 .8

. 4-,5
2 .7

0 .7

■
Treasury department, Division of Tax Research
Source:

.Securities and Exchange Commission, Research and: Statistics
Section of the Trading and Exchange Division, Cost of flotation
•for Registered Securities, 193&~1939 (Washington, 1941) > SEC
Statistical Series Releases EoV 572 (June 6, 194l) and Eo. 73-5
(June 18, 1942.)

1/ Securities effectively registered under the Securities Act of 1933»
proposed for sale by issuers, including securities proposed for sale
through investment banking facilities and .through other channels..
Does not include securities ’’proposed for sale for account- of others.”
2/ Including both compensation to distributors and expenses.
:

- H r
Table. 6 combines securities sold through investment bankers and those
disposed of directly by the issuer or through other channels»
In
general, cost of flotation was higher for securities marketed through
investment banking facilities than for securities of issuers of the
same size marketed through other channels* A part of the variation
among size classes and years is attributable to differences in the
proportion o f 'securities issued through investment bankers.
The SEC studies show that, even when small corporations can sell
securities, the cost of flotation may be heavy enough to be a serious
burden on outside financing.
Bo

Bank credit
1*

«£ 41* V„

£ 'v

Availability

There is considerable difference of opinion as to the availability
of'bank credit for small firms. Many small businessmen complain that
they cannot get needed loans from banks at rea-sonable rates.
Bit many
bankers deny this contention.
In 1939 i t*10 president of the First
National Bank of Chicago testified, ,lMy observation is that virtually
no small business or medium-« si zed business which is entitled to credit
either for a short time or a long time, and which can give reasonable
assurances of repayment, fails to get it,n 1/
Several surveys, have indicated the existence of genuine unsatisfied
credit and capital needs on the part of apparently sound small business«??
es* i f
The widely quoted finding of one of these surveys, made during
the depression, was:
nThat there exists a genuine unsatisfied demand
for credit on the part of solvent borrowers, many of whom could make
economically sound use of working c a p i t a l . 3/ This'report added,
1/ Statement of Edward 3. Brown, quoted b yWi l l i a m L* Stoddard, »Small
Business Wants C a p i t a l , H a r v a r d Business Review, VoloXVIII .(Spring,
I9 U 0 ), p. 266. Mr. Brown, however, added that he believed that it
has always been hard for snail business to get risk capital and
that it has probably become even harder in recent years, p. 2 6 9 .
2/ Charles 0* Ha,rdy and Jacob Viner, Report on the Availability of
Bank Credit in the Seventh Federal Reserve District (Report sub-«»
mitted to the Secretary of the Treasury, 1935)» Department of
Commerce, Survey of Reports of Credit, and Capital Difficulties
Submitted by Small Manufacturers (1935 J » Lewis H, Kinnel, The
Availability of Bank Credit, 1933-^93^ (Nationa.1 Industrial
Conference Board, 19397«
Hardy and Yiner, op 0cit0, p. VI.

,

164

• • - 79 -

however, that this unsatisfied demand was considerably smaller than
popularly believed, that the situation of many would-be borrowers was •
too precarious‘to justify ordinary loans, and that there was a larger
unsatisfied demand for long-term workiS®»feapltal credi’
tathan, for. -oneturnover loans* l/
a
'
<
Differences of opinion as to the adequacy of bank credit may be^
partly explained by the fact that different people nave.been discussing
different kinds of credit and capital needs.
Small businessmen often j
want either fixed capital or permanent working-capital*
Commercial
banks, on the other hand, have «been traditionally geared to ranking
one-turnover or seasonal working— capital loans* Bankers were severely
criticized for supplying capital for expansion during the .1920 *s, by
recurrent renewals* 2]
Beginning in the 193^*® banks have begun to extend a significant
amount of term loans* These loans have a maturity period 'that averages
5 years but that sometimes runs to 10 or 15 years* They are usually
designed to be repaid from earnings* As such, they seem to be a type
of loa]S.';tfh.ai is much liore attractive to small business than.'the
traditional'Commercial loan* In the past, term loans by both banks
and insurance* companies appear to have been made mainly to large or
medium— sized companies, usually to companies with assets over> $1
million* 3/ However, term lending to smaller businesses appears to
have become more widespread, in recent years, as smaller banks have
entered the- field to a greater extent« As of Uovember 20, 19^o*
90 percent of the number of outstanding term loans;of member banks of
the Federal Reserve System were to businesses with total assets of
less than $250,000« Term loans to businesses with assets of less than
$ 250,000 accounted for about one-sixth of the total volume, whereas
loans to borrowers with assets in excess of $ 5 *000,000 were two— thirds
of the total volume* A larger percentage of total bank credit was in
the form of term loans in the case of very large businesses than in*
the case of small businesses*
In the case of small borrowers, most
term loans were secured, whereas in the ease of large borrowers, the.
majority of term loans were unsecured* U/
2*

Interest rates

Small borrowers pay substantially higher interest rates -for bank
loans than large firms, which commonly borrow large amounts*
Small

17 IbidT

—

^

_

Marshall D* Ketchun, »The Financial Problems of Small Business,n
Journal of Business, Vol* XVII (April, 1 9 ^ ) » p« 8^»- Stoddard, op--cit.
3/ Donald Wilhelm, Jr,, Credit Sources for Small Business (Department
of Commerce, Economic Series Ho« W," 19^5) > -PP®' 10— 11* •
4/ Duncan McC, Holthausen, »Term Lending to Business by Commercial
' Banks in 19H 6 ,» Federal Reserve Bulletin, May, 19^7» pp*' *+98-512.

- go

firms on the.average pay interest rates às much as three times, the
average paid. by. large firms, A federal Reserve Survey of loans at
member banks, .as of November 20,19^6, found average interest rates
on short- and long-term business loans as shown in Table 7*
The higher interest rates paid by small firms, appear to be
attributable in part to the fact that small firms typically borrow
smaller amounts' than large firms and that the costs of handling loans
are a greater percentage Of the principal for small loans than for
large loans. This factor, however, is not the sole explanation of the
higher interest rates paid by small firms. As Table g shows, small
firms pay higher interest Crates on loans of any given size than do
largè firms. This situation may be attributable to a belief on the
part of banks that loans to small'firms are more risky than loans to
large firms*.
....
! ’
. -, . .. .A., ..;i.., ..»4 ’>•, ,
* ...
C*

Investment by private individuals

Although there is no statistical information ok the subject, it is
often assumed that a large part of the equity capital of small.business
in the past came from wealthy members of the local community*
The role
of such investors has been described as follows!
tt0 ne of the principal sources of capital for the small
enterprise has traditionally been some wealthy individual,
often a. retired businessman or professional mahj who* be­
cause of close Contact with the situation and with the
promoter* is in a position to make a thorough analysis of
the profit possibilities of the enterprise* Re invests as
much on the basis of the known character and capacity of the
.enterpriser as on the basis of the amount o f ,the assets and
the earnings record*
He recognizes what he.i's doing as a,
speculation but is willing to take the risk in return for the
possibility of large profits.
It is generally agreed that the
earlier .activities of local wealthy individuals in supplying
capital to local enterprises have continued but at a greatly
diminished rate,” 2 /
The -decrease in investments in small business by wealthy individuals
has been attributed to the availability of alternativë investments in
securities of large corporations and of the Government, caution inspired
by depression losses, and high tax rate, 3 /
....... .........
1/ ”Survey of Commercial Loans at Member Banks,^ Federal Reserve BulletirT,
August, 19^2, p, .772, and nInterest Rates of Member Banks , 71 Federal
Reserve Bullotin, November,
p. 1097»
2/ Ketchum, op,cit»', p»90*
'
3/ Smaller W^r Plants Corporation, Taxation, {Economic Report, September,
19^5), p* 6 6 ; Ketchum, op,cit,, p*90; Stoddard, op*cit* , pp. 2 6 S- 2 6 9 Î
TNEC Monograph No, 17, Problems of Small Business, p, 262.

165
-

81

-

Table 7

Average Interest Rates on Short- and Long-term
Business Loans at Member Banks*
by Size of Borrower
November 2 0 , 1 9^ -6

Assets of borrower :

Short-term 1/

(percent per annum)

(thousands of dollars)

K

■3.N-

Ko

5 ,0 0 0

2-7

3.2

1.7

2 .1

3ro

2 oS

-

250

en

Kz

50

1

5^

re
VJl
0

5.1

0

’•Under 50

750

-

5 ,0 0 0

Long-term

and over

All borrowers "¡J

*

Treasury Departments Division of Tax Research
Sources

Federal Reserve Bulletin, July, 19^7* P» &lo.

1/ Maturity of one year or less»
2f Maturity of more than one year.
3/ Includes rates paid on a small amount of loans unclassified
by size of borrower.

- S2 -

Table g
Average Interest Rates on Business loans at Member Banks
by Size of Loan and Size of Borrower
November 20, 19^*6

Size-of loan.
(thousands) j

ill
D

o

r

r

Assets of borrower
(thousands of dollars)
c
w
r
»

^

^

Interest rate (Percent per annum)
6*0
5.6
5 .2
4**7

Under $r5
$.5— 1
1 -5
5 - 1©
10 -2 5
25 - 50
50 - 100
100 - 500
5C0 - 1,000
1,000 and over

Kb
bco
3.6
2-7
2*2
2 o0

-

K^
Ki
Kü

—

A ll loans

2 o9

5o2

7*3
6 .7
5.6
lK 9

1 *^

6*g
5-7
5.0
¿•7

5*5
5«o
M
-»5
¡M

5 «o
4*6

3 *s
—

3 *S
3 .6
3«^
3 e2
—

2,6
2 o6
2,6
2*5
2,1
1*9
1*9
1 ,9

H„2

3*5

2 ,g

1*9

.

Ko

Treasury Pepartment, Divi sion of Tax Research
Source:

. 2,6

^■ «0
3*6
3*3
3 „o
2 o7
2,7
2„S

Ki

Federal Reserve Bulletin .j July 19U7, p.

SOJo

166

- «3 B.

Other outside sQTjgpces of fun^s

Other ourside sources of financing of some significance for snail
■business are trade credit, accounts^rece&v&ble factors, private industrial
developnent groups, and Goyernment lending.,agencies* X f Among these,
trade credit extended "by .suppliers of merchandise, raw materials, and .
equipment is especially important. 2/ In many cases, such credit'
represents in effect indirect use of bank -credit and other sources of
funds by small'"business*
it appears, however, that trade credit.is
often relatively expensive, inflexible, and otherwise disadvantageous.
Reliance on trade credit often restricts the choices of sources of
supply open to small businesses and forces them to accept unattractive
goods* Sinço small manufacturers, jobbers, and wholesalers themselves
often lack, adequate bank accommodations, the practice- of trade-“credit- •
financing of retailers may place such distributors at a competitive
disadvantage» 3/
.
■* '
Government credit has been made available to small business in the
form of direct loans from the, Roderai Reserve banks and direct and
guaranteed loans by the Reconstruction Finance Corporation* During the
war, the Smaller War Plants Corporation made loans to small manufacturers
producing for war or essential civilian purposes* Ü/ « appears that in
the past the bulk of the funds lent by both the Federal Reserve banks
and the R. F. C. have gone to large rather than small businesse-s*
The Servicemen1s Readjustment Act of 19*+U, as amended, known as
the Gr.I» Bill of Rights, provides for Government guarantee of loans
to veterans for purchase or construction of homes or for purchase of
farm or business property. The guaranty for any one veteran is limited
±/ Donald Wilhelm, Jr., ,rHow Small Business Competes for Funds,”

law and Contemporary Problems, Vol* XI, (Sumner—Autumn, 19^5)>
.220— 247; and the saine author'* s, "CredjLt Sources for Snali^
. ffnsinesju op*cit*
2/ In 1939» 6*0*6" percent of all sales by service and limited function
wholesalers were on credit of more than 10 days; and 6 5 «^ percent
of wholesale sales by manufacturers1 branches were on similar terns.
Bureau of the Census, Census of Business, Vol* II, Wholesale Trade,
1939» Table 6a , pp* 11^ ff.
3/ Wilhelm, ftHow Small Business Competes for Funds,w op, cit, ,, .j . .. .;
Zf -Executive -Order 9 6 6 5 ,;December ¿7, '19 *+5\ ‘transf erred the lending
functions-- of the- Smaller War Plants Corporation, to,, the. R.F*C*
5/ Vilhelm, HEow Small. Business, Bormo.-fcee for FurulsJ* op, cit. 'pp* 239*“
2kl,
'
'

- gu to (l) $^|000 for real estate purposes,> (2) $2,000 for
purposes, or (3) a prorated portion of either of these
loans of both types or a combination thereof. No more
of any loan may be guaranteed, and no more, than $^.,000
be made for one veteran. 1/

non-real estate
amounts for
than 50 percent
-or -guaranty may

The Federal Housing Administration guarantees loans for the
modernization and repair of commercial properties and for the construc­
tion of new small commercial buildings. Repair and modernization loans
are limited to a maximum amount of $ 2 , 5 0 0 and loans for new commercial
construction to a maximum of $3,000; the maximum "term for both types
of loans on commercial property is three years. Zj •
E.

Retained earnings

Earnings retained from operations are typically the most important
source of funds for going businesses, especially for smaller businesses*
Such internal sources of funds include both retained net earnings and
accruals to such accounts as depreciation and depletion.
Table 9 indicates that small corporations as a group have
ordinarily retained a considerably larger percentage of their net
incomq after taxes than have larger corporations.

1/ See Veter hnlT^toi'n i’str at ion, guaranty or' Xn-surnncc .of Loans to Veterans,
(19^6); 3g U.S.C.A., sec.69^(a). .
2j Wilhelm, Credit' Sources.for Small Business, p.2g.

I

Talóle 9

Retained Ret Earnings as a Percentage of Ret Income After Taxes,
Corporations with Ret Inbome, 193.^~"19^'3

Year

193k
1935
1936
1937
I9 3 S :
1939
I9 4 O

9 Under
• $50

:
:

8 *1

a/

5 6 .^

I 9 Í+3

$100

$250$500

37.1

5 2 .6

^5 .5

^8 . 5

*5

3 5 .8

28
S&A

6 2 .0

63*1

6 2 .2

59.2

5^.8

7 2 .8

7S.7
!+5*^

5
î

5 2 .0

3Q. ^
5O .6

19^1
19^2

$50-

: $1 0 0 : ...$ 2 5 0

76.^
6 U .3

'■

•2 3 *8
24*1
.%.3
55.6
56*^
67.9
71.5
6 0 .7

•

2 2 .7

3 ^ .9

. 31+.7
2 5 .S

2 5 .8

28.2
25*9

.
.

All
$1 0 ,0 0 0 - : $50,000•
;$5 0 , 0 0 0
land over:. classes

28*5
20*5

3*5

1 3 .9

8 *0

19*8

2 2*3

1 5 .6

2 2 .8

2 3 .2

22*2

2 0*7

1 6 .0

39*3
M6 . 1

37.S
4Î+.6

2 9 .5

2 3 .7

3 7 .8

5 1*2

50*1

• &.3

5 9 .5
62*8

5 2 .2

62*9

66*3
5 3 .3

Treasury Department, Division of Tax Research
Source:.

Asset ¿Lasses (in thousands)
b500- • : $1 ,0 0 0 -- : $ 5 *0 0 0 — ;
$1 , 0 0 0
: $5,000 : $1 0 , 0 0 0 :

•
:

•

57*0

33*9
39*0
. >+5 . 2
5 6 *6

58.9
56.7

5 5 .1

•

16*8

24*2
3 0 .I
35*2
51*4
48*5

'

%9
2*3
7*3
18.3
2 2 .3
29

.I

^9 . 5
53*5

1 9 .7
23*0

15.1
15*1
19.2
28.8
33*2
4i*4
5^*6
5 3 .8

, - .

Computed from Statistics-of Income, annual volumes, 1932-19*+2*

Pressrelease No* S-122 for 19^3*

j£/ The low percentage for this year is attributable mainly to heavy dividend payments
by small financial corporations* The estimated retained net earnings for nonfinancial
corporations in this class are approximately U 5 percent .of net income after taxes#

CD
—

~ s6 ~
APPENDIX D
History of Graduation of the Corporation Income Tax

Graduation in the corporate income tax was originally obtained by
means of a specific exemption.
Graduated rates were not introduced
until 1935. The corporation excise tax of 1909 applied only to
incomes of over $5*000. 'The'exemption was eliminated in the 1913 act,
apparently with little or no discussion of the reason for so doing
at that time. An exemption of $2,000 was restored by the Act of 191$*
presumably on the theory that corporations should have the same
exemption as married individuals.
In 1921, the exemption was restricted
to corporations with incomes under $ 2 5 *0 0 0 ,* with a notch provision for
incomes of slightly more than this amount.
This provision remained
unchanged until 1 9 2 8 .
In 1928, consideration was given to the possibility of allowing
the partnership option for small corporations. As an alternative
it was proposed to increase the .exemption for incomes under $ 2 5 ,,0 0 0
to $3 ,0 0 0 , on the theory that it was desirable to give relief to
corporations with small incomes rather than to small corporations as
such.
Consideration was also given at that time to a plan introduced by
Representative Garner to graduate the corporate tax rates taxing incomes
up to $ 7 , 0 0 0 at 5 percent, $ 7 , 0 0 0 to $ 1 2 , 0 0 0 at 7 percent, $1 2 , 0 0 0 to
$15,000 at 9 percent, and all over $15*000 at 11^ percent.
This gradua­
tion scheme was opposed by Chairman Green of the Ways and Means
Committee, on the ground that graduation for corporations was ’’not
logical.” However, the bill as it passed the House included graduated
rates.
The graduated rates were eliminated (by a mdrgin of one vote)
in the Senate. The bill as finally enacted included the $3,000 vanishing
exemption. This exemption was continued until 1932» When it was
eliminated on the ground of revenue needs.
..
In June 1935, President Roosevelt in a message to Congress
recommended graduation of the*corporate”t a x ’rate from 10—3/^ 'Percent
to. 1 6 — 3 /^ percent, in place of the 1 3 ~ 3 /^“'Per’cen^
then in effect.
This graduation was desirable, he said, because the .advantages
and protection conferred by the Government upon corporations increased
with their size, and because large çojrpojratloris were better able
to pay than small, l/ Robert Jackson:,,.then Assistant General Counsel
l/ Message of the President to the Congress, June 19» 1935» Hearings
before the Committee '-on Ways and Means, House of Representatives,
7^-th Congress, 1st Session,; 1935» ’’Pb. 2-U*..
<

of the Treasury, offered as additional arguments for graduation the
contention that it would tend to stabilize the revenue, since the
income of large corporations fluctuated less than that of small
corporations, and the contention that large corporations were better
able to anticipate and provide for the tax. 1J The bill reported
to the House adopted graduation nin principle1’ — with a rate of
1 3 -l/H percent on incomes under §1 5 >0 0 0 , and ll+—l/l+ percent on the
remainder«
Graduation was thus limited because it was believed
that the revenue loss from more extensive graduation would be too
great. The Senate bill, however, provided graduation from 12-1/2
to 15~-l/2 percent. As finally enacted, the rates were 12-1/2 per­
cent on the first § 2 ,0 0 0 , 1 3 percent on the next $ 1 3 ,0 0 0 , lU percent
on the next $25,000, and 15 percent on Incomes over $1+0,000,. These
rates never became effective, being superseded by those o f ,the
Act of 1 9 3 6 »
the principle of graduation, and the brackets, were
continued in the next two revenue acts.
The Revenue Act of 193^ introduced the notch into the graduation
system. The Ways and Means Committee report recommended graduation
of from 12—l/2 to l6 percent on incomes under $ 2 5 ,0 0 0 , a notch rate
of 3 2 percent and a general rate for incomes above the notch of
20 Percent less 1+ percent of dividends Paid,
The Senate report
recommended a vanishing exemption instead: a flat rate of 18 percent
with an exemption equal to 10 percent of the amount by which $ 2 5 , 0 0 0
exceeded income. As finally enacted, the House provisions for
incomes under $ 2 5 , 0 0 0 were adopted* with a notch of 3 2 percent, and
a general rule of 1 9 percent less (for 1 9 3 ^ and 1 9 3 9 ) 2 - 1 / 2 percent
of dividends paid..
Since 193^» the rates have been changed, but the method of
graduation hap not.
Since the Revenue Act of 19^2 the notch area
has been net income of $25,000 to $50,000. Above $50,000 the full
rates have applied to the whole net income.

I/ Hearings before the SenateFinance Committee on the Revenue Act
of 1935» 7^-th Congress, 1st Session, 1935» Pd* 209-213«

TREASURY DEPARTMENT
Washington

169

(The following address by Secretary Snyder
before the Conference of Bank Correspondents
of the First National Bank in St. Louis, at
the Hotel Jefferson, St. Louis, Missouri, is
scheduled for delivery at 6:45 P.m., C.5.T.,
Tuesday, November Us 1947> and is for release
at that time.)

The Treasury»s responsibility in the management of our national
finances is very great. This responsibility could not be effectively
discharged without the support of every element of our American business
life.
The entire banking- fraternity has been especially cooperative in
assisting the Government.
For that reason, I am happy that Walter Smith has asked me to talk to
you here, tonight.
It gives me the occasion to express to you
representatives of banking my personal appreciation, as well as that of
the Treasury Department, for all of the effective help you have given us.
Banks’and bankers played a notable part in oUr successful war
financing, especially in the Savings Bonds program. What is most important,
banks and bankers have continued that cooperation both In the encouragement
of further sales of Bonds, and through acting as agents of the Treasury in
handling bond redemptions.
u
In recent weeks, you have rendered an important service in connection
with the redemption of Terminal Leave Bonds.
Because of your wise
counsel to ex-service men, such bond redemptions were considerably less
than anticipated. You have shown the ex-service man the value of
preserving terminal leave bonds as savings*
A further important assistance you render the Treasury is perhaps not
so widely known.
I refer to regulations for the reporting of large
and unusual currency transactions through the Federal Reserve Banks* To
many bankers this requirement, instituted as a part of our drive against
tax evasion, may seem at times an unnecessary burden, since the results are not
always immediately apparent.
However, let me assure you that this
specific help played a most important role in the $ 2 ,0 0 0 ,0 0 0 , 0 0 0 tax
recovery this year, resulting from enforcement activities*
As bankers, you enjoy a high degree of leadership and influence among
your customers and associates.
Your counsel is needed and appreciated by everybody.
Our Treasury
people especially have found it invaluable to'consult regularly with
representatives of banking, and your advice and assistance in meeting the
problems that arise are of tremendous importance and help to us*

S-516

We shall continue to seek and welcome your cooperation,
I went to London recently to attend the annual meetings of the
International Monetary Fund and the World Bank, at which representatives
of 45 nations were present# I later visited the European continent# The
contrast between our thriving economy here and the chaotic economic and
financial conditions prevalent in so many lands was strikingly apparent
and soberingly impressive to me#
I returned to this country with a firm conviction that the world
today is in dire need of a strong America. For it remains for us to
furnish the constructive leadership and the steady and wise guidance
needed for world stability and world peace«
We must have a Nation strong financially and economically, strong
in preparedness for essential and effective defense — - strong in the
discharge of our present-day responsibilities#
Tonight, I would like to review with you some elements of our
strength, and some of the important issues before us#
Unfortunately, we do have many problems. We have our share of
difficulties, for wars are destructive and leave a path of perplexities
behind# But we know that, vdth vigor and with vision, and with that
fortitude with which we have met vital problems in the past, we can
find the necessary and proper solutions.
Today, there is no more important course of action in confronting
the problems which face us, and the world, than to continue increasing
production. During the war and succeeding years, American production
forces did a phenomenal job, not only in supplying our own domestic and
military needs, but in making an important contribution to our allies©
Without this vast productive output- we should now have problems far more
serious than those actually confronting us«
We demonstrated in no uncertain manner, to ourselves and to the
world j,an astonishing capacity for production, a capacity which we must
now utilize to the fullest extent.
I believe that we the people of the United States arc fully
determined to devote our leadership, our skills, our financial, physical,
and natural resources towards a permanent peace and an economically
stable world#
We have as a result of our forceful energy and determination attained
a high level of prosperity in the two years since the war*
Briefly, some of the favorable factors in todayTs economic picture
are these;
Our national income is averaging around 200 billion dollars#

- 3 -

171

Both farm and industrial production are near record peacetime
levels* The Federal Reserve Board's latest adjusted index of
industrial production showed 85% above the 1935— 39 average*
Civilian .employment is at the highest level in our history with
over 60,000,000 workers on record*
Electric power output continues to reflect record consumption*
Steel production in the latter part of October rose to the
highest level of the postwar period, slightly above 9 7 percent of
capacity* On a tonnage basis, this is the highest peacetime output
in the history of the industry»
Construction activity in recent months has displayed
encouraging gains after lagging behind expectations earlier in the
year.
One of our leading industrialists just made a thirtywtwo state
survey of prospects for future business*
He told me that the
economists who accompanied him on the trip estimated that there was
enough construction planning in sight to assure a prosperous period
for at least five years*
It is not difficult to accept this estimate when we realize
that in the past 5 years our population has been increased by an
average of 6 0 0 , 0 0 0 families per annum, with over a million new
families added in the past year, while our housing construction was
drastically curtailed during the war years and has been at a low level
since the building boom of the twenties* Our industrial replacement
and expansion, our road building and our municipal construction can
be added to the housing to form a tremendous backlog of business
activity for the immediate future years* And when we think of the
corollary demands to this construction program created in
furnishings, equipment and accessories, we have a right to be
encouraged*
There are many other fields in which peak high production is
being recorded, but enough have been cited to establish definitely
that we are living in a prosperous period©
In such an era of expansion toward a greater and more widening
prosperity, wre must be alert to strengthening our fiscal position
both through the maintenance of a balanced budget and a debt
reduction program*
Two urgent matters facing us at this time have caused the
President to call a Special Session of the Congress.
These are, first; the steady and dangerous upw/ard trend in
living costs; and second, the question of foreign aid*

- 4 -

172

The continued upswing in the cost of living since mid— summer of
194,6 is a most serious matter« If not checked this trend will
certainly lead to grave consequences* •
President Truman is preparing a message to the Congress offering
suggestions for Congressional action. No matter what action the
Congress takes, it is certain that we can go a long way toward meeting
these problems if we constantly press for increased production of
those goods which are still acutely short* "It is also imperative
that we exercise restraint and wisdom in our purchase of items in
scarce supply*
Significantly, the necessity for foreign aid has been created by
the slow economic recovery accentuated by the retarded productive
machinery of many nations following the war* Certain countries have
been unable to reach a level of production for exports to provide
sufficient dollars for necessary purchases of sorely needed imports*
The basic objective of the program which the President will
present to the Congress is to bring about the economic recovery of
those European countries which are willing to cooperate on the basis
outlined in Secretary Marshallfs Harvard speech.
This economic recovery is to be achieved by the cooperative
effort of all European participating countries and by the United States
making available to such countries those necessary commodities and
services which they cannot provide for themselves at this time*
Foreign aid is not to be given unconditionally as the United States
will want to assure itself that the European participating countries
are: first, making the most of their self help; and second, making the
most effective use of Ua S, aid.
In addition to the foregoing, however, there is the immediate and
extremely acute need in many countries for food and fuel* Both the
interim an 4 long range aid programs dealing width foreign deficiencies and
requirements will be taken up by the Congress shortly®
I would like to point out, with emphasis, the importance of an
expanding international trade to this Nation*s economy. The
Government*s policy has been one of consistent support of international
efforts to accomplish this goal*
Particular attention is being directed at this time to increasing
production abroad which will tend, through providing greater exports,
to lessen the present scarcity of dollars*
I believe that over the long pull, operations of such
organizations as the World Bank and Monetary Fund, and the International

<

8§ If!

8 .',; - ■||

,■

s

173
- 5 -

Trade Organization will result in a wholesome and essential expansion
.of exchange of goods and services between nations*
However* so far as our domestic economy is concerned for the
immediate shorter term* the demand for goods at home will generally
serve to counterbalance any decline in the demand for goods for export*
Let me close by saying this:
I would like to. emphasize that a
realistic appraisal of all elements in our economy* favorable as well
as unfavorable* more than justifies optimism for the future
for us as
individuals and as a nation*
But* the continued efficient functioning of our free'enterprise
system in the face of present day problems, calls for a high degree of
statesmanship on the part of all leaders* in business* labor and
Government«
This necessitates vigorous and intelligent preparation and
execution« It puts emphasis as well upon high moral principles and
calls for a spirit of unselfishness* of restraint* of fairness in our
dealings with each other*
We must leave no doubt in the minds of any of the peoples of the
world that we Americans intend to keep the United States progressively
strong
because we are resolute in our determination to achieve the
goal of world peace and stability.

0O0

TREASURY- DEPARTMENT
Washin gton
Statement of Under Secretary Wiggins before the
Ways and Means Committee of the
House of Representatives
November 4-* 194-7

I am glad to have the opportunity to appear before this Committee
to discuss a subject in taxation which has received considerable at­
tention in recent years: the taxation of farmers’ cooperative
associations©
From the letter which I received from the Chairman I am aware that
your Committee desires to hear testimony on the much broader subject of
the treatment of all tax-exempt organizations. We have in process a
study extending over the wide range of subjects encompassed by Section
101 of the Code« To date, however, because of our limited and reduced
staff, the Treasury Department has been able to complete only one segment
of this study - that relating to farmers’ marketing and purchasing
cooperatives. We released this part of the study on October 31* 194-7,
and have made it available to each member of this Committee, and with
your permission I would like to offer this for the record*
I propose to confine my statement today to the one aspect of the
general problem of tax exemption organizations which we have been able
to investigate up to this time. However, some of the remarks which I
shall make on farm cooperatives are also applicable in principle to
other types of cooperatives such as urban purchasing cooperatives,
mutual insurance companies, mutual irrigation cooperatives, cooperative
telephone companies, credit unions, and the like,
I should also state at the outset that I am not prepared to make
specific suggestion for the revision of the tax treatment of farm
marketing and purchasing cooperatives pending completion of our study
of other tax-exempt organizations. But more important, I do not feel
that it is wise to reach firm conclusions with respect to this part of
the postwar tax structure before we have had an opportunity to review
the entire tax system. As this Committee knows, the Treasury Department
is currently engaged in a comprehensive review of the Federal tax system,
When this study and review is completed we hope to have the opportunity
to submit our full recommendations to this Committee,
It is important that the tax treatment of the business income of
tax-exempt organizations be articulated with the general treatment of
the business income of both incorporated and unincorporated businesses.
Since we have not yet formulated our views respecting business income
which is now taxable, it would be premature to recommend a tax treatment
for business income vihich is now exempt under the various subsections of
Section 101 relating to tax-exempt organizations.

S-517

175
-

2

-

The importance of Farmers1 Cooperative Associations
There are at the present time about 10,150 farmers’ cooperative
marketing and purchasing associations in active operation in the
United States. They are for the most part local associations confining
their operations to a relatively small area and are controlled by the
farmers whom they serve. They are spread widely throughout the United
States but their operations are of most importance in such States as
Minnesota, Wisconsin, Iowa, Illinois, and California. These cooperatives
have a long history, running back a hundred years or more. They grew
out of economic necessity. Handicapped by their isolation, inadequate
knowledge of market conditions, lack of capital and weak bargaining
position, farmers sought through cooperative group action, aided by
financial and other assistance from the Federal Government, to improve
their economic position. Today, one out of every three farmers is said
to be a member of at least one cooperative.
Although about 94 percent of the farmers’ marketing and purchasing
cooperatives are small local organizations, there are a number of
large-scale regional cooperatives, operating over a larger area than
can be served by a local association. There are, in addition, a number
of federated cooperative associations which serve principally their
constituent cooperative organizations.
In the 1944-45 marketing season, the 10,000-odd farm cooperatives
did an aggregate business of over $ 5 * 6 billion, the bulk of which
represented the marketing of farm products. Only about 19 percent of
their business involved the purchase of farm supplies. At some stage
in the marketing process these cooperatives handled 6 0 percent of the
citrus fruits and cranberries, 5 0 percent of fluid and dried skim milk,
4 0 percent of the creamery butter and 2 0 percent of the livestock moving
through commercial markets.
These were their most important fields of
operation, but they also handled vegetables, cotton, tobacco, and
other products. I have appended to m y statement a table (Table l)
giving detailed information on the amount of business done by the
marketing cooperatives in various agricultural commodities. The
purchasing activities of farm cooperatives are of greatest significance
in connection with feed, fertilizer, and automotive fuels and lubricants.
A large proportion of the marketing is done by the large regional
and federated cooperatives. In 1942-43* over 40 percent of the coopera­
tive marketing was handled by 4 8 associations, each with a business
volume of more than $10 million. There was a similar concentration in
purchasing activities. Ten cooperatives, each with an annual business
volume of over $ 1 0 million, accounted for 3 5 percent of the cooperative
purchasing volume in 1 9 4 2 - 4 3 *

176
- 3 These facts tend to be substantiated by the Treasury Department's
tabulation of information returns filed by tax-exempt farmers' coopera­
tive marketing and purchasing associations for the calendar year 1943
and foy fiscal years beginning in 1943* To complete the factual infor­
mation at your disposal, I have appended to this statement tables (Tables
2 and 3) showing the distribution of these returns by size of gross
income and receipts and by size of total assets# Subject to the
reservations noted in the technical description of these tables, they
indicate that although the great majority of tax-exempt farm cooperatives
are comparatively small organizations, a large portion of the business
done by tax-exempt cooperatives and of the assets held by such organi­
zations is in the hands of a relatively few large organizations#
A similar situation exists in the case of ordinary corporations#
The large-scale cooperatives frequently carry their marketing
activities beyond the initial stages, sometimes establishing direct
contact with the ut limate consumer# To process the agricultural
commodities produced by their members, they operate creameries, cotton
gins, canning plants, flour mills, wineries, and other types of process­
ing establishments#
Purchasing cooperatives on the other hand sometimes
extend their operations to the point of manufacturing the products
required by their members, and operate feed and fertilizer plants,
sawmills, oil refineries and paint factories. In 1943 » marketing
cooperatives operated nearly 2,BOO plants, about two-thirds of which
were engaged in processing milk and milk products#
Cotton gins and canning
factories are the other principal types of plants owned by the marketing
cooperatives#
(Table 4) Despite the wartime growth in cooperative
canning operations, their economic significance is still small# In the
canning of such important products as peas, tomatoes and coin, they
account for 1 percent to 3 percent of the total pack. Only in citrus
fruit juices, cherries, pears and berries, do they handle as much as
1 0 percent of the total pack«
The purchasing cooperatives operated about 1,700 plants in 1943*
The three largest groups of plants, aggregating nearly 1,500, were
grain elevators grinding feed, oil wells, and machine repair shops#
Ihe remaining plants were devoted to a variety of purposes, as listed in
Table 5* attached to this statement#
Much of the criticism of the tax treatment of cooperatives apparent­
ly stems from a belief that the operations of cooperative associations
have grown at a rapid rate in recent years relative to those of other
types of organizations. And the conclusion frequently reached is that
during these years, when income tax rates have been high, the tax
exemption of cooperatives has given them an important advantage over
taxable enterprises and is responsible for the difference in growth#
I consider this aspect of the problem in later portions of my statement,
but in passing I want to caution against any sweeping conclusions#

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— 4 •"*
In some of the industries where plants operated by cooperatives
are of substantial importance, the greatest growth took place before
tax rates reached current levels* In the processing of milk into butter
and cheese, the productive capacity of cooperatives is of long standing*
Only dry skim milk facilities are of recent origin. Most of the expansion
in cotton ginning took place during the depression years 1 9 3 0 to 1 9 4 0 *
The greatest relative advance in fertilizer production was made iri
1 9 3 g_ 3 9 and 1940-41*
Most of the present feed facilities were
constructed or acquired before the high-tax period* Expansion into
petroleum refining, on the other hand, is a new development* I have had
prepared a table which compares over the years the changes in the
volume of marketing operations conducted by cooperatives with the change
in total farm marketing (Table 6 ). These data show that the value of
cooperative farm marketing has indeed grown since the prewar years,
but it has grown no faster than the total value of all farm marketing.
In other words, farmers marketing cooperatives have just about held their
own compared with the other types of enterprise marketing agricultural
commodities* If the entire period since 1930 is taken into account, it
appears that marketing cooperatives have been losing some ground to
other organizations. I am also submitting a similar table covering the
operations of cooperative purchasing organizations (Table 7). In this
area, the share of business done by cooperatives, though small in the
aggregate, appears to have increased more or less steadily since 1 9 3 0 ,
but the greatest relative growth took place during the early part of
the period*
How Farm Cooperatives Operate
Farm cooperatives exist for the primary purpose of enlarging their
members 1 profits by increasing receipts from the sale of farm products
and by lowering the cost of producing farm products*
They function in
diverse ways* They lower the cost of farm supplies by purchasing in bulk
and taking advantage of trade discounts. They protect members against^
inferior merchandise, and assist in the selection of those supplies which
are best suited to the needs of particular farms. They time their
purchases to take advantage of favorable markets, and exercise a wider
choice in the selection of sources of supply.
Marketing cooperatives may increase receipts from the sale of farm
products by providing members with more efficient and economical sales
services* Products may be stored, graded and further processed to
increase their salabity*
Competition among farmers in a particular
area may be reduced and their bargaining position in the principal
markets for their products improved^ trademarks or trade names may be
established and advertised and the quality of products may be improved*
The individual manber is ordinarily both an investor in, and a
patron of, the cooperative association. As an investor in the association,
he is promised a limited return on his equity in the association. As a
patron, he is promised his proportionate share in the savings made
possible by his contribution to the pooling of purchases or sales and

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- 5 in any income which the association may derive from its activities*
However, his share, as patron, in the success of the cooperative associa­
tion may or m ay not be reflected in the size of his patronage dividend
at the close of the year* The size of the patronage dividend is
determined not only by the association's efficiency in buying and selling,
but by its pricing methods as well*
There appear to be three distinct types of pricing policies.
One
is the so-called ftochdale type of pricing policy, under which the
cooperative sells to the farmer at going market prides* Patronage
dividend payments in this case may be said to represent the difference
between such prices and the necessary expenses of the association* A
second type covers situations where due perhaps to a lack of competition
there may be no clearly established market price, aftd the prices paid by
a marketing association rftay be more or less arbitrary* Final payments
to patrons in such cases are an adjustment which does not accurately
measure the gain from, cooperative buying and selling» A third policy
is reflected in those cases where a purchasing association sells at
cost-plus-estimated e:xpenses or where a marketing association pays a
price based on sales value minus estimated cost of operation* Under
this policy patronage dividends will be paid infrequently if at all*
"Whatever benefits the patron derives from the association will be
reflected currently in the higher prices he receives for his product
or the lower prices he pays for his supplies*
In practice, it appears that a large proportion of cooperatives
return the benefits of cooperation to their members without the use of
patronage dividends* The prevailing-price—patronage-dividend technique
originated among the purchasing cooperatives and has not been universally
adopted by marketing associations.
The typical marketing cooperative operates under a marketing
contract in which the association undertakes to pay the farmer the
entire proceeds from the sale of his product, less certain deductions
for handling expenses and for capital contributions. In some cases,
the farmer receives the full going price upon delivery to the cooperative,
but more often he gets only a down payment, the balance to be paid in
successive installments as the crop is sold* The size of the down
payment is determined by custom or by the financial condition of the
association and does not represent vdiat the fanner could have received
had he sold his product outright to private buyers* The sum of the
installments represents the net or adjusted price of the product after
all or most of the cooperative's expenses have been deducted.
The most recent information we have on the extent to which the
different price policies are utilized by farm cooperatives is from a
study in 1936* About 32 percent of the marketing associations and
54- percent of the purchasing associations in that year reported patronage
dividends* These figures which are not weighted to the volume o f business
are not conclusive however because they do not give sufficient weight to
the large associations*

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Present Tax Treatment
The present tax treatment of farm cooperatives has been in effect
since the early years of the Federal income tax. Express statutory
exemption from income tax was granted, under certain conditions, to
marketing associations in 1916 and to purchasing associations in 1921.
In the Revalue Act of 1926 Congress incorporated various administrative
rulings which^had previously been promulgated, into statutory law and
at the^ same time established clearcut tests of eligibility for the
exemption. These statutory provisions have remained virtually intact
to the present day.
Although there is no express statutory provision for the exclusion
of patronage dividends from the income of the cooperatives, the Treasury
and the courts have interpreted the law as permitting cooperatives to
exclude (or deduct) from their taxable income patronage dividends or
refunds paid in accordance with a contractual or other definite obligation.
I would like now to turn to a more detailed consideration of the
two aspects of the present tax treatment accorded farm cooperatives*
exemption of income and exclusion of patronage dividends.
Tax Exemption

.

The eligibility of farmers' cooperative associations for income
tax exemption is conditioned on their being organized and operated on
a cooperative basis. It is further restricted to those which either
(a) market the products of members or other producers and return to them
the proceeds of sales less necessary marketing expense on the basis of
e quantity or value of the products furnished, or (b) purchase supplies
and equipment for their members or others at cost plus necessary expenses.
The statutes and regulations require, in the case of both marketing
ard purchasing associations, that there shall be no discrimination
between members and non-members in the refund of net proceeds. In other
words, the members of exempt cooperatives are not allowed to make a
profit out of the business done with non-members. Moreover, the statute
specifically provides that the exemption shall be lost if less than
"ft® association's marketing or purchasing is for the account
of its members. Purchasing associations lose their exemption if more
an 1 5 percent of their purchases are for persons who are neither members
nor producers.
The methods of financing open to exempt cooperatives are also
prescribed. If capital is raised by the sale of stock, substantially
all the stock must be held by farmers. Moreover, dividend rates must
be limited to no more than 8 percent or the legal rate of interest in
the State of incorporation, whichever is greater. In other words, in
order to enjoy tax exemption, cooperative associations must be controlled
by their farmer patrons and must do most of their business with them.

If the exemption were repealed exempt cooperatives would lose
certain benefits. They would become subject to tax on income used to
pay dividends on capital stock, on income retained in certain reserves,
ard on their non-operating income.
The best information that we have indicates that most cooperatives
were organized with capital stock but there appears to be a tendency
toward the non-stock type of association. Although the exemption
statute permits cooperatives to pay a higher rate of interest the
rate actually paid on the average today is probably between 3 and 3
perdent. In the absence of the exemption, that portion of the net
earnings which cooperatives distribute to their stockholders as dividends
on stock would be taxable as income of the association.
Cooperatives accumulate reserves in two waysj (l) by retaining
part or all of their net cash proceeds and issuing, in fulfillment of
their obligations, non-cash patronage dividends, and (2 ) by retaining
a part of their annual net proceeds as reserves before computing the
amounts which must be returned as patronage dividends. Under a
recent court decision, exempt cooperatives are required to allocate on
their books to current—year patrons pro rata shares in such reserves,
so that member-patrons will not gain at the expense of non-member patrons
upbn dissolution of the association. However, the mere fact of allocation
does not make such reserves equivalent to non-cash patronage dividends,
and the Bureau of Internal Revenue has continued to distinguish between
allocated reserves and non-cash patronage dividends*
Non-cash patronage dividends are not taxable to either exempt or
non—exempt cooperatives.
However, the patronage dividends, whether in
cash or not, do enter into the taxable incomes of patrons. Under the
exemption, eligible cooperatives pay no tax on income retained as allocated
reserves, ard in the absence of the exemption, such income would be
taxable to the cooperative. With or without the exemption, income
retained as reserves would not be taxable to patrons.
Reserves are set up for a variety of purposes. Section 101 (12)
expressly permits exempt cooperatives to accumulate the general
contingency reserves which cooperatives are required to build up by
provisions of most State laws. Additions to such reserves are some­
times limited by the State statutes to a percentage of the net margin
for the year, and usually the total reserve which must be accumulated
is limited to a percentage of total capitalization.
In addition to the mandatory general reserves, cooperatives are
also allowed to accumulate reserves for specific purposes. In practice,
reasonable and necessary non-mandatory reserves appear to be of two
distinct types.
First, there are specific contingency reserves, i.e., reserves
for foreseeable losses or expenses which are properly chargeable in
whole or in part to the current accounting period.

Second, there are "reasonable and necessary” reserves for expansion
purposes. The Regulations provide that "the accumulation and maintenance
of a reserve • • • to provide for the erection of buildings and facilities
required in the business or for the purchase and installment of machinery
and equipment or to retire indebtedness, incurred for such purposes, will
not destroy the exemption." Consequently, it is possible under existing
law for an exempt cooperative association to reinvest a substantial
portion of its earnings in plant and equipment without either the
association or the patron being taxable thereon.
The exemption statute contains other advantages for cooperatives
in addition to allowing tax-free reserve accumulations and payments
on capital stock. Their non-operating income, such as interest on
hank deposits or on investments, dividends, and capital gains, escapes
taxation. However, the amounts of such income are small. Certain
additional advantages grow out of special treatment accorded income
derived from buying or selling commodities on behalf of the United
States Government and from the handling of non-farm products marketed in
small, quantities where such items are essential to the efficient operation
of the exempt cooperative or the handling of products purchased for the
purpose of fulfilling delivery contracts or for other emergency purposes.
I have indie ated the advantages which tax exemption bestows on
farm cooperatives. It should be noted, however, that the exemption
involves certain disadvantages for cooperatives.
This m a y explain vhy
only about half of the farm cooperatives attempt to meet the statutory
requirements. One of the most important disadvantages is the require­
ment that exempt associations must not discriminate against non-members
in paying patronage dividends. Another disadvantage in the case of
marketing cooperatives is the prohibition against dealing with non­
producers. Similarly, the restriction of non-farmer purchasing to
1 5 percent of total purchasing has been said to act as a limitation on
the growth and expansion of some of the most successful cooperative units.
Patronage-dividend Exclusion
Under present law farm cooperative associations are authorized to
exclude patronage dividends from gross income. This, however, is not
the exclusive privilege of cooperative associations. The privilege
is available to any corporation which makes payments to its customers
under the conditions prescribed by the Commissioner of Internal Revenue
and the courts. It should be noted, however, that in the case of
cooperatives, unlike the case of the typical ordinary corporation,
patrons receiving rebates are also the owners of tte business. .
The conditions under which cooperative associations are permitted
to exclude from their gross income refunds made to their patrons can be
briefly summarized. First, there must have existed at the time of the
transaction with the patrons a contractual or other definite obligation
on the part of the cooperative to return any net proceeds to him in
proportion to patronage without further corporate action. Second, if
only members of the association are eligible to receive patronage dividends
exclusion is not allowed on that portion of such distribution which
represents profits from transactions with non-members. It is immaterial

iiiiS® :' 1111
_ 9 _
whether refunds are distributed in the form of cash, stock, certificates
of indebtedness, or credit notices# All such forms of payment are
regarded as the equivalent of cash distributions in the hands of patrons,
the theory being that they are cash payments automatically reinvested
under provisions of the charter, by-laws, or other contracts previously
agreed to by the patrons#
The benefits that farm cooperatives derive from the exclusion of
patronage dividends from their taxable incomes depend on the nature of
these payments# To the extent that patronage dividends represent the
owner- patron1s .share in the association1s net operating margin, the
exclusion gives cooperatives the advantages of the partnership treatment#
It frees them of the so-called double taxation imposed on the distributed
income of ordinary corporations# To the extent, however, that patronage
dividends represent non—income elements - items analogous to selling
expanses of ordinary businesses or evidences of capital contributions
cf patrons - their exclusion from tire taxable income o f the cooperatives
confers no special tax advantage# In Viewuof the problems involved in
separating patronage dividends into their components, it is difficult
to appraise in quantitative terms the benefit of this exclusion#
Analysis of present treatment
The present tax treatment of farm cooperatives has been criticized,
particularly as it affects the competitive position of the cooperatives#
The main import of the criticism is that the complete or virtual exemption
of farm cooperatives from income tax has given'these associations an
unfair competitive advantage over their corporate competitors# It is
contended that as a result of their more favorable tax treatment,
cooperatives have been able to pay larger refunds and so attract more
patronage than they could otherwise command; also, 'that by retaining a
larger percentage pf their earnings, they have been able to expand more
rapidly than would be possible if their income were fully taxable#
The cooperatives deny that their favorable tax status has had any
material effect upon their volume of business# They contend that any
advantages they enjoy over ordinary business firms, either as buyers of
farm products or as sellers of farm supplies, flow from the cooperative
nature of their enter prase#
The role of tax exemption in the competitive position of cooperatives
is difficult to appraise.
Cooperatives do not appear to have used their
tax immunity as an instrument of price warfare# It would be difficult
for them to do so, since the more they cut prices, the smaller is their
economic income and, consequently, the worth of their tax advantage#
Where both cooperatives and their corporate competitors sell at cost,
the tax advantage entirely disappears# Moreover, there are indications
that in many markets where cooperative associations compete most directly,
with ordinary corporations, they make no attempt bo outbid their
competitors; as a general rule they charge the same prices#
On the
other hand, it is undoubtedly true that the prospect'of patronage

182

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dividends has been a significant factor in building up the membership
of farm cooperatives«
To the extent .that the special tax status of
cooperative associations has permitted payment of larger patronage dividends,
it may.have been a f^ntor in the growth of their membership* In this
connection, however, the cooperatives argue that patronage dividends are
used mainly as a matter of convenience and that the same results could be
closely approximated by other methods of sharing benefits which do not
depend on the exemption or exclusion*
The charge that as a result of their favored tax status farm
cooperatives have been able to expand more rapidly out of earnings than
their corporate competitors, and that they have been able to plough back
earnings to finance acquisition of plant and equipment, has been strongly
pressed in recent years*
The cooperatives contend that non—cash patronage dividends are not
analogous to the retained earnings of ordinary corporationsj that they
represent the patrons’ capital contribution to the enterprise* They also
contend that any tax advantage which they may enjoy as the result of the
exclusion of their retained net proceeds from gross income merely serves
to offset their great disadvantages in obtaining equity capital*
Since
dividends on their stock are limited, cooperative associations cannot
issue any securities which compare with the common stock of an ordinary
corporation* Moreover, the market for the type of securities they can
issue is small, composed largely of farmers who, at least prior to the
war, had always been a poor source of equity capital*
In t/he current discussion of the tax advantage enjoyed by cooperatives,
much emphasis is placed on the alleged rapid growth of these associations
in recent years* Data contained in the Treasury’s study, which I summarized
in the early part of m y statement, indicate that wnile the dollar volume
of business done by farm cooperatives increased more than two and one—half
times since 1939* the cooperatives as a whole do not appear to have expanded
their relative share of the market at the farm level« i'rom 1936 to 194-1
the trend was downward« In 1941* 1942 and 1943* "the share of cooperative
marketing was actually less than in the period 1935-1939* and did not
reach the 1935-1939 level until 1944®
Farmers* cooperatives in Canada and Great Britain
By way of comparison with our treatment, the Committee might be
interested in the tax procedure adopted by Canada and Great Britain«
Farmers’ cooperatives in Canada are similar to those of the
United States in many significant respects, including their relative
economic status* The bulk of their business is in the marketing sphere,
farmer participation is roughly comparable, and the cooperatives’
over-all share in the market is about the same in the two ms.rkets* With
the exception of large western grain and seed associations (Western Wheat
Pools), these cooperatives conform in size and activity to those in the
United States« The marketing cooperatives are estimated to have handled
about one-fourth of the principal farm products entering into commercial
trade channels®

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11

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Until last year, the Canadian tax treatment of farm cooperatives
was more or less the same as ours.
As in the United States, considerable
public discussion developed as to the most desirable tax treatment of such
cooperatives.
A Royal Commission was appointed late in 194-4 to look into
the problem and to make recommendations. About a year later, a report was
rendered, and in 194.6 the Canadian parliament revised the tax treatment
of cooperatives.
The principal recommendations of the Commission were:
(1) To allow all business enterprises a deduction from income for
patronage dividends, paid in cash or its equivalent within a limited
period after the close of the year, provided patronage pâymgits are made
to members and non-members alike; aid
(2) To grant tax-exemption to newly— organized cooperatives for the
first three years.
The Canadian Government accepted these recommendations of the
Commission, but felt that no company or association should be permitted
through the payment of patronage dividends to reduce its taxable incometo an amount below a reasonable return on the capital invested in the
business.
Accordingly, the legislation provided that;patronage dividends
may not reduce taxable income below an amount equivalent to 3 percent
of the total capital invested in the enterprise including borrowed capital,
less the interest paid on borrowed capital. That, in essence, in
the treatment accorded all associations, including farmers' cooperatives
under Canadian law today.
The British cooperative movement has developed principally in urban
centers in the form of purchasing associations, ¿aimers' cooperatives
developed .much later, and consistent with the relatively minor importance
of agriculture in the British economy, represented a small segment of
the cooperative movement. It has been estimated that prior to the war
iaimers' cooperatives in Great Britain served one farm in every four.
The activity of British farm cooperatives is more or less evenly divided
between purchasing and marketing, both as to number and the volume of
business
The British treatment of cooperatives is in form similar to our
tax treatment of non-exempt cooperatives. That is to say, they are
subject to tax in the same manner as ordinary corporations,
In computing
taxable income, they are permitted to deduct any discounts, rebates or
dividends paid to members or other persons, provided such payments are •
based upon their transactions with the cooperative and not by reference
to their4share or interest in the capital of the company, in other
words,' patronage refunds are exempt from tax, while ordinary dividends
on capital are taxed. However, it should be noted that the tax on
corporations in Great Britain is in the nature of a withholding
tax, so that the cooperative as such bears a tax burden only with respect
to undistributed earnings*

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12

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185

Suggestions which have been made for tax revision
In the course of the discussion of farm, cooperatives, several
possibilities for revising the présent tax treatment have been
advanced. However, among those ^ho believe that farm cooperatives might
be more heavily taxed, there is no agreement on how this should be
ac complished.
Some would merely repeal the exemption. Others would require the
inclusion of all patronage dividends in the gross income of the associartion; others would continue the exclusion of patronage dividends but
would require the inclusion of non-cash patronage dividends. Still
others would subject these organizations to a special tax in lieu of
the income tax. I shall now describe some of these alternatives and
indicate how they might operate.
Repeal present exemption
It has been suggested that there is no basis for the present exemption
of farm cooperatives and that it should be terminated. Those holding
this view say that cooperatives perform the same economic function as
ordinary companies, that they are organized as corporations with the
same powers and obligations as ordinary corporations., and that they are
organized and operated for the purpose of making profit.
These anti-exemption views have to be balanced against the contention
that cooperative associations operate in the public interest, that they
are not profit-making institutions, and that they are more nearly analogous
to partnerships than to ordinary corporations.
Advocates of continued exemption maintain that the special tax
treatment accorded farm cooperatives is a return for services rendered
to the public;that in improving the economic conditions of farmers
and in raising the grade and quality of products for public consumption,
farm cooperatives have made substantial contributions to the general
welfare.
They contend further that farm cooperatives should be differentiated
from ordinary corporations because it is both their intent and practice
to do business at cost.
They add that, despite the fact that cooperative associations are
in legal form corporations, they more nearly resemble partnerships than
ordinary corporations. The application of the corporation income tax
to cooperatives would result in an undesirable extension of the area of
so-called double taxation of business income, at a time when many believe
that the existing double taxation of distributed profits of ordinary
corporations should be reduced or eliminated*.

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186

Continued exemption of cooperatives has also, been defended by the
contention that the amount of revenue involved is not large enough to
justify the trouble aid expense of its collection» So long as no attempt
is made to tax patronage dividends, the Government would gain little
from repeal of the exemption. This is countered by pointing out that
most tax-exempt organizations, including cooperatives,-are now required
to file annual information returns (Form 990), and that the recent
tabulation of these returns by the Bureau of Internal Revenue shows
that, while the revenue involved may be small in relation to total
Federal revenue, it is not negligible. In this connection, I might add
that our rough estimates indicate that for 19! 3* the 5*600 exempt
cooperatives, in the absence of the exemption, would have paid between
$10 million and $20 million in taxes on earnings devoted to dividends
on stock and reserves«
In m y view, -the issue involved in the proposal to repeal the
exemption hinges on the question whether farm cooperative associations
perform services of such great value to the public that they should be
relieved of the tax; burdens imposed on other corporate entities. This
is not an easy issue to resolve. Wnile farm cooperatives are operated
primarily in the interest of their farmer-patrons, they have undoubtedlycontributed to the general welfare. However, there are few businesses
which could not make some claim to having served public as well as private
interests.
I believe that the presumption is always against any tax exemption
and in favor of uniform taxation. An exemption can be justified only
by a clear preponderance of evidence in favor of the social desirability
of the objective and the effectiveness of the exemption in promoting
desirable ends without undesirable collateral effects. In addition, in
deciding whether the exemption should be repealed or retained, considera»tions of revenue and equity must be weighed against the advantages which
it affords to the economy as a whole.
Short of full repeal, it has been suggested that the exemption
should be confined to small local cooperatives. This, however, would
raise a difficult problem of fairly determining eligibility for the
exemption. The definition of a "small11 cooperative is a matter of
judgment, and any statutory or administrative definition would have to be
essentially arbitrary. Moreover, particular cooperatives mig.it move
in and out of the. exempt area because of year-to-year fluctuations in
business or membership. Large cooperatives- might split into several
small units to qualify for the exemption. These are some of the
considerations which argue against classification on the basis of sizee
Another possible way of revising the present tax treatment of
farmers' cooperatives would confine the exemption to local cooperatives
dealing directly with individual farmers.
The exemption would be
eliminated for federated or centralized regional cooperatives that
have members other than individual farmers.
Such farmers' cooperatives
would be granted no special exemption.

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Terminate the exclusion of all patronage dividends
It has also been suggested that the exclusion of patronage dividends
from the grpss income be discontinued.
This proposal has been criticized
on several grounds: First, that patronage dividends are price rebates
and as such do not constitute income to the cooperative association
■within the mealing of the Sixteenth Amendment; second, that cooperatives
are acting merely as agents of patrons and have no interest in the net
proceeds of their operations; and third, thatb even if patronage dividends
could be constitutionally taxed to the cooperatives, they should not
be so taxed because it is impossible to determine to what extent they
represent distributions of income.
• I will not comment on the argument of constitutionality beyond
noting that it has been used by both sides and is net likely to be finally
decided unless Congress specifically presents it to the courts by
discontinuing the exclusion*
A successfully operated farm cooperative will ordinarily produce
some economic income over a period of years, especially if it uses any
significant amount of capital and assumes any significant degree of risk.
It does not necessarily follow that this economic incorap should be taxed
to the cooperative, as distinguished from its patrons and members.
For sundry reasons, it would be difficult to employ patronage
dividends as the base for the assessment of income tax on cooperatives.
Patronage dividends do not measure the economic income produced by
cooperatives. Many cooperatives so conduct their business that no
patronage dividends are needed to return benefits to patrons. In other
cases, patronage dividends overstate the income earned by cooperatives
because they merely take the place of special services, such as free
delivery and credit, which would give rise to allowable cost-deductions
in the case of ordinary businesses. In still other cases, marketing
cooperatives deliberately set prices below those paid on the market, or
purchasing cooperatives set prices charged above the market, in order
to accumulate capital. In these cases, patronage dividends are paid in
non-cash form as evidence of* patrons' capital contributions and do not
represent solely the economic income produced by the cooperative.
Moreover, the success of the cooperative association is not
measured in t o m s of its own income, or of the size of its patronage
dividends. Therefore, the inclusion of patronage dividends in the
gross income of the cooperatives might merely induce more of the
associations to set their prices so as to minimize their patronage
dividends. These considerations make it impracticable to estimate the
revenue effect of terminating the exclusion of patronage dividends from
gross income©

188
Tax non-cash patronage dividends
Some recommend that the exclusion of cash patronage dividends
be continued but that cooperative associations be required to include
in their gross income patronage dividends paid in scrip or other noncash forms. Those who favor this approach argue that most patrons *
have little’ real choice as to the form in which they receive their
patronage dividends, and that non-cash patronage dividends cannot be
readily converted into cash» They conclude that these payments therefore
cannot be regarded as true rebates but should be considered a part of the income of the cooperative. Dissenters from this conclusion emphasize
that membership in a cooperative is voluntary and that members actively
participate in decisions with respect to payment of patronage dividends*
If non-cash patronage dividends were included in the taxable income
of cooperatives, while cash patronage dividends were% excluded, most of
the associations might still be able to build up substantial amounts of
capital out of earnings not taxed to the association. This could be
done by such devices as giving patrons the option to receive cash or
stock, which would probably be held by the courts to be equivalent to
a cash distribution and hence excludible. It would also be possible
for many cooperatives to make wider use of dir ect assessments on patrons
in proportion to cash patronage dividends received.
Treat farm cooperatives like partnerships
Some have recommended that the present exemption for farmers'
cooperatives be eliminated and that the income of the cooperatives
be made taxable to the individual patrons in the same way that the
income of partnerships, whether or not distributed, is now taxable
to the partners*
This would involve the allocation and taxation of the
income retained as reserves to the patrons* It would eliminate the
favorable treatment which is now accorded tamers' cooperatives by
comparison with partnerships by taxing as income to the patrons not
merely the patrons' dividends but also the income retained by the
cooperative© It has also been suggested that to make this treatment
effective it would be necessary to r e q n r e the cooperatives to file
information returns indicating the m o u n t s of income aX3.ocated to each
of the patrons*
Imposition of special taxes in lieu of income tax
The difficulties that.would be encountered in attempting to
include patronage dividends-of farm cooperatives in the corporation
income tax base has led to the suggestion that it might be well to _
abandon the thought of taxing them under the income, tax and to subject
them to another type of tax instead.

189
-

16

-

One such alternative would be a tax based on gross receipts or
sales. The burden imposed by a gross receipts tax would bear no
necessary relationship to income. The amount of net income earned on a
dollar of gross sales varies widely among manufacturers, wholesalers,
and retailers in different lines and among firms in the same line.
Another alternative would be to assess the tax on the basis of
invested capital. As in the case of a gross receipts tax, the selection
of a rate that would approximate a tax on net income would be difficult,
if not impossible# Moreover, a tax on invested capital would bear more
heavily on m'eak cooperatives than on strong and successful associations.
Also, as experience under the excess-profits tax has shown, the valuation
of invested capital is always a complex problem difficult to solve unaer
the best circumstances.
This brief summary of some possible alternative ways of taxing
farm cooperatives indicates, I think, that the choice is not an easy
one to m a k e • The basic questions at issue ares (1) whether the income of
cooperatives should be taxed in a manner more nearly comparable with
the taxation of the incane of ordinary corporations, or whether the income
should be taxed mainly or exclusively at the individual level, as in the
case of partnership income; and. (2 ) whether as a matter of public policy
farmers’ cooperatives perform functions which should be encouraged by
special tax treatment#

oOo

*

Tal)le 1

Farmers1 Marketing and Purchasing Cooperative Associations if
in the Tnited S ta te s, 19*4*4—*45 Marketing Season 2f
: Estimated business *4/
Value
i
Percent :(in millions: Percent
: of dollars):

: Dumber of associations : Estimated membership
Type of association

Marketing
Cotton and products
Dairy products
Fruits and vegetables
Grain, dry beans, rice
-Livestock
Ruts
Poultry and eggs
Tobacco
Wool and mohair
Miscellaneous
Total marketing
Purchasing
Total marketing and
purchasing

:

„
Dumber
:
*(In thousands)

3/

Dumber

Percent

'530
2,21*4-

5*2
21. 3
9.0-

266

5*9

Î 17s

726

1 6 .I

1 ,2 9 4

2 2 .9

162

2 ,2 8 5

2 2 .5

*43*4

73*4
1,236

2 2 .8

661

6 .5

695
**7

3*6
10,3
1 5 .*4

73O

1 2 .9

916

1 .0

200
225

1*40

2*9
2*7
2.7
3.1

72*9

2,396

6*4,2

27.I

1 ,6 1 0

35.3

*46

*5

160

1 .6

131

12

.1

122

1*3
*4,*4

123

I3 0
*4*46
7

,*400

2 ,7 5 0

1 0 ,1 5 0

1 0 0 .0

*4,506

1 0 0 .0

3*2

I3.9
3»5
*4.0
•5

27
35
76
$ M

1*3

35 5
810

4,
s>

*6

5 .6 ^ 5

/

5/

8 5 ,6

1*4,*4

1 0 0 .0

Treasury Department, D ivision of Tax Hesearch
Source:

XT.S. Department o f A gricu ltu re, Farm Credit Administration,
Cooperative Research and Service D iv isio n , mimeograph.

Footnotes on next page
CO

o

m

Table 1
Earners 1 Marketing and Purchasing Cooperative Associations if
in the Pnited States,
Marketing Season 2/
Footnotes

1/

2/
1 /

it/
5/

Includes independent local associations, federations, large-scale centralized associations,
sales agencies,, independent service-rendering associations, and subsidiaries whose businesses
are distinct from those of the parent organizations*
A marketing season includes the period during which the farm products of a specified year
are moved into channels of tra-de*
Marketing seasons overlap*
Includes members, contract members and shareholders, but does not include patrons not in these
categories*
Includes the value of commodities for which associations render essential services either in
marketing or purchasing and the value of commodities sold by associations whether on a
commission or a brokerage basis, and also some intra~“associa,tion transactions*
After making adjustment for the purchasing business of marketing associations and the marketing
business of purchasing associât ions, it is estimated that the total purchasing business was
approximately $ 1 , 0 9 5 million and the total marketing, $^,55° million.

fi
do

I

i

CD

M'

192
19
Ta~b3.es 2 and 3 * Distribution of Returns of Tax-Exempt Farmers1
Cooperative Marketing and Purchasing Associations by Size
of Gross Income and Receipts, and by Size of Total Assets, I9 U 3

These tables show available information on the size distribution
of tax-exempt farmers* cooperative marketing and purchasing associa­
tions. They are based on tabulations of information from U , 3 9 7
returns of such organizations filed on Form 990 for the calendar year
19^3 or for fiscal years beginning in 1 9 ^ 3 . These
397 returns
include all returns received in the Bureau of Internal Revenue through
December 3 1 , lykk. They do not include the 1 ,1 9 g returns of taxexempt farmers’ cooperative marketing and purchasing associations
received in the Bureau of Internal Revenue between December 3 1 , 19^4
and September 1 , 19^5* Among these latter returns only those of
organizations with total gross income and receipts in excess of $ 5 0 , 0 0 0
were tabulated by size groups, and they are not included in the tables.
Information drawn from the returns of tax-exempt farmers’ cooperatives
and other tax-exempt organizations was published by the Treasury
Department, November 1 , 19^5, as a Supplement to Statistics of Income
for 19*n. Part 2 .
:
'
In using the data presented in Tables 2 and 3 , it should be
remembered that it is impossible to say how complete their coverage
is.^ Although it is believed that most organizations required to file
an information return did so, it is not possible at this time to
determine how many cooperatives may have failed to file a return for
19^3* Furthermore, it is not certain how the distributions shown in
Tables 2 and 3 would have been affected if it had been possible to
include returns not received in th.e Bureau of Internal Revenue until
after December 3 1 » 19^^* Finally, it is not known whether the size
distribution of taxable farmers* cooperatives differs significantly
from that*of the tax-exempt organizations.
It has not been possible to
separate the tax returns of taxable farm cooperatives from those of
ordinary corporations.

Tatie 2

D istribution of Returns of Tax-Exempt Farmers1 Cooperative Marketing
and Purchasing Associations by-Size of Gross Income and Receipts, I 9U3
(Returns received in the Buréau of Internal Revenue through December

Gross income
and
receipts classes

*

Numb er

Number of returns
:■ Percentage
* Percentage
t
: cumulated

:

31

» I9 UU)

Gro s s income, and receipts
: Percentage
Amount
Percentage
: cumulated

*

(thousands)

1
5

Under $500
$ 5 0 0 - 1 ,0 0 0
1 ,0 0 0 - 2 ,5 0 0
2 ,5 0 0 - 5 ,0 0 0
5 ,0 0 0 - 1 0 ,0 0 0
1 0 ,0 0 0 - 1 5 ,0 0 0
1 5 ,0 0 0 - 2 5 ,0 0 0
2 5 ,0 0 0 - 5 0 ,0 0 0
5 0 ,0 0 0 - 1 0 0 ,0 0 0
1 0 0 ,0 0 0 - 2 5 0 ,0 0 0
2 5 0 ,0 0 0 - 5 0 0 ,0 0 0
5 0 0 , 0 0 0 - 1 ,0 0 0 , 0 0 0
,0 0 0 , 0 0 0 - 5 ,0 0 0 , 0 0 0
,0 0 0 , 0 0 0 and over
Total

209

90
89
SS
119
90
132

1

UOS
6 Us
,0 5 s
12k

U2 0
269

53
4 ,3 9 7

U .8

U .8

2 .0

6 .8

2.0
2.0
2.7
2.0
3*o
9*3
1U .7
2U.1
I0 .5
9.6

S.£
1 0 .S
13o
15.5
IS. 5
2 7 .S
42.5
6 6 .6

6 .1

S3 . 1
92.7
9S.S

*2

1 0 0 .0

1

1 0 0 .0

8

U3

*

65

*
*

lUb
317
851
1 ,0 9 4

,6 6 1
1 5 ,2 0 s
U s ,1 9 U
2

1 7 4 ,2 3 3
2 5 6 ,0 0 9

%

*
*■

*
*

*
*

.1

.1

.2

-7
2 .2

7.S-

.1

•9
3 .1
1 0 .9
2 2 .3

2 8 8 ,5 1 U

1 1 .5
1 2 .9

35.2

539,395
907,173

2 U .2
U0 . 6

1 0 0 .0

$ 2 ,2 3 3 , 9 0 4

1 0 0 .0

5 9 .4

Treasury Department, Division of Tax Research
Source:
*

Supplement to Statistics of Income for I9 U 3 , Part 2.

Less than .05 percent.
CO
CO

Table 3
Distribution of Returns of Tax-Exempt Farmers 1 Cooperative Marketing
and Purchasing Associations Filing Balance Sheets, by Asset Classes, 19^3
(Returns received in the Bureau of Internal Revenue through December

Total assets classes

;
a
.
♦

:

Number of returns
a
»
•
*
Percentage
.Percentage, cumulated
Number
a
*

I

31

,

i q UU)

Total assets
Amount

.Percentage.

Percentage
cumulated

(thousands)
Under $ 1 , 0 0 0
$1 , 0 0 0 5 ,0 0 0 1 0 ,0 0 0 1 5 ,0 0 0 2 5 ,0 0 0 5 0 ,0 0 0 1 0 0 ,0 0 0 2 5 0 ,0 0 0 5 0 0 ,0 0 0 1 ,0 0 0 , 0 0 0 5 ,0 0 0 , 0 0 0 1 0 ,0 0 0 , 0 0 0 -

67

5 ,0 0 0

I26

1 0 ,0 0 0

122

2.3

2.3

k*2

1 0 .g

$ 25
3^g

6 .6

933
,1 0 U

*
.1

.1

.2

►3
-7
2.3

1 5 ,0 0 0

166

5.7

1 6 .5

2

2 5 ,0 0 0

k m

1 3 .g

3 0 .3

8 ,0 2 1

1 .6

5 0 ,0 0 0

su

27.9

5S.2

29>509

6 .0

1 0 0 ,0 0 0

601

2 0 .7

78.9

kl,Sjk

g .6

2 5 0 ,0 0 0

381

9 2 .0

58,29*+

1 1 .9

5 0 0 ,0 0 0

103

I3 .I
3.5

95.5
97.7
99.5
99-8

3 U. 3 2 S

7 .0

1 ,0 0 0 , 0 0 0

6H

5 ,0 0 0 , 0 0 0
1 0 ,0 0 0 , 0 0 0
5 0 ,0 0 0 , 0 0 0

Total

2

2 .2

l.g
0.3

51
9
7

0 .2

,q0 9

1 0 0 .0

Jt

U 5 ,6 gg

9.3

1 0 ^ ,8 7 1

2 1 .k

$.k
1 6 .9

28.g
35*9
^5.2
6 6 .7

1 3 .5

80.1

97,087

1 9 .9

1 0 0 .0

$ l*£9 ,oUU

1 0 0 .0

6 6 ,0 0 2

1 0 0 .0

♦

Treasury Department, Division of Tax Research
Source;
*

Supplement to Statistics of Income for 19^-3, Part

Dess than

*0 5

2

.

percent.
CD

-

195

22

Table U

Cooperative Plants for Processing Farin products
December 31» I 9 U 3

:
of
i plants

F percent of total
: cooperative product
i processing plants

1 .3 5 3

ksi

i Humber

Type of plant

1.

2.

u.
5.
6.
7.
8.
9.
10.

Creameries
Cheese factories
Cotton gins
Canneries, dehydrating plants
(fruits and vegetables)
Dehydrating plants (milk)
Flour and cereal mills
Wineries
Sugar mills and honey plants
Rut processing and packaging
plants
All other
Total

531
U07
190
172
is
16
Ì5
§i

Uh
2 >761

19
15
7(
6
1
1
1
1
2
100$

Treasury Department, Division of Tax Research
Source:

nTrends in Farmer Cooperation,,f Haws for Farmer, Cooperatives
(U»S. Department of Agriculture, Farm Credit Administration),
February 19UU*

196

- 23 Table 5

Cooperative Plants for Farm Supply Requirements,
December 1, 1943

Type of plant

1.
2.
3.
4.
5.
6«
7.
8.

9.
10.
11.
12.
13.
14.

Farmers' elevators grinding feed
Oil wells
Machine repair shops
Feed mills
Fertilizer plants
Seed cleaning plants
Chick hatcheries
Lubricating oil and grease
compounding plants
Refineries
Sawmills
Farm machinery plants
Insecticide plants
Paint factories
Serum laboratories
Total

:
:
:

Number
of
plants
1,000
350
100
57
40
40
32
11
9
8
7
6
5
4
1,670

: Percent of total
: cooperative farm
: supply plants
60%
21
6
3
2
2
2
1
1
1

•H*

100$

Treasury Department, Division of Tax Research
Source:

''Trends in Farmer Cooperation,” News for Farmer Cooperatives
(U. S. Department of Agriculture, Farm Credit Administration),
February 1944, p. 4.

Less than 0.5 percent

24 -

Tabies

6

197

and 7; Relative Growth of Cooperative Marketing
and-Purchasing Associations, 1935-^-9 v3*

Sources of data and their limitations
The value of r>roducts marketed by cooperatives (valued at the
farm level) is closely approximated by the series on the dollar
volume of business of cooperatives computed by the Farm Credit
Administration*. This, however, is not altogether true in the case
of processed products, which include the value of the raw product
to the producer,, together with handling and processing expenses.
Limited amounts of service charges at terminal markets are included
in some instances. The Farm Credit Administration estimates are
based on financial statements and other reports from associations*
Duplications resulting from interorganization turnover are eliminated
in so far as possible.. Inclusion of such handling and nrocessing
expenses, however, impairs the usefulness of the index only to the
extent that there has been a significant change in the relative
importance of these expenses.
Total farm sale proceeds may be
represented by the series on cash receipts from farm marketings,
compiled by the Bureau of Agricultural Economics.
There are, hoxirever, certain limitations of these data, when used
for the purposes of measuring relative growth of cooperatives*
In
the first place, the results apply to cooperatives as a whole whereas
ideally it would also be advisable to have data on the basis of
individual commodities (and even on various regions so that any
specific area of rapid growth or decline could be distinguished).
In the second place, the two primary series are not strictly comparable.
The cash marketing series reflects the influence of a number of commod­
ities, notably hay, not handled to gny extent by cooperatives. Moreover,
the bulk of cooperative marketing is concentrated in a relatively few
commodities, some of which are less heavily weighted proportionately in
the cash receipts index, nevertheless, for a study such as this one,
where the interest is primarily in broad trends, it is believed that
sufficiently reliable results can be obtained.

-.25 -

198

Another difficulty arises from the fact that the data cpmpiled
hy the Farm Credit Administration are presented in terms of marketing
seasons which spread over portions of two years, whereas the cash
receipts totals are oh a calendar year "basis* For purposes of these
tables, the first year of a given marketing season has been taken
as the link to the other series (i.e., marketing season l ^ ^ - U U
corresponds to calendar year 1 9 ^ 3 )* 1 /
Measurement of the relative growth in cooperative purchasing at
the farm level also involves certain difficulties.
There is no series
on the total volume of farm purchases»
It is known, however, that the
principal products handled by cooperatives are feed, fertilizer, and
gasoline, oil and other -automotive supplies. 2/ Annual totals of farm
e^qpenditures on these items are published by the Department of Agriculture.
While an index based on these totals is perhaps the best available,
it obviously suffers from a very serious limitation, arising out of its
implicit overweighting of feed and underweighting of gasoline, oil, etc.,,
as compared with the index of cooperative purchasing. 3/ Since changes
in the value of feed expenditures by farmers were substantial, the
effect may be to understate any uptrend in the adjusted index.' kf

If There is less error in this procedure than in the opposite approach

since about 90 percent of the returns submitted to the P.C.A. are
on a calendar rather than fiscal year basis.
2/ In 1 9 3 6 , these products accounted for about 6 0 percent of total
purchasing by all cooperatives (Statistical Handbook of Farmers*
Cooperatives, p. 9^0 • A study of 1 & large regional cooperatives
in 1 9 ^ showed that the proportion for these organizations was
nearly 8 5 percent, but recent figures reflect wartime shortages
of many other items customarily handled by cooperatives.
3/ Moreover, the data on expenditures for the operation of motor
vehicles are not strictly comparable with cooperative purchase
of motor vehicle supplies.
The former includes such things as
cost of registration, insurance e ^ e n s e s and labor for repairs.
In addition, only Ho percent of the cost of operating automobiles
is included.
Z¡ On the other hand., construction of an aggregate index for- feed,
gas and oil, and fertilizer with weights of 5 » 3 » and 1 , respectively,
and 4, 2 , and 1, did not produce noticeably different results.

%

-

26

199

Tatie 6
Relative Growth of Cooperative Marketing, I9 3 O-I9UU
(Base all indexes, 1935~39)

(1)________ .
_______ li)________________ Qì
Tear

Index of coopera­
tive fa,rm
marketing

1930

126

I93I

100

1932

69
70
77
gg
lOg

1933
193*+
1935
1936

1937
I9 3 S
1939
1 9 U0
1 9 Ui
1 9 H2
1 9 U3
i‘9*&

Index of total
cash receipts
from farm
marketing
113
go
59
67
79
g9

:
:
:
;

Index of relative
growth of cooperative marketing
(Col. 1 t Col. 2)
112

125
117
10H
97
99

105

103

97
9^

ill
96
99

102
101

105

105

100

129

1 H0

92

17^
239

192
2 U3

91
9B

262

2Ug

106

113

95

'

,

Treasury Department, Division of, Tax Research
Source:

U. S. Department of Agriculture:
farm Credit Administration
and Bureau of Agricultural Economics*

Relative Growth of Cooperative Purchasing, 1930-1944
(Base all indexes, 1935-39)

(3)
(3)
; Index of relative
Index
of
farm
expendi­
Index of *
; growth of coopera—
cooperative! tures on feed, £sf ti**
l tive purchasing
lizer,
and
operation
farm
*
;
(Col* I A Col. 2)
of
motor
vehicles
17
•purchasing !

a)

Year

1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944

56
47
37
39
48
82
81
114
108
116
117
155
194
262
284

114
77
62
67
80
82

49
61
60
58
60
100

102

79

113
94
109
119
145
187
241
244

101

115
106
98
107
104
109
116

Treasury Department, Division of Tax Research
Source:

1J

U. S. Department of Agriculture:
Farm Credit Administration
and Bureau of Agricultural Economies*

Operation of motor vehicles includes expenditures for gasoline,
oil, tires, and labor for repairing tractors, and gasoline, oil,
tires, and replacement parts, labor for repairs, registration
fees and insurances for automobiles and trucks»
Only 40 percent
of the total operating costs of automobiles is included as a
production expense.

V

201

The Status of the Treasury Department's Tax Studies
as of
November 4, 1947

You will-recall.that oh the occasion of his appearance before the
Committee on Ways and M e a n s ‘Bind the Senate Finance Committee earlier this
year-,' the Secretary of the Treasury'listed the -major tax matters under
study by the technical staff of the Treasury Department in (Connection with
its comprehensive review of the tax. system*. The Committee- indicated its
interest in these studies and the Secretary stated that he would submit
them to the 'Committee as they become available*
I would like to take this
occasion to report on the progress of these studies*
To date, the technical staff has completed the following nine’ studies
1*

Family incomes
This study deals with various methods of taxing family
incomes, such as compulsory joint returns, elimination*of
community-property privileges, and splitting of incomes
equally between husbands and wives*
(Hearings pp* 844 to 874)

2 * > The corporate postwar tax structure
This study analyzes various proposals that have been made
for the elimination or reduction of the present so-called
double taxation of dividend income. (Hearings pp* 1136'.
to 1 1 8 1 ) .
m
Iff
3*

Excise taxes on communications
This study examines the excise taxes on-long distance com­
munications services, on local telephone services, and on
wire and equipment services.
(Hearings p p ? 637 to .656) *

4*

Federal retail excise taxes

y'

This stn'dy delals with the Federal excise taxes on furs,
jewelry, luggage and toilet preparations.
;
5*

Small business

. .. .. .

This study examines the-impact of the present'tax laws on
small incorporated and unincorporated businesses and
analyzes a variety of proposals that have been made for
the special benefit of small business*
6*

Business loss offsets
This study deals with- the adequacy of the present two-year
carry-back and two-year carry-forward of net operating losses*

2

t. 7 •

Farm cooperatives .
This study analyzes (a) the present tax treatment of
income from farmers’ cooperative associations- in <■'* •¿a v
comparison‘with, that of.other forms of business organi­
zations and.(b) proposed changes ,in the present-treatment*-.

8 . ‘ Estate and' gift, tax integration , .
>
■

.

. v;

,

This study deals with the integration of the. .estate and the
gift tax and the correlation of these taxes with the income
tax*
9•

Federal-State coordination
This study describes Federal and State overlapping in the
several categories of taxation and considers a near-term
program for coordination*

The first threejof'these studies‘as noted have been included, in the record
of your Committee’s hearings on the Proposed Revisions.of the Internal
Revenue Code held during the First Session of the 80th Congress*."With
the permission of the Committee I should-now like- to ’offer the other six
studies for insertion in the record at the end of my testimony today.
The Treasury has in process eighteen, additional studies.. These are
in various stages of completion*
I now wish to indicate approximately when
they' can be made available*
Six studies are in final stages of revision and are expected to be
ready for release soon.
,
1*

Level and structure, of individual income-tax exemptions
This study examines the adequacy of the present•#500 .per *'
capita exemption and the alignment of'the'allowances for
single persons an^ for married couples with different
•numbers of dependents*

2*

Pensions and annuities

• *

This, study examines... the basis of the exclusion of certain
pensions under present law .and analyses1the -present- and
alternative methods of taxing annuities*
3*

Intercorporate problems
This study considers the 2-percent'additional tax on con­
solidated returns and. the 85-percent -credit: for interrcorporate dividends .received*
¥
-

202
- 3
4.

Earned income credit
This study .-analyzes the bases for an earned income credit
from both the equity and incentive viewpoints, and presents
two methods of giving earned income credits.
It gives the
history of an earned income credit in this country and
reviews the experience of certain foreign countries.

5•

Excise taxes on transport at ion of property and persons
This study deals with the taxes, on passenger and freight
transportation.

6.

Extension of social security coverage
This study explores the feasibility of extending old-age and
survivors 1 insurance to groups now excluded, with particular
regard to agricultural and domestic employees and selfemployed individuals.

Eight studies are in various stages of revision and are expected to
be completed at different times within the next three months:
1.

Capital gains and losses

4

.

A report is being prepared on the treatment of capital gains
covering the legislative history and analyzing each of the
principal issues involved. Some work has been done on the
legislative history, the holding period, and the loss offset
provisions.
2*

Depreciation,
This study examines, the present depreciation practices.
It
considers the economic, equity, administrative, and revenue
consequences of alternative proposals for flexible deprecia­
tion allowances and.for accelerated'depreciation.

3.

Excise taxes on tobacco
This study deals with the taxes on cigarettes, cigasrs,
manufactured tobacco, and cigarette papers.

4*

Liquor taxes
This study covers the taxes on distilled spirits, beer and wine,
and the rectification taxes.

5.

Excise taxes on household appliances
This study relates to excise taxes bn refigerators and other
electric, gas and oil appliances.

- 4 6*

Excise taxes on amusements
This study deals with excises on general admissions, cabarets,
club dues, billiard and bowling, coin-operated amusement and
gambling devices*

7#

Excise taxes on radios, phonographs, phonograph records,
and musical instruments

8•

Allowance for life insurance premiums and other forms of
savings
This study examines the desirability for allowing deductions
for life insurance premiums and certain other forms of savings
from earned income*
It considers also the question of current
deductibility of employee payments under industrial pension
plans, Railroad Retirement and Social Security pensions#

Eight- additional studies are ‘
i n less advanced stages of development
and are expected to be completed during the second half of this fiscal
year#
1*

Exempt corporations, other than farm cooperative associations
This study examines the effects of the present treatment of
the various exempt organizations under Section 101 of the Code,
including such matters as tax avoidance possibilities and
competition with taxable business concerns*

2#

-Averaging
This study analyzes certain proposals to average incomes for
the purpose of equalizing taxes on fluctuating and stable
incomes over a period of years*
It examines the proposal for
the carry-forward and carry-back of unused exemptions under
the individual income tax and various suggestions to extend
existing provisions of law which provide averaging in some
special situations#

3 -6

Excise taxes
These studies deal with the legislative history, and supply
and demand conditions within the industry, and present data
bearing upon any changes that might be necessary in the bo.se
or tax rates on passenger cars, trucks, parts and accessories,
tires and tubes, gasoline, lubricating oil, transportation of
oil by pipeline# Separate studies are in process covering:
(a ) Aut omot ive t axe s
(b) Electrical energy
p
(c) Documentary stomps
(d) Miscellaneous taxes on electric light bulbs, photographic
apparatus and film, business and store machines, sporting
goods, matches, playing cards, safe deposit boxes, fire­
arms and shells, pistols and revolvers#

Excise tax discrimination "between imported and domestic goods
In connection with its consideration of H*R* 6742 (79th
Congress), some preliminary study has "been given to the
matter of discrimination that may exist with respect to
excise tax on imported and domestic goods#
American corporations doing, business abroad
This study concerns tax treatment of income from sources
abroad, including such special matters as the income of
Western Hemisphere corporations, and income earned in
United States possessions*

204
TREASURY DEPARTMENT
■Washington

FOR RELEASE, MORNING NEWSPAPERS,
Tuesday, November 4, 1947______

Press Service
No. S-518

The Secretary of the Treasury announced last evening that
the tenders for $ 1 ,000,000,000, or thereabouts, of 9 1 -day
Treasury bills to be dated November 6 , 1947, and to mature
February 5, 1948, which were offered October 31* 1947* were
opened at the Federal Reserve Banks on November 3 .
_f

i

f

t

y

t

fi 1

§ 1| I i i m i r s 1 B j 1 <y®

s I

ii if ,

1

v .1

v ’j x ■ .is

The details of this issue are as follows*.
Total applied for - $1,404,303,000
Total accepted.
- 1,001,883,000 (includes $31,998,000 entered
on a non-competitive basis and accepted
in full at the average price shown below)
Average price - 99*774 Equiv. rate of discount approx. 0.895$
per annum
Range, of accepted competitive bids:
High - 99.782 Equiv. rate of discount approx. 0.862$ per annum
Low - 99.772
"
"
"
"
M
0.902$
M
M

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

Total
Applied for

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

$

1,995,000
1 ,300,015,000
15.769.000
1 ,965,000
3.555.000
2 .520.000
48.863.000
5.855.000
3 .250.000
5 .725.000

$

1,995,000

916,615,000

8 115.000
6 ,676,000

15.769.000
1 .965.000
3.555.000
2 .360.000
30.463.000
5.405.000
3 .250.000
5.725.000
8 .105.000
6 ,676,000

$1,404,303,000

$1,001,883,000

.

TOTAL

Total
Accepted

0O0

205

TREASURY DEPARTMENT
Washington

FOR RELEASE, MORNING NEWSPAPERS,
Friday, November 7, 1 9 ^ 7 * _____

Press Service
No. S-519

The Secretary of the Treasury, by this public notice,
invites tenders for $1,100,000,000, or thereabouts, of 92 -day
Treasury bills, for cash and in exchange for Treasury bills
maturing November 13, 19^7, to be issued on a discount basis
under competitive and non-competitive bidding as hereinafter
provided f .The bills of this series will be dated November 13,
1947, and will mature February 13, 19^8, 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, $10,000,$D0p00
$ 500 ,000, and $1,000,000 (maturity value).
Tenders will be received at Federal Reserve Banks and
Branches up to the closing hour, two o'clock p.m., -Eastern
Standard time, Monday, November 10, 19^-7 • 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. .
1
.

.

+'

‘ 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.
/
~

-

; \

S '

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 Secretary of the Treasury
of the amount and price range of accepted bids.
Those submit­
ting 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.
Sub­
ject to these reservations, non-competitive tenders for
$200,000 or less without stated price from any one bidder will
be accepted in full at the average price (in three decimals) of
accepted competitive b i d s . Settlement for accepted tenders in
accordance with the bids must be made or completed at the
Federal Reserve Bank on November 13, 19^7, in cash or other

immediately- available funds or in a like face amount- of Treasury
/:tilis maturing Noyem-ber .13'y 1 9 ^ 7 Cash and. exchange tenders
'•V i l l ’
.reoei.ye'.equal treatment.
Cash adjustments will he made
for differences: between the par -value .of: maturing hills ac­
cepted in exchange ..and the Issue price of the. new billsv.. . .. The income derived from Treasury-bills; whether 'interest
.of gain, from the sale -or other disposition of the bills/ shall
not.have-any exemption, as s u c h , ‘and loss from"the.Sale or' •
other disposition of Treasury bills shall not have any special
treatment, as such, under the Internal Revenue ..Code, or lavs
amendatory' Cf supplementary thereto ; •■•The 'bills shall be sub­
ject to estate, inheritance, .gift or other excise taxes,
whether* Federal ..or State, but-shall be .exempt from all taxation
npv of .hereafter -imposed on the •principal on interest thereof
b/any/State, -or .any of 'the possessions of the: ?United States,
or fy any local taxing authority ,. -For purposes o f taxation '
the,, amount of discount at which: Treasury bills' are -originally
èpld by, the United States :shall- be considered'to''be 'interest.
I^dbr^ifebiiahs •
(a) (1 ) of the Internal-Revenue Cbde,
as amended t y -Section- 115 of the Revenue !A.ct;of 19^-1/ the. //••
amount of discount at which bills issued hereunder' are' sold
shall not be considered to accrue until such bills shall be
s o l d r e d e e m e d : or* otherwise disposed of , and' such"'bills'' are
excluded’ from cons ide rat ion as capital, assets ,;*A c c o r d i n g l y ,
the., owner of. Treasury-bills .(other than life:insurance' " r
companies ) issued hereunder- need include -in his- income tax re­
turn. tonly the difference .between the price paid for {sù'ch:bills,
wh e t h e r .on original .issue-, or on subsequent purchase/; and thér
amount actually received either upon sale or redemption at;
maturity during the taxable year for which the return is made,
as .ordinary .-gain -.or loss*
• ' ''«’ -* \* ' f\ '* p /// '
. , Treasury Department .Circular No . 418, "as -amended, and this
notice/ prescribe ■the terms of the Treasury bills:"and- govern '
the' conditions..o.f.their .1 s sue * Copies' of the circular may :be
fhtained .from .any -■Federal Reserve Bank or : 'Branch./

0G0'

206

T P f ASURY DEPARTH^i'îT
Washington

FOR RELEASE, AJü?!OT>02T KEWSPAPEPS,
Fr 1 lay, 0 c o~oer Jl t 1 e!-7»

Press Service

Fo» S - 520

The Treasury. Department today made public a study entitled ”The
Taxation of Fanners 1 Cooperative Associations”, prepared by its Division
of Tax Research as one. of a series in connection with the Treasury+S" work
on postwar tax- revision» The study analyzes the present tax treatment of
farm cooperatives and the chief suggestions that have been made for
changes in this treatment» It makes no policy recommendations»
While farm cooperatives'-are only one of numerous cooperative groups,
the study observes that they are the most important group and that the
issues and problems relating to their taxation are fundamentally the same
as for the othe rs 0
Through statutory exemption .more ...than' half of the ..farm cooperatives
are completely exempt from* the income tax, and- the exclusion of ’’patronage
dividends” from taxable income results- i n ‘the .remaining farm cooperatives
being taxed on only a small part of the net proceeds of their operations»
These facts.have given rise to charges that the farm cooperative associa­
tions enjoy unjustifiable tax advantages, ever their, competitors»
"‘-.••'‘Most of the; earnings of the farm cooperatives, however, including
cooperatives which are tax exempt ty statute, are taxable to patrons and
members as individuals» Recipients of limited dividends on tile capital
stock of cooperatives must account for t he dividends as individual^
income» Patronage dividends paid or credited to patrons constitute an
increase- in farm receipts or a decrease in farm costs, and thus figure, in
the taxable income of individual farmers- ,
.'1
Chit of this, situation arises the, basic question whether cooperatives
as such should be taxed in a manner more.' nearly comparable --with the
taxation of ordinary corporationsy or whether economic income earned by
the cooperatives should be taxed, mainly or. exclusively at the individual
level, as in the case of unincorporated businesses»
A principal difference between the- farm cooperative- and the ordinary
business corporation lies in the fact that net proceeds of the cooperative^
after provision for limited dividends on stock and for necessary reserves,
are returnable, not to' stockholder’s in proportion to stock owned, but to
members of the cooperative in proportion to the use made of the
'
1
cooperative’s services by each 0 The. amounts so returned to patrons are'
called patronage dividends»
Pull statutory exemption o f more than half the farm, cooperatives
dates back to laws of 1 9 1 6 and 1 9 2 1 » Eligibility for full exemption is
limited to cooperatives which are under obligation to return all net
proceeds to patrons without discrimination between members and non.members»
There are certain ether requirements»

2:

There is no express statutory provision for excluding; the amounts of
patronage dividends from the taxable income of cooperatives, but this
exclusion has long been allowed under Treasury rulings and court decisions 0
If the exemption statutes were repealed, cooperatives now exempt from
all income taxes would become subject to tax on income used to pay dividends
on capital stock, on.amounts retained in certain reserves, and on their
non-operating income® Amounts thus subjected to tax would be relatively
small, however, so long as patronage dividends remained excludable® More­
over, exemption repeal would mean that the cooperatives would no longer be
subject to present limitations on their dealings with non-farmers and so
would be free to extend their activities in urban areas®
Benefits to the cooperatives from exclusion of patronage dividends
from taxable income depend on the nature of these payments® Determining
the nature of the payments is difficult or impossible, and' hence appraising
the benefits of exclusion is hard* Insofar as the dividends represent the
owner-patron’s share in the cooperative’s economic income, the cooperative
escapes the so-called double taxation imposed, on the distributed income of
ordinary corporations® But when the payments represent a return of
capital, or price adjustments, no special’ tax advantage accrues 0
In connection with the charge that tax privileges of farm cooperatives
have given them an advantage over competitors, the Treasury study states
that the dollar volume of business done by the cooperatives has increased
more than two and. a half times since 1939* However, it appears that the
business of the cooperatives has not increased faster than that of other
types of firms doing business with farmers® There has been an increase in
manufacturing by the cooperatives, but such manufacturing is of little
significance, in the aggregate®
As changes 'which have been suggested i n , the tax treatment of farm
cooperatives, the study l i s t s :
(l) Repeal of the exemption; (2) inclusion
o f a l l patronage dividend amounts in the taxable income; (3) in clusion of
patronage dividends paid in non-cash form, while continuing the exclusion
of cash dividends; (4) imposition o f a gross receip ts tax or a tax on
invested c a p ita l, in lie u o f income taxo
The study discusses all of these suggestions and presents data bearing
on them 0
So long as patronage dividends continue to be excluded from the taxable
income of cooperatives, loss of full exemption would impose relatively
little tax on cooperatives now exempt®
For a variety of reasons the economic income 1produced by cooperatives
cannot be accurately measured by the amount of patronage dividends distributed,
and the appropriateness .of using these dividends as a base for assessment of
income' tax on the cooperatives has been questioned.

The success of a cooperative is not measured in terms of its own
income, or of the size of its patronage dividends* Inclusion of these
dividends in the taxable income of the cooperatives might merely
induce more of them to set their prices so as to minimize the amount of
patronage dividends»
If non—cash patronage dividends were included in the oaxable income
of cooperatives, while cash patronage dividends continued to be excluded,
it appears that most cooperatives would still, be able, to build up
substantial amounts, of capital out ...offWarnings.not taxed .to .them, by
levying assessments against members and by similar devices«
The idea of a tax on gross receipts or sales of farm cooperatives,
or on invested capital, as an alternative to the income tax method meets
the obstacle that it would be very difficult if not _impossible to devise
rates which would be equivalent to the income taxation ox or inary
corporations*
One of the statistical tables in the study places the number of
farmers* marketing and purchasing cooperative associations in the united
States at 10,150 as of the 1944-45 marketing^season.
They had an
estimated membership of 4 , 5 0 6 * 0 0 0 and an estimated business of

$5,645,000,000.
local associations
About 94 percent
src ent of these cooperatives are
tial
proportion of the
operating in a relatively small area. A substar
"
farm
cooperatives is,
total volume of marketing and purchasing done by
d
or
federalized
associahowever, accounted for by large-scale centralize
tions doing business over larger areas.

0O0

THE TAXATION OP PARMSRS1 CQOPSRATIVD ASSOCIATIONS

Division of Tax Research, Treasury Dex^artnent
October 19^7

208
The Taxation of Farmers1 Cooperative Associations

The controversial question of the taxation of farmers1 cooperative
associations is only one .aspect of the broader problem of taxation of
Various forms of business enterprise© The basic issue is whether the
•cooperative associations.a s .such.should pay such- taxes,as would make
their treatment more nearly comparable with that of ordinary corporations
or whether economic income.earned b y .the cooperatives.should be taxed
mainly or exclusively at the .individual level* as is the case with
unincorporated businesses©
.Farmers1 marketing and purchasing associations are only one of
a' number 'of ■groups- of cooperative associations that share their
•
benefits primarily among'patrons on thé basis of use made of the organi— .
zation rather than among, investors on the basis of capital supplied©
The farm cooperatives, howevers are the most important of these groups,
and the. issues, and problems relating to their taxation arc fundamentally
the same as'for the'other cooperatives©
This report analyses the present tax treatment of farm cooperatives
and the. chief, suggestions that have been made for revision© The report
makes no policy recommendations, but it presents considerations relevant
to an appraisal of the various- methods of taxation©
'Thé study was prepared in the Business Ta.x Section of the Division
o-f Tax Be search © In its preparation valuable assistance and suggestions
were received from other members of the Treasury tax staff, including
consultation with members of, .the. Office of Tax Legislative Counsel on
legal matters and o.f the, Bureau of Internal Bevenue on Administrative
natters©
.......
. ,. ''
.In t h e preparation .of-this study, extensive use was made of basic
data and tèchhical information made available by the Cooperative Besearch
and Service Division of the Farm Credit Administrât ion, Dexeartnent of
Agriculture,
The report, however, is not to be construed as necessarily
reflecting in any way the -views of the Farm Credit Administration*
This subject ha,s been .under consideration by a committee.composed
of the technical tax staffs of the Treasury Department and the Joint
Committee-on.Internal Bevenue Taxation© An earlier draft- of .this study
was made available ,to the..committee, .An?, the study has benefited at
various-.points by the committee1 s discussions© ■ The material contained
herein, however, is not to be considered as necessarily representing in
any way the views of the staff of the Joint Committee on.Internal Bevenue
Taxation©. ............
, >. £•; f
Jfff Jo

Division of Tax Besearch
TJ*.S* Treasury Department.

October 1947 ■

fhn Taxation of Farmers.1 Cooperative Associations
TABIE OF CONTENDS.

SUMMARY
X,

Page
vii

.... ............. •.**•f • * ■*;

Introduction •.. ........ ........ ......... * *...••••• •

II,

Ill©

1

•• •• •• *• • »

purpose f structure, and importance of farmers 1 cooperative
associations ......... ........... .

3

A»

Purpose and structure .......................... .

3

Be

Economic importance of farm cooperatives ,

5

C.

Variations in organizations and operations .......

5

35.

How cooperatives serve the f a r m e r ..... ......... .

6

Bo

How farmers share in the "benefits of cooperation .

S ...

<

Present tax treatment of farm cooperatives under the
Federal income tax ••......... *.t*• •* * •• . ........ .
• t ♦ • • I •

ll
## é

A.

Background of the present treatment

B.

...... *•••
Tax exemption
; 1, Eligibility for the exemption
2, Benefits derived from the execution «
a. Exempt ion of income paid out as
« • • t • ♦ •
dividends on capital stock .....
h, Exerption of income retained as reserves ,
c. Other advantages............... .
a>
Business witfc the Federal Government
(2) Emergency purchases ............. .
(3) Non-operating income •»
3 . Disadvantages of the exemption ...

0,

35.

e

11
*3 :

• • • • ••©
* • • • * •.

1^
15

IT

• • • • è • ft

Patronage-dividend exclusion ...... •»• «• ••» . . . . . . . . . . . . . . .
1 ,
Scope o f the exclusion
2 , Benefits derived from;the exclusion
Effect of present tax treatment on
competitive position of farm cooperatives

.

IS

IS
IS
19
• ••

19
19

:19

20

209
IA3IÌS

IV*

01

CONTENTS - 2

Pane

Considerations relating" to- proposed ch&nges in
, - ^ v A g — ng.’the pre sent tax treatment, of farm cooperatives * *j>•*<>*•«•#**•;•* *
A»

Changes proposed in the present treatment

3 • * O • » «

B e .Repeal of the exemption • * • • « » « » • » • « « » » » * * * • ■ ■ * * ■ » > «
lo Arguments for and against the exemption e«* ........... •
2* Controversial issues raised "by the•proposal .
. . „.
to. repeal the exemption
»:»*«»«**•»*»»*•*♦•#**•
3* Alternative proposals short of full repeal <>•<>.*»•*»***
G.

Require the inclusion of all patronage dividends
in: the income of cooperatives « •; •»<««>#• fc * * ®***
* **c ** •*«
1 0 .Summary of arguments for and against the present
exclusion of patronage dividends from the income
of cooperatives
«>#«•#*.*•.*».♦•'* •• »*• *•.*»•♦ =>»*•»*&■•♦«
2* Controversial issues raised "by the proposal to
include patronage dividends in the gross income
of farm cooperatives
*.... .
„. .**»
a* Are patronage dividends taxable income to
the cooperative? ©c.«*.*.»»»*.*»».»*’***8*'*0***8®®®
h* Do patronage dividends provide an appropriate.
base for the assessment of income tax? ■«.„..». *. *o

D* ■ Continue the exclusion, of1 cash, patronage dividends, hut
require, ,th© inclusion of non-cash .patronage dividends
in the income of cooperatives »«*.«.*«#* ••**<»«***'«*«**o **m >»•#
,, I.« Summary of arguments for and..against the present .
treatment of non— cash, patronage dividends .......... . •<>
• 2*, Other considerations raised,, by the-proposal to include .
non-cash patronage ’dividends in income of cooperatives*
E* ..Alternatives. to. the income., tax.
a method of. taxing
farm cooperatives *... #>■........ ............. ............
1* Cross, receipts tax •...» .■««>.*»••»♦,* *«• •» ...*»*••»»*.»* ♦•
2* Tax on. invested capital.
..........................

TABLE O F G O M I T O - 3
V.

Pago

APPSBDIX X - Eco noni c Importance and Present Tax Treatment of
:' Cooperatives Other Than Earners 1 Marketing and
j,Purchasing Associations ?...... ............ * 4 *♦*....*.*.
APPENDIX 3 - Earners’ Marketing and Furchasing Cooperative Associations
in-the Ifni ted Stated,
Marketing Season *•»«*••••*

40

0

APPSEDIX C ~ Relative Growth of Cooperative Marketing and Purchasing
Associations, 1935"“d9^3 <>•••• ••••••
APPENDIX D — Recent Expansion. c f tCooperative Manufacturing **♦..... «

53

APPENDIX E — Distribution of Returns of Tax-Exempt, Earners’

Cooperative Marketing and Purchasing Associations

by Size of Gross Income and Receipts and by Size
of Total Assets, I 9 U 3
*..... ............. .

57

TABLüjS
1 -* Eunber, Membershipg Vaine of Business, and Tax Status
of Miscellaneous Coopérative Associations
2

3

c•

9e

~ Farne?s‘ Marketing and Purchasing Cooperative Associations
in the United States, 19^ 1l-^5 Marketing Season •
- Relative Growth of Cooperative Marketing,,1930~19 ^ 4 =■••;*
Relative Growth of Cooperative Purchasing, 193°” d94^ ••••

p — Cooperative Plants .for processing .Earn Products,
December 3 d » 19^3
*».* ♦•••**••**••*•.... *•* *
6

7

— Cooperative Plants for Earn Supply Requirements,
December 1, 19^3
....

• « d

Uc

U6
49
51

51*-

55

- Distribution of'Returns of Tax-Exempt Earners’ Cooperative
Marketing and Purchasing Associations by Size of Gross Income
and Receipts, 19^3 *

S - Distribution of Returns of Tax-Exempt Earners’ Cooperative
Marketing and Purchasing Associations Filing Balance Sheets,
by Asset Classes, 1943 •♦•••♦•»*•?<**♦ »•••••••.... r....

59

60

The Tax&titm of Farmers ^.Cooperative Associations

SUKKARY

I.

Introduction ' * '-vr'

.■ v

■'Farmers’ cooperative associations, it has been charged» are
now enjoying unjustifiable tax advantages oyfer their competitors..
The relatively, small amount.o-f.i income tax paid hy these- cooperatives,
which is the basis of- this complaint, is attributable to..( 1)..the
statutory, exemption.from, income, tax of certain of the associations
and, (2) the exclusion from their taxable .income, under Treasury . .
rulings: and court decisions, o.f patronage dividends raid by other,
cooperatives. As. a result of ■the exempt ion.,.-more, .than one—half of.
farm cooperatives are completely exempt from the income tax. As a
result of -thé-, exclusion, of patronage dividends, the remaining farm. a,
cooperatives.'are subject to tax on only a; small part-.of the..net
proceeds of their operations.•>
*
..
. :
Although farm 'cooperative- associations themselves; oay.
relatively little income tax, most of the income earned-, .even by
tax-exempt cooperativesj should-affect the tax liabilities of patrons
and members.' The limited dividends .on; capital;- stock of cooperatives
are'taxable income to -.recipients,. Patronage, dividends-paid or.
credited, to: patrons constitute a n Increase in farm, receipts ,or a
decrease I n farm .costs and thus;, should, enter, into the.taxable income
of individual farmers»' ’ The tax- treatment’ of exenrot farm cooperatives
is therefore in principle similar to the treatment of partnerships
and proprietorships, which pay, no tax ;as such but- whose participants
are taxed on the income, they derive from the business. ,The exception •
to this analogy is the.treatment, of certain reserves -sot
-out of
earnings by exempt -cooperatives,, which- are subject to tax to neither
the association nor its members. - In the--case of taxable cooperatives,,
income used to pay dividends on capital stock-and as re serve s is taxed
to the association under the corporation income tax.
u

p

In the,"present .controversy over the taxation of farm cooperatives
the bas ic !quest ions at. issue- are. whether the income earned by .the
cooperatives should be-taxed more heavily to the associations as
distinguished from, their members,-and, if so, how, this can best be.
accomplished-. ;
■ 11
.The purpose of this report is to discuss the considerations .
relevant to an anoraisal of the present and .alternative methods'of
taxing farm cooperatives.

,:

IX,

Purpose, structure, and importance of
farmers1 cooperative associations

Cooperative associations today engage'in a wide variety of
business activities, the primary purpose of which is to increase the
income which their farmer members derive from farming.
The principal
difference between the farm cooperative and the ordinary business
corporation lies in the fact that all net proceeds remaining after
provision for limited dividends on stock and for necessary reserves
are returnable, not to stockholders in proportion to stock owned,
but to the members of the cooperative in proportion to the use made
of the association by each. The amounts so returned to patrons are
usually called ^patronage dividends” or ^patronage refunds1*.,;
At the present time, there are about 10,150 farmers* marketing
and purchasing associations active in the United Stales. For the
marketing season l^^-U—H 5 , they reported an aggregate volume of
business of $ 5 * ^ 5 millions About 9^\percent of these cooperatives
are local associations whoso operations are confined to a relatively
small area. A substantial proportion of the total volume of market­
ing and purchasing done by farm cooperatives is, however, accounted
for by large— scale centralized or federated cooperative associations^
which operate over larger areas*
Some o f •these large-scale cooperatives
also engage in the processing of farm products and in the manufacturing
of farm supplies, but the non— trading activities of farm cooperatives
are economically significant only in a very few lines.
The individual farmer shares in the benefits of the cooperative
mainly a s ‘a patron, but, a.s a supplier of capital, he receives a
limited return on his equity in the association, As a patron, the
farmer1s share in the success of the cooperative takes the form of
patronage dividends or higher prices for the products he sells or
lower prices for the products he buys.
v
The extent of use of patronage dividends as distinguished from
direct price adjustments varies \iridely among cooperatives* Some
associations attempt to pay patronage dividends reflecting their
actual trading margins, but others cLo not use patronage dividends .
at all or pay amounts that may either overstate or understate their
trading margins. Prom a statistical study made in 193^» it appears
that out of the 1 0 ,7 5 2 farm marketing and purchasing associations
active at that time, only 3 2 percent of the former and 5^ percent of
the latter reported payment of patronage dividends.
Parn cooperatives do not distribute all of their patronage
dividends in cash form. They often retain a part of their net proceeds
for use as working or fixed capital, and distribute patronage dividends
in the form of stock, certificates of equity, certificates of indebted­
ness, or book credits. Furthermore, to a limited extent, cooperatives

211
ni

may 1Secure capital .funds %
setting up certain reserves ant of earning
"before computing tie amount to "be returned to .patrons. .Finally, ,.
capital inay "be secured by direct assessments on members levied in
proportion to the use made of the association*
lit

:Present tax treatment of farm ,
.cooperatives,und er-the Fed era! inçom e t ax
' A,

Background of the present treatment

* The present tax treatment of farm cooperatives has teen in
effect since the early years of the Federal income tax®
xpress
statutory exemption from income tax vas granted, under certain
conditions’
," to marketing associations in 191$ anA
purchasing
associations in 1921. Although there is no express statutory
■ . ,
provision for the exclusion of patronage dividends from the m c o m
of .the cooperatives, the Treasury and the courts have interpreted
the law as.permitting cooperatives to exclude (or deduct;^ rom
.
their taxable income patronage dividends or refunds paid in accordanc
with a,contractual or other définite obligation»
"

Bt

Tax exemption

.

•

^

;

Eligibility for income-tax exemption has always. been limited ... •
to associations^under obligation to return all net proceeds & Q
.
patrons without discrimination between members and non-members.
in
the case of exempt marketing cooperatives, all of the business must
arise from producers, arid in the case of exempt purchasing associa­
tions, not more than 15’ percent of total business may. be dona for
those who are neither producers nor members* Exempt cooperatives
must ¿ p o "limit their dividends on capital stock* They- are no., ™
prevented from engaging in manufacturing or processing where such
activities;are 'necessary to the efficient discharge,o+ thepr asic, ... ,
functions*

•"

■
-•

A lt W ù g h t h é t a x a d v a n ta g e s ; a t t i H b # a h U to t h e ojcerr.ptj.on as such
‘ a r c ! r e l a t i v e l y s m a l l e x e m p t c o o p e r a tiv e s Would lo s e c e r t a i n - ^ c; f s
I f t h e , e x e m p tio n w e re r e p e a le d h u t t h e e x c lu s io n o f p a t ro n ag e ^ d iv id e n d s
c o n t in u e d . A s s o c ia tio n s n o w exem pt fro m a l l incom e ta x e s woulo oecpme
.
s u h ie c t t o t a x - o n incom e used t o p ay d iv id e n d s on c a p i t a l ; s to o x , on
amounts r e t a i n e d i n c e r t a i n r e s e r v e s , ,aS d on t h e i r .r io n - o p e r a t ir ^ .in co m e .
On t h » o t h e r h a n d , th e s e c o o p e r a tiv e s w ould n o .lo n g e r h e s u b je c t t o .h e
p r e s e n t l i m i t a t i o n s - o n t h e i r d e a lin g s ; w it h n o n -fa r m e r s and e o w c l d . b e

free to extend their act ivit ids, ihurbari areas» ;.

C„

Patronage-dividend excln^iCffi

Exclusion of Patronage dividends or refunds from taxable income
is not limited to ‘
cooperatives, Jn the case of ^oth cooperatives and
ordinary corporations, patronage dividends or price ra a es^ar ^
excludable if paid in accordance, with a ^ntractifftl a U i g a t i o ^ i n , ^
effect at the tine of the transaction» There.is9 of course,
v ..
difference-.' ncnber-patrons receiving refunds fron ^operatives, unlike
patrons of ordinary businesses, are also the owners of_t.
'*
If,-however, nenbers of the cooperative alone are eligióle to r e c U
patronage dividends, dividends representing Pr0?4*s f
*S
n
tóth non-nonbers are not e x c lu d a b le . for purposes of the exclusion,
non-cash forns of payment are regarded as the equivalent of cash
distributions«)

• '

/ '

,

~

• - The benefits-that farn cooperatives derive fron the exclusion
of-patronage dividends fron their taxable incor.es depend on the
nature of those payments. To the e xtent thatpatronage ,ivi
represent the owner-patron's-share in the association s net operati g
margin, the exclusion gives cooperatives the advantages of the
partnership treatment by freeing then of- the so-called double taxation
imposed oi the distributed incone of ordinary corporations. To t _
extent, however, that patronage dividends represent non-incone elements
itens analogous to selling expenses,of ordinary businesses ot evidences of capital contributions of patrons— their exclusion .fron taxable incon
of the’cooperatives confers no special tax advantage«.
nc
difficult or inpossible to separate patronage dividends into-tnoir
components, it is extremely hard to appraise the "benefits o
e
exclusion«
pA

Effect of present tax treatment on
competitive position of farm cooperatives _

It has "been charged that the complete or virtu.al tax .immunity of
•farm cooperatives from income tax has given these associations an
atoantaf-¿ over their competitors.
It is M
that the dollar v o l u W
of business done by farm cooperatives has increased
one-half ti^es since 1939, but the increases in cooperative marketing
and purchasing aie no » e r
in the' aggregate- than the increases in - ■
total cash receipts from farn marketing ana purchasing. There is no
evidence that the associations as a c h o l e -have enlarged t- i - ‘
share of the total market in recent year-s.^ There has leen an increase
in manufacturing by cooperatives, but in tne aggregat
VP
activity is of little significance,
IV,

Considerations relating to proposed changes in
the present tax treatment of -farm cooperatives
A*

Changes proposed in the present treatment

Among the suggestions that have "been made for revising the present
tax treatment of farm cooperatives are:
(1) repeal of the exemption,
(2) inclusion of all patronage dividends in the taxable ineon of |

212
V

cooperatives; (3 ) inclusion of patronage dividends paid in non-cash
form in the taxable income of farm cooperatives, while continuing the
exclusion of cash patronage dividends; and (^) imposition of a. gross’*
receipts tax or a tax on invested capital, in lieu of income, tax on
farm cooperatives*
3

.

Repeal of the exemption

The exemption of eligible farm cooperatives from income tax has
been defended on the grounds that these associations (l) operate in
the public interest, (2 ) are not themselves profit-naming institutions,
and (3 ) are more nearly analogous to partnerships than to ordinary
corporations*
Those who urge repeal of the exemption argue that the
cooperatives closely resemble ordinary corporations in economic functions,
organization, and operations, and hence should be taxed, like ordinary
corporations»
In appraising the arguments for and against the exemption, it
may be recognized that there is always a presumption against any tax
exemption* This presumption can be overcome only by a* convincing
demonstration that the exemption is in the public interest«
So long as patronage dividends continue to bo excluded from .the
gross income of cooperatives, loss of tho exemption would impose
relatively little tax on cooperatives now exempt.
Short of full repeal', it has been suggested that the exemption
should be confined to small local cooperatives* This, however, would
raise a difficult problem of fairly determining eligibility for the
exemption.
It has been suggested that, if the exemption is retained,
certain ambiguities in the present law, such as those relating to the
treatment of income from manufacturing operations or from by-products,
should be cleared up,
'
—
0*

Require the inclusion of all patronage
dividends in the income of cooperatives

The exclusion of patronage dividends from, the' gross income of
cooperatives has been defended on the grounds that (l) patronage
dividends are price rebates and as such are not income of the associa­
tion within the meaning of the Sixteenth Amendment, (2) the coop era-*
tives are acting merely as agents of patrons and have no interest in
the net proceeds of their operations, and (3 ) even if patronage
dividends could be constitutionally taxed to the cooperatives, they
should not be so taxed because it is impossible to determine to what
extent they Represent distributions of income and to what extent they
do not* Those who favor the inclusion of patronage dividends in the
gross income of cooperatives deny each of these contentions.

vi

Court decisions have been cited by those who take positions on
either— side of .the constitutional issne as to whether patronage
dividends'car he regarded as. a part of the income of ire ■cooperatives0
The issue, hoo v e r , is not likely td /be/firally decided unless C o nfess
specifically presents it to the.ebuftsi bydiscontinuing the exclusion«
A successfully.operated farn cooperative will «ordinarily produce
sone econonic income over a period of years, especially if it uses'
any significant amount of capital and- assunejS...ahy. signifleant .degree
of risk* It does .not,..of course, necessarily follow that this
econonic incone,should "be taxed to the cooperative, as <3dstingi.iis.hed
iron., its patrons and .members, ¡There are numerous, instances,where the
inconcsof certain types of "business organizations are not taxed
t o ;the business entity as such* " •
...
, ■
■ 'The econonic incone produced "by cooperatives, no reoyer cannot
"be accurately, measured "by the amount of' patronage dividends distributed.
Many cooperatives so conduct their business that no patronage dividends
a.re needed to return benefits to patrons.
In other casesy patronage
dividends overstate the incone earned by cooperatives because-:they
merely .take the place of special services, snch as free delivery ..and
credit, which would give rise to allowable cost— deductions- in-the case
of ordinary businesses.
In still other .cases, marketing cooperatives
deliberately set prices paid below the market, or purchasing-cooperatives
set prices charged above the market, in order to .accumulate capital.
In these cases, patronage dividends are paid in non— cash form as. evidence
of patrons*, capital contributions and do not represent solely the
ecohonic incone produced by the cooperative„ ¡For these and other
reasons, the appropriateness of patronage 'dividends as a oase for
assessment-of incone tax on cooperatives has been questioned«
•: Moreover, the success of the cooperative association's not g,
measured in terns of its own income, or of the size of its patronage,
dividends*' Therefore, the inclusion of patronage dividends in the
gross incone of the cooperatives night merely induce more of the
associations to set their prices so^as to minimize- their patronage
dividends* Methods of preventing this havé -been suggested, but iti
does not appear likely that they could produco satisfactory results*
'

Continue the exclusion of cash patronage' dividends but g
requrro-the-inclusion of non-cash/patronage dividends in.-I:'"''
“"„'g'gg., the ..income o f ,co operatives.
.
i
' '';i.
A special ca.se-has. been advanced, for thé' inclusion of non—cash. -'1
patronage,dividends in- the income; of cooperatives, while continiting '■
the ;exclusion of Cash patronage, dividends. Those >whb favor thfs
approach argue that' most patrons have, -little real choice' as 'to 'the form
in which' thoy-receive ,their patronage.'dividends, and that non-^feshpa.tronage'^dividendb*. ôannot be. readily converted ihto cash»; They,
conclude that these payments therefore cannot be regarded as true

1

213
vii

rebates but should be' considered a part of the income -o, the
cooper alive* Dissenters from this conclusion emphasize that membership in a cooperative is voluntary and that 'members- actively P^tic-i.
pate in decisions with respect to payment of patronage dividends.
If non-cash patronage dividends were included in the taxable
income of cooperatives, while cash patronage dividends were,
.
it appears that most of the associations would Still he able oO huiia
pp substantial amounts of capital out of earnings not taxed to the
association. •This could be done by such devices as giving patrons_.
the option to receive cash or stock, which would probably -be el
y
the courts to be equivalent to a cash distribution and hence exclud­
able,, It would also be possible for many cooperatives to make wide
use of direct assessments on patrons in proportion to cash patronage
dividends received*
E*

Alternatives to the income tax a method of taxing
farm cooperatives

The difficulties that would be encountered in attempting to in­
clude patronage dividends in the taxable income of f-arn cooper*, ves
have p e r sua.ded some critics of the present treatment that an alterna­
tive tax should be imposed on cooperatives in lieu of the income tax*
1,

Gross receipts tax

One such alternative would be a tax based on gross receipts or
sales*
It would* however, be impossible to select any one rate of.
tax on gross sales which would be approximately equivalent to a
corporate income tax on the economic.income earned by cooperatives.
The amount of net income earned on a dollar of gross sales varies
widely among manufacturers* wholesalers, and retailers in different '
lines and among firms in the same line* Attempts to select differon
I'ates for different types of cooperatives Would result in great^
difficulties and would still leave the equity problem unsolved in
borderline cases. Moreover, it is generally agreed that a gross
receipts tax is more likely to be pa.ssed on to consumers than, is a
net income tax, and, at least in the case of-large marketing associa­
tions, the tax might therefore fail to achieve its objective#
Z,

Tax on invested capital

.

,

Another alternative tax that has been suggested is one ba.sed on
invested capital. As in the case of a gross receipts tax, the selection
of a rate that would approximate a, tax on net income would be difficul ,
if not impossible* Moreover, a tax on invested capital would bear
more heavily on weak cooperatives than on strong and successful^associa
tions* Such a tax would give rise to serious administrative and legal
problems in connection with the definition and valuation of invested
capital.

The Taxation of Farmers1 Cooperativo Associations

X.„. 1, In tro d u ctio n - p hpAp‘

Ì ^ ^ ^'

-rf *

’•

r*-;

T

■■

•

f'h :

-ify*

-' * '

O P h X 'h t

' ~ s ' ï

" '-F, , v < - ‘ yr <. >.•’•'

i *

1

..

. *
•

* * V

n

.

* ' *

The taxation of farmers? cooperative associations is a highly
controversial--issue ;of postwar taxation, rbUxisfing l m
exempts more
’than ohe-half cf, farmers 5 cooperative, .associations, from the income
,
tat- altogethers Under, rulings of: the Bureau of Internal' revenue and
co u ri 'décisions the remaining associations,are allowed to .exclude,,
so^calhed- patronage refunds or dividends .from their.taxable.income. .

Since b W ^ t i v O s are required by .th eir .ch arters-,or b ylaw s to,
distribute, to th e ir members on the basis o f patronage,a l l ox
f“i r
net proceeds a fte r .provision - f or lim ited dividends.on ca p ita l stock
and for-necessary reserves,, 'the amount of taxable. income^..repor e
by non-exempt associations is ordin arily very sm all.
&
dividends, whether paid in cash or nón-cash form, are in clu d ib le ,
however, in thp. t a x a b l e . i n c o m e t h ^ ;indivddu^ fnrmon-patron^
Farmers* cooperative marketing and purchasing associations arc
only one-grolui) of?a wide .variety of voluntary business associations
whose benefits, are shared among participants', in proportion to each
individual^-s use of- the ò rganization rather, than,in.proportion t o .
equity' capital- -supplied, :Thc tax treatment of all of these aqsoeiations
raises controversial issues, This report, however, is primarily concerned
with the problems and considerations raised b y ..the farmers - cooperatives,
Farmers* cooperatives are of much greater economic importance t.,an , e
other groups” and the- tax -controversy has centered.,almost entirely o n
them., Moreover,- most of the essential -economic, legal,, and administrate
issues -raised apply equally to all coopérâtiyc. associations,, 1 /

‘ ^Although farmers •* cooperative associations have long been favorably
regarded because of their, contributions to'the..economic well-being •of
the iAm eri can farmer, -.the disparity between their Federal income _àx .
payments and those of ordinary business.corpo rations h^s occasioned,
m u ch - criticism «

In the prewap years of / re la tiv e ly low corporate.
ratés* few questioned the trò a tment accorded farm; cooperatives-undcp *
the income tax law and., regulations«, With the- wartime increases pm .

'. ceppo rat e tax rates,:however, complaints -became more ..widespread* «
.
a? time when Iordinary .trading corporations with gross :sales^of
}■were paying Federal income taxes of nearly ¿2 billion, 2/ farm cooperatives
with ¿5 billion of sales are estimated'to have been paying no more
an
$10-§20 million of Federal income taxes«,' This sharp difference in ax

‘1/ -''The economic importance and -the present, tax treatment of the .types of
-i n : cooperativesmot* s p e c ific a lly discussed in-the-body, o f t h i s report
-.are outlined :in Appendix K
'■2.1

7

.- .' "

...

*■

'P

| f*

Prèl imi navy, s t a t is t ic s for corporation, income.: nnd declared-va lue

*

X - ,J,exoessuprofità fax rrt-sr-.s fbr lÿ*>.prens.ary :^ess Srp-nor, % *

¡>-¿(5-

-

2 -

liabilities* it has been charged* violates the principle that persons
and firms in substantially similar circumstances should pay substantially
the sane taxes and also gives the cooperative associations an unjusti­
fiable competitive advantage over ordinary corporations* Moreover* the
virtual freedom of farm cooperatives from Federal income taxes is said
to deprive the Government of much— needed revenue#
Although the exemption of certain farm cooperatives from the
income tax and the exclusion of patronage dividends from the taxable
income of non-exempt farm cooperatives are said to give these organi­
zations a substantial tax advantage over ordinary corporations 9 the
tax treatment accorded^then is essentially similar to that applied to
partnerships and sole proprietorships* TJnder the present Federal tax
law, unincorporated businesses arc not taxed as such# Instead, all of
tho income arising from such businesses is taxed in the hands of the
individual proprietor or partners* Proprietorship and partnership
profits are not, therefore, tax free, although they are not subject to
the so-called double taxation imposed on distributed corporate profits.
Similarly, cooperative profits, even when earned by exempt associations,
are not tax free except to the extent they are retained in certain
reserves# When earned:by non-exempt associations, cooperative earnings
are in no case tax free# Patronage dividends of marketing associations
should enter directly into the income of patrons as receipts from sale
of farm produce, and patronage dividends of purchasing associations
should enter indirectly into the income of patrons as a reduction in
the cost of production of farm products sold by the patrons* 1/
Thus profits of cooperatives, although lightly taxed or completely
exempt^in the hands of the associations, are, .in the main, taxed like
other income in the'hands of the stockholders and patrons#.. The question
at issue is, therefore, not whether the profits of cooperatives should
be taxed or not taxed, but ^whether the income earned by these organi­
zations should be more heavily taxed before if is distributed to the
individual owners of the business#
, g
v
.
Those who hold that ©operative a.ssociations as such should pay
heavier taxes suggest various revisions* Some would be. content merely
to repeal the exemption; others would hot be satisfied unless.in addition
patronage dividends were included in tho gross income of the cooperative *
associations* Still others, impressed with the difficulties, of taxing
cooperative associations fairly under the corporation income tax, woull
instead subject them to a special tax based on. some other measure.-of their
ability to' pay*
Another approach to equalizing taxes on cooperatives and ordinary
corporations would be to give all corporations a deduction for dividends
paid# Although this proposal has been advanced as a solution to the
1/ Opinions differ concerning the extent to which farmer patrons under-,
report patronage dividends in their income tax returns* There is
undoubtedly some under-reporting although "Both the Treasury and the
cooperative associations themselves have undertaken to instruct
farmers in the matter# •
’ s " ''

cooperativo t0,2c problem, it raises issues of .general tax policy which
are outside the:scópe of this report and hence will not "be given
detailed, consideration here* X/
, This report examines the character, and "background of the present,
tax treatment of farm cooperatives» considers the extent to which these
associations currently enjoy tax advantages over other corporate .enter­
prises, and analyzes sohe of the proposals which have, "been advanced .
for increasing .taxes on cooperatives» Section IX describes the
structure, purpose, and importance of farn cooperatives, the ways i n ^ .
which they conduct their business operations, and how-they-serve their
farmer-members*
Section III develops the background of tne present
tax treatnent, outlines the scope of the exemption and tne patronagedividend exclusion, and discusses'the benefits derived fron each*Section IV considers various proposed-changes in the present tax *•
treatnent, including the repeal of the exemption, the .inclusion of
patronage dividends in the gross incone'of the association, and the
subjection of cooperative associations to either a gross receipts tax
or a tax based on invested capital'in lieu, of the corporation income .
taxo The report contains no policy recommendations, but considerations
relevant to the formulation of tax policy are discussed«
No attempt is made in this report to appraise: either -the economic
or the social contribution of the fearn cooperative re©venent to the
Nation as a whole, or to determine the extent -to which these organi­
zations either deserve or need assistance.from the federalGovernment*
II*

Purpose, structure, and importance 0 f faxner s 1 co ope restive associations
Aa

Purpose and structure

The agricultural cooperative movement in the United States is
more than a century old*
Cooperative marketing and. purchasing
organisations grew out of the economic necessity of individual farmers*
finding, ah efficient method of marketing .their ;crops and of- purchasing .
their supplies* “ Handicapped by their isolation, b-y their lack of .;- ....
knowledge of the markets in which they had to deal-, ."by their weak
■
bargaining position in those markets, and by their „lack -of capital, -, •
farmers sought to improve their economic situation through group action®
1j

for a discussion of issues relating to the taxation of corporate
profits, see The Postwar Corporation Tax Structure (Treasury
Department, Mvis'ion of Tar Research, 1§^6)® **Tho"
allow corporations a. deduction, oh credit for dividends paid is
discussed in that report at pp*

215
-

-

U -

Over the years, farmers’ boap^atlve- .aàao&iatloï&s- hav^é/grown in strength
and numbers and have expanded the scope of their activities» They have
received a variety of ’’
-finahciài' and other assistance from the federal
Government» 1 /
~
?
' .v
">
.
.
The incorporated cooperative a s sôciatioh# like any other corporation,
is ,c?ji artificial entity created'by law viith-a life independent of the .
people who^ own, ,manage, and db business with it<i • Moreover, rlike other
incorporated enterprises' organized to carry'o;n some form of business
activity, the farm cooperative, hâs 'a business purpose*
It exists to . .
serve its farmer members and to increase‘the profits they derive froid,
farming* In this respect, the cooperatives differ from, charitable and
educational corporations whose' primary functions are not directed to
the economic, advantage of their owners and organizers*
Although farm cooperatives are in many ways similar to ordinary
business corporations, there is one significant difference* The^
owners of the cooperatives are ’
also their principal patrons.* While
most:cooperatives issue capital stock, as do ordinary corporations,
the di vi de nd s;pai d o n such shares' (and on preferred shares, if these
are issued) are strictly limited* Moreover, there are many hon— stòck
associations which issue membership certificates as evidences of
“residual equities 0 in their assets* Whether the association is
organized with or .without stock,, however, all amounts remaining after
provision for limited dividends on equity capital and for necessary
reserves are returnable to the patrons of the association ih qDrôportion
to the use made of the association by each* 2J
Amounts so returned
to patrons are usually called patronage refunds or -patronage dividends*

/

l/ l’or a history of the development of iarn cooperatives in the United States,
”* see R, H* Ellsworth, The Story of Earners’ Gooperatives.(Faim Credit
Administration, Circular-E-23)•
>
2j In order, for, an organization to be considered a cooperative, it is
not necessary for all classes of patrons' to have equal owner ship
rights#
Some cooperatives provide different participations ’for /
member patrons (i*e,, those who are also capital contributors),
(
and non-member, patrons*
This practice, however, is more 'common .
among British cooperatives than,those in the United States*
3 / There is* however, ho uniformity among cooperatives in the termi­
nology applied to these distributions*
in fact, there is a growing
tendency, among cooperative accountants to abandon the term
’
“patronage dividend“ 'in favor of what they consider to be more,
expressive terms* ■ The tern “patronage dividend“ is Used in this
report solely, because, of its acceptance in ordinary usage and not
- *
to imply any analogy to ordinary corporation dividends*

~ 5 ~

B*

Economic inport anco of -farm cooperativos

if

At the present, time, about 10,150 farmers^ MfXketing and purchasing
associations are active in the United States* One out of every three
farmers is believed to be a member of at least one cooperative*. About
7 3 percent of the associations (7,^K)0 organizations) are engaged
primarily in the marketing of farm products and the remaining 2 7 percent
(2 * 7 5 0 organizations) primarily in purchasing farm supplies* Ihese
cooperatives are spread widely throughout the country, although there
is a natural concentration in such major agricultural States as
California, Minnesota, Illinois, Iowa, and Wisconsin®
In the 19hU~h5 marketing season, the 10,150 farm cooperatives had^
an aggregate volume of business (valued at the farm level) of $5»e^5 million,
o f which-SI percent ( $ ^ , 5 5 0 million) represented farm products marketed
and 1 9 percent ($1,095 million) farm supplies purchased* These
cooperatives handled at some stage in the marketing process during,
that season about 6 0 percent of citrus fruits and cranberries, 5 ® per­
cent of dried skim milk and fluid milk,
percent of creamery butter,
*and 20 percent of livestock marketed through, public commercial, market
channels*
In their purchasing operations, farm-cooperatives accounted
also for substantial proportions of the feed, fertilizer, and automotive
fuels and lubricants used by farmers* The number of farmers* cooperative
marketing and purchasing associations, the number of their members, and
their dollar volume of business for 1 9 *A-^ 5 "by type of product are shown
in Appendix B*
C*

Variations in organizations and operations

Ninety-*four percent of the 1 0 ,1 5 0 farm cooperatives axe local
associations* whose operations are 'confined to the relatively small
area in which farmers can be conveniently served from a single outlet*
Some of these axe more or less informal associations formed for buying
and selling in carload lots, but many provide warehouse and storage
facilities, basic-marketing'services (such as grading, packing, or
elementary processing), or formal retailing and service stores*
Some
are purely -bargaining associations, leaving each faxmor to make his
own sale; others act solely as brokers between the farmer And purchaser
of his products (or the seller of his supplies); still others take
title to the goods handled*
Control 'over such associations is usually
vested in ’a board of directors elected directly by the members«. In the
election of directors ea«ch member usually has but one vote Irrespective
of the number of shares owned,, and voting by proxy is generally not allowed*
l/ All data on farm cooperatives obtained fro'm the U* S* Department of
Agriculture,'Eaxm Credit Adm inistration, Cooperative .-Besearch and
Service Division*

216
- 6 -

Although the vast hulk of the associations are small and local
in character} many of them are either members of, or affiliated with,
large*-scalc centralized and federated cooperative associations«, The
centralized associations are regional associations operating over a
larger area than can he served by a lochl association© As in the case
of the latter, however, the members of the centralized associations
are individual producers who directly select the board of directors
of the association«, 1]
The federated associations are also regional
or large-scale organizations, but their members are wholly or predomi­
nantly cooperative associations and in some cases are cooperative
associations that are themselves federations# federations are con­
trolled by boards of directors chosen by duly elected representatives
of the members in the local organizations©
In 19^-2-»1+3 (the latest year for which data of this sort are
available) about 1+3 percent of the total volume of marketing done by
farm cooperatives was accounted for by l+8> federated or centralized regional
cooperatives, each with a business volume of more than $ 1 0 million©
In addition, there were 10 federated or centralized regional purchasing
cooperatives with an annual volume of more than $ 1 0 million each, which
accounted for about 3 5 percent’of the total purchasing volume of all
farm cooperatives© These large-scale regional cooperatives, and the
inter— regional associations formed in turn by them, frequently carry
cooperation further along the chain of distribution, sometimes to the
ultimate consumer (in the case of marketing associations) or to the
basic manufacturing stages (in the case of purchasing associations)«
Among the purchasing cooperatives these operations are associated mainly
with the production of feed and fertilizer, although a number of paint
factories, sawmills, and oil refineries are operated by cooperative
associations# Among the marketing cooperatives, advanced processing
is carried on mainly in creameries and cheese factories, cotton gins,
canneries, and dehydrating plants, although a few associations operate
flour and cereal mills, wineries, sugar mills, and nut processing and
packaging plants# Despite the wide variety of activities in which
farm cooperatives are currently engaged, it appears that the. number
of true manufacturing plants owned and operated by them is still very
small, and that cooperative manufacturing is economically significant
only in a very few lines# 2 j
D©

How cooperatives serve the farmey

Farmers 1 marketing and purchasing associations are organized
for the purpose of increasing receipts from the sale of farm products
and.lowering the costs of farm supplies# The ultimate purpose of
these associations is, therefore, to increase farm profits©
3./ In very large organizations, the members sometimes elect a delegate
from each local narea, and these delegates in turn elect board members
at the annual mooting©
2/ See Appendix D©

There are various ways in which farm cooperatives can increase
farm incomeo They may lower the cost of farm supplies by purchasing
in bulk and by taking advantage of trade discounts« Purchasing,
associations with experienced, full-time managers can protect their
members against adulterated and inferior merchandise, and can assist
them in the selection of those supplies which are best suited to the _
needs of particular farms« They can time their purchases to take
advantage;of favorable malket situations and exercise a wider choice
in the selection "of sources of supply«
They may extend the scope of
their"operations from merely trading to manufacturing and extraction« ■
Marketing cooperatives may increase receipts from the sale of farm
products by providing their members with more efficient and economical.sa-les services« Products may be stored, graded and further processed
to increase théir salability.
Competition between farmers in a
particular area may be reduced and-their bargaining position in the
principal markets for their products improved; trademarks or trade
names' may be established, and the quality of products may be improved«
In addition, the capital contributions of farmers to cooperatives
enable' them to share in the normal profits derived from the handling
of farm p r o d u e W and farm supplies. Among the marketing associations,
these investments have taken such forms as grain elevators, cotton
gins and cottonseed-oil mills, creameries and cheese factories, and
in the case of the purchasing associations, investments have beenmade in warehouses, retail outlets, fertilizer factories, and oil
refineries«, '
’
Fot all of the income derived by the members of a cooperative
from the association is directly attributable to their patronage*
Some cooperatives do substantial amounts of business with non-members
who are not permitted to .share in patronage dividends-« Others, have
bought of sold agricultural products for the Federal Government under
terms which have permitted the net proceeds from these sales to be
distributed to the ordinary patron along with their own patronage
refunds« 1 /
Although there are few services which the ..cooperative associations
pi*ovide to farmers that ordinary corporations could not provide, the
patronage .dividend which they hold out to their patrons is a powerful
competitive force.
Once a cooperative association has established
itself, farmers frequently find that they can,do business with private
firms on terms which are equally favorable to those oh which they, deal
with the acoperative. The-very.presence of the cooperative a,s acompetitor in a.given market often enables all the farmers in that
1/

I n practice, this appears-to have been-true mainly in the case of
:service cooperatives. .'Marketing contracts with-the Federal
Government usually provide for refunds to the Government«

,

217
- g -

market to sell arid buy on better terms than they could in its absence*
The benefits of' cooperation are, therefore, not necessarily.limited
to those farmers who patronize cooperative associations»
Although the ordinary corporation usually can and frequently does
perform the same services for'farmers as those performed by the
cooperative association, it, must be recognized that-the primary
objective of the ordinary corporation is that of making «^profit
for its owners. There is, therefore, an inevitable conflict of
interest between the ordinary corporation as buyer,or seller and
the farmers with whom it does business. The cooperative, on the
other hand, is usually so organized that the interest of each
member as an owner is at least roughly proportional to his interest
as a customer. This means that there is no conflict between the
objectives of the cooperative and of its member—patrons,
1

,

How farmers share in the benefits of cooperation.

The individual farmer is ordinarily both an investor in, and a
patron of, the cooperative association of which he is a member, His
contribution to the success of the venture is, therefore, a twofold
one, involving both his capital and his patronage. As an investor ..
in the association* he is promised a limited return on his equity
in the association« As a patron, he is promised his proportionate
share in the savings made possible by his contribution to the pooling
of purchases or sales and in any income which the association may
derive from its activities*
The individual farmer’s share— as patron— in the success of the
cooperative.association of which ho is a member m*y or may-not be
reflected in the size of his patronage dividend® The patronage
dividend payments received, by/the farmer at the close of the year
may not fully reflect his proportionate share in the gains from
cooperative buying or selling. The size of the patronage dividend
is determined by the particular pricing methods of the association,
as well as bv- its efficiency in buying and selling.
In this*connection, three distinct types of pricing policies
may.be noted.
In the first category is found the so-called Sochdale
type of pricing policy, the distinguishing feature of which is the.
fact that the prices at which the cooperative buys from and sells to
the farmer are the going market•uricos for the commodities handled.
Patronage dividend payments/ip this case may therefore be said to '
represent the difference between such prices and the necessary
expenses of the association* The second-category covers-those
situations where it is not feasible to follow a market price policy,
yet where the cooperative is under the legal obligation to return
all net -proceeds to its patrons, and may therefore pay patronage dividends.

9 -

In some eases, 'forrexample? thare;^ r^ 7 tbe a 6 ':cilenrly 'established ■
market price bo-cause-;of lack, of "'conpcti^i^aj.^d'-^k.e prices- paid
“by a marketing associ at ion. mayrbe :-moaroaora Ibss-r arbitrary#- -fibal' p a y ­
ments to .patrons in such.cases are tan adjustment which does not
accurately measure .-the gain-from cooperative btying :or:--selling* ‘
The third 'Category: includes -those cases-Where a-'-purchasing’as so ci****'
at ion fpli.ovrs.ftho practice'of ■.soiling'-at."cost-plus— estimated’ '*
•
expenses or where a marketing-association-pays' a price Dased’on a "
sales value ;mihus estimated cost of operation, :• In such cases» *
•patronage dividends will "be paid;infrequently; if -at all# Whatever*:
"benefits 'the patron nay derive from his dealings' with the eJsSGci- ■’
ation will be currently reflected in 'the higher prices ‘he-receives ‘
for his product or the lower’prices ho pays for his :supplies*In practice, it- appears- that :e, largo proportion of cooperatives
return the benefits of cooperation to their members without the use
of patronage dividendso The provai 1 ihg-price-patro’.lagc*-divitend \
technique originated among the purchasing cooperatives and has not
been universally adopted by marketing associations, although ‘
charters .and by-laws, permit its-use*' Sven among purchasing
cooperatives,- a few of the -associations sell directly at cost-plus1
estimated expenses, or. at a price below the'market, but high enough *
to yield small patronage dividends# 1 j
-‘
‘ ,
'•
■• •
:■
•
. •’ ’ • The typical -marketing* cooperative operates under a marketingcontract in which the association undertakes to p a y the farmer- the '
entire proceeds from the sale of his productj,.fl e s § :certain 1deductions
for handling expenses and for capital contributions# 2/
In some
cases, the farmer receives.the full going local price'upon'delivery
to the cooperative, but more often he get s ’only a :down ‘payment-»'.the
balance to be paid in successive installments'as';.the-crop is sold*
The size of the down payment is determined by Custom or.by the
financial condition of-the association and-does •not;represent what
the farmer could have received had he sold.his product outright.to
private buyers«, The sum of the installments-represents the .net or
adjusted price of the ^pro duct after all or .most- of-'the cooperative1's '
expenses have been deducted. Usually,' no 'attempt is ma.de to segregate
amounts •representing the local market price .of the product -from the
net distributed proceeds of the"cooperative*
-'
1/

practice of pricing on-‘a cost-plus— expenses- basis was combon
years ago, -but has-beep, largely abandoned-because of the ' '
resentment of competitors»- •
' •:
*
- ■ —
2/ Since these .capital' payments- are deducted f rom -gross sales proceeds,
they are no.t non-cash-patronage d-ivideiids,. but 1 direct capital
contributions or assessment's* onia patronage basis#.
20

218
-

10

-

ITo current data are available showing how many cooperatives
follow the prevailing-price—patronage—dividend method, hut some
information is available from a statistical study of cooporaoives made
in 1 9 3 6 c l/
In that year, there were 1 0 , 7 5 2 farmers* marketing, and
purchasing associations 9
Of the 7e^28> associations engaged primarily
in marketing, only 2 ,3 3 9 , or 3 2 percent, reported papaent of patronage
;divider.ds« . Of the 3 > 3 ^ purchasing associations, 5^. percent reported
patronage dividends» The combined- ratio for all associations was
about 35 percent® These figures are, of course, not conclusive,
since some cooperatives which ordinarily pay patronage dividends
may have failed to do so in 193 6 » Moreover, the aggregate figures
do not give .sufficient weight to the large associations and to those
in the more important marketing fields where patronage dividends
are the rule« Nevertheless, these 1 9 3 6 data indicate that a signi—
fiennt proportion of cooperatives do not distribute any of the
benefits of cooperation in the form of patronage dividends®
One advantage of oper.ating on the prevailing—price method is
that it enables the associations to use their net margins a„s a
source of Capital® Patronage dividends are not always paid out in
cash 0 Under the by-laws of many a.ssocia.tions, the patrons are
either required or given the option to leave amounts duo them with
the association»
In lieu of cash} the patron may receive an
interest-bearing.or non-interest-bearing certificate of indebtedness,
a certificate o f .equity, or additional shares of capital stock«,
This enable.s the .association t o :bulld up 11 s working capital and, over
a period of time, gives the patron an investment in the association
proportional to the amounts of business he does with it* 2 /
:

.

. r

•

Some of the benefits derived by the pa.crons from their dealings
with cooperative associations accrue, only indirectly®. Cooperatives
are permitted to obtain capital funds by setting up reserves without
making a corresponding non— ca.sh distribution to. their patrons» Most
of .the State <Laws under which farm cooperatives operate require
certain amounts to be sot anide for general, contingencies»
In addi­
tion to these mandatory reserves, however, cooperatives frequently,
accumulate reserves for specific contingencies.;and other purposes®
1/ Statistical Handbook of ffarmers* Cooperatives, Parm Credit Adminis. t trn'tion* Cooperative Division, Washington, 193S®
Bulletin 2 6 *
2 / A substantial number of'a-ssociations issue: capital stock, certi­
ficates or other evidences of equity interest or simple book
r
credits in connection with: tho revolving-fund method of financing»
Where the revolving— fund method is used, the oldest outstanding
capital is retired after a. sufficient amount of, capital has been
built up. Thereafter, as -additional capital becomes available,,
a similar amount of older capital is retired«, (

-.11

Ill

Pr.esen.t_tax treatment of farm cooporatives
under
the'federal income tax
im aerrm
vI*» *
att

Ao

Baxkground .of the present treatment

d

The Act of 1913» which imposed the first income tax und«-r the
Sixteenth.Amendment, made no specific reference to farmers1- cooperative associations 3 hut it did expressly exempt from tax ^agricultural
and horticultural organi zations »>H
The Treasury Department^ cons trued
this exemption to include all farmer and- fruit grower .associations
without capital .stock represented by shares, if their ptrgposo was to
promote,.the mutual benefit of their members In growing, harvesting*
and marketing their products and if their income was derived woolly
from nenhership fees, dues and assessments to meet necessary expenses© l/
The 1 9 1 3 Act also exempted mutual savings banks not^having any
capital stock represented by shares«. However, it prescribed a rather
different treatment for mutual fire insurance companies whose -members
made premium deposits to provide for losses and expenses«, These
insurance companies were not required, to include in taxable income
any portion of the premiums returned to their policyholders as
so-called policy dividends»
Income from other sources and premium
payments retained by these companies for purposes other than the
payment of losses and expenses and reinsurance reserves were,
however, taxable» The Treasury by analogy adopted in 1 9 1 ^ a similar rule
for farm cooperative associations which were not.'eligible for exemption
under the 1 9 1 3 Act and permitted them to exclude patronage dividends
from gross income„ 2 /
.In, 191b, Congress specifically, extended the exemption ,to ^farmers ,
fruit growers 1 , or like .associations, organized and operated as the
sales, agent for the purpose 'of marketing the products of its members
and turning, back, to- then the proceeds of sales less necessary selling
expenses,., on the basis of the quantity of produce furnished by them * 0 j\f
Express, statutory exemption was granted on the sane terms, to agri­
cultural purchasing cooperatives in 1 9 2 1 © 4 /
la order to qualify for
the exemption under the 1 9 1 6 Act, a. cooperative had to satisfy the
Commissioner of Internal Revenue that its business was that of marketing
products for its members .and that- the entire proceeds of such marketing
had to be turned bank or paid to such members on-the basis of the
quantity of produce turned in by then© J5/ The Regulations unacr the
1 9 1 6 Act, like those under, the 1 9 I 3 Act, provided that any cooperative
if I t c IT^C.

•
^ 2/ See T«D« 1 9 9 6 © .
3 / Section,11(a) Eleventh,.Revenue Act of
% f Section 231(11), Revenue.Act of 1921«
5 / Regulations 33? Arto 75*

1 ;
19160

219

-

12

-

association which could not qualify for the exemption^ "because it did
not act strictly as agent "but purchased produce from members with a
view toward- selling it for gain, night nevertheless exclude iron gross
incone all amounts paid to members on the "basis of. quantity of goods
handled for then« Thus one kind of tax treatment was prescribed for
the so-called agency— type cooperative which was deemed not to nave
income, and a different treatment for the association taking title to
■the commodities handled but under contract to return to its'patrons on
the basis of patronage the bulk of its; net proceeds« /
. . I n the deeade between 1 9 1 6 and I 9 2 6 , there were substantial changes
in the tax,statutes and Treasury Regulations with respect to farm
cooperatives* In the belief that Congress desired the'exemption to be
construed broadly, the Treasury ruled that an otherwise exempt cooper-,
ative would not be denied exemption because it had outstanding capital
stock on which it paid a fixed dividend,amounting to the legal rale of
interest, provided that all such capital stock was owned by farmers8 _l/
Somewhat later it was held that an otherwise exempt cooperative could
accumulate and maintain a reserve required by State laws as well as a
fixed fund or surplus for the erection of buildings and facilities;
required in its business, without losing its exempt status* 2j
Still
letter the Treasury ruled in. effect that an exempt marketing cooperative
need not be operated strictly as an agent of its members but could take
title to commodities without losing its exempt status, provided that
•it turned back to producers the proceeds of the sales of their products,
less necessary operating expenses, on the basis of produce furnished by
them*
In the Revenue Act of 1 9 2 6 , Congress incorporated these adminis­
trative rulings into statutory law and at the same tine established
clear-cut tests of eligibility for the exemption* These statutory
provisions have remained virtually intact to the present day* Although
there has been no legislation beaming directly on the exclusion of
patronage dividends, the non-exempt associations have continued, to enjoy
the right of excluding such payments from their taxable income»
With this brief historical introduction, it is now possible to
proceed to the discussion of the exemption a,nd exclusion in their
present-day application*
¿/ Regulations
Art* 5^2«
2/ Regulations p2 (1922 ed). Art « 5^2*

J5/ Regulations.. ¿5* Act « 5^2 <?

-arB#

Tax exemption
1.

Eligibility for tho exemption

Eligibility of farmers* cooperative associations for income tax
exemption is strictly limited by statutory provisions and adminis—
trative interpretations® l/ The precise nnmber of exempt and non-exempt associations is not known* but one nay infer from the number
of E orm,990 returns filed by farm cooperative associations for 19^3 *
that'-between 5,000 and 6 ,000, or a 1 little more than one-half of the
active associations, are today exempt* 2./
The exemption applies only to farmers1 associations organized
and operated on a cooperative basis which («a) market the products
se on the basis 0f -the qu ant i ty
or (b) pur chase supplies and
s at cost plu.s necessary expenses®
an.d pu.rchosing associations, the
I mination
ïhere shall b e no discs’
between members and non— members m returning wae nev procutub
patrons in.proportion to the produce marketed or supplies purchased*
In other words, the members of exempt cooperatives are not allowed to: make
a, profit Out of the business done with non—members© Moreoverr the statute
specifically provides that the exemption shall be lost if the association
markets or purchases more products for non-members than it does for members0 g/
Purchasing associations lose their exemption ix more than 15 percent of
their purchases are for persons who are'neither members nor producers«.
4

l/' See Internal Revenue Code, sec* 101(12) and Re dilations 111» sec« 29<>10l(12)|
2 j Porn 990 returns are required to be filed by all organizations xxenpt

from tax under section 101. of the Inferna.1,Rcyeniig_Code except certain
"feligious,- charitable, and educational organizations«
Reverie
Code, sec.- 5^(f).) A^ total of 5,595 ^orn 990 returns were.,filed by taxexempt farmersr cooperatives for income years beginning in-19^3» whicn
' is the latest year for which the returns have been tah.ulatede Although
it is believed that most associations required to file did so, it. is.
■impossible to say how complete the- coverage of these information returns
actually was« . Appendix E shows a distribution of returns-of exempt .
farmers5 cooperatives for 19^3 (returns received through December
xj
bv size of gross income and receipts- and of total assets« • It has hot been
possible to segregate'the tax returns-of taxable cooperatives from those
of ordinary corporations, but a question has been added to the 19^0
corporation income tax return (Porn 1120), which will permit .such a
segregation for I 9 H6 and later years®
,3 / Under the Regulations, the necessary condition of equal treatment of nonD
and non—member patrons is not violated if the association credits tho
patronage dividends of non-members toward the purchase price of a share
0 IT SijQcl-o
«Ft c
I4./ A member is defined in the Regulations as anybne wno shares in t_ e loro
of the association and is entitled to participate in tne management of t ^
association®
In a stock cooperative, therefore, the members are the owne
of the voting common stock, and in a non-stock cooperative they are tnos
with membership certificates and the right to vote®

/Vìi
- lU

The statute limits the method of financing open ^ ^ e n ç t _ cooperat Ives#/ If ia'oital 'is-r a is ed'^ the'sale of stock, substantial y
the stòck (except nonJ-Toting,'non-participating preferred s t o c k ) «
he held hv farmers, and'dividend' rates must he limited to no mo.e than
g percent*or the legal rkte of interest in the State of incorporation,
whichever is .greater,'.

.

Thus, in.order. ,to enjqy tax exemption; cooperative associations
must he controlled'hv their farmer patrons and must do most of the. r
business with'them. Business’ with the Federal Government, or its
agencies,'is, however, disregarded in determining tue right to
exemption«

'

V
Thé Treasury has held that■exemption is not confined to farmers*
^ o p e r a t i v e s ’'whose members are actually farmers, but extends to
federated farmers* cooperatives and subsidiaries of exempt cooper*^
atives which meet' the statutory tests0 l/ Exemption has been^ranted
to marketing and purchasing associations whose activities,
.
:manufacturing or processing where these activities are
V
'
;the-efficient discharge of the basic functions of the organization,,
Sur-nlies and equipment purchased bave been defined as ine up.ng ..
' »groceries and all other goods and merchandise used by .armers i
the-operation or maintenance of & farm or f a r m e r s household.
2/
2,

Benefits derived from the exemption

The benefits derived from outright tax exemption, substantially

overlap those attributable to the patrons ap-dividend exclusion,
nevertheless, there are certain advantages which would-be-ipst. ^ i
exempt cooperatives if the'exemption -ere repealed and- the excl ,s.ion
continued.
Some of the more important of these advantages w 1
discussed, below.»
........
.. •,
LiI

Exemption of income paid, out as
dividends on capital stock

V- in 5.9-^, the latest vear for which complete data, are available,

about SO- percent of a i l -farm cooperative associât ions-.»-ere -organise .
about .oJ ■ r
ïïm
..¿t is reported that t>ere is 'a- growing
—itb cap ital stocv » 3/
however, r;
tendencv to crefer the non-stock tÿpe.of associations.

TT

Although the

Un*er Int ernai R evenue Qodét 'sec.lOÏ(Ï3) » an exenrot; f a r m e r s_’ .
cooperative may also~organize and operate a corporation-fer tne
purpose of financing, ordinary crop-operations, provided the rp^uir meat. Concerning control, dj.pdera& rate, and reserves described
the previous paragraphs are met •
Régulât i o ns • 1 1 1 ,
s e.c. 29 .1 0 1 ( 1 2 ) ~1 ( b ) •

%

.

•
_
,...
A S t a t i s t i c a l Handbook o f fa r m e r s * C o o p e r a tiv e s ,
Farm “ r f_
.
A d m i n i s t r a t i o n , : C o b n e ra tìv e JH v i s i o n , '.la s h in g to n , B .G . ' U . e t i n
Ilo .

20«. IToyember. 193^c P»^»-

■

.

»■

~

15 -

statute pernits cooperatives te pay the higher of 8 percent or the
legal rate of’ interest in the State of incorporation on the value
received for tlie stocky the rate actually paid on the average today
is prohahly between 3 and 5 percent» In the absence of the exemption,
that portion of the net earnings which cooperatives distribute to
their, stockholders as dividends on stock would be. taxable as income
of the* corporation* For 13^3» exempt cooperativo associations reported
dividends on capital stock amounting to $11 ©7 hoi1lion* Xj At present
rates, this would :mean a maximum.tax saving of about
nillion
attributable to the exception of dividends _2/
In countering the argunent that they derive a substantial
advantage from their ability to distribute tax-free dividends to
stockholders, the cooperatives advance an offsetting consideration»
They argue „that their dividend payments are of a completely different
economic character from those paid by ordinary corporations in that
they represent essentially only a fair 51wage11 for the use of capitale
In a corporation,ihb stockholders may receive (subject to do clarat i on
by the directors) all of the net profits of the business after payment
of expenses and satisfaction of creditors»
In a cooperative, however,
net proceeds above limited dividends are distributed on the basis of
patronage rather than stock ownership* Accordingly., it has been argued
that the incidents of ownership are vested in the members as customers
rather than as stockholders and that the limited dividends which must
be paid on capital contributed to the enterprise a,re an expense or
charge against earnings and so are akin to an interest payment* In
rebuttal to this argument, however, it may be pointed out that,.
except in the ca.se of certain public utility corporations, j>/ ordinary
corporations are not allowed a deduction for the limited dividends
paid on preferred stock*
b0

Exemption of income retained as reserves

Cooperatives may accumulate capital funds out of operating margins
in two ways* First, they nay reta.in all or part of the cash proceeds
from operations,, while still fulfilling their contractual obligation
to return net,operating margins to patrons*. In lieu of cash payments,
the by-laws of cooperatives usually permit then to distribute patronage
dividends in the form of some evidence of the pe.trons1 equity in the
.retained funds■or to make book credits to patrons1 accounts.
1/ Supx^lement to Statistics of Income for 19^3» Part 2, Treasury

Department, November

1 9 ^5 ®
million of tc?*x saving is 3$ percent of the
$11e7 million of dividends.
This is.a maximum figure, since corpo­
rations with incomes of less, than
000 pay rates below 3$ percent
and since income representing intercorporate dividends received, which
is included in the total from which .dividends were declared, is taken
into the taxable income of ordinary corporations at only 1 5 percent of
full amount©
J,/ e t e r n a l Revenue -Code, sec. 26(h) allows public utility corporations a
credit for dividends paid on certain preferred stock issued prior to
October 1, 19^2©

2 / The estimate of

a rsa
2

2

2

- 16 •?

Second, cooperatives nay-also retain a p a r t of their annual
net proceeds as reserves before computing the anounts^which m s t ;be
returned a s p a t nonage: dividends.’ Under a recent n o ^ t decision,
exempt cooperatives are required to allocate on their books to
current-year patrons pro rata shares in such reserves., so that
member-patrons will not pain,at;the expense .ofnen-neriber-patrons upon
dissolution of the association.!/ 'However, the.mere.fact
.
allocation does not make such.reserves'equivalent, to non casn
,
m t r S dividends, and the itoeau of Internal Revenue has^centamod
to dist i'nguish between allocated reserves and non-cash patronos.y
dividends«, '

••

..

—

Under the patronage-dividend exclusion, non-cash patronage
.
dividends are nb't .taxable to either exempt or non-exenpt cooperative.,,
Noncash'patronage dividends as well as cash p a t r o n a g e ^ - d e n u s do,,
however, enter into the taxable incones of patrons. U n u c r t h
exemption, eligible cooperatives pay no tax on mcoJC^rotaiTO ~ ^
"Hoc"ted reserves, but in the absence of the exemption, such income
¿ i l d be taxable to the cooperative. With or without, the exemption,,
however, income retained as reservos would not be taxable to patr
Reserves are set up for a variety of purposes.
Section 10lU2).
expressly permits exempt cooperatives to accumulate the g m e r a l _
contingency reserves which cooperatives are required to build up y
urovisions^of nest State laws. Additions to such
.tines U n i t e d by _the
be a c c u s e d
... for the year, anci usually tne total r e s e ^ w n i w f uus
Pooncr„tive
is limited to a percentage of total capitalization, __
■* ’
.accounting technically does not aflnit a surplus account, b u :
mandatory reserve serves essentially the sano- purpose unuer a «afferent
name*

.~ :...- ■

1/ Fertile Cooperative Dairy Association v. Collector, 33 Fi 'SupP. 712.
2

/ tofH ^ l o r k , (for e Ldple, cooperatives (organized under one cooperative

J

'

statute) are required to set aside 1 0 percent
J£*iL££o
reserve reaches 3 0 percent of paid-in capital. Altbough .i-int^nanco
■ of the reserves is mandatory, the funds are hot required to be_
.
■ permanently a n d physcially segregated. Accumulations, are available
for use in the "business»

a

,

■zf The a^gunont is sometime s made that •the mandatory charac -;.J5

.

reserves makes the transfers to them expenses of doing, "business,
which would no* properly be object, to taxation, even injhe^absence
of the exemption. ” It has been pointed out, however, .that, other types
of businesses have compulsory reserve requirements (e.g., banks;
and that many corporations have entered into binding contractual
obligations to reserve portions of thoir earnings for various purposes
such as, for example, debt retirement. In none of these instances
is the expense analogy followed®

-

17 -

In addition to the mandatory general reserves* cooperatives are
also allowed to accumulate certain other reserves for specific
purposes» The statute provides that exemption shall not he denied
if a cooperative maintains 11a-reserve required by State law or a
reasonable reserve for any necessary purpose * 11 ..In. anxpini storing this,
pro vision* the Commissioner has not emphasized the word ^or11 hut. has
allowed cooperatives with--mandatory State law -reserves to accumulate
*reasonable and necessary1* reserves,as well«* The terms nnecessary
purpose* and 11reasonable reserve 11 are construed; in the light of the
purpose to be accomplished, and in ca.se of -dispute over specific
reserves the burden of proving necessity and reasonableness is on
the association*
In practice* reasonable and necessaryncJS^aaiclatdry reserves
appear to be of two distinct types* First* there are specific con­
tingency reserves, i 0e*j reserves for foreseeable losses or expenses
which axe properly chargeable in whole or in part, to the current
accounting period» To the extent a cooperative sets up reserves
representing bona Jm.do anticipations of losses, such reserves are
essentially only averaging devices which have their counterpart in
the carryforwards and carrybacks now allowed ordinary business and
ndn-exempt cooperatives® 1 /
■ Second, there are 11reasonable and necessary *1 reserves for expan­
sion purpose sc The Regulations provide, that »the.accumulation and
maintenance of a reserve p « * to provide for .the. erection of
buildings and facilities required in the business or for the purchase
and installment of machinery and equipment or to.-retire indebtednessincurred for such purposes, will -not destroy the,, exemption©* 2/,. ,
Consequently 5 it is possible under existing law .for an exempt cooper­
ative association to reinvest a substantial portion of its earnings
In plant and equipment without either .the..association..or the patron
being taxable thereon©

v

V.

^ ^

Co. —Other
advantages
-'
®...
—
.
- - - -- -- -^

J

l

T-

Relief of exempt cooperatives from tax on- dividends on capital.
..stock and on reserves constitutes the principal advantage nttribiifer.ole
to the exemption® There are, however, certain lesser advantages which
may be touched on briefly®
.

b ‘ . '•? •

1* -

.

. -i

__________

if Many cooperatives assert that-if the contingency does not arise*

their standard- procedure is\to return the reserve to the patrons
who contributed to it as soon as; this- fact.. is realized©
«
Zf' Regulations 1-11* sec© £ 9 ol0 l(ia)-lo:

>

(L C. O
- IS -

(1)

Business with the federal Government

The statute provides that buying'or selling commodities on behalf

of the wUnited States or any of its agencies shall he disregarded in
determining the right to exemption*M 'Whereas, non-exempt cooperatives
would he taxable on that portion of its net proceeds representing
profits on Government business (unless actually returned to the Government)*
the exempt cooperative is not so taxable© It should be noted, however,
'
that some exempt coopérât Ives actually have made a practice of returning
the-net proceeds to the Government as if it were an ordinary patron or
of providing service to the Government on a direct cost—plus— expenses
basis. Little information is available as to the general practice in
this respect*
(2)

Emergency purchases

,

*tr

As,.'a general rule, an exempt ma.rke.ting cooperative must restrict
its activities to the actual marketing of agricultural products and
must act only on behalf of farmers.
The courts and the Bureau of
Internal Revenue, hew ever, have enunciated the principle that the
exemption provisions should not be construed in such a way as to
prevent the organization from carrying on its functions successfully*
Consequently, the Bureau has made an exception to the general rule
in cases where the amount of non-farm products marketed is small and
where the handling of such items is essential to the efficient
operation of the business© Exception is also usually made where
products are purchased from dealers for a limited time only in order
to fulfill deli very contracts or other emergency purposes«, if
Patronage dividends are not usually paid to such non-member suppliers
or suppliers of non •
’agricultural product s0 Limited amounts of ordinary
commercial, profits thus may escape taxation*
(3)

Eon-operating income

Non—ope ranting income such a„s interest 'on bank 'deposits or on
investments, dividends, and capital gains would probably be taxable
to the cooperative in the absence of the exemption* However, the
amount of income which exempt cooperatives derive from these sources
is,extremely small* 2/
1/ Particular cases must be passed on by the Bureau of Internal Revenue*
Moreover, in the nature of the case such transactipns often involve losses*
2/ The problem of treatment of income derived from investments or from
sources extraneous to the principal activity of the organization arises
in the cane of virtually all organizations exempt under sec* 101 of
the Internal Revenue Code. Since this is a. general problem, which is
most important in the case of organ!zations other than farm cooperatives,
it is not considered in detail in this report®

~ *9 -

3*

Disadvantages of the exemption

The exemption also involves certain dis advantages for cooper­
atives, This is suggested by the fact that only about half of the
farm cooperatives attempt to meet the statutory requirements*; One
of the most important disadvantages is the requirement that exempt
associations must not discriminate against non—members in paying
patronage dividends» Another disadvantage in the case of marketing
cooperatives is the prohibition of dealings with non-producers,
Similarly 9 the restrict ion-of non—farmer-purchasing to 15 percent of
total purchasing has been 'said to act as a limitation 'on;the growth
and expansion of some of the most successful units of the cooperative
movement à
'■
' ' ■
C«

Pat ronage-ftividend cxclusion
lo

Scope of the exclusion

The exclusion of patronage dividends from corporate gross '
income is» not the exclusive privilege of cooperation associations,.
Any corporation making payments to its customers under the conditions
prescribed by. the Commissioner of Internal Bevenuo and the courts is
granted the same treatment 0 It should be potecl, however, that in the ■
case o f .cooperatives} unlike the case of the typical ordinary corporation,
patrons receiving rebates are also the owners of the business»
The conditions which the cooperative associations must meet if
refunds made to their patrons are to be excluded from the gross income
of the association may be briefly stated,
First, there' must have
existed, at the time of the transaction with the patrons a contractual
or other definite obligation on the part of the cooperative to return
any net proceeds to him in proportion to patronage without further
corporate action. Second, if only members of the association are
eligible to receive, na.tronage dividends, exclusion is not allowed on
that portion of such distribution which represents profits from trans­
actions with non—members. On the other hand, it is held"to b.e immaterial
whether refunds are distributed in the form of cash, stock, certificates
of indebtedness, or credit notices. All such forms Of payment are
regarded as the equivalent of cash distributions in the hands of patrons,
the theory being that they are cash payments automatically re— invested
under provisions of the charter, by-laws, or other contracts previously
agreed to by the patrons»
2o

Benefits derived from the exclusion

The tax benefits which the cooperative associations derive from
the exclusion of patronage dividends from gross income depend, of
course, oh the extent to which these payments are in fact analogous
to a distribution of earnings and profits by an ordinary corporation.

-

2?4

20

To the extent that patronage dividends represent the patrons1
share in the association's economic income» their exclusion from the
income of the cooperative can be said to give, farm cooperatives tax^
benefits comparable to those enjoyed by unincorporated firms in their
freedom from taxation on business profits as.such« As regards cash
distribution, the exclusion enables the patrons to receive their*
•respective shares of the association's .net. proceeds undiminished by
the corporation income tax« As regards non— cash distributions, the
exclusion may place at the disposal' of the association the full
amount of its undistributed net proceeds.* In both cases, 'the patrons
thoms.elv.es will-be taxed on-the amounts received by them in cash or
non-cash* distributions* But unless the patrons are, on the average-,
subject, to higher marginal rates of income tax-than those applicable
to the association, the total tax liabilities On the association's
undistributed net proceeds^will always be less than if the exclusion of
non-cash patronage dividends were disallowed and natrons- were taxedonly on cash'distributions.
To the extent, however, that patronage dividends nre composed
of- elements other-than the patrons' share in the association^ economic
-income, their exclusion from the income of the cooperative confers no
advantage on cooperatives as compared with ordinary corporations« As
the discussion in a later section will indicate in detail, patronage
dividends, often include elements analogous to items included'in cost
of goods sold in the case of ordinary Corporations* Moreover, non;
cash patronage, dividends may:serve.-merely as evidence of the capital
contributions of members of co-operatives. r"-Tho amount of excluded
patronage -dividends is not an acceptable measure of the amount of true
npt income .escaping.‘taxation at the -cooperative level by reason of the
exclusion®.
.•• . -. .o .
I), . Effect of present tax treatment on
competitive position of farm, cooperatives

^

..It has been charged,that the complete, or virtual exemption of
'
'..farm cooperatives from income, tax has given these associations an
unfair competitive- advantage over their corporate competitors«.
Sp.ecificaliy, -it”is contended that, because of their more favorable
‘
tax treatment, cooperatives have been able (l) to pay larger refunds
and so .attract more patronage than they could otherwise command» apd
(2) to retain a larger percentage .of their earnings and .so expand
more rapidly than would -be possible if their- income were fully taxaQle«»
In reply to the first of.thus® charges, the cooperatives them­
selves deny that their favorable tax status has had any material effect
upon their volume of business. They contend that any advantages they
enjoy over ordinary business firms, either as buyers of farm products
or as sellers of farm supplies, stem primarily from the. coopern.tive
idea itself rather than from ahy pecuniary advantages to be gained
from dealing with a tax-free or virtually tax-free organizesion0

~

21

-

.. The Issue raised by this argument cannât be easily- resolved!
On the' one hand* there-appear to be few instances' where -cooperatives
have used their tax immunity 'as an instrument of price ■warfare* •
'Indeed*
it would be difficult^ for them to do so* since the more they cut prides*
the -smaller m i l be their economic income and* consequently* their tax
advantage.
In a situation .where both cooperatives and their corporate'
competitors were selling at cost*, the tax advantage would* of course*
entirely disappear*. Moreover* it appears that, in-many markets, where
cooperative associations compete, most directly with ordinary corpo—
rations* .they do not outbid their competitors but make it a practice-,
to charge..the sameTprices.
On the other hand* it -is undoubtedly true
that the prospect .of patronag e dividends has been a significant
factor, in building-up the. member ship-of farm cooperatives.' To -the
extent that the special tax status of cooperative associations has...;*'
permitted payment of larger patronage dividends, -it -may. therefore .have
been a factor in the growth of membership of cooperatives* In this
connection* however* the 'cooperatives argue,that-patronage dividends
.are used mainly as a. ma tter of convenience and that the same results ' •
could be closely approximated by other methods" of sha m n g benefits-which
do not depend on. the exemption or exclusion*
-, The charge that.farm cooperatives* because of their favored tax
status* ha y e .been abie to expand more rapidly out of earnings than
their corporate competitors has been strongly pressed during recent
years of .-high tax rates* During recent .years*'ordinary'corporations
were* subject to high— rate..income and excess-profits taxes T/hich limited
their ability to plough earnings back, into-the. business* 'Farm cooper^- '
atives have been under no such restrictions on their use of funds* and
many of them have taken advantage of the opportunities to finance
acquisitions of plant and equipment out. of retained net proceeds*The cooperatives contend that non— cash patronage dividends are
not analogous to the, retained earnings of-ordinary corporations* and argue
that they represent.,
c apital.contribution to the •enterprise by the patrons*
They also contend that any. tax advantage which they may enjoy as’-thé ■’
result of thé exclusion of their retained .net •proceeds from, gross income1
,
merely serves, fo off set their great ..disadvantages in obtaining equity •
capital* Tne associations point out-.that dividends on their stock are
limited and that they cannot issue a n y security-which corresponds with'
the common sfock of ordi nary, corpora tiens*
Moreover* the market for
such securities as they can issue is small and is composed largely of
farmers who* at least.prior to ,fhe-war* .had always been a poof-source
of equity capital*1
.
* . *.
v*?,, /
,,<,.-4. .
* j* ' *

Since the cooperative associations themselves mast he
earn something on their capital, the argument cannot he ^ e e p t e d that
all.retained net proceeds should he regarded as caplt!^ contribution ,
Concerning the disadvantages of the cooperative associations in s.ek^ng
capital, it is probably true that these associations do not have e^ y
access to the organised capital market as do the^large^corporations.
On the other hand, medium-size and small corporations also find
difficult to secure long-term capital funds,
In current discussions of the.tax advantages enjoyed "by cooper
atives. much emphasis has been placed o n the alleged raji
S™ ,
°
these associations in recent years. While it is true that the dollar
volume of business done by farm cooperatives has increased
__g
two and one-half times since 1 0 7 9 , it docs not appear that the cooper
atives as a whole have expanded their relative share of the market
at the farm level, l/
There has also been some discussion of the expansion of cooper­
atives into the field of manufacturing, and. the charge is sometimes
heard that the tax advantages enjoyed by these organize ions are
resnonsible for this development.
It is not possible on th
'
of existing information to. determine exactly what relative
cooperative manufacturing has made in recent years. The fragmentary
data on dollar volume of production indicate a substantial increase
in the value of production of cooperatives. 2/ But even if ,h.
dollar series were complete it would be of little significance uni.
compared v-ith the dollar volume of competitors of cooperatives,.
In any event, the amount of manufacturing V cooperatives is small, ¿/
./
if

if
J

A statistical analysITTf the relative growth of farm cooperatives
between 1975 and 19^3 is presented in Appendix C.
h^=-rfm e-t
See "Operation of Consumers' Cooperatives m 1 9 -b
I.S. Departmc,.
of Labor, Bureau of labor Statistics, Bulletin W o,_843, p. lb.
The value of production by all purchasing cooperatives (both faim
and non-farm) increased from $71 million in 1947 to $65 million in
Ar estimate of the number and types of productive plants operated
by farm cooperatives in 19b 3 h a s been prepared by the Farm Credit
Administration. These estimates are reproduced, m Appendix V .
Although additional cooperative facilities have, of coarse,, > built or acquired in 19UU and I9U5 . (and some abandoned during
this, period),it is unlikely that the over-all pattern has changed
rapt erially*

IV.

Considerations relating to proposed changes
'in "the- pres ent tax treatment of-, farm,cooperatives
A0

Changes proposed in the present treatment

There is little- agreement-among those who believe that farm
cooperatives should be more heavily taxed, as to the precise measures
which should be adopted» Some would merely repeal the exemption«
'Others would .require the inclusion of all patronage dividends in tne
gross income of the association; others, would continue the exclusion
of cash patronage dividends but would require -the inclusion of^non-cash
patronage dividends. Still others would impose a special tax in lieu
’of income tax on these organizations» This special tax would be based
either on some, measure of invested capital or. on gross receipts0 Those
suggestions appear to be the major alternatives to a continuation of
the present treatment. In this section, the arguments for-and against
each of these proposals are presented and the principal controversial
issues which they, raise are discussed«
B„-

Repeal of the exemption
■ 1,

Arguments for and against the exemption

' The exemption of eligible farm cooperatives from income tax has
been defended on the grounds that these associations (l) operate, in
the public interest, (2) are -not themselves profit-making institutions,
and (3) are more nearly analogous to partnerships than to ordinary
corporations.
With respect to the first point, it has been argued that farm^
cooperatives, in improving the economic conditions of farmers and in
raising the grade and quality of products for public consumption, have
made substantial contributions to the general welfare, 'The special tax
treatment accorded them has been defended as a return lor services
rendered to the public.
With- respect to the second point, it has been contended- that iarm
cooperatives should be differentiated from ordinary corporations because
it is both their intent and practice to do business.at. cost. The farm
cooperative has been likened to a piece of farm equipment owned jointly^
by a number of farmers. It has been argued that, at most, the cooperativ
should be regarded as an agent for its patrons, having no claim upon the
income arising from its operations.
In terms of this argument,^the exemp
tion has been defended on the grounds that there is really nothing to tax

226
24

With respect to the third point, it has been contended that,
despite the fact that cooperative association are in legal form
corporations, they more nearly resemble partnerships than ordinary
corporations* This contention has Deen supported by the assertion
that members usually participate actively in the control of the
association and that the activities of the association are closely
integrated with their members1 primary business of farm production*
It has been,pointed out that partnerships as such are noli taxed on
their incomes and argued that cooperatives should receive the same
treatment* It is contended that application of the corporation^
income tax to «cooperatives would result ,in an undesirable extension
of the area of so-called double taxation of business income, at a
time when many believe that the existing double taxation of distributed
profits of ordinary corporations should be eliminated*
The exemption has also been defended, even oy those who concede
that dividends on capital, stock and reserves are property taxable as
income of the association, by the contention that the amount of revenue
involved is not large enough to justify the trouble and expense of its
collection. It has been argued that.so long as no attempt is made to
tax patronage dividends, the Government would gain little if anything
from repeal of the-exemption* l/
On the other hand., the principal argument that has been advanced
against the exemption is that cooperatives perform the same economic .
function as ordinary companies, that they are organized as corporations
with the same powers and obligations as ordinary corporations, and that
they are organized and operated for the purpose of making profit* It
has been argued that it therefore follows that cooperatives should pay
taxes on the same basis as other corporations*
In reply to the assertion that farm cooperatives both need. the. v.,
encouragement and deserve the assistance now granted them in the form
of tax exemptionj it has. been pointed out that, since the exemption
was originally granted, these organizations have developed greatly'in
financial strength and economic importance* Moreover, reference has
been made to the fact that the Farm Credit Administration through its

U
,

The only legislative reference to the reasons ior exemption of
cooperatives (in the Ways and Means Committeo Report on the
Revenue Act of 1916) states that specific exemption of cooperatives
and certain other associations was deemed advisable because the
experience of the Treasury prior to that time had been ” that the
securing of returns from them has been a source of expense and
annoyance-and has resulted in the collection either of no tax or
in an amount which is practically negligible*”

Banks,.,£or Cooperatives and its research facilities is already giving
^ o p e r a t i v e s important assistance« Finally, it has been argued that,
if hny further assistance is needed, it. should be given in some form
other than tax exemption, the benefits of which accrue largely to the
successful and well-established organizations and not to those which
need assistance most* Weak organizations- in financial difficulty and
new organizations having difficulty in-, gaining, a foothold derive little
advantage from tax exemption®
Exception has also.been taken to the argument that repeal of the
exemption would, not result in sufficient additional revenue to justify,
the expense.and trouble of its collection« It has been pointed out that
most tax-exempt- organizations, including cooperatives, are now required
to file annual information,Returns (Form 990), and that- the recent
tabulation of these returns by the Bureau of Internal Revenue shqws that *
while the revenue involved may be small in relation;to total Federal revenue
it is not negligible« It is roughly estimated that for 1943, the 5^600
exempt cooperative^ in the absence of the exemption, would have paid between
|I0 million and |2Q million in taxes on earnings devoted, to dividends on
stock and reserves« ! / It is said to be unlikely that the processing of an
additional 5,600 returns by the Bureau would have absorbed any significant
part of this additional revenue«

Tjf

The total' dividends on stock reported by the 5,223' farm cooperatives
for which items of receipts and disbursements-were tabulated wer e about
111«7 million® This total is a maximum, however, since it overstates
the tax ba.se to an undetermined extent because of inter cooperative
dividends and because some dividends could be converted to interest
by cooperatives* A fair minimum estimate r/ould probably be about
f>7 millianoJ There was no item on the Form 990 for reserves, but most
additions to reserves appear either under ’’other disbursements or
charges,’r .or in the difference between total receipts and, total dis­
bursements« The combined total of these items ’was about-.|3 5 million,
but unquestionably many other non-reserve items are included, possibly
aven to the extent of 50 percent« Moreover, if the exemption were
removed, it is probable that many cooperatives would accumulate the
greater portion of their funds by use of non-cash patronage, dividends
instead of reserves* The maximum potential base is, therefore, about
• |47 million and the minimum about' |25 million.«

26

2#

227

Controversial j-ssu.es -raised by the proposal
to rep gal th e f t empt 16 n,

An important controversial issue raised ty the proposal to
repeal the exemption, is whether farm cooperative associations
perform services of such great value to the public that they should
be relieved of the tax burdens imposed on other corporate entitles,
-r
This is not an easy issue to resolve, Farm cooperatives* even though
they are operated primarily in the interest of their ¿armer—patrons *
undoubtedly have contributed to the general welfare^ . On the other
hand* there «re few businesses which could not make some claim to
having served nubile as well as private interests* :As has-been pointed,
out elsewhere* cooperatives and ordinary corporations each provide a
'means whereby individuals * in earning their living, may s a t i s f y t h e i r y
own particular hopes and a solrations, and experience alone can determine
‘the fields in which each can most uçefully make i t s ,own:peculiar contri­
bution to the economy, 1/
..
. *• ,
It must be recognized that there is always a presumption against :
any tax exemption and. in favor of uniform taxation* An exemption can
be .justified only by a. clear preponderance of evidence in favor of the
social 'desirability of the pbjective..a^-.the effectiveness ef^the;
exemption in promoting desirable ends.without tm-A esirablè Collateral
effects* In deciding whether the exemption should -be. repealed or retained
considerations of revenue and .-equity must-be -weighed: .h^ainst the advantages
to the economy "as à 'whole. Which', r.esult. fro-m this pantlehiar form of encourage­
ment to the flow 6f capital and effort into cooperative'associations.
So long as patronage dividends continue to .be excluded from the
income of .cooperatives, it- does not appear that the cooperatives themselves
would be greatly harmed, by tie loss of their tax-exempt status* ,:.In fact y
there are many within the cooperative .movement who think that it creates an
’anomaly to have agricultural cooperatives tax— exempt and other .cooperatives
not so favored* They are inclined to Question whether-the- exemption is in
the best interest of the movement* since the restrictions- on business;dene
with non— farmers limit expansion of coôperatioh in urban areas# •On. the v
other hand* repeal of the exemption alone would, in no sefise satisfy those
who "believe that farm cooperatives Should bé.'tâxed like .ordinary.businessesi
They seek repeal of the exemption as a matter of course, but £heir majorobjective is the termination of the patronage-dividend exclusion#
1 / ' Report of the Royal Commission on Cooperatives* Ottawa, 19^5» P»

31

-

27 -

3« .Alternative proposals short?- of full repeal
The suggestion has been made thatif'tEe exemption is not
repealed, it should at least be. confined to. the "grass-roots'"-'
cooperatives' whose problems led to the .original enactment by
Congress* íhis;suggestion raises difficult problems in connection —
with determination of eligibility for...exemption* The definition of
a "small” cooperative is a matter, of judgment, and any statutory or
administrative definition would’have io be essentially arbitrary*
Moreover, particular.,cooperatives, might move-in .and out-of tho
exempt area because of year-toryear. fluctuations .in business or
■
membership*. Large associations might be split up to take advantage
of the exemption* Other associations would be rabiefto -maintain their
exempt status (if the exemption were limited in-,-terms of size of gross
receipts) by changing to a commission basis and-not talcing title to
patrons^ .product,
. '
.. .
- ■’«.••
* , <,
;r"
The suggestion has also been made that if the exemption is retained
ambiguities in the present statute should be cleared up* For example,
the statute is silent about manufacturing, operations by exempt cooperatives«
It-offers no solutiofi to the question of income., from by-products* 'It
provides no real clue as to what are "reasonable and necessary reserves*"
It has been pointed, out that the Bureau of Internal;Revenue has been
forced to m a l e 'interpretations of the intent of Congress with .rpspoct to
'these and other matters.without specific guidance f r o m the statute* As
■ a result, there has been a.considerable amount of .^litigation with respect
to qualification'for the exemption* ....
-* ,
...
;
,
C*

t ‘

•

Require the inclusion of all,patronage, dividends ■ *
in the income, of cooperatives.
,
V 1«
' ’

Summary of arguments for and against the present
exclusion of patronage dividends from the income
of' cooperatives'.
‘ : . ..
.....

The exclusion of pathonage dividends from the gross, income, of
cooperatives has b e e n •defended 'on three main grounds* . First, it has
•'been argued that these payments are in the nature, of. price rebates
and as such are'not income within the meaning of the Sixteenth Amendment#
Second', it has beenf'Argued that a farm, cooperative is essentially a
partnership o f farmers with the association acting in the role of agent
and.haying no interest in. the net. proceeds of the,.biisine£s* ' Finally,
it has been Contended* 'that, even if patronage dividends were held to bé
legally taxable to tho cooperative association, they should not be so
taxed because it is virtually impossible to determine to what extent
these payments represent distributions of profits and to what extent
they do not*

¿¿.Ó

28

-

The principal argument against the exclusion is the contention
that there is no difference between the patronage dividends of cooperative
associations and the ordinary dividends of commercial corporations^ It
is argued that the fact that these dividends•are paid to patrons, who are
also stockholders, rather than to stockholders as such does not affect
their, character as a distribution of profits«. Patronage dividends not
contractually fixed as to amount at the time of sale, it is said, are
not true rebates® Neither, it is said, can an association which pays
dividends on capital stock and accumulates reserves be regarded merely
as the legal agent for its members« Patronage dividends, it has been
argued, are the property of the association acting as a principal and
as such should be taxed in the same manner as ordinary dividends« While
it is usually admitted that not all so-called patronage dividends are
analogous to ordinary dividends, it is argued that patronage dividends
can be administratively separated into their constituent elements»
2»

Controversial issues raised by the proposal to
inciude 'patronage dividends in the gross income
of farm cooperatives
.

Since the exclusion of patronage dividends from the gross income
of farm cooperative associations virtually exempts most of these
associations from income tax, the proposal to include these payments
in the tax base raises the same general policy issue as is raised by
the proposal to repeal the exemption^ namely, should farm cooperatives
as a matter of public policy be granted more favorable tax treatment
than ordinary corporations» But in addition, the proposal to discontinue
the exclusion of patronage dividends raises a number of issues, which
would still have to be resolved if it were decided that all of the income
earned by cooperatives should be taxed to the associations as such«. These
issues relate, first, to the power of Congress to tax patronage dividends
and, second, to the propriety of using patronage dividends as a base for
assessment of income tax» The first question is primarily one of the
constitutionality of a tax on payments made to patrons in accordance
with a pre-existing contract» The second concerns the concept and
measurement .of net income»
a»

Are patronage dividends taxable income to the
cooperative?

Because .of the Treasury!s practice'of permitting patronage dividends
to bo.excluded from gross income by cooperatives (and other businesses.)
the issue of whether such dividends nay constitutionally be included in
gross income has not been squarely presented to the courts» In the cases
in which the courts have been called upon to determiné whether the exclusion
should be denied, the position of the,Treasury has been .that, the dividends
paid were not true patronage dividends, generally on the ground that .they
were paid on ly to members or stockholders»

29 -

Several arguments have been advanced in justification of the
present practice of permitting the exclusion from gross income of all
amounts paid as patronage dividends* One argument is that such dividends
constitute discounts or rebates* The rebate or discount increases the
cost of goods purchased by the association or decreases the price of
goods sold by the association* By the same token, it increases the
price received by the patron for goods sold by him to or through the
association, or reduces the cost to the patron of goods purchased by
him or thrbugh the association* Thus in Uniform Printing,and Supply
Company v* Commissioner, \J the taxpayer, a corporation all of whose
stock was owned by a group -of insurance companies who were its sole
customers, was required by its by-laws to return to its customers, in
proportion to business furnished by them, the surplus earnings not in
the opinion of the board of directors required in the conduct or expansion
.of the businesso. The determination of the .Commissioner that amounts so
returned were dividends to stockholding customers was upheld by the Tax
Court* .In reversing this decision, the Circuit Court held that the pay­
ments were customer rebates similar to discounts* Similarly, in Midland
Cooperative Wholesale, Zj the Tax Court stated that the justification for
allowing the exclusion rested on the fact that patronage dividends arein reality rebates upon the business transacted by the association with
its members rather than true income to the cooperative©
Another line of argument is that patronage dividends cannot bei.
considered income to the association^, since they are at all times theproperty of the patrons* The association, it has been.argued, is merely
the agent of the patrons and holds any excess remaining after payment of
expenses as bailee for the patrons and.is legally obligated to return
such excess to them©
has also. been urged that an association .which
agrees to distribute all its earnings to the patrons cannot be considered
an entity apart from the patrons» The association is in fact the patrons
acting in.concert* Like a partnership, it is merely the alter ego of
the patrons* Accordingly, it has been argued that the association as
such cannot have a.ny profits and that any income which is’ obtained is
income of the patrons©
Others contend'that' patronage d ividend's are not essentially different
from dividends paid on capital stock* They maintain that although patr'onage
dividends nay be described as- rebates, such rebates are paid to patrons
whose interests the association is seeking to further, rather than to
persons with whom the association deals at arrrhs length.*-- The payment of
such rebates, it has been argued, constitutes a distribution of profits
to the,real owners of the association just as the payment of dividends
on capital stock represents a distribution of income to the real owners
of a corporation* .
.
......

y
2/

88 f . (zd) 75 (c.c^Al'
44 BIA 824 (1941).

n h. TsMTT^- -------------------- ---------------" ~

229
- 30 -

Those who argue for the inclusion of patronage dividends also
deny that the funds from which' such dividends are paid•are at all times
held by the ,association merely &.3 agent*
They, point but thab despite
the obligation of the' association, to return, to- its patrons-'all ;net^
proceeds, the association has the.p o w e r •to divert.some of its receipts
to the payment of dividends on capital stock'and to the establishmentof reserves* They cite these powers as evidence..that the association,
rather than the patrons,is the owner of the funds from which patronage
dividends are paid* 2 j It;has also been pointed out that an ordinary,
corporation does not eliminate its-taxable .income by entering into a
binding contract governing th© disposition of. its net -income*
Enough has been said to indicato the nature of the court decisions
relied upon by those who take positions on either side of the constitutional- ,
.
issue*. The discussion.now turns to the major policy issue of whether '
Congress should attempt to-include patronage'dividends in.the ,gross income*
of the association and thereby specifically present tner constitutional
issue, to the courts *
■

b,

'*

Do patronage.dividends provide an appropriate
base for the assessment of income tax?

The question-discussed-in this section is whether patronage dividends
provide an appropriate base for the assessment of income tax on the
cooperative association as such* The approach is to consider to what
extent-the amounts-which farm cooperative associations-report as patronage
dividends- are analogous to the earnings and profits of ordinary corporations®
From the previous discussion of the way cooperatives operate, it seems
d e a r that these associations .give- rise; to economic income over a-period
’of years,, at least to the extent that they use.any substantial amount of
capital, and assume any significant degree of risk* The economic income
earned by cooperativeshowever, cannot’be satisfactorily measured by the
amount of patronage dividends-distributed* Some cooperatives so cohdUct
their business that no patronage .dividends are needed to return', their
benefits to patrons* In other cases, patronage dividends either’under-*
state or overstate the amount of economic income earned by *the association*
In still other cases, so-called patronage dividends are paid by associations
that-are not engaged in' operating, a, business, in the --ordinary sense*
l/
2 /

In this connection they cite the case of Farmers'1'
. Union Cooperative
Company of Guide Rock v* Commissioner, 90"F. (2d) 488 (C.C.À, 8th, 1937)*
Other 'decisions which have been cited as indicating that the courts are
not always responsive to the agency and rebate arguements in their
application to cooperatives include Juneau Dairies, Inc*,, 44B*T*A*
79 (1941) and Maryland and Virginia Milk Producers* Association v®
District of Columbia, 119 F* (2d1 787, Discussion of these and other
cases wbuld not, however , throw much additional light on the consti**
tutional question at issue*

- 51 -

One type of case in which cooperative associations do not pay
patronage dividends is that in which their .business is operated on
a cost-plus-expenses basis, with benefits returned to patrons currently
in the form of higher (or.lower) prices for goods marketed (or purchased)*
At the present time, a much more important type of case is that in-which
marketing associations make only a token payment to the farmer at the
time they accept delivery of his product and pay him the balance- of the
proceeds of sale at tho close of the marketing season* These associations
do not ordinarily keep- their accounts so as to make possible a separation
of those elements which an ordinary corporation would consider its cost
of goods sold from those elements which it would consider its profits* 1/
Among those cooperatives which regularly pay patronage dividends,
the amounts paid m y either overstate o r ,understate the economic .income
earned by the association# For example, purchasing associations some­
times make a practice of charging the farmer somewhat more than the .
market price in order to accumulate capital* The extra amounts are
returned to patrons in the form of non-cash patronage dividends, but
they are actually a fora of capital contribution of members rather than
income.earned by the association# Understatement of the economic income
of the association may result where the cooperative sells at a price below
the market but high enough to result in a small patronage dividend at
the end of the year*
•
Even among cooperatives of the Rochdale typo whope avowed objective
is to pay (or charge) prevailing prices, patronage dividends do n o t , ,
necessari iy consist solely of income earned by the association# 'If
other competing businesses give special concessions which do not enter
into list prices, such as quantity or seasonal discounts, free delivery-,
or the extension of credit, the cooperative may choose to match these,
not by offering the same services;, but by holding out the prospect of a
patronage dividend at the end of the year.
To the extort that the
patronage dividend does substitute for ’’quality” or non-price competition,
it'will, of course, exceed the amount which would be analogous to the
profits of an ordinary corporation#

•T 7

Tli.ese cooperatives occasionally refer to the 'entire" finai "payments
as ’’patronage dividends” , but the'payments are clearly not analogous
to patronage dividends in the -ordinary son s'e#
7 '' -' "
• ■

•

f

230
- 32 -

Finally, some associations' that distribute so-called patronage
dividends are not engaged in business activities in the ordinary sense
and hence can hardly be said to earn, business income, although they
may benefit farmers, in such cases, the patronage-dividend device
is. merely a method of adjusting preliminary assessments for expenses
to actual expenses«» For example, some marketing associations .are :
essentially bargaining associations, which negotiate prices with buyers
and leave the actual sales to, farmer-members. T h e s e ‘associations often
levy a tentative, assessment o n ’each unit of produce to cover exepnses
of the association. ' If actualjexpenses prove to be less than the
assessment, the excess is returned to members in the form of a patronage
dividend” in proportion to products sold by each individual member©
It a p p e a r s t h e r e f o r e , that there are substantial grounds for
questioning the appropriateness of patronage dividends as a base for
taxing the income earned by cooperatives. In many situations, a
statute requiring the inclusion of patronage dividends in the gross
income of cooperative associations would operate most inequitably.
It would result in overtaxation of cooperatives in cases where
patronage dividends overstate the economic income earned by the^
cooperatives© It would result in unfair discrimination among different
types of cooperatives in cases where patronage dividends understate the
economic income earned by the cooperatives, or w h ere patronage dividends,
are not used at all.- It would not be an effective means of equalizing
taxes on cooperatives and' other forms of business organizations.
Moreover, if patronage dividends were included in the gross income
of cooperatives, the result might merely be to induce those associations
which now report substantial patronage, dividends to change their methods
of doing business so as to have little or no not proceeds to distribute
at the close of the year. In the case of an ordinary corporation it is
always in the interest of the firm to maximize its net income, regardless
of the fact .that the .income is subject to the corporation income tax.
But the situation with respect to the cooperative association is quite.
différent. The primary objective of a farm cooperative is not to maximize
the income shewn on its own accounting statements'but to maximize, the income
of its farmer-inembers. Success in achieving this objective is not-depend­
ent'oh the size of patronage dividends.. In the case of a marketing
association, a low initial price and a large patronage' dividend ^are . ?.
equivalent, from the standpoint of the farmer, to a higher initial price
and ;a smaller, patronage dividend© In the case of a purchasing association,
a high initial price and a large' patronage dividend are equivalent to a lower
Initial price and a. smaller patronage., dividohd. - Although those cooperatives
now Using the patronage-dividend device undoubtedly find it convenient,
inclusion of patronage dividends in the gross income of coopérabives
would greatly lessen the attractiveness of this device. The tax could be,
and in many cases probably would be, avoided by direct price adjustments
and other devices now used by many cooperatives .which return benefits to
patrons without the use of patronage dividends©

35

The possibility that patronage dividends night understate the
income earned by cooperatives, or might not be used o.t all, has not been
overlooked by those who favor the inclusion of these payments in the gross
income of cooperatives for tax purposes» To meet this problem, they would
require the Bureau of Internal Revenue to reconstruct the income of coopera­
tives and to determine what patronage dividends would have been paid had
the association paid (or charged) prevailing prices minus (or plus) reasonable
opero.ting expensas»
They assort that income of cooperatives could be recon­
structed by reference to prevailing market prices, where available or by
comparison with comparable firms© On this approach, income tax would be
assessed on the basis of the reconstructed income, including reconstructed
patronage dividends©
Such a plan would, it is clear, raise a host of administrative
problems« 1 f
The Treasury would have to determine prevailing prices for a
large number of commodities in every local market for every day in the year.
It would be extremely difficult to determine to what extent commodities
handled and services rendered by cooperatives and ordinary firms -were actually
comparable^ The assessment of tax Would require an elaborate and timeconsuming process, and would doubtless give rise, to much litigation© It
should be noted that, if such a plan were adopted for farm cooperatives,
consistency would require its extension to non-farm cooperatives, including ,
the many cooperative procurement associations used by retailers and other
businessmen© The administrative problems would, therefore, be even greater*
than may appear at first glance©
Even if administrative problems connected with the reconstruction of
income of cooperatives could be satisfactorily mot, the plan would raise a
fundamental issue of tax equity0 In the case of cooperatives, price policies)
which may have been chosen for non-tax reasons, would, in effect, be dis­
regarded in the determination of tax liability.
This raises the question,
whether it would be fair to tax cooperatives on the basis of some concept of
"normal11 income— a concept which would inevitably be subject to many different
interpretations— without doing the same in the case of other businesses©
1 7 These administrativeproblems would be essentially similar to those
..encountered in auditing claims for refunds of processing taxes after
these taxes were declared unconstitutional and in administering
section 722 of the Internal Revenue Code, which involves reconstruction
of base-period income of taxpayers in connection with claims for relief
under the excess-profits tax© These problems required an enormous
investment of time by revenue agents and the creation of special
divisions within the Bureau of Internal Revenue to expedite settlements»
It should be noted that in the case of the processing taxes and the
excess-profits tax the problems were non-recurrent and that large amounts
of revenue were involved©

231

- 3^ ~
Do

Continue- the exclusion of cash patronage clividcndsjfait
require the inclusion of non— cash patronage divi¿Lends
in the jncooe of cooperatives

Son© recommend that the exclusion of cash patronage dividends
he continued but that cooperative associations he required to^
include in their gross inconel patronage dividends paid in scrip or
other non-cash forns« As was pointed cut earlier in this report,
non-cash prtronage dividends by-farm cooperatives have been regarded
as the- equivalent of cash distributions on the grounds that they
are in effect cash payments automatically reinvested under the
provisions of the charter, by-laws, or other contracts previously
agreed to by the patrons* Accordingly, it has been held that
^
they are taxable to the individual patron rather than to the association*. .Many of the problems and issues relating to the ^proposal to
include all patronage dividends in the income of cooperatives, which
are discussed in the preceding section, are pertinent to the proposal
to include non-cash patronage dividends in the income of the
^
N
associations« This section, .however, deals only with the special
problems and issu.es raised by the proposal to include non— cash
patronage dividends in the income of the cooperatives, while
continuing the exclusion of cash patronage dividends*
•lo

Summary of arguments for and against the present
‘ treatment of non-cash patronage dividends

The present treatment of non-cash patronage dividends is^similar
to the treatment of earnings reinvested in a partnership© This part­
nership approach has been criticized as being unrealistic with respect
to the great majority of farm cooperatives« With the integration and
consolidation of these associations into inter-regional organizations
the individual farmer has been^said to be too far removed from the
activities and control of the overhead organization to be treated as a
partner* It has also been argued that many patrons of farm coopera­
tives do not have any real choice regarding the form in which they
will receive their patronage dividends«. Both non-member patrons and
dissenting minority members are, it is pointed out, bound by the
vote of the majority members, which is said to vitiate the contention
that non-cash patronage dividends are voluntary contributions of
capital* It has been contended that in 'many cases the farmer either
receives only a book credit or a non— transferable certificate end so
has nothing that can be regarded as a true rebate* furthermore, it
has been argued that the farmer does not regard his scrip) dividend
as the equivalent of cash and, therefore, does not report it in his
income tax return and that, in actual practice, the partnership
approach is not always followed* .

-

35

On the other hand, those who favor the exclusion of non-cash
as well as cash patrona ¡ce dividends argue that the members of
cooperatives typically play an active part in determining the fy?
policies of their associations, It has, therefore, "been con­
tended that it is appropriate to make members accountable for
individual income taxes on e a r n i n g s w h i c h the members have
voted to reinvest in the association* As regards the fairness
of taxing,.such dividends ip the hapds of non-member natrons and
dissenting minority, members., it has been argued that no. farmer
is obliged to trade with-V' or become a member of, a ■cooperative
association.
Consequently, it is said, if "he decides to deal .with
or to join^a.■cooperative in order to^share in its benefits, .he
should expect ,to a s s p i any obligations which the members, as a
.whole deed'd.® to/impose on thémselves, io permit .ever** p^thUh ?to \
êxercise." his own individuar ‘choice in. the matter would, it is said,
invite '"freei r i d i and possibly Undermine thé economic founda- ’
tions of the organizations themselves. As to whether a non— cash
patronage dividend, can.be regarded as a true rebate, it has/been
argued that ..the..'qp.estion .of its transferability or liquidity is
essentially irrelevant.• .The farmer receiving an interest—bearing
or dividend.—paying.-se.curity has a claim on .future income ?»hich_it ■
is -said any reasonable .man'.would- include in his personal balancée
sheet., irrespective:.of "its liquidity, Finally* as regards the'‘
matter
of reporting such .receipts, it has been held that the problem could
be easily handled, first, by 'making; the farmer more aware of ^the -box
status- of these .piments.and , second,., by .requiring" the. association^
themselves, to provide, informât ion at the. source« :
- _
2.

'

Other Vrma id.prêtions raised‘by the proposal..
- to"include non-cash patronage dividends in the ,
. income, of cooperatives.,
..... .

The proposal to require the inclusion of non— cash patronage
dividends in the income, of cooperatives raises the problem of the
definition of cash .and noaecash distributions, in. thé light of the
doctrine of constructive receipt of cash. This is a highly tech- ,
nical matter, which-.would ultimately have to be.passed on by the
courts.
In the -few'-d eels ions on the matt_er,“t he lower courts haye
been disposed to. consider as •equivalent to cash both.^a) options to
receive .cash in lieu .of stock and (b) patronage'dividends applied ‘to. the purchase of* stock by members i n ‘accordance with.the .by-laws
of the associaiion, 1/

.

r

-

X / M idland Coop érât i^ e V h o l e s a l . -T A , S2Ì (1921). ; 'Jm t 0d
Coopérât iv o , In co rp o râ t ed , .U. T • C,- 93*

232

Teveri if Congress were willing to ac.opt a more restrictive
definition of a ’’cash“ 'distribution than thè!courts •have thus
far "been disposed. •to follow, it seems highly' likely fh.au the
courts would continue-to hold'that an option to receive^cash
is equivalent -to'actual’receipt of cash« Many cooperatives
.,
already make a-practise of•giving patrons;ân option to receive pat­
ronage :&ividends.in the 'form Of stock or cash. Their success
with this.-practice makes it probable that its Use would increase
among cooperatives whose distributions might not otherwise
qualify for the exclus ion 'as cash pat ronáge dividends«
Congress could presumably provide by statute that distribua
tiens of stock or book credits shall not be considered the equivalent
ef a cash patronage dividend un3,ess the stock or book créd.it is
transferable. At the present time, the majority of cooperatives
using revolving funds and paying non-cash patronage dividends do
not issue any actual certificates, and ,■ among those associations
issuing certificates, .many use non-fra.nsferable stock.- 1 J ; If,
however9 non-transfenable distributions were made taxable, $nere
would arpear to be no important legal or economic, reasons for any
cooperative to continue to Issue'rion-transferable paper (except
possibly in the case of non-stock association members’ certificates).
The principal function of non-transferability-has.been to nrevent
speculation in the paner of new organisations— a factor which vouxd
be of only minor significance relative to the tax;.
In the light of the foregoing considerations, "it appears that
a reauirement that non-cash distributions of patronage dividends be
included in the income of cooperative associations, while cash
distributions were excluded., would; net; prevent cooperatives from
build.ing up substantial amounts of capital out of earnings not taxed
to the association.
Tfcr use of ;the-.option to receive cash and per­
haps also by the, distribut ion of transferable stock, cooperatives'
could’retain income which would -be regarded.as -construct ively received
by members and hence excludable from the taxable income of the associa­
tion, Moreover., it. would'be possible for cooperatives to levy, assess­
ments against patrons to distribute cash patronage dividends and. at
the same time to levy an equivalent -assessment '.against patrons. This
would enable the association to qualify .for. the exclusion, while still,
in effect, accumulating capital; out of earnings.

Tj

Among, the organisations which do issue certificates, an informed
estimate is that about one-fourth of the certificates are in the
form of preferred, stock (all transf erable) .and most of the
remainder is in the form of revolting-fund or-other certificates
1(about one-half of which.are transferable). Patronage dividends
in the form■of common stock- (particularly important in toé case
'Of non— member patrons) a r e -generally legally’transferable, ■
although in most cases the stock must be offered at least at
-first to other members >or to the .association itself.

- 37 E.

Alternatives to the income tax as
a method of taxing farm cooperatives

The difficulties that would he encountered in attempting to^
include patronage dividends of faim cooperatives in the corporation
income tax base have persuaded some critics of the present treat­
ment that some other approach must be used to tax these associations
to the same extent as ordinary business corporations« The present
disparity in the tax burdens of cooperatives and ordinary corpo­
rations should, in their opinion, not be permitted to continue«. If
tax equality cannot, be achieved under the., income tax, it is their
view that it should be approached from some other direction« Two
alternative taxes have been suggested, each of which will be given
brief consideration«,
1«

Gross receipts tax

An alternative to a net income tax. on farm co ope rati ves that has
been suggested is a tax based on gross sales or receipts« In the
view/ of its sponsors, such a tax would have the advantage of reduc­
ing the effect of variations in accounting methods on cooperative
tax liability«' Although the.association doing business on the
prevailing-price method w/ould still be somewhat more heavily taxed
than one operating on a cost-plus-estimated-expenses basis, the
difference /would be much less than it would be under a net income
tax with patronage dividends included in gross income«
It would, however, be impossible to select any one rate of tax
on gross sales or receipts which w/ould be approximately.equivalent to
the corporate income tax if imposed on the economic income of
cooperatives.« The amount of profits earned on a dollar of gross •
sales or receipts varies widely from industry to industry, and to
a lesser extent, from.firm to firm in the same industry«, It depends
on such factors.as the amount of capital employed and its rate of
turnover and whether the particular firm is a producer of ba.sic
commodities, a .processor/ a wholesaler, or a retai. ler*. .Even
though f&rm cooperatives, taken as a whole, are predominately trading
associations, it appears that a tax on gross sales or receipts would
probably yield rather .capricious results* Among ordinary corporations,
'
a .uniform tax on-gross sales or receipts would be equivalent to widely
different rates on net Income as betw/een manufacturers, wholesale trade,
and retail trade, and as- betw/een retailers in different lines* l/
l/ For example, in 194-2, a 1—percent tax on gross sales and receipts
from operations would have been equivalent to the following per-’
centages of .compiled net profits of corporations filing income.tax
returns (including .those with and those-without net income):, .'total
manufacturing, 8«6 percent; wholesale commission merchants, 15«6 per­
cent; ^other wholesalers, 26»3 percent; retail trade, general mer­
chandise, 11*2. percent; retail food stores, including market milk
dealers, 5.0«0 percent; filling statiohs, 2 9 *4- percent; detail hard—
w*are sto.res, 16*7 percent; retail building material, fuel, and ice
stores., 25«6 percent« Computed from Statistics of Income for 194.2
Part 2, Table 3«
----- ----------- —
9

233
•

. 3g —

!2h.ere is every reason to ’believe that the sane would he true of
a uniforn gross—receipts tax on. coopera.ti.ve associations of
different types# A further complication arises from the fact
that the income tax on ordinary corporations is not imposed at a
uniform rate hut is graduated on net incomes*of less than $ 5 0 ,000«,
Under a gross-receipts tax, additional differences in taxes
on essentially similar cooperative associations would arise out of
purely legal differences in the form of organization and method
of doing business# For example, a federated cooperative (composed
of a numher of legally Independent units) .would presumably be sub­
ject to tax each tine products moved between successive stages,
whereas- only one tax would be imposed in the c ase of 'a centralized^
association.» Moreover, marketing and purchasing associations which
operate on a commission basis5 without taking title to the goods
handled, would presumably be subject to tax only on their gross
receipts from commissions, whereas otherwise similar associations, •
which,.however, take title to the goods handled, would be taxed on
a much larger base# Imposition, of the gross-receipts tax would
doubtless stimulate changes Civ legal organization and method of
doing business intended to minimize the tax«
Any attempt to meet these problems by establishing different
rates of tax for different types of associations would encounter
formidable difficulties and would still leave the equity problem
unsolved in borderline cases«
Finally,-, it is generally agreed that a gross-receipts tax is
much more likely to be passed on to consumers than is a tax on net
income# To the extent that the tax was passed on in tiun form of
higher prices for farm products, it would, of course, fail to accom­
plish its primary objective of imposing a tax on the economic income
of the cooperative associations* The possibility of shifting of a
gross—receipts tax would be greatest in cases where cooperative
marketing associations supply a large share of the market for a
particular commodity#
2•

Tax on invested cmpitat

A second alternative, or supplement, to a net income tax that has
been proposed is a tax based on invested ca£3ital# A tax of this type wou
be based on the presumption that the capital invested in a cooperative
association may be e j e c t e d to earn at least a normal rate of return
for its owners#
The imposition of such a tax would raise the problem of defining
invested capital, particularly that of determining whether it should
include only equity capita! or both equity and borrowed capital# In
favor of confining the tax to equity capital, it has been pointed out
that ordinary corporations arc allowed a deduction for interest pat on
borrowed capital and hence argued that, if the objective is to impose
a tax equivalent to the income tax on ordinary corporations, coopéra ives

—

39

-

should he allowed ftpc-excl ude horrowedv- capita].;* ihir.ther&orer. it. '
has been cent ended that the inclusion n.f--boprpwed. capital would,
give yin advantage', tò ‘.'strong''coepéraltyes; -that can harrow'at 'int erest
rat es" 'lower 'than- the average return on /total invested .-capital •. .On
the other vand., the inclusion of borrowed capital has' been "supported
by thè contention'-that in thercàse of cooperatives the distinction
between equity' and' 'debt ’
*is ■not *particularly significant * inasmuch
as dividends on stock are strictly-limited«. ■.Moreover, cooperatives
pay non-cash patronage vivid ends in', both debt and equity forms,. and.
exclusion of debt ‘would permit,the associationsto avoid the tax
by distributing'future-non-cash; patronage dividends in the form,of
debt -'obligations.' ' " ■ %•'.-A /V -:
■ y; p -,
À further problem in' connection with a tax on .invested capital
would, be-the s elect ion of àn appropriate rate,. .As in the^case of
gross receints,-tthere are important variations in the relation"
between invested, 'capital and net income-at any given .tisie, •Uxperience
under the excess— profits ièx has demonstrated that these -variations
are very large in-the' cas? of' ordinaiy corporations, and. it. is
reasonable.to assume that the "same lack, of uniformity exists... in the
case of cooperatives.
It may be presumed that all cooperatives that
stav in business earn-at least a normal rate of return over the long
run, but year-to-year fluctuations above and below.normal earnings
are probably so wide that 'a tax.' assessed on ah annual .basis would,
often result in serious hardships or inequities«' The -tax, on .invested
capital would bear relatively heavily on weak and declining associations
but relatively lightly on strong and growing assoòìations,
Finally,it may be pointed out that a tax on invested capital,
would, give rise to serious--legal and- administrative .problems. As
experience under the excess-profits tax hastshPWi,-the valuation
of invested capital is always a complex-problem which is impossible
to solve in ah entirely satisfactory manner*

234
r

ko

~

APPENDIX A

Economic Importance and. Present Tax Treatment of Cooperatives
Other Than Farmers' Marketing and Purchasing Associations

I#

Urban purchasing cooperatives

Closest to the farmers’ marketing and purchasing associations
in terms of economic functions are the urban purchasing associations«,
These organizations differ from farm purchasing cooperatives only in
the character of their membership and to some extent in the- type of
commodities'handled# Many of these local urban associations are
affiliated-with the farmers’ cooperatives in the regional and inter­
regional federations (particularly, the petroleum associations)0
As of 1945, the Bureau of labor Statistics estimates that about
2,650 non^farm local purchasing associations 1/ were in existence
with about 812,000 members# 2/ Retail grocery and other retail stores
accounted for the bulk of the associations (1,850) and members (600,000),
followed by petroleum associations (775 associations with 200,000 members)#
Total volume of business was estimated at nearly $330 million or about
6 percent of the total farm marketing and purchasing volume and about
33 percent of farm purchasing volume alone# Retail store sales were
$171 million and petroleum sales nearly $140 million0 No data are
available as to the amount of patronage dividends paid by these associ­
ations, but the total was certainly less than $5 million and probably
less than $2 million#
The tax status of these urban associations is the same as
non-exempt farm associations#
The associations are subject to
corporation income tax, but may exclude from gross income bona
patronage dividends paid in cash, as well as in non-cash form#
income consists, therefore, of dividends paid on capital stock
amounts retained and added to reserves#

that of
the
fide
Taxable
plus

Patrons of urban associations are not taxable on patronage
dividends received# It wall be remembered that patronage dividends to
farmers from purchasing associations enter into income only indirectly
( i o O ^ b y reducing farm costs) since patronage dividends are held to be
legally price reductions# A price reduction or ’’bargain purchase” as
such is hot considered taxable income and since consumers1 expenditures
for food, clothing, and the like are also not'allowable deductions
(i«e#, costs of earning income) under present concepts of taxable .

X j
¿’ J

Defined as associations the majority of whose members were not
farmers#
Not adjusted for multiple memberships#

- kl ~

income', urban consumers pay no tax on patronage dividends 0 The
treatment of urban purchasing cooperatives', therefore, differs from
the treatment of farm purchasing cooperatives in thht the income
arising in such cooperatives is not ordinarily reached by the tax
system at one level or the other,
IIo

Other cooperatives

Other types of organizations.commonly considered as cooperatives
in the broad sense include certain mutual insurance companies, mutual
irrigation companies, cooperative telephone companies, credit unions,
and the like© Hex"e again, ,the essential tax principles previously
discussed are fully applicable.despite surface differences in actual
methods of operation and organization» Unlike the urban purchasing
group, most of these miscellaneous organizations are specifically
exempt under some subsection of section 101 of the Internal Revenue
Code© Where the organization makes a payment to members or patrons
analogous to the patronage dividends of marketing or purchasing
associations, the tax treatment is' approximately the same© That is,
refunds .to business units enter into taxable income directly or
indirectlyg but.refunds to non-business units are not taxable© The
following table shows the number, membership, business volume (where
available) and tax status of the miscellaneous organizations considered
as cooperatives in official statistical sources© The table does-not
include the many organizations formed,on cooperative principles by
business firms for the purpose of procurement,’ wholesaling, and the like,
which are not included in the ordinary usage of the term 'cooperative ©

Table 1
Humberc Membership, Volume of Business. and Tax Status of Miscellaneous Cooperative Associations

Type cf association

P r oduction and other farmers1
cooperatives: 2 j
‘‘.
.* •/
Mutual irrigation companies (19*40)
Farmers* Home Administration—
V financed, service cooperatives
. (August 1 9 ^5 )'- ;-.
Dairy herd improvement associations
(January 19*46)

:Total number: Humber of
:Volume of:
:
of
: members or ebusiness :
$associations^participants?' (est,) : •
:
(;cstc) : '($000) :
t____ (estp)

H j 396

2*43

iHe,29U

1 1 7 ,0 0 0

1,12*4

2 3 ,3 3 1

Dairy bull associations
1 (January IQ *46)

16 5

2,15*4

Cooperative dairy cattle artificialbreeding associations (January 19*46)

336

73,293

Grazing associations (19*46)
Farmers1 Home Administration—
Financed marketing and purchasing
associations (August 19*45)

32

791

.

i

»3QH

• 128,000

$6/437 3/

y

Tax status.l/
;

____ _____

Exempt under IRC, section 101(10),

Variously exempt and non-exempt
depending on particular activities«,

5/

Exempt under IRC, section 10l(l)
provided net income docs not inure
to the benefit of any member»

5J

Same as above,

5/
y

Same as above.

' y

•

t
IV
t

-

Exempt under IRC, section 10l(l0),

Same as ordinary farmers1 marketing
'“and purchasing associations.

.(Continued)
ro

CO
cn

Table 1
Status of Miscellaneous Cooperative Associations

Bunber, Membership, Volume of Business, and

'
• Type, .of ■>assp ciati on

1Total number:: Humber of
: members or
1
of

:Volume of:
ibusiness :
¡participant s : (est«) :
«associations :
: ($600) t
;
(est.)
s
(est,,)

Ta,x Status l/

Barn.financing cooperatives : 2/
National farm loan associations
(June 3 0 » 1 9 ^6 )
Production credit associations
(June 30, 19^6)
Banks for cooperatives
(June 30» 19^^)

i

,6q i

505

3 6 2 ,000-..

3 90,7^;

Exempt under IRC, section 101(15)*

y

$1 5 ,i p

6/

Same as above..

1/

Same as above«
«;
.■ .

1
13

2 V06U,H5H

Burial (I9U3 )

h z

37,000

306

Medical •(19^5)

75

1 5 1 ,0 0 0

U,000

Exempt under IRC,s sections 10l(6)
and (l6)*

US5

181,000

7,050

Variously exempt and non-exempt
depending on particular activities«

•• , •' : . v

>

-r
V>4

Service associations? S/

Other service (19^5)

H

(Continued)

Exempt under IRC, section 101(10),
(3 ) or (11) depending upon* method '
of operation.
"
': v

Table 1

Humber, Membership, Volume of Business,

Type of associa.tion

{Continued)
and Tax Status of Miscellaneous Cooperative Associations *

:Total number: Number of
:Volume of:
:
of
: members or :business :
associations:participants: (est.) :
:
(est.)
:
(est.)
: ($000) :

Tax Status l/

Other: g/
850

1 ,1 ^9 .7 0 0

Telephone (1 9 3 6 )

5,00 0

330,000

Credit unions (19*45)

8,882

2,838,03*4

Insurance (19*45) 11/

2,000

1 0 ,550,000

Electricity (19*4*4)

$60,960
^H

-Exempt under ISC, section 101(lO).
StXI.iO Q.S

0 V*0 0

•

'

15,000 10/ Exempt under IRC, sections 10l(*4)
and (1 5 )*
*4/ 1 2 /

Taxable on entire investment income
except for certain small farm mutuals
£

Treasury Department, Division of Tax Rersear-ch
1/
2/
jy
*4/
5/

6/
jJ

¿/
9/

Associations designated as tax-exempt must meet various requirements to qualify for tne exemption, and some of
the organizations included in the statistics may not have qualified for exemptions.
Report of. Farm Credit Association, 19*45-19*46, P- 120.
Supplement be Statistics of^.Income for 19*43». Part 2, Data, are for 7 6 9 organizations filing Jiorm 990 returns
for I9 V 3 .
Not available.,
,
..
.....
All organizations exempt »under section 10l(l) as agricultural or horticultural (including c o u n y airs, c»
e
improvement associations, etc.) reported total gross receipts of about $17 million for 19 3« .,UPP CI?.2fi---2.
Statistics of Income :for 19*43? Part 2.
Gross earnings January 1 through December 31» 4-9*45»
Gross earnings July 1, 19*45 through June 30, 19*46.
U.S. Department of Labor, Bureau of Labor Statistics, Bulletin £>90«
Includes housing, medical, food l©ckers, cetc.
(Footnotes continued)

rvo
CO

m

Table 1
Uunber, Membership, Yolune of Business, end Tax Status of Miscellaneous Cooperative Associations
;

/

10
w

12/

/

;

Footnotes (Conclude^.)

r Pf>nrnts fnr

as reported in Supplement to Statistics gf Income for 19rrl>
r t ^
casualty, and a u t ^ b i l i ^ i ^ T i o n s , which are classified b y the Bureau of tobor
"Statistic^ as being! (l)‘-opbbatod in'conjunction with a cooperative association, or v2) s m ^ l , l o c J L
organizations subject to effective local-menDership control.
T

n

llL lT

n

M

U te ,

•Total premiums estimated as about $200 million*

4=-

KJÌ

Appendix B
Tàblo 2
Fnrmors* Marketing and Purchasing Cooperative Associations 1/
in the United States, 1944-45 Marketing Season 2/

»..... .

■ ■■■■
— "" -------

■i.

Type of association

: Humber of associations
#<«
•
: Percent
:
Humber
ê

Marketing
Cotton and products
Dairy pr 3 ducts
Fruits and vegetables
Grain, dry beans, riceLivestock
Ruts
Poultry a n d .eggs
Tobacco
Wool and mohair
Mi scellaneou.s
. Total marketing
Purchasing
Total marketing ..and
purchasing

Estimated membership 3/ :
Humber
: Percent
(in thousands) :

530
2*214

5.2

266

2 1 «6

726

916

9.Q

162

2 2*5

4s4

5.9
l6 a
3*6
1 0 .s

6„5
*5
.1 * 6

695

1 5*4

^7

1 .0

131

2 .9

2.7
2.7
3«i

2 ,2 6 5
661

-M

'

160
12

*1

122

130

io3
4*4

I23
i4o

'

7 2 *9

Estimated business 4/
Value
i
:(in millions ; Percent
: of dollars) 1

1

SU92.

'

2,750

2 7 .1

1 ,6 1 0

1 0 ,1 5 0

1 0 0 *0

4 ,5 0 6

35 cS

1 00 *0

$

3-2
22*9

I7 S
1,294
7m

13=9
2 2 .6

1,266.
730
200

-

3*5
4*o.
*5

225

27
35

1.3
5/

Sio 5/

$ 5»645

!

*6

76

$ M 3 5

I

1 2*9

6 5 .6

l4*4

1 0 0 ,0

Treasury Dopartment, Division of Tax Research
Source:

U»S. Department of Agriculture, Farm Credit Administration,
Cooperative Research and Service Division, mimeograph*

rv>

co
Footnotes on next page*

Appendix B
Tab le: 2 '

farmers1 Marketing and Purchasing Cooperative Associations l/
'in the United States, 1 9 H M 45 Marketing Season 2/
footnotes

___

Includes independent local associations,.federations, large-scale centralized associations,
.sales- agencies, independent service-rendering associations, and subsidiaries whose businesses ^
aré distinct from those of the parent organisations,
A marketing season includes the p.eriod.during'■-which the farm proaucts of a speeixied yeai
If
are'mo.fed into channels of'trade* 'Marketing Seasons overlap.
^
,
¿/‘"^Incl^Sieg. .members, contract members and shareholders, but does not include patrons not in these

W

^ ¿ c l ^ e s T t h e ; v a l u e of commodities for which associations render essential services either in
1:iñkifketing or purchasing and the value of commodities sold oy associations whether on a,
Commission or a brokerage basis, and also some intra—association transactions«
5/
making adjustment for' the purchasing business of- marketing associations and the marketing
f-buKnCss of purchasing associations, it is estimated that the total, purchasing business was
approximately $1 ,0 9 5 million and tne total marketing,
million®

k i

APPENDIX C
Relative Growth of* Cooperative Marketing
and Purchasing Associations, 1935-1943

I#

Relative growth in cooperative marketing.

In the case of marketing, the- relative growth on the part of
cooperatives can be shown by comparing changes in an index of the
volume of cooperative: marketing with changes, in an^index of total
farm cash receipts from marketing® Table 3 shows indexes: of ,
cooperative'and of total marketing with ’the years 1935 to 1939 as
a base® An index of relative growth of cooperative marketing,...
obtained by dividing the cooperative index by the corresponding^
total index, is shown in column (3;® l/ if cooperatives haa main­
tained exactly the'same share of the market in each year^¿this
series would always have a value of 100.
In years when -che index
of relative growth is greater than 100, cooperatives handled a .
larger share of the market than in 1935-39. In years when the
index of relative growth is less, than 100, cooperatives handled a
smaller share of the market than in 1935-39®
On the basis of index of relative growth it appears^that there
has been no marked tendency in recent years for cooperative marketing
associations to take over a larger share of the total marketing business
at the farm level® 2/ From 1 9 3 6 -to 1941 the trend was slightly downward®
In 1941 1942, and 1943, moreover, cooperative marketing was actually
less than in the base period and did not reach base period levels until
1944o

i7

2/
U

Tke relat£ve~” rowth of cooperative'"markeiing may also be .measured
by adjusting (deflating), the index of cooperative marketing^by
(l) changes in the prices of farm products and (2) changes in the
physical volume of farm products marketed0 Computations of this
sort were made based on the published .index of prices received by
farmers and the index of agricultural production. ^Although^
data have certain rather serious limitations for this use, it is
significant that the results obtained were substantially similar
to those obtained from adjusting by cash receipts.
It is interesting to note that the Canadian Royal Commission investigating cooperatives came to the same conclusion with respect
to the recent growth of Canadian marketing associations, see
Report of the Royal Commission on Cooperatives, Ottawa, 1945,
Appendix A® The Commission a l s o -studied the growth in terms of
individual commodities and found some areas of increase and
decrease.
It was not possible to make a similar commodity-byccmriodity analysis of American cooperative activity for this
memorandum, however, because oi insufficient d^ta®

3

:

^9

~

Table 3
Relative Growth of Cooperative Marketing, 1930-1944
(Base all indexes, 1935-39)

________________ ill___________________(ii_____________
(3 )______
î
: Index of total
s Index of relative
^
: Index of coopera- : cash receipts
i grovfth of coopera0 r i
tive farm
.: from farm
: tive marketing
: marketing
* marketing
: ('Còl* 1 ~ Col¿2)

1930
1931
1932
1933
1934
1935
1936
1937
1938
193 9
1940
1941
1942
1943
1944

126
100
69
70
77
88
108
113
97
94
105
129
174
239
262

113
80
59
67
79
89
105
111
96
99
105
14©
192
243
248

•

112
125
.117
104
97
99
103
102
101
95
100
92
91
98
106

Treasury Department, Division of Tax Research
Source:

Ü.S. Department of Agriculture: Farm Credit Administration
and Bureau of Agricultural Economics,

OQQ
C. w w

II*

Relative growth, of cooperative purchasing

Table ^ shows indexes of cooperative purchasing and of total
farm expenditures on feed, fertilizer,, and the operation of motor
vehicles. Column (3) shows an index of relative growth of cooperative
purchasing, obtained by dividing the cooperative index by tho total
•index»
It is evident that there has been a substantial growth, in the
relative importance of cooperative f a r m ■purchasing since 1930» The
most rapid relative growth occurred, however, during the period 1930«>38>
when tax rates were considerably"lower than in later years® Since 1930f
there has been no clear trend»
III»

Sources of data and their limitations

The value of products marketed by cooperatives (valued at the
farm level) is closely approximated by the series on the dollar
volume of business of cooperatives, computed by the Farm Credit
Administration*
This, however, is not altogether true in the case
of processed products, which include the value of the raw product
to the producer, together with handling and processing expenses*
Limited amounts of service charges at terminal markets are included
in some instances® The Farm Credit Administration estimates are
based on financial statements and other reports from associations®
Duplications resulting from interorganization turnover arc eliminated
in so far as possible* Inclusion of such handling and processing
expenses, however, impairs the usefulness of the index only to the
extent that.there has been a significant change in the relative
importance of these expenses0 Total farm sale proceeds may be
represented by the series on cash receipts from farm marketings,
compiled by the Bureau of Agricultural Economics*
There are? however, certain limitations of these data when used •
for the purposes"of measuring relative growth of cooperatives *j In
the first place', the results apply to cooperatives as c whole whereas
ideally it would also-be advisable to have data on the basis of
individual commodities (and even on various regions so that any
■
specific area of rapid growth or decline could be distinguished)*
In the second place, the two primary series are not strictly comparable#
The cash marketing series reflects the influence of a number of commod­
ities, notably hay, not handled to any extent by cooperatives* Moreover,
the bulk of cooperative marketing is concentrated in a relatively few
commodities, some of which are less heavily weighted proportionately in
the cash receipts index* Nevertheless, for a study such as this one,
where the interest is primarily in broad trends, it is believed that
sufficiently reliable results can be obtained*

- 51 Table 4

Relative Growth of Cooperative Purchasing, 1 9 3 0 - 1 9 ^
(Base all indexes, 1935~39).

^_____
Year

1930
1931
1932
193 3

1934
1935
1936

1937
193s
1939
1940
1 9 U1
1942
19^3
1944

(a)

.

:rIndex of farm expendiIndex of coopera­ i tures on feed, fefti—
: lizer, and operation
tive farm
purchasing______ : of motor vehicles l/

.

56
47
• 37
39
48
82
81
ll4
108

llk-

116

109

117

II9
145
187
241
244

155

194
262

.284

p

(5;)

: Indent of relative
: growth of coopera—
i tive purchasing
S (Col. 1 - C a U 2 )__

11

6l

62

60

67
80

6o

22

100

102

II3
9I
4

58

79

101
H5
106

Og
107

.104
109

■ai6

Treasury Department, Division of Tax Research
Source:

l/

U.S, Department of Agriculture’ farm Credit Administration
and Bureau of Agricultural Economics

Operation of motor vehicles includes expenditures for gasoline,
oil, tires, and labor for repairing tractors, and gasoline; oil,
tires, and replacement parts, labor for repairs, registration
fees and insurances for automobiles and trucks. Only 40:percent
of the total operating costs, of automobiles is included as, a
production expense.

- 52 -

Another difficulty arises from the fact that the data compiled
by the Farm Credit Administration are presented in terms of marketing
seasons which spread over portions of two years, whereas the cash
receipts totals sire on a calendar yéar basis. For purposes of this
appendix, the first year of a given marketing season has been taken
as the. link to the other series (i.e., marketing' season' 1943-44
corresponds to calendar year 1943). 1/
Measurement of the relative growth in cooperative purchasing at
the..farm.level also involves certain difficulties* There is no series
on ib.he total Volume Of farm'purchases • It is known, however, that the
principal'products handled by cooperatives a r e 'feed,, fertilizer, and'
gaso.iine, oil and other automotive supplies* ~
2f Annual totals of farm
expenditures"''on' these'items are published by the/Department Of Agriculture*
■ While an index based on the,s e t o tal s is perhaps the best available,
it obviously suffers f rom a very serious limitation^ arising'out -of itsimplicit overweight in g 'of feed and unde weighting Of gasoline, oil, etc*,
as compared with the index of cooperative purchasing* 3/ .Since changes/
in the value Of feed Expenditures b y .farmers, were' substantial-, the effect
may be to understate any uptrend in the adjusted index* 4 /

■//■OÍ--'. O /■/

,- -// ■

' /' ' 1 " Ó V ’ -

Ihere’.is1less error in this procedure than in the opposite' approach
,since about §0-' porcent of the returns submitted to the' F.'C.A. are
c n a ksGlehdar rather than fiscal, year'basis *
*
• ./
^ / In 1936, these products accounted for about .60'percent of total,
.purchasing ■by-all- cooperatives (Statistical Handbook'of Farmers * '
’’Cooperatives-,' p. '94). A study of' 16 ’large ’regíoñcil cooperatives \
*- : .in 1944 showed that the proportion for'these organizations was
. „nearly, 85 percent', but recent figures ,reflect.overtime’'shortage's
:of many other items customarily handled by ’cooperatives'*
3y Moreover, the data on expenditures for the., operation of motor ’
/*',
■ vehicles- are not strictly comparable with.cooperative 'purchase
of midtor vehicle supplies
The former includes such, things a s .. cost of registration, insurance expenses' and labor for repairs*
In', addition, only 40 percent of the cost of operating .automobiles
is included*
■
. **
:; ’
4 / On the other hand, construction of an aggregate index for feed, •
gas and oil,-and fertilizer with, weights of 5, 3, and i, respectively,
. and .4, 2, and- 1,. did not produce noticeably different .results*
'

APPENDIX D

Recent Expansion of Cooperative Manufacturing

Estimates of the number and types of productive plants operated
by farm cooperatives are shown in Tables 5 an^ 6 of this appendix©
It can be seen from Table 5 -that marketing cooperatives operated
about 2,800 plants in 1913, of which nearly three-fourths were engaged
in processing milk into butter, cheese, and dry skim mi xk. With the
exception of dry skim milk, this productive capacity is of long standing,
and the proportion of butter ana cheese manufactured cooperatively has
not increased in recent years* In fact, it is of interest that during
the war some of the large commercial cheese companies, bought out many^
local cooperative cheese factories* It is also significant that studies
have disclosed a trend in the dairy industry to larger scale-units*,a
trend in which- cooperatives have been lagging behind the rest of the

industry* l/
The only other areas where there are substantial number of
cooperative plants processing farm products are in cotton ginning and
canned fruits and vegetables* With respect to the former, it is to be
noted' that most of this expansion took place during^the period 1930 to .
1940* There was considerable expansion in cooperative canning during
the war as a result of the tremendous demand for food and the efforts
of the Government to increase the production of canneci ioods*
ooper
atives appear to have handled increasing proportions in most products,,
but the proportion of the total pack handled by cooperatives Is stixl
very small* Only in, canned berries, cherries, pears, and citrus fruit
juices do cooperatives handle as much as 10 percent of the pack*
In
some of the most important canning products, such as peas, tomatoes,
and com,- they account for only I to 3 percent of total production*
Table 6 shows the number of plants operated by,farmers1 purchasing
cooperatives in 1943* The three numerically largest group of plants,
grinding-mills, oil wells, and repair shops, are, of course, not manu­
facturing operations in the strict sense of the term* Exclusive of
these groups,, the principal areas of cooperative manufacturing are
fertilizer, feed, and, petroleum refining and blending.
This is. to be^
expected, of course, since these items represent the principal operating
expenses of farmers and since cash expenditures for 'these items by
farmers have 'been increasing ,steadily in importance.
17

D. E. Hirscha Farmers’ Cooperatives and the Trend Toward LargeScale Dairy Plants 9 Department of Agriculture, Farm Credit
A8]rnp istrati on g' Cooperative Research and Service Division,
Miscellaneous Report No. 80*

Table 5-

Cooperativo Plants for Processing- Farm Products
December 31, 1943

Type of plant

1Lo
C&

3o
4©
5.
6©
7.
'8©
9.
10.

.*
m Number
• : . of
plants

Creameries
Cheese factories ’
a.“
A*!
Cotton gins
Canneries,, dehydrating plants
(fruits and vegetables)
Dehydrating plants (milk).,
, ....
Flour -and cereal mills ”
;'
Wineries
Sugar, mills, and honey plants
Nut processing and packaging
plants
,
All other
Total

1,353
531
407

: Percent of total
: cooperative product
: processing plants

49%

"’

-.19
15

'

7
•
190
6............
.. 172
1
18
1
‘
16
15.. ..........!.. :
-14
44
2,761

■ 1
2
100%

Treasury Department, Division of Tax Research
Source:

“Trends in Farmer Cooperation-^” News for Farmer Cooperatives
(XJ.S. Department of Agriculture, Farm Credit Administratiohj,
February 1944©

- 55 Table

6

Cooperativa Plants for Farm Supply Requirements,
December 1 3 1943

Type of plant

1.
2*
3a
4:•
5.
6>
7.
8.
9®
10.
11.
12*
13.
14.

Farmers * elevators grinding feed
Oil wells
Machine repair shops
Feed mills
Fertilizer plants
Seed cleaning plants
Chick hatcheries
Lubricating oil and grease
compounding plants
Refineries
Sawmills
Farm machinery plants
Insecticide plants
Paint factoriesSerum laboratories
Total

Humber
of
plants
1,000
350
100
57
40
40
32
11
9
8
f
6
5
A
1,670

: Percent of total
: cooperative farm
: supply plants
60%
21
6
3
2
2
•2

- .

1
1
1
*
*
*
*
100$

Trea sury Department, Division of xax -tiesearch
Source:

*

I'

1

"Trends in Farmer Cooperation," Hews for Farmer Cooperatives,
(UoS. Department of Agriculture, Farm Credit Administration),
February 1944, p* 4*

Less than 0*5 percent

243

- $6 ~

A study by the Farm Credit Administration of cooperative
fertilizer production shows that cooperatives made important
relative gains in the period 1938-1939 to 1942-1943. 1/
However,
this study disclosed that the greatest relative advance was made
between 1958-1939 and 1940-1941.
The imposition of fertilizer
controls in 1942-1943 drastically slowed the prewar expansion trend
of cooperatives«» Moreover, despite their substantial gains, cooperatives
still accounted,for only about 10 percent of total production, 2/
No comprehensive official studies have been made of cooperative
activity in feed and petroleum refining. It is known, however, that
the bulk of present feed capacity.is of long standing, with most of
present facilities constructed or a c q u ir e d before'the high-tax period*
On the other hand, expansion of c-ooperatives into basic petroleum
production refining is a recent development on the part of some regional
cooperatives» Despite a very substantial growth, however, the value of
refined petroleum products produced by cooperatives was still only about
$20 million in 1944» z j
—
f. Vj? "
On the basis of this brief summary of the extent of cooperative' ,
manufacturing, it is possible to draw certain conclusions with respect
to the significance of these activities for tax policy toward cooperatives*
(1) The number of true manufacturing plants owned by cooperatives
is still very small*
(2) Cooperative manufacturing is economically significant only in
a very few ax*ea$; even in these fields (with the exception of dairy products.)
the production of cooperatives is small as compared to the total production
and probably even with the total amount of production handled by cooperatives«
(3 ) A very substantial percentage of existing cooperative plants were
built or acquired before the high tax periodo All recent growth, therefore,
must be considered as representing to some extent merely a continuation of
normal trends« Moreover, some ground recently gained by cooperatives is
attributable to purely wartime influences and may well be lost in the
postwar period»
T?

2/

3/

Joseph G* Knapp, The Place of Cooperatives in the Fertilizer Industry
1Preliminary Kepor^X/ Department of Agriculture, Farm Credit Administration, Cooperative Research and Service Division, Miscellaneous
Report No« 85*
it is believed that further .expansion in fertilizer may be anticipated
because such a large proportion of all fertilizer used is consumed in
the South, and this region historically has lagged behind the rest of
the country in cooperative development«
See "Operation of Consumers’ Cooperatives in 1944," U.,S. 'Department
of Labor, Bureau of Labor Statistics, Bulletin No* 843, p*>16*

% & i ~

D istrib u tion of; Betnrns o f Táx-Sxenpt Fârfters* Cooperative
' Market!ng":;and Purchasing Associations by Size of Cross
income and Becqipts .and by Size- o f T o t a l Assets* •
'M .
; î
fâsi!
ï;'
This appendix shows available information on the size distribn.tion
of tax-exempt farmers*- coop^rht.iye marketing and purchasing associations.
It is based on ’tabnlatiohs, of; information,,from- **,397 returns' of sttch .
organizations filed oh Forip 990 for the calendar year 19 3 O p -for } so
years beginning ¿n &9%*i
retnfns include all retorna
received in. the Bureau of Internal :Be-venue through Be c o m b e r ^ , ;
They, do'. not7 include the 1,192 returns of tax-exempt farners* coopérative
marketing and purchasing, .associations received
the-- Bureau ?t. l ^ e,
r naf.
Bevenue ‘
b etween Béienber j i , ;i9^4 and Septenber 1,
, ihong; these
latter returns only those of organizations with totaL-gross*income and
receipts in excess of $50,000 were tabulated by size groups, and they
are not included, in the tables in this appendix, ' Information drawn ,4
from the returns of tax-exempt farmers 1 cooperatives and other taxexempt organization? was published b y the Treasury Department,
fovember 1, 19^5, as a Supplement to Statistics of Income for 19^3» .
Part.2* •

A

|

..

Table 7 shows a distribution of **,397 returns of tax-exempt .
far nors* cooperative marketing and purchasing associations by size
of gross income and receipts_for 19**3«
. w
:Table $ show? a distribution of the returns of 2,909 tax-exer.pt
farmers* cooperative marketing and purchasing associations, .which
, filed‘balance shoet.s,by size of total assets foh 19**3»
^
1
i. Table s ~J and S indicate that, although. thé grea.t majority^of tax—
e x e m t farners* cooperatives sre comparatively snail organizations, a
large portion of the'businos? doné b y tax-exempt'coopei •t i v e s a n d of
the assets held by such organizations is in the hands of the Relatively
few large organizations* A similar,.sjtfaction oxists. in. the -case of '
o r d i h ^ ÿ ^OQï^Rdtions* < •
■v
».
Ih-usihg:>thexrdata ‘pros ente d in' Table's 7 and S, It should oe
remembered that it is impossible to sqy how complete their coverage
;,
i é ¿ 'Althcu'igh it is:believed'that^Tioét"organizations required,to
. ,, .
file -a n :inf ojrmati 9n return did b o ^ it is not possible at thi s tine .,
to determine- exactly" how many 'cooperative s 'may have failed to filo .

“ 58 -

a return for 19^3« Furthermore* it is not certain how the^distribu.tions shown in Tables 7 and S would have been affected if it had
been possible to incltide returns not received in the Bureau of
Internal Revenue until after December 31» 1 9 ^ »
Finally* it is not
’olown whether the size distribution of taxable farmers* cooperatives
differs significantly from that of the. tax-exempt organizations« It
has not been possible to separate the tax returns of taxable farm
cooperatives from those of ordinary corporations«

24-4

■V

Tahlc 7
Distribution of Returns of Tax-Exempt Farmers 1 Cooperative Marketing
and Purchasing Associations by Size of Cross Income and Receipts, I9V 3
(Peturns received in the Bureau of Int ernal Revenue

Gross income
and
receipts classes
Under $500
$500 - 1 ,0 0 0
1 ,0 0 0 - 2 ,5 0 0
2,5 0 0 - 5,000
5 »000 - 10 ,0 0 0
10 ,0 0 0 - 15 ,0 0 0
1 5 »000 - 25 9000
25,0 0 0 - 56 ,0 0 0
50 ,0 00 * 10 0 ,0 0 0
10 0 ,0 0 0 - 250.000
250,000 - 500,000
500,000 - 1 ,000,000
1 ,000,000 - 5 ,000 JGOT
5 ,000,000 a nd over
Total

*
•
«
Dumber

209
90
S9
m

119
96
13 2
bos
6Ug
1 ,05g
72^
U

20

Humber of ret urns
: Percentage
Percentage
■ : cumulated
b.g

b;s

2 o0
2 .0
2*0
2?7

6.3
s„g
1 0 ,8
1 3 .5
15*5

2o0
\0
%3
iKl

2b, 1
l6„5
%€

269
53

6a
i ;2

’
-»,397

100 Oo

M S

27s

*

Supplement to Statistics of Income for 19b3, Part 2 «

Less than »05 percent«

Cross income and receipts
Percentage
Amount
Percentage
cumulated
(thousands) "
b3

*

*

65

*
*
*
*
*

*
*
*

ib 6
31 T'
251
1 ,0 9 b

a
a

2 ,6 6 1

.1

. 2

15*208

>1

»9

1+g^l qli
66 ¡6
S3 I1
92*7
98*8
10 0 .0

treasury Department, Divi sion of Tnx Research
Source:

:
:
:

17b , 233
2 5 6 ,0 0 9

288,51b
539,395
907,177
233*90b

2,2
IS

11 „5
12,9
2 b. 2
bo. 6 ■.
1 0 0 .0

3?1
1 6 .9

22„ 3
35?2
5 9 .1
1 0 0 .0

8
Distribution of Returns of Tax-Exempt Farmers’ Cooperative Marketing
and Purchasing Associations Piling Balance Sheets, by Asset Classes, 19^3
(Returns received in the Bureau of Internal Revenue through December 31» 1 9 ^

T o t a l a s s e t s c la s s e s

Under $1,000
$1,000 - 5,000
5,000 - 10,000
10,000 - 15 ,0 0 0
15,0 0 0 - 25,000
25,000 - 50,000
50,000 - 100,000
100,000 - 250,000
250,000 - 500,000
500,000 - 1,0 0 0 ,0 0 0
l,OQO*OOn - 5,000,000
5,000,000 - 10,000,000
10,000,000 - 50,000,000

Total

•%
;
% Number

Number o f r e tu r n s
^ ; P e rc e n ta g e
• p e r e entag<
: cum ulated
2Ì3
U .3

67
126
122
166
box
SIX
601
381
103
6U
51
9
7

b .2
5?7
13 ?S
27*9
20.7
13.1
3*5
2 .2
1*8
0 .3
0 .2

2,909

10 0 .0

2*3
6 .6
1 0 .8
1 6 .5
30 .3
5 8 .2
7 8 .9
92,0
95 »5
97*7
99.5
° 9 »^
10 0 .0

»

T o ta l a s se ts
Amount

P e rc e n ta g e

*

P e rc e n ta g e
cum ulated

1 thousands)
$

$

*

*

a
.2

a
.3

25
3U8
933
2 ,10H
8 ,0 21
29,509
Ui,83U
58 ,29^
3U,328
15,6 8 8
10U ,871
66,002
97.0 S7

19«9

hS9 9obb

100„0

fk

.7

1 .6
6 .0
8 .6

2 .3
8.U
1 6 .9
28,8
3 5.9
U5.2
6 6 .7
80a
10 0 .0

1 1 .9
7?0
9*3
21 nU
13*5

Treasury Department, Division of Tax Research
Source;
*

Supplement to Statistics of Income for 1QU3, Part 2*

Less than „05 percent
rv>
-P*

cn

STATUTORY DEBT LIMITATION
AS OF OCTOBER 31, 19A?

November 7, 1947

Section 21 of the Second Liberty Bond Act> as amended, provides that the face
amount of obligations issued under authority of that Act} and the face amount 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 $275,000,000,000 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 option of the holder
shall be considered as its face amount*”
A
The following table shows the face amount of obligations outstanding and the
face ampunt which can still be issued under this limitation:

Total ‘face amount that may be outstanding at any one time

$27 5* 000,000,000
Outstanding October 31, 1947
Obligations issued under Second Liberty Bond .act, as .amended
Interest-bearing
Treasury b i l l s . .... * $ 15*731*905* 000
Certificates of indebtedness
24*808,004*000
Treasury notes ............ .
13*457*252»000 $ 53*997*161,000
Bonds
Tre asury............... *•«
118,563*919* 650
Savings (current redeirp. value) 51* 896, 582, 565
Depositary.............. .
321,229,000
Armed Forces Leave..... .
908,539*825
Investment series..........
969*985*000

172,660,256,040

Special Funds
Certificates of indebtedness
14,741*100,000
Treasury notes.
......
14*706* 321,000
Total interest-bearing................ .
Matured, interest-ceased...............

29*447*421, 000
256,104*838,040
279*529*904

Bearing no interest
War savings stamps....... .
64*159*925
Excess profits tax refund bonds
13*180,491
Special notes of the United States:
Internet’1 Bank for Reconst*
and Development series....
315*785*000
Internat’1 Monetary Fond series 1* 431* 000* 000 - 1*824*125*416
Total..... ................
258,208,493,360
Guaranteed obligations (not held by Treasury)
Interest-bearing '
Debentures: F.H.A. ♦, ..*.,••*•«
32*951*386
Demand obligations: C.C.C.' ...
44*793*755
77*745*141
Matured, interest-ceased........*..... .. *
. ______ 5*738* 775. 83*483*916

Grand to ta l outstanding. . . . *•*•••••, ••**»*• ..........*•
258^291*977*.ffio
Balance face amount of obligations issuable under above a u th o r ity ... 16*708,022,724
Reconeilement. with Statement of the Public Debt — October 31* 3*947
(Daily Statement of the United States Treasury, November 3* 1947).

Outstanding —
Tot al> gross public debt..................... *........ . *..... .
Guaranteed obligations not owned by the Treasury..... .

*

259* 071* 042,154
...;— 83?483*916

Total gross public debt and guaranteed o b l i g a t i o n s 259*154* 526,070
Deduct — otber outstanding public debt obligations
8-521

not subject to debt limitation*....... ........ ................... 862, 548* 79_4
258.291*977*276

247

TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Tuesday, November II, 1 9 4 7 . ____

Press Service
No. S-522

The Secretary of the Treasury announced last evening that
the tenders for $ 1 ,100 ,000,000, or thereabouts, of 92 -day
Treasury bills to be' dated November 13, 1947, and to mature
February 13, 1948, which were offered November 7, 1947, were
opened at the Federal Reserve Banks on November 10*
The details of this issue ape as follows:
Total applied for - $1,555,254,000
Total accepted
- 1,103,300,000 (includes $37,377,000
entered on a non-competitive basis
and accepted in full at the average
price shown below)
Average price - 99*767 Equiv. rate of discount approx.
0 .912 $ per annum
Range of accepted competitive bids;

(Excepting one tender of
$ 1 ,600 ,000 )

High - 99*782 Equiv. rate of discount approx. 0.853$ per
annum
Low
- 99*765 Equiv. rate of discount approx. 0.920$ per
annum
(l8 percent of the amount bid for at the low price was accepted)
Federal Reserve
District_______

Total
Applied for

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
S t . Louis
Minneapolis
Kansas City
Dallas
Ssn Francisco

$

5,735,000
1,401,917,000

17,227,000
4.410.000
2.795.000
5

.2

,

1 5 .0 0 0

68 010,000
5 ,920,000

$

5,735,000
979,307,000
10 ,127,000
2 3 6 0 ,0 0 0
2.795.000

,

.
5,
820,000

5 051.000
5 2 .190.000

8 ,695,000
23,430,000

4 .270.000
7 .630.000
8 .685.000
1 9 .330.000

$1,555,254,000

$1,103,300,000

4.270.000
7

TOTAL

Total
Accepted

0

.6

O0

3 0 .0 0 0

248
United States Savings Bonds Issued and Redeemed Through October 31, 194-7
(Dollar amounts in millions - rounded and will not necessarily add to totals)

Series A-Ds
Series A -1935
Series B -1936
Series C -1937
Series C -1938
Series D-1939
Series D -194-0
S e n e s D —194-1

Amount
jAmount Out-f Percent Redeemed
4| Amount t
Issued 1 / ¡Redeemed l/lstanding 2/jof Amount Issued
_
!
—
---U-— — --- — —— ----- —*
i
1
1
j
9 6 .8 6 $
$8
$247
(matured) .......
1255
!
95.03
23
440
(matured) ........
463
75.51
588
1
1 / 144
I
444
.♦........ .
23.42
156
666
j
509
...................
20.89
815
215
1,029
j
..................
1 9 .0 1
984
231
1,215
!
....... .......... .
1
6 ,9 8
434
89
524- !
1,823

2,918

38.45

337
2,349
4,550
5,418
4,004
1,179
319

1 ,1 3 2

2 2 .9 6

4,305
6,349
7,296
5,914
3,176
2 ,8 2 6

40.37
27.08
10.14

Total Series E ................ 4-9,153

18,155

30,997

36.94

Total Series A-E .............

53,894

19,978

33,916

37.07

Series F and Gs
Series F and G -194-1 ........ .
Series F and G - 1 9 4 2 .... .
S e n e s F and G —194.2 ............
Series F and G-194-4-..... .
S e n e s F and G —194-5 ............
Sari p.p F and G —194-6
.Series F and G -194-7 ,(10 months).

1,531
3,183
3,362
3,691
3,1442,993
2,155

199
479

;

12

1,332
I 2,709
2,853
3,269
2,893
! 2,869
1 2,143

13.00
. 15.03
15.17
li *43
7.98
4.14
.56

Total Series F and G .... .

20,065

j

1,998

j 1 8 ,0 6 8

9.96

j
112
Unclassified sales and redemptions j
j— —----- —

167

Total Series A-D .............
Series E:
Series E - 1 9 4 1 ...... ...... .
Series E -194-2 ..................
Series E-1943 ................ .
Series E-194-4- ...................
Series E-1945 ........ ..........
Series E-194-6 ............... .
Series E -194-7 (10 months) ......

Total All Series L j ....... .
1/
2/
Lj

4-,74-1

j

—

Ï
i\

1 ,4 6 8

6,654-

j
s

1 0 ,9 0 0

12,715
9,918
4-,3543,14-5

j

510
422

251
124

22,142
1 74,071
— —
_L=---- -— %J---- ™ — •

!
j

j

35.30
41.74
4 2 .6 1

- 55

51,928

29*89

1

Includes accriled discount.
Current redemption values•
Includes matured bonds which have not been presented for payment.^
Includes Series A*and B (matured), and therefore does not agree with totals
under interest-bearing debt on Public Debt otatement.

Office of Fiscal Assistant Secretary - Treasury Department

249
TfiEASUHf DEPARTMENT
Washington

(The following address by Secretary Snyder
before the National Convention of the
Young Democratic Clubs of .America at the
Music Hall Auditorium, at Cleveland, Ohio,
is .scheduled for delivery at 8 : 0 0 p«nu,
E . S . T . F r i d a y , November 14.» 194.7» and is
for release at that time»)

Our National decisions today will determine the future course of
America as we seek to insure prosperity at home and peace and security
for ail peoples*
The Democratic Party in the past has made tremendous contributions
of lasting value to the Nation, and today a united Democratic Party has
before it one of its greatest opportunities for service©
So, I feel privileged to join with you in your rededication of our
party principles, and in a solemn pledge to the President of the
United States that he has our full support and backing in his determined
efforts towards a peaceful world, a prosperous world, and a free world«
The Young Democratic Clubs of America are a strong and valuable
force in our Party councils* Your organization, since its founding in
1 9 3 2 , has been dedicated to the highest ideals of citizenship, active
participation in the affairs of Government, and the aavanc ement of
Democratic philosophies*
Those of you who actively participated in the war have emerged
with an even greater appreciation of the benefits of citizenship in
this country* And, because of that experience you will devote an even
greater effort toward the preservation and further improvement of our
social standards*
Vie are fortunate to have in the White House a man whose similar
experience played an important part in preparing him for the leader­
ship and sound vision he is evidencing today#
When President Truman took office in 194-5# he assumed burdens,
both domestic and international, as great in their implications as any
ever undertaken by a national leader#
America was still at war* And even while tremendous effort was
being directed towards complete victory, a workable program had to
be devised to insure an orderly transition to a peacetime economyo

S- 5 2 3

mm

In the accomplishment of this transition, Mr* Truman's able administration has contributed greatly to- our unprecedented material
prosperity# Further, his policies in the international field have won
the overwhelming support of the .American public#
You in this 'c'onvention have a special opportunity to demonstrate
your support and bad king of the President- as he carries on the heavy^
responsibilities of his officer Through the inflate® of this organi­
zation, working with hundreds of thousands of young citizens, you can
help develop the essential understanding of the problems that now confront
us«
Out of such an understanding there will aome united action#
This first post-war National convention of Young-Democrats comes at
a most significant time* In a few days the Congress of the -United béâtes
will reassemble in Washington at the call of the President, to consider
legislation to curb the mounting inflation that threatens our economy a
home; and to determine our role in world recovery*
•
; There is imperative need that we assist those countries where the
spirit of freedom still lives and fights ior survival«
„

The objective of the European Recovery Program whic-h^ the .President
will p r e s e n t to the Congress is to bring about the economic ^rehabiii a io n
of those European countries willing to-cooperate on the basis outline m
Secretary Marshall’s Harvard speech#
:
The urgent necessity for foreign aid has been created by the slow
economic recovery of many nations following the war* Certain countries
have .been unable to reach a level of production for exports to provide
sufficient dollars for necessary purchases of sorely needed imports*
Increased production abroad will tend, through^providing greater
exports, to lessen the present so-called scarcity of dollars,
h ■ *'
The economic recovery program is based on the coôpoxat^e e f f o r t ^
of all European participating countries and on the United Stcteshaking
available to such countries necessary commodities and services which
they cannot provide for themselves at this time#
-Foreign aid'is not to be given unconditionally,:however,
The •
United States will war* to assure itself that the- European participa l g
countries are first, making the most of their 6 ¿m resources
second, making the most effective use>;.çf ;aid irdm; the united State .
Both the interim aid program,:which provides for urgently needed
food'and fuel during this coming winter, and- the long range aid-program,
which provides for tangible recovery, are conceived with a lull
realization of the fact that our own resources are not xnexhausoi
«

250
-.3 I would like to emphasize here „the importance of an expanding
international trade to this Nation- s :economy* The government’s policy
has been one of consistent.support of international efforts to accomplish
this goal«
.
;
I believe that over the long pull,, operations of such organizations
as .the World Bank, the Monetary Fund, and the International Trade
Organization will result in a wholesome and essential expansion of
exchange of goods and servic.es between Nations.
Concurrently with the European Recovery Program, the Congress upon
reconvening must, consider a program to most effectively check and control
the mounting price structure and the soaring post of living.
For, the greatest danger on the domestic front today is the reality
:of inflation. Since mid-summer of 194-6* inflationary factors have gained
momentum until they are; now at disturbing proportions»
President Truman and his Administration have never' for a moment
lost sight of the inflationary danger, nor wavered in efforts to control
these forces.
The President relinquished as rapidly as possible those wartime
controls no longer necessary*
He sought earnestly to retain temporarily
only those c ontrols he knew were essential to the National welf are*
On the financial side, the Government has so ordered its fiscal
operations as to make them a substantial force in resisting inflation.
Government expenses have been sharply'reduced, and Mr. Truman has
stated that "The same prudent policy of planning for a surplus for
further debt retirement will be followed in preparing the budget for
,-‘fiscalv 1949* The strictest economy consistent with the government’s
obligation is imperative.,t •
The thoroughness and sincerity of the Administration’s economy
program was clearly demonstrated when during the last session, the
Congress was unable to reduce the budget substantially below that
presented by the President .in January.
As a part of his economy program, the President has firmly resisted
the political expédiait of reducing.taxes when such action now would fan
the flames of inflation*
.Your .administration stands firmly committed to the prudent policy
of seeking, in these times of high National income, ^to reduce our
public debt. Our program of adequate tax revenues is part and parcel
of this policy#
This policy resulted in, a surplus in the last fiscal year,' and,
we are confident, will result in a larger one during the current year*

A financially sound government is necessary to permanent welfare and
is the keystone to the security of i its people*
Adherence to this truth
is one of our primary obligations
an obligation too often overlooked
by those who would follow the.line of least resistance and place tax
reduction before fiscal solvency.
As, Secretary of the Treasury* I would not be properly .fulfilling
the duties of m y office if X did not consistently and forcibly advocate
providing sufficient revenues to meet our running expenditures and to
permit the steady liquidation of the public debt*
This does not mean I am opposed to tax reduction* Nor does it
mean that I do not believe tax reduction feasible and proper after we
have met certain necessary prerequisites*
I do firmly contend* however* that before reaching conclusions on tax
reduction* the Congress should first consider foreign aid within a balanced
budget; second* debt reduction; third, equitable tax revision* and then*
equitable tax reduction* These steps ‘mus t be taken progressively* They
undoubtedly can not all be taken at once*
We must keep our own house in order economically if we are properly
to meet our responsibilities both here at home* and abroad»
That we remain today a strong nation, both financially and
economically, that we are enjoying the greatest period of prosperity
in our'history* is a tribute to-the American system of free enterprise*
But it is also the result of effective policy and prudent management on
the part of your Democratic Administration*
In November of last year* before the Economic Club of New York*
I „■inventoried briefly the great assets and opportunities of this country
and predicted a continuing prosperity* even though at that time there was
general talk of a threatened depression* The evidence of this past y ear
has more than justified the position I took then*
Strong testimony to the degree of our progression is. in our wide ^
employment* our level of ’wages* our unprecedented donand for goods and
services* our accumulation of personal savings* and our vast output of
industrial and agricultural products«
Personal incomes are running at the rate of over 200 billion dollars
a year*
Civilian employment is at a record level with approximately
6 0 *000,000 people at work.

Steel production in the latter part of October.rose to the ^highest
level of the postwar period* slightly above 97 percent of capacity. On
a tonnage basis* this Is the highest peacetime output in.the history of
the Industry*

251
- 5 Electric power output continues to reflect record consumption*
Both farm and industrial production are near record peacetime levels.
The Federal Reserve Board’s latest adjusted index of industrial production
showed 85% above the 1935-39 average.
Residential construction activity has displayed encouraging gains
and is at the highest levels since the Twenties®
These indices and the many other fields in which peak high production
is being recorded manifest the great extent of our present prosperity
a prosperity accomplished under Democratic Administration*
We will soon be in the midst of a national election. ^Therefore, it
is important that we carefully re-examine the Administration policies
and that we thoroughly understand the cause and purpose behind ihese
policies, as we approach the coming national election,?
We must consider the Democratic accomplishments of the past for a
fuller understanding of our own challenge and opportunity of today.
We have been faithful to our promises of human betterment and to
our philosophy of furthering the cause of freedom for men and women
everywhere*
Permanent social and economic gains developed under Democratic
leadership, stand today as a great defense for our entire economy« •
Social security and unemployment insurance; insurance of bank
deposits; the "truth in securities" law; aid to agriculture; national^
recognition of the rights of workers to bargain collectively with their
employers — - these are some of the lasting attainments of Democratic
administration.
The Administration’s far-sighted steps to provide for military
preparedness — steps taken against stubborn opposition
prove
e
salvation of our Nation* Today the Democratic party and the Democratic
administration continue to stand unalterably for security forces adequate
to protect us in this uneasy world.

We are not content, however, to rest upon any past accomplishments«
Shat we do today, what we propose for the future - these- * w
rhe record we are writing now under the leadership of President^Truman,
deserves, and is receiving, the confidence of the American public#
And, from the wealth of these accomplishments, we will draw
strength and purpose for even greater achievement©
Under the continued leadership of President Truman, we will live
as a great nation — a powerful nation — a secure nation for in ivi ua
freedom«

oOo

TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS
Thursday, November 13, ,19,47>

Press Service
No. S-524

^Secretary Snyder announced today that the United States Secret
Service, in its stepped-up drive against counterfeiters, made four
arrests over the week-end and seized more than thirty thousand
dollars of phony currency, along with plates, paper and photo­
graphic materials used in counterfeiting.
At Los Angeles, California, Secret Service agents, aided by
local police officers, arrested Arlando Molina, 2 1 , of San
Bernardino, on a charge of passing a counterfeit $20 Federal
Reserve note.
It was the second attempt to circulate this new-type
counterfeit, drawn on, the San Francisco Reserve Bank, which led to
Molina's arrest;
Later in the day Joe D. Rivas, 34, a companion of Molina, who
had eluded officers at the time of the latter's arrest, was appre­
hended by Secret Service agents at San Bernardino. He is being
held on a charge of passing counterfeit money.
Information obtained from Molina and Rivas led to the arrest
of Norman G. Riedel, ,
2 7 , of nearby Fontana. A search of Riedel's
home resulted in the seizure of the front and back plates for the
twenty-dollar note, an unfinished set of plates for the same note*
photographic negatives, a printing press and other counterfeiting
equipment -.
•
In addition* agents seized plates used ih the counterfeiting
of State of California unemployment checks, and gained an admis- ■
sion from Riedel that he and Rivas had passed more than a hundred
of these checks in San Diego during the month of September. Riedel
also confessed- the manufacture of fifty twenty-dollar Federal
Reserve notes, which he claimed were turned over to Molina and
Rivas. Only the two notes passed in Los Angeles were recovered,
agents presuming that the others were destroyed by Rivas after he
observed the arrest of Molina.
Secret Service agents seized $30,000 Worth of counterfeit
twenty-dollar bills last Saturday night, and arrested Perry Buneho
i i ^ o f Cliffside, N. J., on a charge of passing worthless money*
ine seized counterfeits were the "purchase” of Agent Stanley
Phillips of the Secret Service, who had arranged for delivery of
he bills to a Fort Lee, N. J., tourist house. A later search of
ihe Bunero home resulted in the seizure of two other counterfeit
twenty-dollar Federal Reserve note's, some unfinished currency,
S a mat^ i a l s believed to have been used in the counterfeiting of
UPA stamps.

253
2
Bunero at first stated that he found the phony hills in
a rock quarry near Cliffside, hut later admitted having sold
another $20,000 worth of hills early in October.
The plates
from which these hills were printed have not been found.
Secretary Snyder, in making public the two captures, indicated
that the Secret Service is "cracking down" on counterfeiters, who
have been unusually active in recent months.
Several weeks ago
agents of the Secret Service, working with the French police,
seized more than two million dollars worth of United States
counterfeit hills in Marseilles, and made eleven arrests in the
largest capture of recent years .
oOo

i||c

254
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS
Thursday. November 13 ToAy,

Press Service
No. S-524

Service, in its s t e p p e d ™ p ^ r i v e tapainstat
U2 ited States Secret
arrests over the week-end and sei^fd £ St °?5rlterfelters, made four
dollars of phony currency, ^ L n f w i t h n ? a t ^ thlr-ty thousa*d
graphic materials used in coUntfrfsiting
’ pap8r and photo"

local policeAofficers^arrested''Arlando m ®?!’10® a8ents, aided by
Bernardino, on a charge of
Molina, 21, 0f San
*
Reserve note, it w a A h e second ?i-+ 0.0™rterfelt $20 Federal
counterfeit, drawn on the San F r a n o - f c^rcu^a ^e this new-type
Molina's arrest.
Francisco Reserve Bank, which led to

Later in the day Joe D
oh
had eluded officers at the time o f ’the’ a °omPanion of Molina, who
headed by Secret Service L e n t s f£ L ® i a t t e r 's arrest, was a¿Pre-

f
!

M

to th. „ „ « «

home resulted in the seizure of the f L n ? ‘ A Search of Riedel's
twenty-do liar note, an unfinished^et
baSk plates f°r the
Photographic negatives, a printing Dress
the sa® e note,
equipment,
p m u m g press and other counterfeiting

Of s t a t e ^ f 1c L u f o r S f u n e m p l L v m L t L b t ® * in the counterfeiting
8Jon from Riedel that he L d R ? v L b a d L L Sj fnd galned an admil-8
Uf these checks in San Diego during \-hpP™
m Sre than a hundred
.also confessed the manufacture of fifty t w L ? °I ^ P temb e r . Riedel
Reserve notes, which he cln-im#»*
twenty-dollar Federal
Rivas. only the two notes ¿assed in T
turn?d over to Molina and
agents presuming that the others wereLd L t n8elISvWere recovered,
observed the arrest of Molina.
P destroyed by Rivas after he

twenty-dollar bill! last^aturdav niaht°° WSrth of counterfeit
Thi
N. J.., 0n a chareego f Jn L t - ai’reSted Perry Bunero,
pLM ®eized counterfeits were the " m m o V o ^ >< 12® worthless money,
fillips of the Secret Service
of A Sent Stanley
'
he b i l l s £0 a P qj.-^ Tgg w
T ’
0 bad arranged for delivery of
the Bunero home Resulted L ¿ A to?rlst house. A later search of
N n t y - d o l l L ledetal lesetve notSL ZUre °f
¿ ¿ t S i f
OPA *?terlals
believed
to
hive
bIen’u
L
!
T
i
L
f
h
L
Shed/
Urrency' of
stamps,
oeen used m the counterfeiting

255
2
Bunero at first stated that he found the phony hills in
a rock quarry near Cliffside, hut later admitted having sold
another $20,000 worth of hills early in October.
The plates
from which these hills were printed have not heen found,
Secretary Snyder, in making public the two captures, indicated
that the Secret Service is ’’cracking down" on counterfeiters, who
have been unusually active in recent m o n t h s . Several weeks ago
agents of the Secret Service, working with the French police,
seized more than two million dollars worth of United States
counterfeit hills in Marseilles, and made eleven arrests in the
largest capture of recent years .
oOo

TREASURY DEPARTMENT

Washington
FOR IMMEDIATE RELEASE

ThursdayT November 13, 1942

256
Press Servie e
No. S-525

The Bureau of Customs announced today that preliminary data on imports of
cotton and cotton ,a Ste chargeable to tte quotas, established by the
proclamïïion of September 5, 1939, as amended, for the period September 20,
1947, to November 1* 1947, in clu siv e , are as follow s.
COTTON (other than lin te r s )
(In pounds)

Country of
Origin

Under 1-1/8» other
than rough or harsh
under 3/4u___________
Imports Sept4
20, 1947, to
ï Established
Nov. 1, 1947
:
Quota

Egypt and the
Anglo-Egypt ian
Peru............................. ..
B ritish I n d i a .. . . •
China.*♦ ..*••»•••»
B r a z il............. ..
Union of Soviet
S o c ia lis t Repub­
lic s .
Argentina* «••••<-•#
Ecuador. * ............
Honduras......................
Paraguay.......... . . • • •
Colombia.
Iraq.
B ritish East
A frica ...........................
Netherlands East
.Bsorbficios**#* *° * * #*
Other B ritish
'West'Indies 1/
Nigeria.. . . . . . . . . .
Other B ritish
West A frica 2/ . . .
Other French
Africa 3 / • ............ ..
Algeria and Tunisia
1/
2/
3/
4/
3/

783,016
24.7 ,9 5 2
2 , 003, 4B3
1,370,791
8,883,259
618,723
475,124

186,962
—
—
8,883,259
618,723

1-1/8» or more
Less than 3/4!l
but le ss than
harsh
or rough m
1- 11/16» (J
Imports
Sept#' 20,
Imports Sept#
1947, to Nov. 1,
20, 1947, to
1947______________
Nov» 1, 1947

43,574,472
1,903,999

3,782,459

177,949

4 7 5 ,1 2 4

5,203

—
*

237
9,333
752
871

**
—
—

12 4

195
2 ,2 4 0

71,388
-

-

21,321
5,377

W
—

1 6 ,0 0 4

-

689
—

"p**

45,656,420
14, ,516,882 10,164,068
Other than Barbados, Bermuda, Jamaica, Trinidad, and Tobago*
Other than Gold Coast and N ig e ria .
Other than A lgeria, Tunisia, and Madagascar.
Established Quota - 45,656,420_.
Established Quota — 70,000,000#

3,782,459

2

-

257

-

COTTON WASTES
(In pounds)
COTTON CARD STRIPS made from cotton having a staple o f le ss 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 sh a ll be f i l l e d by cotton wastes
other than comber wastes made from cottons o f 1-3/16 inches or more in staple
length in the case of the follow ing countries: United Kingdom, France,
Netherlands, Switzerland, Belgium, Germany, and I t a l y :

Country of Origin
United Kingdom*. . . »
Canada* . * .....................
France*• • • * .. « • • • * •
British In d ia ............
Netherlands.. . . . . . .
Switzerland* *..... •. •
Belgium.. * . • * • * . . • •
J a p a n •
Ulilid. mm q*-«#v, • i
•
Egypt*.* , .
Cuba.. . . . . . . . . » * , . * •
Germany.. * . . * . . , . . *
Italy,. . . ,
*.- *
Totals

: Established
TOTAL QUOTA

Established
Total imports
Sept* 20, 1947, 33-1/3% of
to Nov . 1,1947 Total Quota

4,323,457
239,690
227,4-20
69,627
68,240
44,388
38,559
341,535
17,322
8,135
6,54476,329
21,263
5,482,509

_

30,308
—

69,627
—
—
—
—
—
—

-T
99,935

1/ Included in to ta l Imports, column 2*

-o0o~

1,441,152
—
75,807
—

22,747
14,796
12,853
—

Imports
Sept. 20, 1947 to
Nov. 1, 1947 i /
—
—
—
-

—

.—
.—
25,443
7,088
1,599,836

■ —
—
.—

TREASURY DEPARTMENT
Washington
f u r IMMEDIATE RELEASE
Thursday« November 13» 1947

■
[
I
I

258
Press Service
No* S~$26

The Bureau of Customs announced today preliminary figures showing the
quantities of wheat and wheat flour entered, or withdrawn from warehouse, for
consumption under the import quotas established in the President’s proclamation
of May 28, 1941, as modified by the President’s proclamations of April 13, 1942,
and April 29, 1943, for the 12 months commencing May 29, 1947, as follows:

Wheat
Country
of
Origin

:
Impor ts
established :May 29, 1947, to
Quota
: Nov*. 1» 1947
(Bushels)
(Bushels)

795,000
Canada
—
China
—
Hungary
Hong Kong
~
Japan
100
United Kingdom
—
Australia
100
Germany
100
Syria
New Zealand
—
Chile
100
Netherlands
2,000
Ar gentina
100
Italy
—
Cuba
1,000
Franc e
_
Greece1
100
Mexico
—
Panama
—
Uruguay
Poland and Danzig
—
Sweden
—
Yugoslavia
—
Norway
—
Canary Islands
1 , 000
Rumania
100
Guatemala
100
Brazil
Union of Soviet
Socialist Republics.
100
Bel gium
100

108
-

Wheat flour, semolina,
crushed or cracked
wheat, and similar
wheat products
:
Imports
Established iMay 29, 1947, to
: Nov* 1, 1947
Quota
(Pounds)
(Pounds)
3,815,000
2 4 ,0 0 0
1 3 ,0 0 0

982,353
7,600
—
400

-

13,000
8,000
75,000
1,000
5,000
5,000
1,000
1,000
1,000
14,000
2, 000
12,000
1, 000
1, 000
1,000
1,000
1,000
1,000
1,000

-

1 , 000

—

—

-

1,000
1,000

-

-!*

—
-

-

—
-

—

-

—

-

—*

—*

—
—
—
—
—
—
—
—
—
—
—
—
—
—
***

-**

—

mm

—

108

800, 000'

-oOc—

4,000,000

990,354

259
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
Thursday« November 13* 1947

Press Service
No# S-527

The Bureau of Customs announced today preliminary figures showing
the imports for consumption of commodities on which quotas were
prescribed by the Philippine Trade Act of 1946, from January 1, 1947,
to November 1, 1947, inclusive, as follows:

Products of
Philippine Islands

Buttons

:
:

Established Quota
Quantity

850,000

:
;

Unit of
Quantity

Gross

s Imports as of
: November 1, 1947

r75,422

Cigars

200,000,000

Number

3,147,609

Coconut Oil

443,000,000

Pound

15,952,851

Cordage

6,000,000

ii

1,837,549

Rice

1,040,000

it

50

Sugars, refined
)
unrefined)
Tobacco

1,904,000,000

6,500, 000

I? ■ i u

11

II

s

■ n |

—

800,671

TREASU K ï , DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
Thursday » N ov emb er 13/ 1947

Press Service
No* S-528

The Bureau of Customs announced today preliminary figures showing the
imports for consumption of commodities within quota limitations provided
for under trade agreements, from the beginning of the quota periods to
November 1, 194-7, inclusive, as follows;
----—
Commodity

♦•
•
;
t

5
Unit
•
of
established Quota
:
Period and
Quantity; Quantity

Imports as
of Nov* 1,
194-7

Whole Milk, fresh
or sour

Calendar year

3,000,000

Gallon

6,220

Cream, fresh or sour

Calendar year

1,500,000

Gallon

1,561

Fish, fresh or frozen,
filleted, etc., cod,
haddock, hake, pollock,
cusk, and ros efish

Calendar year

23,906,423

Pound

White or Irish potatoes;
Certified seed
Other

12 months from
Sept* 1$, 194-7

90.000, Q00
60.000.

Pound
Pound
000

Cuban filler tobacco un­
stemmed or stemmed (other
than cigarette leaf' tobacco.)
'Calendar*year
and scrap tobacco

Quota Filled

2,245,265
9,199,825

Pound
(unstemmed
22, QOQ, 000 -equivalent )

Red cedar shingles

Calendar year

1,380,300

Square

Molasses and sugar sirups
containing soluble non­
sugar solids equal to
more than 6% of total
soluble solids

Calendar year

1 ,5 0 0 ,0 0 0

Gallon

Quota
Filled

Quota Filled

550,409

261

TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Friday, November 14, 1947*______

Press Service
No .S-529-

The Secretary of the Treasury announced today that the
bonds of two outstanding issues which may be redeemed at the
option of the United States on March 15, 1948, are called
for redemption on that-date.
These issues are the 2 percent
Treasury Bonds of 1948-50, dated March 15, 1941, and the 2-3/4
percent Treasury Bonds of 1948-51, dated March 16, 1936«
There are now outstanding $1,115,3^7,900 of the 2 percent bonds
and $1,223,495,850 of the 2-3/4 percent bonds.
The texts of the formal notices of call are as follows:
*

*

*

*

TWO PERCENT TREASURY BONDS OF 1948-50
DATED MarcE~ 15, 19411""
~~
NOTICE OF CALL FOR REDEMPTION
To Holders of 2 percent Treasury Bonds of 1948-50 (dated
March 15, 1941), and Others Concerned:
1, Public notice is hereby given that all outstanding 2
percent Treasury Bonds of 1948-50, dated March 15, 1941, are
hereby called for redemption on March 15, 1948, on which date
interest on such bonds will cease,
2, Holders of these bonds may, in advance of the redemp­
tion date, be offered the privilege of exchanging all or any
part of their called bonds for other interest-bearing obliga­
tions of the United States, in which event public notice will
hereafter be given and an official circular governing the
exchange offering will be issued.
3, Full information regarding the presentation and
surrender of the bonds for cash redemption under this call will
be found in Department Circular No. 666, dated July 21,.1941,

John W, Snyder
Secretary of the Treasury,

TREASURY DEPARTMENT,
Washington, November 14, 1947*
*

*

*

*

TO.

2 _

?62

TWO AHD THREE-QUARTERS PERCENT TREASURY BONDS OF 1948-51
--- ----------- - '(D/ìTEÌTMARCK l b , 1 9 3 6 )
NOTICE OF CALL FOR REDEMPTION

To Holders of 2-3/4 percent Treasury Bonds of 1948-51 (dated
March 16, 1936), and Others Concerned:
1. Public notice is hereby given that all outstanding
2-3/4 percent Treasury Bonds of 1948-51* dated March 16, 1936,
are hereby called for redemption on March 15, 1948, on which
date interest on such bonds will cease.
2. Holders of these bonds may, in advance of the redemption
date, be offered the privilege of exchanging all or any part
of their called bonds for other interest-bearing obligations of
the United States, in which event public notice will hereafter
be given and an official circular governing the exchange offering
will be issued.
3. Pull information regarding'the presentation and
surrender of the bonds for cash redemption under this call will
be found in Department Circular No. 666, dated July 21, 1941.

John W. Snyder
Secretary of the Treasury.

TREASURY DEPARTMENT,
Washington, November 14, 1947.
oOo