Full text of Press Releases of the United States Department of the Treasury : Volume 81

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TREASURY DEPARTM ENT

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organization is operated in accordance therewith, that no part
of the/organization *s assets
Cjtnfcri&u & g J ^ o the organization or any of its officers or
trustees, or any member of their families or to a corporation
controlled hy them; that only a reasonable compensation for
services actually rendered may be paid to such persons by the
organization; that the services of the organization may not be
made available to such persons on a preferential basis; and that
no substantial part of the assets of the organization may be used

percent or more of the value of the outstanding stock in a
VWOV O
particular corporation, or 50 percent^of the voting stock of that
to

50

dealings -between a trust and its creator or businesses under his
control, and~^TTulWill 11'>H the use of a trust for the personal
advantage of the grantor.

As in the earlier recommendations.

to hinder ordinary charitable and other exempt

- 6 —

(

expand

retain control of business enterprises in which

they are interested*
It seems desirable for Congress to provide clearly that
such abuses with tax-free funds may not occur.

Therefore, it

is recommended that trusts and foundations which are privately
controlled and which are not supported by the general public
be required to pay out substantially all net income for the stated
exempt purposes within a specified period after the close of the
taxable year.

There are, of course, some cases where a reserve

for contingencies would be required as a matter of prudence.
This could be provided by allowing the trust or foundation to
retain, for example, an amount equal to t h i g h e s t annual income
f ive years*

There should be another

"safety valve" provided for the trust or foundation which
long-term commitment to furnish funds for research or
similar projects.

Thus, it should be allowed to accumulate such

monies as are paid over to an independent fund, under an escrow
agreement, to be held for a^periodjnot-t^ emoeedr five years
prior to actual payment.

4-*

It should also tin p i n r M H i t 1'01' contributions to these
private organizations not be allowed as deductions for income,
estate, and gift tax purposes unless the instrument under which
the organizations is established affirmatively provides, and the

It Is proposed that the rental Income from commercial and
industrial properties acquired by exempt institutions under
long-term leaseback arrangements be subject to taxation in the
sam^proportion that the unpaid indebtedness on the property
bears to the total purchase price.

Thus, if an institution

purchased a $1,000,000 department store, using no funds of its
. i.

own, the entire rental income of $100,000 would be taxed in the
first year.

When only $500,000 remains to be paid on the purchase

price, only $50,000 of the rent would be subject to taxation#
The need to foreclose the above abuses of the exemption
privilege has been recognized by prominent leaders in the
altruistic and educational field.

There is no intent to reverse

the long-standing policy of giving preferred treatment to such
organizations; the only propose is to terminate the abuses.
0#

Charitable Trusts and Foundations
Numerous abuses appear to have occurred in the field of

certain charitable trusts and foundations, which are not supported
generally by the public, and which are privately controlled.
These abuses appear to be related primarily to the possibility
of private benefits inuring to the founders or donors of such
trusts.

This can occur through the accumulation of tax-free

income over a long period without its application to the avowed
charitable purposes, and through loans, investments and other
transactions which make it possible for such persons to acquire,

B*

Leasebacks
An additional practice has been engaged in by exempt or­

ganizations during the last several^ye^^Xhich, in effect,
allows such organizations to trade on their tax exemption*
These arrangements are commonly known as leasebacks, and, under
them, an exempt institution may purchase commercial or industrial
properties from a business concern, using borrowed funds, and
lease those properties back to the same business concern under
a, long-term lease.

The properties may also be purchased elsewhere,

or constructed, under an agreement with a business that it will
immediately enter into a long-term lease with respect to the
properties*
Such transactions result in a compounding of the exemption
privilege since they do not involve the investment of their own
funds but result in the expansion of an exempt organization
through the accumulation of tax-free earnings upon borrowed funds.
These transactions are^ypsislble nrify for exempt organizations^
since the tax saving makes it feasible to apply the entire rental
payment towards amortization of the indebtedness*

Illustrative

cases show purchase of properties for $16*5 million, with no money
whatever being put into the purchase price by the exempt organiza­
tion, and the receipt of rental payments amounting to $1,000,000
yearly*

segregated and subjec^ed^o tax.

If

separate organization

conducts those activities for the exempt institution, the entire
income of the separate organization would he taxed.
jjf

pub

81 n'**

«eauganizatienet'a*

i

Xti in not

< w f f m w T - n r f organisations

\ r>$Vv Vu.Vvons. C0V'i>v&V\v>^ O'C

ulilcli rnmoi fnmi .4r*—
LAjo

_

dividende, rents, royalties or capital

'Te YvxiXvv-N -Vc-i- «-'H'e ionp4-.
b w c becrr 1 aiitional-

of incomo-for

Dues, contributions, assessments, gifts,
a U o conV'wvu^ -Vo be- V y f- ‘PPeV'npTgrants and the like woudd^Q£-aeuroc, uul> bu^-tuxod. Moreover,
jft \x only business income which is not incident or related to
the exempt purpose whAefr- would be taxed.

3Por example, a university

bookstore may continue to sell textbooks to students, an agri­
cultural college may run a wheat farm in connection with its
educational program,
Mtai,

"ttoxa a~ d a S g r T g y ^ t y

a social club nay sell food to its members,A All of these

activities would continue to be exempt from tax.
unrelated business

n- fl^ly the
l***-~‘
~mm-«*** e r f ..
would be taxed - the spark pLug|factory

run by a university^g&he 1vH^bscsiuess operated by

,

While the Treasury «might, after a considerable period of litigating,
succeed in taxing such activities under present law, it seems
highly desirable for Congress to provide clearly that such will
be the result*

-

2

that a business organization which concLuots no exempt activities
itself may receive tax exemption if the ultimate recipient, of
•( V- ^ o y n m i s s t o n e

its income is an exempt organization (Roche*s Beach,

nrv\ 1935|^j

The practice has spread in recent years, particularly among
\HicJe v a r / e r y
charitable and educational institutions, and a fnarpr1sd*>o ■— wy
of business activities have been engaged in by such organizations*
Thus it is found that gaAAo statiwa«v publlsMng- houaes, -oil— >
lese

operf

h*err~rtiised^iandsold

organizations^.

r.niHTnerc^allyr ftud..A~wide variety of prQducta ha.ve been manufaCTOnd^

|^raiaatag4a.^oiieo,-chinawaro, loothoi1 ^P^s wad &ut omot3y£j
Vj C
^ £ r * t o tC S> / W
|
'
••»*»«»»»kM«»«! fee- the 1■T r e a e w y
accessories/V
u * A e t >ecf^'o»> ifc»\
organizatiensnare
not required^to file informavjince seme
tion re t u r n ^

While ia

jdftrfbsysral 'lactam*

-vi \1i*

m m v r v m r rinses

the operations are small,

w

It is therefore recommended bjri 11<¡rTreaonry that the unrelated
business activities of soeial elubs^ charitable and ed^ational
j lakfii U A t O # *
organizations,
business leagueajbe subject to
tax at the ordinary corporate rates,

J

!c

A similar proposal was

presented to the Committee in 19^2; since that time the abuse has
spread.

Under the recommendation, if such activities are conducted

by the exempt organization itself, the exemption of the organiza­
tion would not be disturbed, but such business income would be

to ^
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SUPPLEMENTARY TREASURY DEPARTMENT STATEMENT
OH TAX EXEMPT ORGANIZATIONS
POE PRESENTATION TO THE
COM IT TEE 01 WAYS AND MEANS
OP THE HOUSE OP REPRESENTATIVES
FEBRUARY 6, 1950

r---- •%

Unrelated 'business activities
Some of the organizations now exempt from the corporate
income tax under section 101 of the Internal Revenue Code, such
as charitable and educational institutions and social clubs,
were granted exemption jpXMHfiKfcXSi because ifc 2flBBX*sa&Xby Congress desired

.to encourage
generally

,^
.
not conducted for profit.

.. ...

/jtltiib their particular altruistic or-group interest activities,
whicl/perhaps were

Congress contemplated
However, nowhere does it appear that

K^3tSSXOaii|^X§Ci that such organizations would engage in the
active conduct of a business.
For this reason, 11m (ifinH| when it came to the attention
of the Treasury Department that certain educational and other
organizations were engaged in business operations which had no
relation to their exempt non-business purposes, it war attempted
to deny the benefits of tax exemption to such organizations*
However, this approach bytrhn T-rwMymry has not been adopted by
the courts, save in isolated cases.

Court decisions have taken

a broad view in construing the more important exempting provisions,
particularly by interpreting an early Supreme Court decision as
stating that the destination, and not the source, of income is
the test in deciding the question of exemption (Trinidad v. Sagragay
a

Orden des Predicadores, 192^).

263 U .S . 578

,

*

Some courts have further decided

\

I

Unrelated business activities
Some of the organizations now exempt from the corporate
income tax tinder section 101 of the Internal Revenue Code, such
as charitable and educational institutions and social clubs,
were granted exemption jpXKgQ&HffiSSX: because iKxaeBXXaOffiXby Congress

.to encourage
generally

desired

, ,

/jthact their particular altruistic or grot®) interest activities,

not conducted for profit.

which7perhaps were 8ttox*5DQPTOfift34xxaafclOTX:x^tti^

Congress contemplated
However, nowhere does it appear that
that such organizations would engage in the
active conduct of a business.
For this reason, Iiliei dfiii "t when it came to the attention
of the Treasury Department that certain educational and other
organizations were engaged in business operations which had no
relation to their exempt non-business purposes, it mat attempted
to deny the benefits of tax exenption to such organizations*
However, this approach by-Llm Tywnnrary has not been adopted by
the courts, save in isolated cases.

Court decisions have taken

a broad view in construing the more important exempting provisions,
particularly by interpreting an early Supreme Court decision as
stating that the destination, and not the source, of income is

r

the test in deciding the question of exemption (Trinidad v. Sagrada

263 T J . S . 578
Orden des Predicadores, 192

Some courts have further decided

\

- 23 -

It is the Department’s view that all such allowances are
part of the decedent’s net wealth and are received by reason
of his death, and that no distinction should he drawn between
amounts distributed pending settlement of the estate and the
amounts received on final distribution.

It is accordingly

recommended that this loophole be closed by repealing the
provision of the estate tax under which the deduction is now
allowed*

- 27 Jb
Specifically, the Department recommends

jCtfjr*

made within three years of death he required to he included

'> ip

\fd

in the gross estate for estate tax purposes.yt j gT-ad o litio n -t
n in rTTrirnn. jSich an amendment would greatly improve
3
the administration of the estate tax and make it a more effeo

an inere

2s J \
~T

tive instrument for taxing property transferred at death.

XI.

i

Estate Tax Deduction for Allowances for
Support of Dependents

\

Another weakness in our estate tax structure is the deduc­
tion now permitted for amounts allowed tinder State law for the
support of the decedent*s dependents during settlement of the
estate.

„„T-iiinwmr—•

The amount of this deduction obviously varies with the
length o¥s£im© required to settle the estate.

If the estate

is wound up qui!5!s4&^ the amount of the deduction may he 'rela­
tively small, even though tEe^ti^A^s or legatees were all
dependent upon the decedent.

Where, on tihL other hand, several

years are required to settle an
Lduction may he ^»¡ifSTantial.

the “same size, the
■

The amount of the deduction 4fegg* varies from State to
State because of differences under the various State laws.
In those States which permit large allowances for this purpose,
the deduction is frequently abused.

Thus, large amounts are

often transferred tax free under the guise of support allowances
to legatees who were legal dependents of the decedent.

y

n

y

-

26

-

To remedy this loophole, the statute should, he revised so
as to provide a tax upon the interest element contained in the
installment payments.

This can he done hy treating the install­

ment payments as payments under an annuity contract purchased
with the amount which would otherwise have been payable on death of the insured.

X.

Transfers in Contemplation of Death
If the estate tax is completely integrated with the gift

tax, as suggested hy the Secretary in his statement last
Friday, there would no longer he any need to determine whether
a gift, made during life, was made in contemplation of death
and should he subject to the estate tax.

Under an integrated

transfer tax, the transfers made during life as well as those
at death would he aggregated and taxed under the same rate
structure.
In the event that the integrated tax is not adopted, how­
ever, it is recommended that the present "contemplation of
death" provision he replaced hy an objective rule.
The present statutory provision attempts to reach those
gifts which are induced hy the same motives which customarily
underlie disposition hy will.

In depending for its applica­

tion upon proof of the decedent*s state of mind, the provision
has produced administrative complications and a great deal of
litigation.

Moreover, it has not been very effective in pre­

venting estate tax avoidance.

- 25 -

in installments.

She elected to be paid in installments over

the period of her life time, each monthly installment to he
$597 (or $7,164 per year).

The taxpayer^ life expectancy at

the time of her election was approximately 19.45 years.

Divid­

ing the $100,000 face amount of the policy hy her life expect­
ancy, she would he entitled to aggregate annual payments of
only approximately $5,141, if the payments represented only
installments of the $100,000.

The difference of $2,023 is

attributable to interest on the policy proceeds retained hy the
company.

It was held, however, that all payments received hy

the taxpayer were exempt from tax.
In another case, the taxpayer was the beneficiary of a
life insurance policy on the life of his father.

The policy

provided for the payment of fifty annual installments of $2,000
each.

Under the terms of the policy, the insurance company

agreed not to anticipate any of the installments.

The court

found as a fact that, except for the installment payment condi­
tions in the policy, the amount that would have been payable
immediately "upon the death of the insured was $53,000.

If

this latter amount were paid in fifty annual installments, the
amount of each installment would he only $1,060 instead of the
$2,000 actually paid under the terms of the contract. The dif­
ference of $940 is attributable to interest on the policy pro­
ceeds retrained by the company.

The court held that the entire

amount of each installment payment was exempt.

- 24 -

IX.

Interest Element on Life Insurance Paid in Installments,
Existing law provides an,income tax exemption for »amounts

received under a life insurance contract paid "by reason of the
death of the insured».

Originally, the Treasury Regulations

took the position that, where the life insurance proceeds are
paid in installments, the amount exempted is the amount that
would "be payable had the insured or the "beneficiary not elected
to have the proceeds paid in installments.

These regulations

were contested and, in a series of court decisions, it was held
that the entire amount of each annual installment is exempt
from income tax where the option was exercised "by the insured.
Subsequently, the principle of these decisions was extended by
the courts to cases where the proceeds of insurance are paid in
installments pursuant to an option exercised by the beneficiary.
The Treasury Regulations were later amended to conform with such
decisions.

Thus, the excess of the aggregate amount paid in

installments over the amount of the lump sum that would have
been payable at death escapes tax, even though it-is clearly a
payment of interest by the insurance company for the use tff the
funds.
Illustrative of this loophole is the actual case of a tax­
payer whose husband died leaving a $100,000 life insurance
policy naming her as beneficiary.

The policy contained-a pro­

vision giving the taxpayer the right to receive the proceeds

23 -

specifically provided, in the law that an alien is not engaged
in trade or business merely because he trades on the security
and commodity exchanges through a resident broker.
Tax Court case, ITubar v. Commissioner. 3/

In a recent

it was held that an

alien, who was present in the United States from 1939 to 1945,
was not a resident of the United States since during the entire
period he intended to return to Europe as soon as possible.
Jinding that he was not engaged in a trade or business in the
United States, the Tax Court held that he was completely exempt
from tax on over $600,000 of profits realized while iri the
United States from trading on our security and commodity exchanges
It must be acknowledged that there are difficulties in the
collection of taxes on all capital gains of nonresident aliens.
But, it is believed that these difficulties mainly arise in the
case of individuals who are not present in the United States.
Where an alien spends a considerable period of time in- this
country he should pay a tax on his capital gains as do our own
citizens. Accordingly, it is recommended that a tax equal to
the tax now applied with respect to other income of such non­
resident aliens (30 per centum) be also applied with respect to
the net capital gains realized by such individuals who are
physically present in the United States from United^States
sources.

3 / 1 3 T. 0. Ho. 75

-

income tax purposes.

22

-

As to whether he is a transient or a

sojourner is determined by his intentions with regard to the
length and nature of his stay.
Honresident alien individuals are divided, for income tax
purposes, into two further groups?

(a) those not engaged in

trade or business within the United States, and (b) those so
engaged.

Those falling into the former class are generally

subject to a flat rate of tax, currently.30 percent (in the
absence of treaties containing provisions to the contrary, as
in the case of Canada* for example, providing for a 15 percent
rate), upon the gross amount of their dividends, interest,
royalties, and the like, from United States sources.

v They

are not allowed ary deductions; but they are not subject to
tax upon capital gains, if any, from United States sources.
On the other hand, those aliens who are engaged in business
in the United States are subject to tax on net income'from
United States sources, including capital gains.
Under existing law, therefore, an alien individual is not
taxed on capital gains unless he is either (l) resident or (2)
engaged in trade or business within the United States.

jg/

It is

If a' nonresident alien not engaged in business in the Chi ted
States receives more than $15,400 from dividends, interest,
etc., he is taxable at ordinary rates, with allowances for
deductions attributable to such income, but his ultimate tax
can never be less than 30 percent of the gross amount.

~

21

-

depletion distributions the entire cost of most of its shares
in the mining corporation.

Yet under the court decision, it

continued to receive annual distributions of approximately
$88,000 tax free.
In addition to the direct increase in revenue which would
result from a repeal of the exemption, there would he an indi­
rect saving at the administrative level through elimination of
the burdensome requirement of determining where the pre-1913
accumulations/ end/and the post— 1913 accumulations/begin.
It is recommended that the present exemption of such divi­
dend distributions be repealed with a view toward simplification
and to prevent any further windfalls to shareholders of -corpora­
tions making distributions out of pre-March 1, 1913'earnings and
profits or gain from appreciation in value accrued'prior to such
date.
/
VIII.

Capital Gains of Nonresident Aliens
Individuals who are not citizens of the United States are

divided, for Federal income tax purposes, into two major classes,
viz., resident aliens and nonresident aliens*

Resident alien

individuals are, in general, taxed the same as citizens of the
United States, that is, on income derived from all sources*
alien actually present in the United States who is not a mere
' transient or sojourner is a resident qf the United States for

An.

-

VII.

20

-

Dividends Paid out of Pre-1913 Profits
Section 115 (b) of the Internal Revenue Code provides an

exemption for dividends paid by corporations to their share­
holders when such dividends represent earnings and profits or
gain from an appreciation in value which accrued prior to
Mar£j* 1, 1913. This exemption was originally enacted in 1916 "because of
doubts as to the constitutionality of imposing tax upon such
dividends.

The Supreme Court later removed all doubts as to

their taxability, however, in the case of Lynch v. Hornby.1/
Accordingly, there is no longer any valid reason to distin­
guish between pre-1913 and post-1913 accumulations.

Certainly,

from the average shareholders’ standpoint, the only difference
between them is the tax windfall which accompanies distributions
from the former.

.

An actual case, illustrating the inequity of this exemp­
tion is that of a mining corporation whose ore properties had
substantially appreciated in value after acquisition but prior
to March 1, 1913.

The conpany had no accumulated earnings or

profits since February 28, 1913, but each year distributed sub­
stantial amounts to its shareholders (a number of steel conpanies)
out of depletion reserves representing the pre-March 1, 1913
appreciation in value of the ore properties.

One of the steel

conpany shareholders by 1941 had ^already recovered through such

1/

247 Ü. S. 339

19 -

even though he may stay in Puerto Rico for only a short period
each year.
In addition* virtually all United States Government employ­
ees, including military and naval personnel, in Puerto Rico,
Panama Canal Zone, Guam, American Sajnoa, Wake Island, Midway
and other Pacific Islands are completely exempt from Pederal
income tax.
Besides the foregoing loophole, this section grants American
citizens in possessions more favorable tax treatment than is
accorded citizens in any other part of the world.

Pirst, except

as to the possessions, Government employees are always subject
to tax on their salaries.

Secondly, citizens can obtain the

.complete exemption of all foreign income for any period for
which they qualify under section 251.

On the other hand, citi­

zens in foreign countries must be there an entire taxable year
before obtaining exemption of only their earned income under
section 116 (a).

Moreover, in the case of a business carried

on in a foreign country in which capital is a material income
producing factor, the exemption under 116 (a) is applicable
with respect to not more than 20 percent of the net profits.
It seems only equitable to place all of our citizens on a
uniform basis wherever employed.
Accordingly, it is recommended that individual citizens
in the possessions be given the same treatment as is accorded
to citizens who reside in foreign countries.

- 18 -

aziy other source outside the United States, if 80 percent of
their gross income is derived from such possession and 50 per­
cent of it is derived from the active conduct of a trade or
"business in a possession.

Income from the active conduct of

a trade or business includes personal service income and the
entire amount of business income of corporations and active
individual proprietors and partners.
Under this section, therefore, an American citizen may
obtain complete exemption of his foreign income from federal
tax: for any portion of the taxable year during which he quali­
fies.

There is no need for him to be abroad for any parties

lar time as long as his income is from sources within a posses­
sion.

United States citizens employed or operating businesses

in such possessions are exempt on their foreign income regard­
less of whether they are bona fide residents thereof and whether
their business income represents earned income or primarily a
return on capital.

There has come to the attention of the

Treasury Department the case of a radio entertainer who recently
entered into an arrangement with the Government of Puerto Rico
under which he agreed to produce all of his radio and television
transcriptions and films on that Island in return for an exemp­
tion from the Puerto Rican income tax.

He also may be able at

the same time to qualify for exenption from United States"tax

- 17 -

If the subsidiary had sold the inventory, it would have been
required to pay a 38 percent tax on the gain from such sale;
/
and the parent would have to pay an additional 5.7 percent
tax on any dividend which it might subsequently receive,
simple illustration is as follows:

A

Corporation A distributes

to its parent B a dividend of merchandise which cost A $3 mil­
lion but which has a fair market value of $11 million.

If the

contentions above were sustained, Corporation A will pay no tax,
and Corporation B will pay a tax of only 5.7 percent of the
$11 million dividend, or $627,000.
This area of tax avoidance could be reduced by requiring
that the dividends received credit be computed on an amount no
greater than the basis in the hands of the distributing corpo­
ration of the property distributed.

Under such requirement,

a full tax would be paid by the parent upon the difference
between the basis in the hands of the subsidiary and the fair
market value of such property at the time of the distribution.

VI.

Income from Possessions
The present tax treatment of income from United States

possessions originated in the Revenue Act of 1921, and is con­
tained in section 251 of the-Code.

This section provides that

United States citizens and corporations engaging in a trade or
business in a possession (other than the Virgin Islands) are
not subject to tax on any of their income from such source or

- 16 -

provides a striking loophole for tax avoidance where distribu­
tions in kind are made by a subsidiary to its parent corpora­
tion.

Ho gain or loss is recognized to the subsidiary (the

distributing corporation) in such cases, and the parent corpo­
ration (the distributee) is allowed an intercorporate dividend
credit equal to 85 percent of the fair market value of the
property so received (not to exceed 85 percent of its adjusted
net income).

Moreover, the property takes.a new basis in the

hands of the parent corporation equal in amount to the fair
market value of such property at the time of distribution.
It is now being contended that the principles applied in
these distributions are applicable as well to distributions of
inventory.

If so, a subsidiary corporation could effect a

substantial reduction in taxes by distributing inventory to its
parent company.

The subsidiary would pay no tax, and the parent

would pay only a 5.7 percent tax on the dividend (the 38 percent
I

!iff! ■ H | |

; .

•;

I |

rate applied to 15 percent of the dividend equals an effective
rate of 5.7 percent on the amount of the dividend).

Since the

basis of such inventory in the hands of the parent company would
be equal to its market value, the parent thereafter may sell the
inventory on the open market, without realizing any taxable gain.

- 15 -

SuSfc an amendment will bring this

of the t

tJtea/iment of foreign mbsidxSries into/closer a^ignmeni; with
the treatmen\conten£>lated for f^eigfc branches
Point IV programs

I ..

Y.

Dividends Received Ored.it for I)istributi on a in Kind
One of the more troublesome problems under, existing law

involves distributions in kind made by corporations to their
stockholders.

The controlling court decisions in this area

afford corporations many opportunities for tax avoidance.
Under these decisions, if a corporation declares a dividend
in cash and subsequently satisfies the obligation by a distri­
bution of property, gain or loss may be recogni.ed to the cor­
poration in the amount of the difference between the amount
of the declared dividend and the cost or other basis of such
property in the hahds of the corporation.

Hqwever, if the

corporation declares a dividend payable only in property, no
gain is recognized to the corporation, no matter how much the
property may have appreciated in value between the date of its
acquisition by the corporation and the date of distribution.
The combination of the above-described principles and the
provisions of law allowing corporations a credit of 85 percent
of the dividends received from another domestic corporation,
I

- 14 -

This permits the use of foreign subsidiaries for accumula­
tion of large amounts of foreign earnings which can he brought
hack to the United States without any tax.
This problem, however, goes further than the use of com­
pletely tax-free transactions in bringing, accumulated untaxed
profits back to the United States,

frequently, a few large

domestic corporations participate in the joint ownership of a
foreign corporation.

The untaxed earnings of such foreign cor­

poration may later be returned to this country upon liquidation
at capital gain rates.

The operating assets of the foreign

company may thereafter be re-established in another foreign
corporation^ o »

.**k*&*>&wm^
Such accumulated profits should be

subject to the rates applicable to ordinary income when they
are brought back to this country.
To eliminate this loophole the law should be amended to
provide that, on liquidation of a foreign corporation over 50
percent of whose stock is owned by domestic corporations, the
gain realized by a domestic corporation shall be taxed as a
dividend to the extent of such corporation’s ratable share of
the foreign company’s accumulated profits from sources outside
the United States.

The amount so taxed as a dividend will also

be treated as a dividend for purposes of any foreign tax credit

- 13 -

IV.

foreign Subsidiaries
Another loophole exists through which domestic corpora­

tions avoid income tax on income from operations abroad through
the formation and subsequent liquidation of foreign subsidiaries.
Existing law generally requires that a domestic corporation
shall pay income tax on its entire net income, irrespective of
whether such income is derived from sources within or outside
the United States.

Where such a corporation, however, owns a

foreign subsidiary engaged exclusively in business abroad, no
Federal income tax is payable on the subsidiary*s income until
it is distributed in the form of dividends to the parent company
at which time it is taxed at the full corporation rate without
the usual intercorporate dividend credit.^/
The loophole arises from the fact that foreign corporations
are permitted to merge with domestic corporations in tax-free
reorganizations and liquidations on virtually the same terns as
a domestic corporation - the only difference being, in the case
of a foreign corporation, that it must be established that the
proposed merger or liquidation is not designed primarily to
avoid tax.

Inasmuch as a businéss purpose may be established

in most cases, substantial amounts of income accumulated by
foreign subsidiaries on which no United States tax has been
imposed are permitted to be transferred to such domestic cor­
porations without tax consequences.

12

-

It is recommended that amendments he adopted to eliminate
this loophole.

First, a loss upon the closing of a short sale

should he deemed to he a long-term capital loss if on the date
of the short sale the taxpayer had held for more than 6 months
property substantially identical to that sold short.

Second,

a gain upon the closing of a short sale should he deemed a
short-term capital gain if on the date of the short sale the
taxpayer had held for less than 6 months, or if after the date
of the short sale and prior to its closing the taxpayer acquired,
property substantially identical to that sold short.

Third, the

holding period of property held or acquired hy the taxpayer as de­
scribed in the last sentence should he deemed to begin on the
date the short sale is closed or on the date of the disposition
of such property, whichever is earlier.

For the purposes of the

above rules, substantially identical property held or acquired
hy the spouse of the taxpayer should he deemed to he held or
acquired hy the taxpayer.

Such provisions would effectively

prevent the creation of fictitious loss offsets and the riskless
conversion of short-term gains into long-term gains through the
medium of short sales in 11substantially identical*’ securities
/
or commodities.

The amendment would have no effect, however,

upon legitimate hedging operations conducted hy farmers, securi­
ties dealers, grain merchants and others who now receive ordinary
income and ordinary loss treatment on all such operations*

-

taken into account.

11

-

If 6n the same day he purchased 1,000

shares for $54,000 and delivered them to cover the short sale
made on April 1st, he would have sustained a $12,000 short­
term capital loss (100 percent of which is taken into account).
Thus, hy manipulation, a $12,000 actual net profit would be
converted into no gain or loss for tax purposes.
This device has also been used by speculators in commodity
futures by «holding open« offsetting positions in the same
commodity in such a manner as to place the profit end of the
transaction into
loss end as a sho:

while closing out the
h this practice has

been partially eliminated through the issuance of regulations
1.46 under the Commodity Exchange Act and Mimeograph Ho. 6243
by the Commissioner of Internal Revenue, these traders have
developed a practice of maintaining long and short positions
in closely related futures either in the same or in another
commodity market.

In one case an individual speculator in

cotton futures, was able through this device to report long­
term profits of $485,000 and short-term losses of approxi­
mately $250,000.

The short-term losses were more than suffi­

cient to offset the long-term gains since only 50 percent of
the long-term gains are talcen into account.

-

10

-

had risen to $42 per share, he made a short sale of 1,000 shares
of MX ” stock with instructions to his "broker not to deliver the
r,longtt stock but to borrow 1,000 shares for such purpose.

Had

he delivered on April 1 the 1,000 shares "bought on January 1,
a short-term gain of $12,000 would have resulted (100 percent
of which would "be includible in gross income).

However, "by

maintaining the short position for an additional 3 months, and
thereafter covering the short sale "by delivering the shares pur­
chased on January 1st, he was able to convert the $12,000 gain
into a long-term gain, only 50 percent of which is taken into
account.
It is also possible for the short-seller not only to con­
vert a short-term gain into a long-term gain, but to offset
the long-term gain with a short-term loss by the simple expe­
dient of covering the short sale with securities purchased in
a rising market.
For example, assume, as in the first illustration, that
the individual purchased 1,000 shares on January 1st at $30
per share and on April 1st sold short 1,000 shares when the
market price was $42.

Further assume that he maintained his

short position until July 1st when the market price had risen
to $54 per share.

If, on July 1st he sold for $54 the stock

bought on January 1st, he would have realized a $24,000 long-

1/

term capital gain-onlv 50 nercent.or $12,0Q0^Ob&w«iMM& would be

~ 9 -

and capital losses.

In the case of breeding and dairy animals

regularly culled for sale each year, the proceeds should be
given ordinary income and loss treatment.

III.

Short Sales
A further defect in the present capital gains structure

is the device through which investors have been able, without
any risk whatever, to convert short-term capital gains into
long-term capital gains, and to create largely fictitious
short-term losses (100 percenlTjof which is taken into account
for tax purposes) to set off against their long-term gains
(only 50 percent of which is taken into account).

The device

most frequently employed to achieve these results is the short
sale which is, in effect, a sale of borrowed property.
A short sale is not deemed to be consummated for income
tax purposes until delivery of the property to cover the short
sale, and the percentage of the recognized gain or loss to be
taken into account is computed according to the period for
which the property so delivered was held.

It is possible,

therefore, to convert a short-term gain into a long-term gain
by making a short sale instead of selling the stock outright*
thus fixing the amount of gain on such stock and enabling the
taxpayer to select a future date for delivery.
For example, an individual bought 1,000 shares of »X11
stock on January 1, 1949 at $30 per share.

Three months

later, on April 1, 1949, when the market price of such stock

taxpayer for the purpose of erecting a building on it, but
this purpose was abandoned in 1934, and the only use of the
property since that time was for billboard advertising.
Another illustration of the manner in which the loophole
operates to the prejudice of the revenue is presented in the
case of livestock sales.

Many cattlemen and dairymen regularly

sell a part of their breeding and dairy herds each year.

It

is difficult to justify the difference in treatment between prof­
its realized on such transactions and their other business profit
Yet, under section 117 (j), the courts have held that gain from
the sale of breeding cattle or dairy herds is taxable only at
capital gain rates because such animals had been used in the
taxpayer’s cattle or dairy business.

Losses from these trans­

actions, on the other hand, are fully deductible as ordinary
business expenses in computing net income.
This complete lack of symmetry in the treatment of gain
and loss arising from the sale of business property should be
eliminated.

Accordingly, it is recommended that land and

depreciable property (other than breeding and dairy animals
regularly culled for sale each year), used in the taxpayer's
trade or business, be included within the definition of
’’capital assets”, so that all gains and losses from the sale
or exchange of such property shall be treated as capital gains

- 7 -

With respect to productive "business property there have
"been numerous cases of abuse under this section of the Code*
Many plants, stores, warehouses, etc., have been sold at large
losses, and full deductions taken against ordinary income
which would otherwise have been taxable at the excess profits
tax rates,

in actual case wily illustrate the problem:

Corpo-

ration D, in 1944, sold a department store building, together
with the land on which it was located, at a loss in excess of
$7,400,000.

Such loss was allowed as an ordinary deduction

under section 117 (j) and resalted in a minimum tax benefit
(by reason of excess profits tax) of $5,600,000.

It is signif­

icant, that, in this case, the sale was made to a trustee for a
tax-exempt organization and leased back by the corporation.
Thus, the corporation continued to enjoy the use and possession
of such property while at the same time securing the benefits
of substantial tax savings.
It is also significant that some of the courts have gone
quite far in holding property to qualify for the generous
treatment provided by this section.

For example, in one case

the court held that vacant land purchased in 1926 and sold in
1943 was used in the trade or business of the taxpayer, and
that an ordinary loss deduction was allowed under the provisions
of section 117 (j).

The vacant land had been purchased by the

"buildings or other improvements on the land produced an ordinarygain or loss.

This difference in treatment required a difficult

apportionment of "basis and sale price in the case of the sale
of improved realty used in the trade or "business of the taxpayer.
In the Revenue Act of 1942, the definition of the term ^capital
assets” was amended to exclude land as well as the improvements
thereon when used in a trade or "business.

This amendment, of

course, would have treated all gains and losses, from the disposi­
tion of such property as ordinary gains and losses.

It was

"believed that the imposition of the tax at ordinary rates on
the appreciation in value of such property might unduly impede
the speedy transfer of this property from peacetime activities
to wartime industry.

Accordingly, section 117"(j) was enacted

as part of the same revenue act to provide the more favorable
capital gains treatment upon the disposition of such appreciated
property.
The justification of section 117 (j) disappeared with the
termination of the war.

There is no longer any valid reason

for a provision which will treat the same transaction as produc­
ing an ordinary loss or a capital gain.

The fundamental nature

of the transaction should now control its tax consequences,
rather than the question of what treatment is always most favor­
able to the taxpayer.

The character of the transaction

the same whether a gain or loss results therefrom.

is

On the other hand, where it appears that a corporation
was organized or acquired by an individual or group of indi­
viduals to manufacture or produce property without any intention to operate

:poration in a normal manner or without

a view towards realization of profits hy such‘corporation, it
is recommended that such shareholders he denied the favorable
long-term capital gains treatment which might now he appli­
cable with respect to the sale or liquidation of their stock.

II*

.Sales of Business Property
Another defect in existing law is the "one way street’*

now provided for taxpayers under section 117 (j) of the
Internal Revenue Code.

Under that section, if gains from

the sale or exchange of land and depreciable property used
in the taxpayer1s business (and held for more than 6 months),
and from the involuntary conversion both of such property and
of capital assets (held for more than 6 months) exceed the
losses from such transactions and events, the net gain is
treated as a long-term capital gain.

A net loss from such

transactions and events is treated as an ordinary loss deduct­
ible in full from the taxpayer's other income.
Under the law in effect prior, to 1942, the sale of land
produced a capital gain or loss, while the sale of depreciable

- 4 -

construction is completed and, upon liquidation, the value of
the assets distributed is estimated at the amount for which it
is expected the .units will he sold.

On this basis, the stock­

holders report as a long-term capital gain the difference
between the net amount they expect to receive and the cost of
the stock owned by them at the time of the liquidation.

Having

received the assets, the stockholders proceed to sell the units
and report for tax: purposes only the difference, if any, betweenthe value at which the units were acquired on the liquidation
and the actual selling price.
It is by no means clear that taxpayers using this device
will be able to accomplish their tax saving objective, for the
corporate form .in many of these cases may be held to be a sham.
However, the Department believes that legislation should make
certain that this tax avoidance technique will not be used to
advantage in the future.

At the present time, there are over

a hundred cases being examined by the Bureau of Internal Revenue
which involve this type of loophole.
-I

i »'k w h

i

i ■—

-

■ ...........

||

T P mi liiT1 m 1FJI1L1J.L1U..

_ ............ ................................

In considering the remedy for this problem, recognition
must be given, of course, to the fact that most corporate
enterprises are organized to do business and are designed to
operate for profit.

We do not propose any change in ^the present

applicable to the liquidation of such corporations.

- 3 -

assumed by the producer on liquidation of the corporation
I
?
his net/gain was approximately $615,000. If he is success­
ful in the use of this device, his net tax on such gain will
be approximately $154,000.

In the absence of such corporation,

the tax at present rates would be approximately $455,000 - or
an avoidance of approximately $301,000 in income tax.
Moreover, where, as sometimes occurs, the actors, or
writers, acquire stock interests, they also might benefit taxwise through capital gains treatment on the appreciated value
of their shares which, in large part, may represent compensa­
tion for their services.
It is understood that the tax saving device of organizing
and liquidating a corporation for the purpose of securing such
tax benefits is also being used to some extent in the building
and construction trades.

The corporation is organized at the

beginning of construction and is liquidated upon completion of
the project and before any sales are made.

If the corporation

continued in existence and sold all the units itself, it would
pay an ordinary income tax on the difference between the amount
received for the units and the cost of construction.

This tax

would be in addition to taxes payable by the shareholders with
respect to dividends received by them.

In order to secure tax

benefits, the corporation is permitted to exist only until the

2
each motion picture.

-

Upon completion of the film hut prior

to the realization hy the corporation of any income therefrom,
the corporation is liquidated, and the assets are distributed*
In such a case, the corporation pays no taj^jj^laiming that it
has realized no income.

The producer pays tax upon the differ­

ence between his cost and the fair market value of the assets
so distributed; but such gain is reported as lon^-term capital
gain with a maximum effective rate of 25 percent.

After liqui­

dation, the fair market value of the released production is
ordinarily amortized against the income from the film as it is
received.

If the income from the film does not exceed such

fair market value, there is no further tax.
An actual case illustrating the problem is the case of
M Productions, Inc. which was organized by an independent pro­
ducer in California for the sole purpose of producing one
motion picture.

All the capital stock of the corporation

(1,750 shares having a par value of $1,750) was issued to the
producer who held it jointly with his wife as community prop­
erty.

One year later, the picture having been completed and

distribution contracts executed, the corporation was liquidated.
The estimated value of the motion picture rights thus distrib­
uted in liquidation was $1,452,000.

After deducting liabilities

"'X.v,,

In Exhibit 4 appended to the Secretary^ statement,
there are 11 specific areas or loopholes^thpowja which^apprex+^ y i|iln^1nnr)i-Qn0 in rftYfmTi
tfl- i g Imt; nnifrln ;rfrr

I.

Collapsible Corporations
Die first of these loopholes is the one to which the

President referred in his recent tax message to the Congress,
namely, the so-called collapsible corporations by means of
which individual taxpayers seek to convert ordinary business
income into long-term capital gains.
As you know, the rates on ordinary business income, in
the case of individuals, range as high as 82 percent, while
the maximum effective rate on long-term capital gains is
only 25 percent, fffoi1 urgingila^^Xf a motion picture producer
fT^\
^ adejall of his pictures as an individual, his entire gain
from such operations would be taxgd at individual ratesjiriftiah
riMigi«

rjj

05,

If he produced all of such films

through a single corporation, the corporation would pay a tax
of as high as 38 percent on the profits as realized, and the
producer would pay an individual income tax as such(profitj
are distributed by the corporation.

Producers have tried to

avoid these results by organizing separate corporations for

X.

Regulatory
States (Texas, 0
past year, cut the
1 million barrels
from additional
cut-back in
conditions, d
continual

Leading Mid-Continent producing
aid Louisiana) hare, during the
production of oil by more than
However, new discoveries and new output
wells have nullified about 1/3 of the
wells *

T M e r these

are expected to be faced with
to increasing production

a

• 3$ **
7-

Bata presented in Table^,Vindicate that the nuaber o f o il and
gas wells d rilled in 1949 was about one-third higher than in the jeers
immediately before the war* 9he substan-ttally ii'ncA'ea'sgct-actl V T ^ ' 'In
disnmrmy and,

rariatictis in the rate of o il-w e ll
d rlM ii^ over the years have been responsive to changes in the price
of ©xl^ w M b s'dgtiesbs the basic iisporttec# of ordinary profit
considerations rather than f e c i a l tax incentives in o il discovery*
mformaticn on exploratory o il and gas

wcH s (generally

termed

% ildcat^ wells by the industry) are presented in Tablej^V Wildcat
w ells represent w alls d rilled in unproven areas as contrasted with
development w ells drilled cn proven properties in producing fields«
They represent the more risky type of o il development a c tiv ity .
From these data, it will be noted that the ratio of successful

~WQ

s

wiMcat w ells to^total has risen since the war to about one in fiv e ,
as compared M.ih m e in ten in the piwwar years shown.

This increase

in the proportion o f successful wells re fle cts improved scie n tific
methods o f locating and developing o il reserves.

At the present time Is rge s ^ l i e s ^ r crude o il both inside and
outside the Salted StS tfe a ^ e exertjpg; pressure on the price structure
o f the industry.

concerned with the

e ffe ct of continually in e r t in g world sup^ee^^m^^demanding
protection in the form o f isprrt quotas, higher ta r iffs ^ or boUt.

27 APFSJDii'j^ n

Economic Data^jaa the Petroleum Industry

Basic data on conditions in the oil industry, the major industry
affected by the percents,^® de l e t i o n provisions* ana presented in
the accompanying tables«
As shorn in Table

the production of crude oil in the period

1947-1949 was the largest in the industry»® history«

In epite of

this greatly increased rate of production, known r e s e r v e s have
V
been Increasing for the past 10 years and in 1948-1949 were at their
all-tiao peak*
Data on the production of crude oil in Near Tork and Pennsylvania*
primarily from so-called stripper wells* are shown in Table

The

depletion allowance for stMpper wells would generally be m c h m g e d
under the Treasury's proposal.

Because of the low net income in

relation to gross incoi», the depletion allowance of most stripper
walls is aibjeet to the 50 percent of net incorno limitation* and would
continue to be e<jual to 50 percent of net income even with the
proposed reducticn in the percentage rate based on gross income.
Moreover* as shorn in Tabler'/^ the production of the stripper wells
is primarily dependent on cost-price relationship« and technological

developments jathm* itigli ÉÉ
ftm

increase in stripper production after 1926 is traceable to the

gradual introduction cxf the water—flood in g method of extract! on*
first permitted by state law in 1921," Striper production increased
in the early war years m d e r the stimulus of higher oil prices«

Since

then production has receded to about the same level as in the early
1930»s.

^

'

-

^

26

-

..jrSince 1947 a wide range of nonmetallie producers who have not

bean granted percentage depletion have continued to press their
claims for similar preferential tax treatment •

1/

MuiiiUVlIT* U « _

fhe present treatment of development costs as expenses deduct­
ible in the year incurred Stems from administjfeb ive régulât iena
adopted in 1917.
was allowed*

At that time only cost dradjusted-basis depletion
/
Under those conditions* the decision of a taxpayer to

expense rather than capitalize thesé costs merely changed the timing
of his deductions for capital ireeoveiy, without affecting the
aggregate amount.

The c o n t e n t i o n of this treatment under discovery

and percentage depleting howeVer, dad to overlapping deductions
rather than merely changing thi timing of the deduction and hence thè
v
«¡F*
'ft
tax payments. Those special deductions are calculated without respect
to the original investment in tie deplstable property or to the amount
of the investment previously recovered through deduction as an expense
from income Otherwise taxable* |

X J

Within the past 3 years other bills have been introduced in Congress
to extend percentage depletion to anfclygonite* oil shale* tripoli*
marble, pumice* scoria* limestone* crushed stone, perlite, diatomaceous
earth* granite* borax* c a M u m and magnesium carbonates* shell* sand*
gravel* stone, aid all other nonmetallie clays and minerals.

to $1*73*

At present, the

a r e rage

price of- crude oil is approximately

/

rate was selected as a substitute for discovery depletion«

These

industry will be found in Appendix II*
Since coal and jioxpetallics, other than sulfur, had never
enjoyed any significant anombs of discovery depletion, the percent­
age rates on gross income for these items were not based on special
tax depletion expedience*

Instead, rates were selected to afford

tax relief and tax incentives which seemed to Congress reasonable
at that time as compared to the treatment given oil, sulfur, and
metals*
During World War II, the percentage depletion rate of 1$ per­
cent of gross income was temporarily granted to specific nonmetallies
as a wartime incentive measure*

The arbitrariness of this rate was

criticized by members of the Senate Committee on Finance because no
investigation of the appropriateness of the rate for nonmetallies
had been made.

In 1947, however, the wartime grants were made

permanent and in addition some items not previously covered were
granted the special allowaaee*

>

— 24 *—

depletion d eductions was taken b y prospectors and wildcatters who
were the express object of concern in 1913*

It was estimated in

1926 “that approximately $10*000,000 oat of the $300*000,000* or
3-1/3 percent of the annual deductions for discovery depletion
JJ
(for oil and gas) has gone to the wildcatter“*
There was considerable criticism of the continuation of
discovery depletion beyond the war period in which it had first
been deemed to be justified*

However, instead of being removed, the

special allowance was modified in 1926 to a percentage of gross
income in the case of oil and gas properties*

A similar substitution

for metalé £*áÉ^bulfur was made in 1932* The rates on gross income
/
A*
were set at levels winch it appeared would permit the respective
mineral industries to deduct approximately the same total annual
depletion that they had enjoyed in the early 1920*8.
net income limitation was retained.

___

The 50-percent

.

,

The p alee feed percentage rates on gross income

^ .

cent Inna

to provide depletion deductions approximating those of the base
"parodwetii

period of the 1920»sécnl> if mftH3F tolrigTO"

conditions pxtl/al3ZTd*

Th.iS£$i ralaidian*

ST

report of the Staff ofgy^^oiBfc-eeggaittew^
J?qsatio»-A» 19^91

I
It was apparent that as mineral prices^ and,
'

hence, gross income changed, the amount of depletion allowed for a
given quantity of mineral would vary widely irrespective of the costs
I
of the mineral asset to the taxpayer* For example*/ from 1921 to 1925

111

7

the annual average price of a barrel of crude oil ranged from $1.34Tr,^

T i

on investigation of Bureau

69trCnn^eVenUV
~ lal Rep°rt-» Senate
27,
69th Congress, 1st\ Session
(1926),
pp. 20Report
ff.

v

L/s*
- 23

APPENDIX I

* DevsleuBsnt
The original income tax legislation provided a »reasonable
r
allowance,1* not to exceed 5 percent of gross income, for easting
mineral assets*

This was later changed to a more specific allowance

of depletion based on cost or 1913 value*
Allowances in excess of cost depletion were first granted in
/
the f c m of discovery depletion In 1918 as a measure to stimulate
mineral exploration for war purposes and to lessen tax burdens on
small-scale prospectors who made discoveries after years of fruit­
less search*

Discovery depletion deductions allowed the discoverer

of any new mineral deposit to retrieve not only his costs but also
the materially larger appreciated value of the property at the time
its profitability was established#
In the ensuing years, it became apparent that large corporate
taxpayers received most of the deductions based on discovery
depletion•

Under the hig£i tax rates of World War I and immediate

postwar years discovery depletion exceeded the income from mines or
oil wells and even resulted in large amounts of taxable income from
other separate and distinct lines of business being offset.

In 1921

Congress limited annual discovery depletion to t he amount of net
n
income derived fro# the mineral property, and in 1924» this lindta/
tion was lowered to 50 percent of such income* Congressional in­
vestigators also pointed out that, a very minor part of discovery

l. UIMM.W■

-

c*

22

-

taxpayers producing natural gas only

Idk® the salfar producers, the natural gas industry has relied
to a considerable extent on the oil producers to discover new

drilled in 19^9* j?*7 porcomt were completed as gas wells*
s*

Hoapetals and percentage depletion allowance

5he nonmetals, other than coal and sulfur, cower a wide variety
ranging from sand and gravel to little known minerals such as
($u
thenardite and perlite. -ftftflH»
these now enjoy the benefits of

A
percentage depletion.

V * # A
1» ■ . U . t tii. nonBetallic Minerals are in abundant supply and
properties containing such minerals may be purchased or leased .nt

'

the
r

depletion.^ The supply of many of the nonaetallics appears to be
virtually inexhaustible*
t is believed that a 5~percent depletion
rate would be adequate in all the nonmetllic cases,

fhis would

put these minerals on a comparable basis with ©oal mines*

a

-

f
fhe net income of stripper veils, however, rarely is this high and
in most cases percentage depletion for the® is determined by the
^0 -percent net income limitation.

It often amounts to less than 10

percent of gross Income compared with 27 i percent that may he taken
by the more profitable operators*

B,

fhe sillfar industry

fhe sulfur producers have made their property acquisitions by
following closely on the heels ©f the oil producers since the
latter often reported sulfur in their dryholes encountered in
drilling for oil.

fhe sulfur industry

exploration programSof its own but appears to rely on the r salts of
drilling for oil.

At the present time, the known United States

reserves of sulfur are very large, being equivalent to approximately
30 years supply at current production rates.

Moreover, these known

reserves are being extended by new discoveries*

fhe sulfur industry

has nevertheless enjoyed a liberal depletion allowance*

/

«

20

Income resulting from ths efforts of the wildcatter or Independent
developer*

I® mar claim 27k percent of hie royalty incosse as a

capital investment which he would be entitled to recover through

Anot
stripper^

fcor ainwi«iirm>Athe oil induet*y is the so-called
is far removed from the prospecting and development

phase of tho oil industry*

Oil veils typically rise to a maximum

production, after which, depending upon the character of the
property and the restrictions of the State proprieties agencies,
the production doclines to a point where there Is little if any
flow.

When this stage is reached, pumping or other force

methods are used to continue the recovery of oil.
as a stripper operation.

fhls Is known

It is frequently carried on by small

operators on a high-coat, low-profit basis,

locasse of the low

margin of profit, they are sonatinas referred to as "marginal*
operators. ffho so at ina» Ilea of""

thee» *epematars «
ffneV
operators generally are prevented from obtaining the full deduction
based on gross Incoas specified is tho law by reason of the set
income limitation.

In order to obtain tho full 2f$ percent of

gross Incorno, tho strlprer well would have to be so profi tabi#
that tho net Incorno b -fore depletion would amount to gi percent of
gross income or twice the 27 v-peroent of gross incorno allowed by law*

- 19 *

fhe proposed tax revision would deo ease the rate of percent«
age depletion hat would continue to allow the deduction of
development costs.

In the example abo~~ the result of the proposed

Ul>^
decrease In percentage depletion might be as follows 5
# 1 ,000,000

dross izieomo, oil and gas sales
Costs I Operating costs
Development costs

$3 5 0 ,0 0

aoo.ooQ
^SO.OOO /

I 550*000,

Set incorna before depisti©»
Bepletlen 15 # ef #800,000
(#1 ,000,000 ninne $300,000)

-m

.0 00

‘

Set incoine after depletlon

$**30.000

•

100.000

*

Capital development ©est of 6 additional
wells at $50,000 each
Set incorna fro» tetal opera iione

It appeals fKrar’thlfe immola

# 130,00

‘

he effect of the proposed

revision would ho to bring this taxp^rer into tho taxpaying elase
unless he elected to extend his operations by drilling mors wildcat
wells«
In considering the probable effect of the proposed tax revision,
It is well to distinguish clearly bet- sen those who have actually
participated In the exploration and development of oil properties,
and consequently assume risk, and those who obtain benefits without
taking risks*

the royalty owner is generally a passive recipient of/

- IB

9b» snail individual operator who Is ooastamtly expanding his
operations may deduct percentage depletion with respect to his
developed producing properties.

Bmt he woald probably pay little

or no tax for the reason that met Income after depletion\iyneo»
®P l«M>hd« expanding a ctivities and sharped off as expense until
there la no remaining met income subject to the tax«
fhls^ sltmatlom night be called the story of how to make
profits pm the ©11 business without paying am lucerne tax.

fha

following example illustrate^ the method of avoiding e * tax

Gross 1 noons, oil and gas sales
Costs* Operating costs
^Development coats

$ 1 ,000,000
$ 250,000
200.000
frJjQ.OOQ

Is- income before depletion
Depletion at

of gross izioone

let income after depletion

$

590*000

m * mp
275,000

Capital cost of drilling 6 addi­
tional test wells at $50,000 par
well for intangible drilling costs
het loss from total Gperatieas

- $ 25,000

- 17 ?he galas hs usually makes from his vent«w*ee are obtained
from transferring to others the properties he has explored.

He

usually sells his property before or shortly after it is developed.
In doing this, he now has the advantage of the
gains treatment from the sale of his property.

During the

developmental stage percentage depletion is usually of little or
no benefit t© him because the expenses ©f development equal or
exeeed the gross income fro® the property, and he is therefore.

deduction is of no value to %***■<■£*%%&*« withhut taxable Income.
Instead, the benefits of percentage depletion go to those she
purchase the property from the wildcatter after it reaches
production on an established basis.

?he proposed reduction in

the percentage depletion allowance would have little effect on
this type of operation.

** l 6 •*
OfH

thei r Hwrflltmaflnt

a a »! t.
...j.
a

other small businesses,

fhe m a l l oil operator now obtains the benefit of lower rates under

•

She small operator in the oil

business also nay now ©spans© most of his capital costs, a privilege
not granted to small business in any other industry.

„j^evenue less-

k
^neduced

there MoaL<L,ha availahi
Ho one who Is familiar with the oil business would underrate
the significance of the so-called wild^catter even under present
day conditions where the bulk of exploratory work is carried on by
the large integrated corporations.

The wildpcatter performs a

unique function and is only fully appreciated by those familiar
with the oil community.

The unusual strikes made by the wild­

catter, sometimes where more conservative interests have given up,
are

ho

less Important than dramatic,

fhe present depletion provisions

however, do not contribute substantially to his preservation.

She

wildcat ter, as the very term signifies, is one who is constituted
to take the long channel ' He is not ordinarily the type who is
interested in the conservative business ©f operating an established
well

- 15 -

It is important to not© that the allowance for percentage
depletion is granted with respect to each individual property and
not with reference to the over-all operations of the taxpayer.
The individual property may vary in size from a few acres to one
covering thousands of acres*

la generate property is defined as

the property Interest in an area from which a person holding such
an interest is entitled to a share of the oil production.
In view of the extensive subdivision of interest^ an oil
operator usually has a number of different properties.

This permits

him to deduct the higher of cost or percentage depletion on each
property and thus obtain a larger allowance on his total operations
than if he were required to use one method or the other

jp

yThe special depletion provisions, which have remained unchanged
for oil and gas since 1926 , were originally enacted at a time when
a substantial part of the exploratory risk was assumed by the socalled independent operator or wildcatter.

With the large growth

of investment in this industry, the pattern of operations has assumed
a substantially different character.
%M
\

One of the principal developments has been she integration by
lar&e companies of the prospecting function with the aeti© actual
production, transportation, refining and marketing of the product.
In place ©f the former predominance of individual prospectus »«d
producers, the major integrated oil companies today account for a
large fraction of the production as well as refining and marketing.
As already indicated, they now obtain most of the benefits from the
special tax provisions.

-

-

The land owner is said to hare a right to the sub-surface materials,
and usually must he compensated in some manner before the sub­
surface area say be explored.

This is usually effected through a

lease or sale of the subsurface rights with the land owner becoming
a potential participant in the future mineral production.

This is

generally referred to as a royalty interest» which may be sold either
I
in part or outright.

I
/

The person obtaining the rights to the subsurface mineral has
a wide choice of ways to exploit his Interest.

On the one hand he

may proceed entirely on his own, retaining all of the rights,
doing all the exploratory work and actual drilling of wells, and
continuing to operate properties yielding productive wells.

On the

other hand, however, Instead of handling the operation entirely
himself, he may and usually does sell a share in the potential
product in return for capital contributions or exploresry and
developmental work by others.

In still other cases, he may retain

only a partial interest and allow others to carry through the
exploration and development.
As a result of the divisibility of oil and mining Interests,
tue arrangements for the conduct of exploration and development
work are némally complex.

Once the property has proven productive

all persons having an ^economic interest* in the property may deduct
from the income received from the property on account of special
depletion the percentages of gross income specified in the law in
addition^ to all other ordinary and necessary producing expenses.

- 13 -

of what it vas when percentage depletion was originally introduced
for these minerals.
««Hr-frybfric^ proposed that oil and gas operators who elect
to expense intangible drilling and development costs be required
to reduce income from the property by the amount of such expensed
f t

costs in computing their depletion allowances.
These proposals will retain the desirable incentive effects
of the right to Immediate deductions for recovery of capital
invested in the development of wells.
retain their option m

Oil and gas operators would

to deduct these costs, either when they are

incurred or later as depletion.

But the extent to which these

operators now enjoy a double deduction for the same costs would be
reduced.
T.

Effect of proposed adjustments on incentives
A.

The oil Industry

For those not familiar with the operations of the oil industry,
technical details tend to obscure the manner in which the benefits
\
derived from the special tax provisiontfaecrue) to the various types
•■»I ...........

of participants in oil operations. Those who are intimately familiar
with the industry, on the other hand, tend to take for granted the
benefits of the special tax provisions.

In order to evaluate the

effects of the proposed revisions, a brief statement of some of the
basic relations ips in the industry may be helpful.
Oil

operations, as well as most other mineral ventures, involve

the recovery of materials below the earth*s surface. Access t© these
materials can be obtained only through the owner of the surface land.

Insert for page 13

In thejcomputation of percentage depletion, the gross income and
net income from the property with respect to which development
expenses were previously deducted would he reduced each year
hy the amount of such expenses until such reductions equaled the
total of such expenses.

1

^’
■^Sb*^*********

N'k.,
-

W*

12

-

Proposed, revisions

U-fc^proposad that percentage depletion for oil, gas, and sulfur
/
\
Do reduced to 15 percent of grossdncome and that percentage depletion'
for nonnetallic ninerale De reduced to 5 percent.
percent for netals would De left unchanged.

She existing 15 "

She 50 percent limitation

in terms of net income for all groups would De left unchanged.

She

present and proposed depletion rates compare as follows:

#4^

Mineral

{Percentage depletion rate on gross incesa
:
Present law
:
Proposed

Oil and gas

ZJÌ*✓

15*

'

Sulfur

23

-

15

/

Metals

15

y
J

15

'

Coal

5 '

5

Nonmetallics

15

'

✓

5

ihe suggested changes are designed to correct the more excessive
special depletion allowances permitted under present law.

She scale

of depletion deduction In excess of investment costs has been
particularly large for oil, gas, and sulfur.

Also the proposed rate

for nonmetallics would grant a more realistic type of special depletion
allowance than the rate selected as a temporary war measure.

It is

believed that the proposed changes will result in a better alignment
of percentage depletion rates in the light of present conditions.
Even at the suggested reduced rates of allowance, the tax saving valus
of tha-aweu.DMvrin. toy D snef U. of the oil and sulfur allowances under
existing corporation income tax rates will be substantially in excess

-n -

-Attracted
by opportunities for preferential tax treatment $ many high—income
individuals M fînnfa...n m nmn»»« ..... ■ ■■mil

^ f—fm niTtij Tfy II jj|

have invested heavily in oil ventures.

These tax­

payers thus reduce current taxes on income from any source by the
amounts invested in development costs* and they obtain soirees of
future income which are tax-free to the full extent of percentage
depletion*

In addition, % m m r *corporations in unrelated fields,

such as brewing companies and manufacturers of ordnance> Ham» 4«
recent years found it advantageous to invest
ventures, partie uLady oil and gas wells«*/

profits

in

10

-

S§SI effects of special affiwrances on
garticuLa? taxpayers
One of the most inequ it^ble results of the special depletion
l^rallowances is their effect «a- freeing individual taxpayers from
their fair share of taxes*

Some of the more conspicuous cases of

tax reduction are shown in fable 9.

In tarn illustrative cases in

which the taxpayer's income history was traced over the 5-year
period 1943-1947* the effective rate of tax on net
„

m e ts ss s& c

income

^ a.sed 031 cosfc or basis depletion) varied from 63.5 percent to « ►
« « # 1 percent .^This represents a striking difference
between the effective rates of tax actually paid and the general
/
statutory rates on such income, which ranged as high as 90 percent
in these years.
During the 5-year period these ten individual taxpayers
Y'
received a total net income of #52.6 milieu from oil and gas
properties.

This net income was computed after all dedimtions for

operating sxpmses, depreciation, basis depletion, exploration costs
aid losses/on unsuccessful ventures.

These taxpayers also received

a total of #9.3 million of net income from other sources.

Of their

aggregate net income from all sources, totaling $61»9 uriinnn

7*7 ^

percent was eliminated for tax purposes through the special
deductions.

hese taxpayers, who em the sverege had

mua l incomes in excess of $1 million each, paid an average tax of
y
^ ~~
only 22f percent./ A number of
corporate cases involving
relatively large tax savings under the special ,ni
©visions are presented in fable 10. ^

deplfcion

Public u tility corporation* and financial and real estate
corporations also deduct significant amounts of depletion*
While these integrated business concerns are engaged in part
in mineral extraction* they generally hare wide opportunities
for o ffsettin g losses on extractive ventures against income
from their other types of business activity*

— 9 -

of the total excess was deducted

by manuf acturing

enteritises

(notably in the petroleum field) representing large integrated firms
whose predominant industrial activity was not mineral extraction.
F*

Depletion allowances in relation to size of firm
/
About three-fourths of the total depletion allowances and of

the excess of percentage over basis depletion was received by very
/
J g ipr iporations^vrith assets of at least $100 million. (fable 7)
By contrast these firms received slightly less than two-thirds of
the total gross income from -aaaaigag».

w

The percentage of income excluded from taxation through
depletion allowances lands to be greater for larger corporations♦
(Table 8}

In 1947* for example* firms with assets of $100 m i n Inn
f
and over had depletion allowances of 2 0 percent of their gross and

s
-it
38 percent of their net income, as against 9 percant of gross income
/
and 34*5 percent of net income for corporations with assets between
/
/
$100 thousand and f 1 million. The benefits of special depletion
allowances* reflected in the ratio of allowable depletion to basis
depletion, also tend to increase with the size of the firm*

In

1947, for example, the allowable depletion of corporations with
assets of $100 million add over was 33 times their basis depletion
s

as compared with about 8 times for corporations with assets between
/
<
$1 million and $10 million.

- 8 -

as development costs.

In addition, substaitial deductions were

taken for exploration costs and losses on abandonment* amounting to
1204

Billion

in 1946 and #255 million in 1947.

development cost

deductions

Nearly all of the

wane taken by oil aid

gas producers*

and these producers also claimed most of the allowances for exploration and losses on abandonment e
Be

gulfur producers

Sulfur producers are currently able to exclude more than onethird of their aggregate net income from taxation through excess
percentage depletion.

Previous tax-free recoveries, including those

under the 23-percent depletion rate enjoyed by the industry since

1932, have reduced their remaining /v
practically to zero.

^ e ^ a^

(Tables 4 and 5)

e '

cost in the aggregate

Iheir relative tax benefits

from percentage depletion are even greater than those derived by
oil and gas producers, whose depletion an 1947 was 16 times basis
depletion, as compared with 5 times basis depletion for metals and
3 times basis depletion for coal.
S*

benefits of large non-mining yiteroriaes

Ihile special depletion treatment has often bean advocated
as a means of aiding the small prospector or ore producer, the
facts shew that the bulk of the benefits of this treatment go to
m

entirely

different type

of taxpayer.

A high proportion of the excess depletion is received b y
co ip orations whose major activity was other than mining and parrying.
In 1946, for example, $345 million or more than 70 percent

- 7 -

B» Effect on ta* revenues
The indicated r e m u e loss fop all^eorparaticns in the survey
due to excess depletion was about $180 million in
million in 1947. (Table 3)

1946 and

$290

Since the survey group included about

three-fourths of the total depletion taken in 1946, it appears
probable that the total revenue loss for all corporations due to
/
/
excess depletion was nearly $250 million in 1946 and $400 million
in 1947*

The 1948 tax returns, in various stages of processing/«»

Collectors of Internal Revenue, have not been available for similar
survey purposes.

I948

However, data taken from^s mailer

tax returns as well as reliable

sources of information on

the trend of profits in the oil and othe r^e4«^ter ^.ndustries

indicate that the revenue loss^in

ff^
n
rarï a

b

o

u

t 1

§PQgial position of the oil and gas industry
The bulk of the excess of percentage depletion over basis
depletion is accounted for by the oil and gas group. As shown in
/
Tables 4 and 5» they received almost 85 percent of the excess
*
depletion compared with 55 percent of the gross income for corpo­
rations included in the survey*
Total deductions for development costs by the selected corpo^
/
rations were $394 million in 1946 and $486 million in 1947.
Comparison of the development cost deductions with the excessif
percentage over basis depletion for these two years indicates that
for every $3 allowed as percentage depletion ^another $2 was deducted

— 6 —

returns of^35u corporations«

This information was summarized in

é

'

)i3 *»rTTii submitted to yon by the Secretary with his statement cn
«

F'ebrua ry 3*

This analysés was undertaken to ascertain the revenue

and equity consequences of the existing statutory provisions.
The corporation income tax returns examined accounted for about
three-fourths of all depletion allowances claimed by corporations
for the year 1946 and therefore provide^ comprehensive information
°n the operations of the mineral depletion provisions.

(Table 1 )

Data provided cn individual and partnership income tax returns
have not made it practicable to make a similar analysis of mineral
operations conducted by unin corpora ted operators.
however, that corporations account for

It is estimated,

80 percent of

depletion deductions claimed by all taxpayers.
A#

Sxcessiveness of depletion allowances

One of the outstanding facts revealed by the survey was the
extent of the excess of percentage over cost depletion.

The allow­

able depletion deducted by the corporations included in this survey
s
s .
i/
/
amounted to #555 million in 1946 and $839 Billion ia 1947. of
these amounts only 10 to 25 percent represented adjusted-basis
depletion which vould have been required to recover original in-

,

,

vestment cost.

✓

S

The remaining 85 to 90 percent constituted the

excess allowance due almost entirely to percentage depletion,

- 5The provision fo r percentage depletion does not obviate the
necessity for computing depletion based on cost since, in a ll cases,
the taxpayer is allowed cost depletion as a minimisa.

Corporations

also accourt fo r annual cost depletion computed without regard to

amounts recovered from time to time through percentage depletion,
in determining their net profits for reports to stockholders and
other purposes.

Cost depletion in this sense is also recognized

for tax purposes in connection with the treatment of liquidating
dividends in the hands of the stockholders.

Under existing law

dividends to stockholders are taxable to the extent they are paid
oit of earnings and p ro fits.

For this purpose, earnings and p r o fits

are computed on the basis of cost depletion.
For purposes of determining gain or loss upon sale or other
disposition o f a depletable property, the tax basis is radioed by
the to ta l amount of allowable depletion (percentage, discovery, or
adjusted-basis depletion) in previous y e a r s .l/ While percentage
depletion may continue even though more than 100 percent of the
basis has been recovered tax-free, the basis for determining gain
or loss is reduced only to zero*
II.

Revenue and Equity Considerations
Current information on percentage depletion and other special

allowances fo r mineral producers has been recently assembled by the
Treasury Department through a special analysis o f the income tax
3/ For years prior to 1932, the excess of percentage over cost
depletion was not applied to reduce the tax basis.

- 4 -

As shorn In this example, over the^-year period Taxpayer B
would have deductions

#75,000 fear pe reengage depletion#

Taxpayer A -would have deducted, in addition to the #75,000 for
percertage depletion, #75,000 development costs*

His deduction

would have totalled #150,000, esc double the ap*>*?nt allowed

B with respect to the sane investment.

Taxpayer

The opportunities for expensing c o i t a l costs incurred in
developing properties are especially important in the oil and gas
industry#

Much of the initio* ~

drilling aid development cost;
a well#

“

ailed intangible
@ used in drilling

At their option taxpayers may treat such intangible drill­

ing and development costs as current expenses deductible from tax­
able income from any source.

Frequently, these amount to as much

as 90 percent or more of the original capital outlay, exclusive of
depreciable property.

When this is deducted as a current expense,

and thus recovered tax-free at the outset, only 10 percent of tte
investment remains to be recovered through depletion allowances.
In the case of mines, development costs can be Immediately
offset against income only to the extent that there are receipts
derived from the mine during the development period*

However, if

considerable quantities of ore are taken out while developing a
mine to full producing status, it is possible for a taxpayer to
recoup tax-free immediately a large part of the capital costs of
development*

-3 -

this way do not reduce thete rcentage depletion allowance since
this allowance is computed as a prescribed percentage of the (Jncome
A
from the property, without regard to the investments it represents.
These provisions, in combination, result in

a

double dedrcticn,

once when the costs are incurred aid again through percentage
depletion.

The operation of these provisions cai be readily

illttsfcrat edjjjy-eMisiplfts»

As sume, for Instance, two taxpayers

each of *feom invests $ 160,000 in oil properties of which $ 75,000
is for depreciable property, $75,000 for intangible drilling aid
development costs, and $ 10,000 for leaseholds and other depletable
capital costs which cannot be expensed.

Assume further that each

taxpayer obtair
year from his j

i|

$75,000 net income from other sources and is therefore able to
deduct the ifcitmgible drilling
income.
offset

and

development costs from his other

Taxpayer B has no income in the beginning against which to

his

development costs.

Ufoder present law, these two tax­

payers will be treated differently, as follows.
Illustrative example of two taxpayers* income
tax deductions for expensed development costs
and percentage depletion
Tear *
1
2
3
4
5

Type of deduction *

•

------A

Development costs expensed
$ 75,000
Percent age depletion
1 5 ,0 0 0
Percentage depletion
15.000
Percentage
Percent age depletion
15,000
15.000
Percentage depletion
15,000
15,000
Percentage depletion
15,000
15,000
Total deductions for 6 years 150,000

IS E m ® *
>jfei

B

0

$ 15,000
15,000
15,000
15.000

15.000
75,000

discovery value applies in the case of certain minerals, but this
provision is of relatively less importance*
Percentage depletion is

c d mputed

as a specified percentage

of gross income, without regard to the capital cost of the property#
The rates range from 5 percent of gross income for coal to 2?| per­
cent in the case of petroleum*

The following percentages of gross

income are allowed different minerals under present law#

Bate on
gross income

Mineral

O il and gas
Sulfur
Metals

27l$ '
23 ^

Coal.

Nonmetallicss bauxite, fluorspar, flake
graphite, vexm iculite, beryl, feldspar,
mica,, talc (including pyrophyllite),
le p id o lite , spodumene, b arite, b a ll,
sagger, and china cla y, phosphate rock,
rock asphalt, tro t», bentonite, g ilso n ite ,
thenardite, and potash

15 '
5 *

15

The allowance computed on tbs basis of the specified percent­
ages of

gross

income is subject to a pro-vision which limits the

deduction to 50 percent cf net income from the property*

However,

no limit is imposed on the aggregate amount which may be recovered
tax-free under percentage depletion*

Deductions continue for the

life of the property and may substantially exceed the actual
investment.
In addition to percentage depletion taxpayers are allowed to
deduct as current expense a substantial part of the capital costs
of developing mineral properties*

The c o unts deducted as expense in

JîL

j**

SUPI'IEMENTAHÏ. STATEMENT
^ OH SPECIAL DEPIETIGN ALIOWANCES

ips .ic%%ed- b y -_________ ;_________
Committee en Ways and Means,
House of Représentât Ives, February 6* 1950
I q g m m e r fà ie

In his statement to this Committee on February 3, 1950, the
Secretary described in a general manner the tax loophole provided
tr*.
by the existing special depletion at lowances aid the methods
ft
proposed for removing the more obvious inequities in the present
system*
This supplementary statement deals with the subject of percent­
age depletion in greater detail*

It describes the way in which

the present provisions operate, the findings of a special survey
recently completed by the Treasury Department^ and the considerations
ft r 4,
luJ*

involved in the proposed r e v i s i o n s * , _

■
esent

I n M I
ê*wÂ- QLu*-M

&Jl$\ I S

Federal income tax recognizes

l^ *■

I^JiLsbA.
depletion

of wasting minersOl

assets as a deductible cost in determining net taxable income*
The depletion allowances for mineral resources correspond in
principle to the depreciation aL lowance for plant and equipment*
In both cases the purpose is to allow the taxpayer to recover taxfree the capital invested*

a lla K i^ d e p le fc ia M n -e ia r e s r ^

1918^ / T h e principal jurovIsion exempts from tax a specif «Led percent"**
age of the mineral income* V A special depletion allowance based on

1/ A summary of the historical development of special depletion
allowances will be found in Appendix I to this statement.

t ax t r e a t i e s ,

which the Adnrii n i s t r a t i on

is endeavoring to secure.

160

They should not be viewed as the
only necessary

i n c e n t i v e s f o r t he

p a r t i c i p a t i o n of p r i v a t e c a p i t a l
f o r e i g n economic development.
potential

effects will

in

Their

be r e a l i z e d only

i f f o r e i g n c o u n t r i e s take p o s i t i v e
steps to c r e a t e c o n d i t i o n s under which
private captial
satisfactorily.

can operate
Thi s can be

accomplished t o an i mportant degree
by the n e g o t i a t i o n of

investment and

successfully
field,

in the

Income t ax

and i t can be extended wi t h

e q u a l l y s a t i s f a c t o r y r e s u l t s to the
e s t a t e tax*

By so doi ng,

we s h a l l

remove anot her of the b a r r i e r s which
sometimes keep a b l e t e c h n i c i a n s and
businessmen from unde r t ak i ng assignment
abroad,

and I urge the Committee to

take such a c t i o n .

These changes in

t ax p r o v i s i o n s are di scussed more
fully

in an a t t a c h e d st at ement .

(Exhibit

6)

158
program,

both in the p r o v i s i o n of

technical

a s s i s t a nc e

sense ana

in the f u n c t i o n i n g of

private

i nvestment.

in the s t r i c t

We should remove

discouragement to Americans
participating

in these a c t i v i t i e s by

making the pr esent exemption of

their

ear ni ngs a p p l i c a b l e to the e n t i r e
per i od they r e s i d e abroad once c
they nave e s t a b l i s h e d a bona f i d e
f o r e i g n r es i de nc e .
The f o r e i g n

tax c r e d i t has worked

157

-

of f o r e i g n c o u n t r i e s f o r
participation

local

in these vent ur es,

we should reduce the present
ownership r equi r ement f o r f o r e i g n
t ax c r e d i t .
Forei gn

investment would al so

be encouraged by the

IiberaIization
| , ;

of the f o r e i g n

tax c r e d i t

cases where losses

,

~|

B

,( i

in the

in one f o r e i g n

country o f f s e t p r o f i t s

in an o t h e r .

Se r vi ce abroad by American
ex pe r t s

is e s s e n t i a l

to the Po i nt

IV

-

156 -

owns a m a j o r i t y of the vot i ng st ock.
I

One of the consequences of t h i s
r equi r ement may be i l l u s t r a t e d by
the case of two domestic cor por at i ons
which pool

t h e i r r esources to form a

foreign subsidiary.
50 p e r c e n t ,

If

each owns

n e i t h e r one o bt a i ns a fore

t ax c r e d i t .

Where the ownership

is

a i v i a e d unequal l y only the one having
m a j o r i t y con t r ol
To f a c i l i t a t e

is al l owed a c r e d i t .

j o i n t vent ures a broad

and to meet the r equi r ement s or desired

155
investment abroad ana the reinvestment
of f o r e i g n e a r ni ngs .
The c r e d i t f o r taxes

imposed by

o t h e r c o u n t r i e s helps to e l i m i n a t e
internationaI

double t a x a t i o n ,

but

needs to be adapted to our p o l i c y of
encouraging p r i v a t e

i nvestment abroad.

A Uni t ed S t a t e s c o r p o r a t i o n may now
c l a i m c r e d i t f o r the taxes paid by a
f o r e i g n c o r p o r a t i o n w i t h r e s p e c t to
the d i v i d e n d s r e c e i v e d from the
f o r e i g n c o r p o r a t i o n only when i t i

-

154

o p e r a t i o n s as a branch of a Uni t ed
S t a t e s c o r p o r a t i o n does not have
t h i s advantage.
t he t a x a b l e

I t must

in

income each year t he

Cur r ent ear ni ngs of
branch.

include

its foreign

Forei gn branch o p e r a t i o n s

should be placed on an equal

footing

wi t h f o r e i g n s u b s i d i a r i e s by al l o wi ng
postponement o f t ax on t h e i r
until
States.
equity,

it

income

is r e t u r n e d to the Uni t ed
This

is not only a m a t t e r of

but would also encourage new

-

r sgi ons of

153

t he wor l d.

-

These

1

recommendations are designed to
implement

in p a r t the P o i n t IV

program and I should

l i k e to r e v i e w

them b r i e f l y .
As you know,

the ear ni ngs of a

f o r e ign subs id i a r y of a domestic
c o r p o r a t i o n are not taxed u n t i l

such

ear ni ngs are t r a n s f e r r e d to the parent
corporation

in the Uni t ed S t a t e s as

dividends.

An American business which

p r e f e r s to conduct

its foreign

c a r r y i n g over
beneficial

loss w i l l

to small

be e s p e c i a l l y

and new businesses.

I recommend a f i v e - y e a r car ryover
wi t h a one- year ca r r yback.
pr ovi de a t o t a l

This would

peri od of seven years i

which losses might- be o f f s e t a g a i n s t
profits.

This p r o v i s i o n would

involve

no immediate loss in revenue.
The P r e s i d e n t also r e f e r r e d to
tax r e v i s i o n s which would f a c i l i t a t e
the ext ensi on of f i n a n c i a l
technical

and

a s s i s t a nc e . . t o underdeveloped

The need f o r g i v i n g business
greater

leeway to r ec over

losses

■w

has been wi del y r ecogni zed in
di scussi ons of postwar t ax r e v i s i o n .
Taxing p r o f i t s

wi t hout adequate

r e c o g n i t i o n of

losses c r e a t e s

i n e q u i t i e s and r e s t r a i n s r i s k - t a k i n g .
A dynamic economy r e q u i r e s a continued
stream of new ve nt ur e s,
result

which of t e n

in losses f o r a s e r i e s of years

bef ore they become p r o f i t a b l y
established.

A longer per i od f o r

in excess of the normal
proportions.

In view of the r e l a t i v e l

strong p o s i t i o n of

l arge cor po r a t i ons

at the pr esent t i me,
the small

tax

prewar

I believe that

i ncrease proposed wi l l

have no i mportant adverse e f f e c t s on
the economy.
In a d d i t i o n to the r e v i s i o n of
the cor po r a t e t ax r a t e s ,

1 also

recommend the ext ensi on of t he peri od
for o ffs ettin g

losses a g a i n s t p r o f i t s

of subsequent years.

149
t

Tax lia b ility

9
9

Met income
#5,000
10,000
25,000
30,000
50*000
60,000
75,000
100,000
118,750
250,000
1*000*000
10*000*000
100*000*000

*
t

Present
lee
#1,050
2*200
5*750
8,400
19*000
22,800
28,500
38,000
45,125
95*000
380*000
3,800,000
38,000,000

i

* Percent
* change

Proposal
#1,050
2,200
5*750
7,850
16,250
20,450
26,750
37*250
45,125
100*250
415*250
4,195,250
41,995,250

0
0
0
«•6*55

*44*47

«•10*31
«•6*14
-1.97
0
/5*53
/9.28

/to,40

A o .51

Corporate p r o f i t s and di vi dends
have

i ncreased s u b s t a n t i a l l y si nce

the pr esent r a t e s were adopted

in 1945.

The p r o p o r t i o n of p r o f i t s r e t a i n e d ,
and thus not subj ect ed t o t ax
hands of s t o c k h o l d e r s ,

in the

is considerably

i

would be reduced,

the

r e d u c t i o n r eachi ng a maximum of
almost

15 per cent of the present

t ax a t $ 5 0 , 0 0 0 .
about

They r e p r e s e n t

15 percent of a l l

corporations.

Tne r e l a t i v e changes in t a x f o r
c o r p o r a t i o n s of d i f f e r e n t
snown in Chart

s i z e ar e

I I and in more d e t a i I

in the f o l l o w i n g t a b l e :

147
corporations.
Chart

This

is apparent from

10 which shows t h a t o n e - e i g h t h

of a I I c o r p o r a t i o n s r e c e i v e 90 percent
of t o t a l

income.

Uncier the r e v i s e d

program only

those c o r p o r a t i o n s w i t h net

income

above app r o x i ma t e l y $120, 000 or
less than

10 per cent of al I corporati on

would have increased t a x

liab ilities.

The taxes on c o r p o r a t i o n s wi t h

incomes

between $25, 000 and app r o x i ma t e l y

-

146 -

1 suggest t h a t
¿ » - p e r c e n t general
be r a i s e d to

42

the present
cor po r a t e r a t e

per cent .

This would

produce an est i mat ed $675 m i l l i o n
additional

revenue a n n u a l l y ,

a l l o w i n g f o r the r e v i s i o n

after

in treatment

of s ma l l e r c o r p o r a t i o n s as suggested
by the P r e s i d e n t .
Although the g r e a t m a j o r i t y of
c o r p o r a t i o n s are r e l a t i v e l y
the

s ma l l ,

large bul k of c o r p o r a t i o n

is concent r at ed among the very

income
l arge

145

c o r p o r a t i o n s the reduced r a t e s below
$ 2 5 , 000 .

This would s u b s t a n t i a l l y

reduce the t a x on c o r p o r a t i o n s
pr esent

in the

’'notch" area and al s o accord

some r e a u c t i o n to c o r p o r a t i o n s wi t h
incomes above $5 0, 000 .
The genera I c o r p o r a t i o n

income tax

r a t e should be i ncreased to r ecover the
revenue

loss a s s o c i a t e d witlp the

®^ ts&&s t e d "notch" r a t e adj ust ment and
al so to c o n t r i b u t e to tne r e d u c t i o n
of the Budget d e f i c i t .

144
was a pp l i e d to c o r p o r a t i o n s wi t h
incomes between $25, 000 and $50, 000.
This s o - c a l l e d ’’ notch" r a t e provi ded
the t r a n s i t i o n from the
small

low r a t e s on

c o r p o r a t i o n s to the g e n e r a l l y

a p p l i c a b l e hi gner r a t e s .

/The

e l i m i n a t i o n of t h i s high "notch" r at e
would remove an obs t acl e to the
expansion of smalI

business.

This o b j e c t i v e could be a t t a i n e d
by a p p l y i n g the

genera I c o r p o r a t i o n ta

r a t e above $ 25,000 ano to a l l o w a l l

-

143 -

Revi si on of t he Cor por at i on

Income Tax

The P r e s i d e n t has recommended
revisions
t ax to

in t he c o r p o r a t i o n

income

improve t he pr esent r a t e

s t r u c t u r e and pr ovi de a d d i t i o n a l
r evenue.
During most of
corporation

income tax

preferential
business.

its

h i s t o r y the
law has accorded

tax t r e a t me n t ,!§ small

To preser ve such t r eat ment

wnen the wartime r a t e s were imposed,
an e x c e s s i v e l y high r a t e of 53 p e rc e n t

-

142

-

s e r i ous e f f e c t s on the economy.
amount of tax on the e s t a t e

The

i nvol vi ng

a business which might p r o p e r l y be
consi oer ed small
a f f e c t the normal
a busi ness.
i nst ances
problem,

would not m a t e r i a l l y
Development of such

in the

infrequent

in which l i q u i d i t y

is a

the ext ensi on of tax payments

p e r mi t t e d by pr esent

i aw up to a

maximum of ten years p r o t e c t s e s t a t es
from having to make f or ced sal es of
pr ope r t y a t a ser i ous f i n a n c i a l

loss.

-

14 1

-

the pr esent d e f i c i e n c i e s
t axes

in these

in order t o emphasize the urgent

need f o r r e v i s i o n s .

Only by t a k i n g

such a c t i o n now can the f u i I
p o t e n t i a l i t i e s of t hese taxes be
realized

in f u t u r e

years.

The changes I have o u t l i n e d would
i ncrease the y i e l d of e s t a t e ano g i f t
taxes on an annual

basi s by about

$400 m i l l i o n .
no

ot her method of r a i s i n g

additional

revenue would have

t hi s

less

140
revenue o b j e c t i v e

could be obt ai ned

oy r e l a t i v e l y minor changes in r a t e s
ana exemptions.
In e s t a t e and g i f t t ax r e v i s i o n ,
i t would a l s o be d e s i r a b l e
c e r t a i n minor

to make

improvements in these
fa

t axes.

Tnese i ncl ude repeal

o f the

deduct i on f o r support of dependents
ana the s u b s t i t u t i o n

of a tax c r e d i t

t o r t he pr esent aeduct i on f o r p r i o r
taxed p r o p e r t y .
I nave s t a t e d

in some d e t a i l

-

revenue

133

-

is a t t a c h e d .

wouly s t a r t

at

IQ percent and reach

the pr esent top r a t e
at $3 ml I l i o n

The schedule

of 77 percent

i nst ead of $10 m i l l i o n .

These adj ustments
exemptions w i l l

in r a t e s and

do l i t t l e

more than

r e s t o r e the y i e l d of the e s t a t e and
&ift

t axes to t h e i r s t r e n g t h p r i o r

to the i n t r o d u c t i o n of e s t a t e

splitting

between husband and w i f e by the
1348 Revenue Act.
were e l i m i n a t e d ,

I f t h i s provision
the P r e s i d e n t ’ s

¡38

and the g i f t

tax a t 2 - 1 / 4

Second the hi gher r a t e s

in the present

scneduIe are reached onl y
of unus ual l y

per cent .

in the case

l arge e s t a t e s .

It

would

be necessary f o r a mar r i ed person
splitting

nis p r o p e r t y u n o e r - t h e

amendments to have an e s t a t e

1948

in

excess of $20 m i l l ion bef or e any part
would be t a x a b l e a t the t op br acket
rate.

A r a t e schedule which would overcoi
these o b j e c t i o n s and r a i s e s ub s t a nt i a l

gift

137

tax e x c l u s i o n f o r each r e c i p i e n t

of g i f t s

could be overcome by l i m i t i n g

tax-free

g i f t s made by any one

individual

each year to $ 3 , 0 0 0 .

An

additional

al l owance of perhaps $500

f o r each donee might be adopted to
avoid the need to account f o r small
gifts.
(4)
principal

Ra t e s . - - T h e r e
weaknesses

r a t e schedul e.
begins a t

are two

in the present

F i r s t the e s t a t e tax

the low r a t e of 3 percent

-

136 -

the ot her h a l f as a r e s u l t of the
exemption.

Thus,

duri ng a f i v e - y e a r

per i od the f a m i l y would have r ecei ved
t h e e n t i r e $300, 000 f r e e of any tax.
The

i n t e g r a t e d t r a n s f e r t ax would

r e q u i r e only a s i n g l e exemption of
$45,000,

all

of which would be

a v a i l a b l e to the e s t a t e s of persons
making no g i f t s ;

$15, 000 of the

$45, 000 exemption would be a v a i l a b l e
for

t r a n s f e r s dur i ng

life.

The excessi veness of the $3, 000

accorded under the g i f t

tax.

By

t aKi ng advantage of the

1948 amendments

a man wi t h a w i f e and t h r e e c h i l d r e n ,
wno has $300, 000 of p r o p e r t y ,
them $24, 000 a year ,

may give

pl us an additional

lump sum of $60, 000 wi t hout paying
any g i f t

tax.

Upon hi s deat h,

anot her $60, 000 exemption.
leaves a t
widow,

least half

If

he has
he

hi s e s t a t e t o his

then the $120, 000 r emai ni ng at

his death

is t o t a l l y exempt,

a r e s u l t of the m a r i t a l

h a l f as

deduct i on and

-

t ax p r a c t i t i o n e r s ,

134-

which I t r ansmi t t ed

to your Committee t h r e e years ago
dea l s wi t h t h i s e n t i r e

problem.

The

Department has si nce given f u r t h e r
study to t h i s mat t er and i s prepared
to pr esent proposal s to the Committee.
(3)

Exemptions and e x c l u s i o n s . - -

The present e s t a t e tax exemption
$ 6 0 , 0 0 0 and the g i f t
is $ 3 0 , 0 0 0 .

is

tax exemption

In a d d i t i o n ,

annua I

e x c l u s i o n s of $ 3,000 f o r each of an
u n l i m i t e d number of donees are

-

^ax* Ji3e same

133 r

5

'

exemptions and t ax

r a t e s would then apply t o a l l
whether t r a n s f e r r e d dur i ng
a t deat h.

pr oper t yl

life

or

Under an i n t e g r a t e d

e s t a t e - g i f t tax s t r u c t u r e ,
be pos si bl e to pr ovi de

i t would

i n c e n t i v e s for

p r ope r t y d i s t r i b u t i o n s dur i ng

life,

in the event such encouragement

is

deemed to be d e s i r a b l e .
A r e p o r t based on a comprehensive
study by an a dv i s or y committee of
the Treasury,

c o n s i s t i n g of prominent

|

-

132

about $1 m i l l i o n .

-

As is

indicated

in the at t ached study on p r o p e r t y
transfers

(Exhibit

5),

the

d i s c r i m i n a t i o n a g a i n s t t r a n s f e r s made
a t death f a v o r s the
and pr event s equal

larger estates
t r e a t me n t of

t r a n s f e r s of the same amount d i s t r i b u t e
in d i f f e r e n t ways.
The d i s c r e p a n c i e s

in pr esent

t r e a t m e n t would be removed by
i n t e g r a t i n g the s e p a r a t e g i f t
/
e s t a t e taxes

and

i nt o a s i n g l e t r a n s f e r

life

ana a t death d e f e a t s the objective

of e s t a t e t a x a t i o n .
gi ven away c u r i n g
from

The pr ope r t y

life

is removed

ni ghest br a c k e t of the

the

estate,

it

is taxed at only t h r e e - f o u r t

the r a t e of the t a x on an e s t a t e of
equal

amount, ana the g i f t

the e s t a t e tax
tax base.
million

is not

in the

wi t h $10

by g i v i n g away $2 m i l l i o n

of t h i s amount dur i ng
a t death,

i ncluded

An i n d i v i d u a l

can,

t ax unl i k e

life

reduce hi s t o t a l

instead of
t axes by

mot i vat ed by t ax c o n s i d e r a t i o n s or
l a c k i ng the o p p o r t u n i t y or counsel
to take advantage of
additional

it.

Substantial

revenue could be obt ai ned
V.

by r e v i s i n g

the pr esent t r e a t m e n t .

The Treasury s t a f f

is prepared t o

pr esent a proposal d e a l i n g wi t h t h i s
problem at the convenience of the
Comm i t t e e .
Dual

t r a n s f e r tax system. - -

The i mposi ti on of s e p a r a t e ,

unr el at ed

t axes upon p r ope r t y disposed of during

one g e n e r a t i o n .

(Exhibit

exami nati on of sever al

5)

An

hundred

l arge

e s t a t e tax r e t u r n s showed t h a t about
45 per cent of the pr o p e r t y a v a i l a b l e
tor distribution

was placed

in t r u s t .

The t r u s t s were f r e q u e n t l y c r e a t e d
to endure,

not only f o r the

the c h i l d r e n ,

l i v e s of

but a I so f o r t he
,

lives

V' .«'V- •

of more remote descendant^.
I

This widespread p r a c t i c e seriously
d e p l e t e s the base o f the e s t a t e ano
Ji i

gift

t axes and p e n a l i z e s those

less

128
is

l e f t o u t r i g h t to a c h i l d ,

may become t a x a b l e
the c h i l d .

it

in t he e s t a t e of

This may be avoided by

p l a c i n g the p r o p e r t y
the c h i l d ’ s l i f e
of the c h i l d ' s

in t r u s t f o r

si nce the t er mi nat i on

interest

in the t r u s t

is not consi dered a t a x a b l e event
under the pr esent

law.

A study

accompanying t h i s st at ement r e v e a l s
that

i n d i v i d u a l s wi t h

l arge e s t a t e s

are p l a c i n g a s u b s t a n t i a l
t h e i r property

p a r t of

in t r u s t f o r more than

-

(I)

127 -

the o v e r l y f a v o r a b l e
j

p r ope r t y placed
generations,

t

' .

t r e at ment

of

| . , |f }

in t r u s t f o r sever al

(2)

the o p p o r t u n i t y to

escape the hi gher e s t a t e tax r a t e s
by making g i f t s s u b j e c t to
rates,
( 4)

the

( 3)

the

lower tax

l arge exemptions,

and

i n e t f e c t i v e n e s s of the present

r a t e schedul e.

The l a s t two weaknesses

were g r e a t l y magni f i ed by the e s t a t e
and g i f t

splitting

i ntroouceo by the

provisions
1948 Act.

1e e s t a t e s . - - I f

pr oper t y

The e f f e c t i v e r a t e s of tax on
incomes a t a l l
substantially.

l e v e l s have i ncreased
Those on e s t a t e s ,

on the o t h e r hand,

have a c t u a l l y been

reduced f o r mar r i ed persons.
i l l u s t r a t e d by Chart 9.

This is

For example,

t h e t ax on an income of $10, 000 has
r i s e n from 4 percent t o

16 per cent .

Tax on an e s t a t e of $250, 000 has
f a l l e n from II
,

percent to 4 per cent .

The weakness of t h e ; p r e s e n t

e s t a t e ano g i f t

taxes r e s u l t s from;

this period.

By c o n t r a s t ,

e s t a t e tax exemption,
mar r i ed persons,

the

especially

f or

has i ncreas

The e s t a t e tax reaches only a
little

more than one per c ent of adul t

decedents,

virtually

the same

p r o p o r t i o n as 10 years ago.
ot her hand the i n d i v i d u a l

On the

income t ax

is pai d by more than 40 per cent of
all

persons over

14 years of age,

times t he p r o p o r t i o n taxed
This comparison appears

10

in 1939.

in Chart 8.

-

124 -

Because of t he r e l a t i v e l y
expansion

greater

in ot he r t ax revenues,

e s t a t e and g i f t
2 percent of

I
the

t axes produced only

internal

revenue

in

194 9 f

compared wi t h 7 per cent ten years
ear t i e r .
Chart 7 compares the c u r r e n t
exemptions under the e s t a t e t a x and
individual

income t a x wi t h those

e f f e c t ten years ago.
that

individual

in

You wiI I note

income t ax exemptions

have been reduced s u b s t a n t i a l l y during

;

-

ana tne

123

individual

compared.

-

income t ax are

This comparison

is shown

in c h a r t s appended to t h i s st at ement .
They show t h a t the e s t a t e and g i f t
taxes have not Kept pace wi t h the
income t ax.
The t o t a l
ana g i f t
si nce

t axes has b a r e l y doubled

1939 whi l e t o t a l

revenue
the

y i e l d from the e s t a t e

is e i g h t

individual

as g r e a t .

This

internal

times as l arge and

income tax

is

18 times

is shown in Chart 6.

-

122

-

revenue be obt ai ned by r e v i s i n g and
s t r e n g t h e n i n g the e s t a t e and g i f t
j
i

taxes

x

in a manner which would br i ng

these t axes nea r er to t h e i r
l ong- t er m pl ace

proper

in our t ax system.

As the Pr e si dent s a i d ,

"To the

e x t e n t t h a t these taxes remain too
low,

the remai nder of our tax structure

must,, bear a d i spr opor t i onate
? disparity

in present tax

burdens becomes s t r i k i n g
t r enos of

l oad. "

when the

the e s t a t e and g i f t

taxes

121
iis.

The amount of net revenue

i mmediately

i nvol ved

program is not a f u l l

in the Pr esi dent
measure o f what

we can expect from hi s r ecommendat i ons,
In the long run the removal
inequities will

of

make f o r a more v i t a l
f

economy, and t h i s
itself

in t ur n w i l l

reflect

in hi gher t ax y i e l d s .

Kevi si on of e s t a t e and g i f t

t axes

The P r e s i d e n t has recommended that
a substantial

p a r t of the a d d i t i o n a l

I

postwar programs t a pe r s o f f .
I b e l i e v e t h a t we would be
i l l - a d v i s e d a t t h i s t i me to r a i s e
the general

l evel

of t a x a t i o n

s u f f i c i e n t l y to cover the cost of
all

of t he e x t r a o r d i n a r y expendi tures

embraced in the postwar adj ustment
programs.
The tax r e v i s i o n s recommended
by the P r e s i d e n t pr ovi de a basis f o r
a c h i e v i n g the revenue goal s necessary
to ma i n t a i n our Government on a sound

-

I 19 .■*

.

subsequentl y developed has given
me s e r i ous concern and 1 have earnestly
consi dered the ways

in which a favorabl

budget p o s i t i o n might be r e s t o r e d .
As 1 poi nt ed out e a r l i e r ,

the

P r e s i d e n t has st r essed the f a c t

t hat

pr esent e x pe ndi t u r e s are n e c e s s a r i l y
at a nigh r a t e because of o b l i g a t i o n s
undertaken a t an e a r l i e r

d a t e , and

t h a t he expects r e d u c t i o n s
expenditures

in

in sub§equent years

as the cost of some of t he e x t r a o r d inarj

/

i

'

-

118

This a d d i t i o n a l

-

revenue

is
I

essential

to the o b j e c t i v e of

bal anci ng the budget as r a p i d l y as
r e q u i r e m e n t s of n a t i o n a l

economic

po I icy permi t .
ms

wel l

the members of t h i s Committee

know,

I consi der the p r o t e c t i o n

of the f i n a n c i a l

p o s i t i o n of our

Government the major r esponsi bi I i t y of
my o f f i c e .

In the f i s c a l

years

1948 t h e r e was a s u b s t a n t i a l
f o r debt r e d u c t i o n .

1947 an

surpl us

The d e f i c i t

which

Additional

Revenue

The P r e s i d e n t has recommended
t h a t $1 b i l l i o n

in a d d i t i o n a l

r evenue be o b t a i n e d by r e v i s i n g
and i m o r o v i n g t he e s t a t e and
gift

t a x e s and t h e c o r o o r a t i o n

income t a x .

-

116

insurance t a x a t i o n ,
potential

-

has a p s v priu8

o f upwards o f *500 m i l l i o n

a y ea r assumi ng p r e s e n t economic
levels.
will

The i mmedi at e r evenue g a i n

be a p p r e c i a b l y

million

less.

is exclusive of

The $500

t he

ancsrox ¡mate I y $90 m i l l i o n

whi ch w i l l

be pr o d u c e d by t h e C o m m i t t e e ’ s
stop-gap

I Ife

legislation.

insurance

President.

Thi s program w i l l

have

d i r e c t r evenue e f f e c t s by c l o s i n g
l o o p h o l e s whi ch now o e r m i t
l esKages t h r o u g h o u t t h e t a x syst em,
in a d d i t i o n ,

it

will

increase revenues,

in d ire ctly

since

it

wi l l

remove c o m p e t i t i v e d i s advant ages
whi ch now r e t a r d t a x a b l e p r i v a t e
enterprise,

rte b e l i e v e t h a t

i n t he

l ong r u n t h e c l o s i n g

o f t hes e

loopholes,

t he pr opose Is

including

on p e r c e n t a g e d e p l e t i o n and

life

emoI oyees

aotk

ing i n P o s s e s s i o n s o f

t h e U n i t e d S t a t e s f r o m income t a x
upon t h e i r

salaries,

and e n a b l e s

many o t h e r Ameri can c i t i i e n s
o b t a i n e x e mp t i o n f o r a l l
foreign

to

of th e ir

income f r om b u s i n e s s and other

sources.
It

is o f course not p o s s ib l e

to

e s t i m a t e with any degr ee o f accur acy
t he r evenue consequences o f an
extensive

l o o p h o l e - c l o s i n g nr ogram

o f t h e t y p e or op os ed by t he

o p e r a t i o n s abr oad t h r o u g h t h e
f o r m a t i o n and s ubsequent
of

liquidation

foreign su b sid ia rie s.
Another

l o o p h o l e has i n the past

e n a b l e d many c o r p o r a t i o n s d e s i r i n g to
sel l

p ro p e rty to avoid

income t a x

upon such t r a n s a c t i o n by f i r s t
distrib u tin g

t he p r o p e r t y

i n Ki nd

t o a p a r e n t company.
Also,

t h e e x e mp t i o n p r o v i d e d

i n s e c t i o n 251 o f t he
Code v i r t u a l l y

I n t e r n a I Rev enue

relieves all

Government

-

112-

and w i t h o u t any a p p r e c i a b l e r i

s k

,

have been a b l e t o c o n v e r t s h o r t - t e r m
gains

into

t h e more f a v o r a b l y t r e a t e d

long-term gains,
fic titio u s

and t o c r e a t e

short-term

losses,

l ar gel y
by

means o f s h o r t s a l e s .
The t a x

laws a l s o c o n t a i n some

l o o p h o l e s and t a x havens t h r o u g h
whi ch t a x p a y e r s a r e a b l e t o a v o i d tax
completely.

Domest i c c o r p o r a t i o n s ,

f o r exampl e,

ar e f r e o u e n t I y a b l e t o

avoid

income t a x on

income from

oro v i d e s a "one

Street"

taxpayers s e l l i n g

o r o p e r t y whi ch t hey

have used i n t h e i r

t r a d e or

At t hè o r e s e n t t i m e ,
ar e a i ! owed c a p i t a i

*

ñoco
*

*

v *

-,, / j

geins treatment
ri

r,

ga i n ,

l o s s e s f r o m such t r a n s a c t i o n

sre allowed
ordinary

c

w

such t a x o a y e r s

when t h e s a l e s r e s u l t
while net

for

in f u l l

as o f f s e t s a g a i n s t

income.

In a d d i t i o n ,
t h r o u g h whi ch

there

investors

and c o m m o d i t i e s ,

is the

loopho

in s e c u r i t i e s

some y e a r s now,

on g a i n s f r o m c a p i t a l

assets held

f o r more t h a n § month s.

The P r e s i d e n t

in h i s r e c e n t t a x mes ft ff

C*
A
M f«#
'SupP fîtfR g '¥V; Vw**

Congr ess,
t hes e

t o t he

gave an ex amo 1e o f one o f

loopholes,

corporation,

t he Mc o 1 1a n s ib l e "

t h r o u g h whi ch i n d i v i d u a l s

engaged i n t h e bus i n e ss o f p r o d u e i n g
W

W

certain

t y p e s o f c r o p nr t y , have

a t t e m p t e d t o c o n v e r t or d in a r y bus iness
and earned

income

into

long-term

cap i t a I g a i n s .
An o t h e r

important

loophole

109
A number o f t a x

I oonho i es

t o g e t h e r w i t h p r o p o s e d r emedi es ere
described
this

i n a memorandum a t t a c h p d to

statement.

( E x h i b i t 4)

was d e v e l o p e d j o i n t l y

This

list

by t h e S t a f f s

o f t he T r e a s u r y Depar t ment and t h e
J o i n t Commi t t ee on I n t e r n a l

Revenue

Taxat i o n .
A number o f t h e s e

l o o p h o l e s ari se

out o f d e f e c t s

in t he c a p i t a l

tax s t r u c t u r e ,

which p r o v i d e s a

maximum e f f e c t i v e

gains

r a t e o f 25 o e r c e n t

-

108

-

Se v e r a l

appr oaches t o t he t a x a t i o n

of

insurance

life

discussed
this

income a r e

in m a t e r i a l

statement.

a t t a c h e d to

( E x h i b i t 3)

Ot her Tax Lo oph ol e s
Additional

r evenues s h o u l d be

r a i s e d by c l o s i n g a number o f

less

i m p o r t a n t l o o p h o l e s whi ch t anen
%
together c o n s titu te a substantial
barrier

to e f f e c t i v e

t a x a t i on.

and e o u i t a b l e

107
c o r p o r a t ion on i t s
Si nce

own net

income.

i n s u r a n c e comoany

o p e r a t i o n s g e n e r a l l y ar e based on
p ro fits

f rom w r i t i n g

as w e l l

as

investment

life

insurance

income,

a more

i n c l u s i v e t a x base woul d r e c o g n i z e
underwriting p r o f it s
words,

total

income.

as w e l l ,

in othe

Thi s method

would p e r m i t more c o m p r e h e n s i ve
tre a tm e n t of

t he d i f f e r e n c e s

in

f or ms o f

income and t h e r e s e r v e

policies

of t he i n d i v i d u a l

compani es.

-

to

d o

I i cyhoI

106-

dens

wh 0 h t h i s

income
\

alone

i s t a«en

] c o n s i d e r the

into consideration.
i n d u s t r y - w i d e average

whi ch has been used s i n c e
nriost

i n e q u it a b l e basis

taxation.
is

1942 a

f o r oer manent

The p r e s e n t syst em whi ch

in e f f e c t a f l a t

t a x on gr oss

income d i s r e g a r d s t h e wi de v a r i a t i o n s
in p r o f i t a b i l i t y

of operations

between d i f f e r e n t compani es,
at v a r i a n c e w i t h the accented
p r i n c i p l e s o f t a x i n g each

and i s

105 favored ta x a tio n

is

i n t e r e s t of t h i s

industry

long r u n .

in t h e b e s t
in the

Nor do i b e l i e v e

that

it

»o u I d be s u p p o r t e d by t he
policyholriers,
of the

p o d u

Si n c e

who ar e s m a j o r i t y

I at i on.
1921

life

insurance

compani es have been t a x e d on o n l y
source o f

income,

investments.

It

namel y,

one

income from

is d i f f i c u l t

to

d e v e l o p an e q u i t a b l e method f o r
c o mp u t i n g a d e d u c t i o n f o r

obligations

104
developed the
require

i n f o r m â t ion you w i l l

in d e v i s i n g a s a t i s f a c t o r y

solution.
In c o n s i d e r i n g t h i s m a t t e r

I

have been c o n t i n u a l I y i mpr essed w i t h
t h e ma g n i t u d e o f t h e st r eam o f
insurance

income amount i ng t o more

t han $ 1 . 5 b i l l i o n
income a l o n e .
of t h i s

a y e a r f rom investmen

The $60 b i l l i o n

i n d u s t r y c o n s t i t u t e an

i m o o r t a n t f r a c t i o n o f our t o t a l
wealth.

life

I do not b e l i e v e t h a t

assets

accoraoIi shed is h i g h l y g r a t i f y i n g .
However,

as you Know,

legislation

is al so r e q u i r e d to p r o v i d e an
e q u i t a b l e basi s f o r
life

the t a x a t i o n of

i nsurance companies in the

future.

%♦

As the Committe® is aware,
staffs

'

the

of the Treasury and the

J o i n t Committee have devoted a g r e a t
deal

of a t t e n t i o n to t h i s m a t t e r .

I

b e l i e v e t h a t the thorough co ns i d e r a t ion
al r eady gi ven t h i s nroblem has

-

Life

102

-

I nsurance Cornealiies

The P r e s i d e n t has urged

iegislatiol

to t e r m i n a t e the u n d e r t a x a t i o n o f
insurance companies wi t hout
the a b i l i t y
ife

Iife

i mpai ri ng

of i n d i v i d u a l s to acquire

i nsurance n r o t e c t i o n
The a c t i o n you have r e c e n t l y

taKen in the House of Renresenta t i
w

c o r r e c t the

d rov

i s i on wh ich

un i n t e n t i onaI Iy r e l i e v e d t h i s
i ndust r y o f t ax f or
1949.

The s p i r i t

1947,

1948,

and

in which t h i s was

abuse woul d be t o r e q u i r e t h a t

such

t r u s t s o r f o u n d a t i o n s pay out
s u b s t a n t i a I Iy a l l

net income w i t h i n

a s p e c ifie d period a f t e r the close
of every ta x a b le year.

A further

r equ i rement s h o u l d be a p r o h i b i t i o n
a g a i n s t d e a l i n g s between t h e t r u s t
and i t s

creator

his control
trust

or b u s i n e s s e s under

and a g a i n s t t h e use of th

f o r t h e per sona I advant age o f

t he g r a n t o r .

foundations fo r

these ournoses

w i t h o u t o ayment o f e s t a t e o r g i f t
taxes.
I

The income subsequent I y

r e c e i v e d f r om t he b u s i n e s s by t h e
t r u s t or foundation

is exempt from

income t ax
The abuse t o wh i c h t h i s
device

l °nr i s

its e lf

t y p e of

is the r e t e n t i o n

and r e i n v e s t m e n t o f a m a j o r s h a r e o f
the t r u s t
w ill

income

in a manner whi ch

b e n e f i t the g r a n to r .
One method t o e l i m i n a t e

this

QQ
JF

* *

recommended t h a t t h e
by t h e s e

income d e r i v e d

in stitu tio n s

f rom t he

o p e r a t i o n o f b u s i n e s s e s whi ch a r e
clearly

unrelated

to t h e i r

primary

f u n c t i o n s be t a x ed a t r e g u l a r
corDoration
An ot her

income t a x r a t e s .
c

1os e 1y r e 18 t e d abuse o f

«

t a x exempt i on î nv o 1V0 Q t h e e s t a b 1 i shme
of

so-C8

11ed c har i t a b l e

or t r u s t s

f ounda t i ons

wh i c h s e r v e s C a c 108 k f o r

c o n t r o 11 i ng bu s i n e QQPC;
>*»7

1a w perm i t s

th e

•

t r gn s f e r

i nv east merits t o t a x - e x 6 rnp t

The p r e s e n t
of

business

t r u s t s and

1

be l i m i t e d t o
ordinary

income r e c e i v e d f r o m

i n v e s t m e n t s whi ch

involves

no abuse
The c o r r e c t i o n
ich s h i f t

of p r e s e n t abuses,

additional

bur dens t o

t h e r e s t o f t h e o o n u l a t i on,
essential
calls

for

becomes

reasons o f e q u i t y .

This

f o r a s o l u t i on whi ch w i l l

elim inate

t h e abuse b u t w i l l

no t

i n t e r f e r e w i th the basic a c t i v i t i e s
these o r g a n i zat i o n s .
To meet t h i s o r o b lem,

it

is

of

- this

t y p e o f opera t i on t h e

n o n p r o f i t o r g a n iz a tio n enjoys
advant ages o v e r p r i v a t e l y
b u s i n e s s whi c h

owned

i s measured by t he

amount o f t h e t a x p r i v a t e l y
enterprise

owned

i s r e q u i r e d t o pay.

advantage p e r m i t s these

This

institutions

to apply a la rg e r p o r t i o n

of re n ta l

r e c e i p t s t o r epayment o f bor r owed
f und s t han
privately

is p o s s ib le f o r

a

owned b u s i n e s s n p y i n g

income t a x .

The e x e mp t i o n s h o u l d

-

96 -

%

income r a t h e r

t han

its

source.

Some c o l l e g e s and o t h e r
in stitu tions

ar e e n g a g i n g

in a

Ai de v a r i e t y o f b u s i n e s s
under taK i n g s ,
o f such

i n c l u d i n g t he p r o d u c t i o n

i t ems as a u t o m o b i l e p a r t s ,

chinaware,

and f o o d p r o d u c t s and t he

operation of theatres,

oil

we 1 Is

and c o t t o n g i n s .
Advant age

is a l s o b e i n g t a Ken

o f t he e x e mp t i o n by t h e p u r c h a s e of
rental

p r o p e r t i e s w i t h bor r owed f unds.

Bu s i n e s s O p e r a t i o n o f C h a r i t a b l e
and E d u c a t i o n a l O r g a n i c a t i o n s
! suggest the c o n s i d e r a t i o n o f
legislation

t o e l i m i n a t e t h e abuse of

t a x - e x e m o t i o n by c h a r i t a b l e and
educational

organ i 7 a t i o n s .

These

e x e mp t i o n s r e f l e c t a l o n g - s t a n d i n g
Fe d e r a l

Government p o l i c y

encour age t h e a c t i v i t i e s

to
o f such

organ i c a t i o n s .
The I aw has been i n t e r p r e t e d
by some c o u r t s t o a t t a c h t h e
e x e mp t i o n t o t h e d e s t i n a t i o n of t h e

I
I

e x t e n t o f t h e doubl e d e d u c t i o n now
e n j o y e d by o i l

end gas e n t e r o r

with resoect to c e r t a i n
capital

I CÎ

I

w

o
O

o f the i r

costs.

Tog et her t h e s e p r o p o s a l s
remove t he more o b v i o u s

ineaui t i e s

o f t h e p r e s e n t syst em w i t h o u t
interfering

sig n ifica n tly
i ncent iv es.

wou I d

with

be r educed t o 5 o e r c e n t .
15 p e r c e n t r a t e f o r

The e x i s t i n g

d e p le ti o n allowed

t o t he m e t a l s woul d be l e f t
unchanged.
It

i s f u r t h e r proposed t h a t o i l

and gas o p e r a t o r s who e l e c t t o
expense

i n t a n g i b l e d r i I I j n g and

d e v el o pment c o s t s be r e o u i r e d
reduce

to

income f rom t h e p r o p e r t y by

t h e amount o f such expensed c o s t s
computing t h e i r

in

d e p le tio n allowance.

Thi s r e a u i r e m e n t w i l l

r edu c e t he

- 92
the

of gross

oercent age

Income whi ch

m i g h t be d e d u c t e d as d e n l e t i o n .
reduction

in the n r e s e n t net

lim itation

wo ul d

A

income

l eave t h e more

e x c e s s i v e a l l o w a n c e s unt ouched w h i l e
reducing the b e n e f i t s
l ess p r o f i t a b l e

on t h e smal l

properties.

S pecifically

it

i s pr op os ed t h a t

percentage d e p le t i o n for

o il,

and s u l f u r be r educed t o

15 p e r c e n t

of gross
depletion

gas

income and t h a t p e r c e n t a g e
for

nonmetallic minerals

t he f i n d i n g

o f new p r o p e r t i e s .

P e r c e n t a g e d e p l e t i o n on ' the o t h e r
hand may be o b t a i n e d on e s t a b l i s h e d
as w e l l

as new p r o p e r t i e s ,

r e g a r d l e s s o f whet her
contributed

and

the r e c i p i e n t

t o t h e devel opment

the p r o p e r t y .

of

The r e d u c t i o n of

percentage d e p le tio n

woul d t e n d to

reduce w i n d f a l l s w h i l e p r o t e c t i n g
i

incentives fo r exploratio n.
A r e a s o n a b l e way- t o r e d u c e t h e
e x c e s s i v e b e n e f i t s woul d be t o

lim it

t o n e g l i g i b l e pro no r t i ons t a x e s on
income f rom s o u r c e s t o t a l l y
to these

unrelated

industries.

There ar e a number o f ways in
whi ch t h e n e c es s ar y r e v i s i o n

of

p r e s e n t a l l o w a n c e s can be

<

accomoIished.

In gener a I , t h e s e

involve e ith e r

t he

lim ita tio n of

percentage d e o l e t i o n o r t h e t e r m i n a t i o n
of

t he o p t i o n

costs.

t o expense devel opment

The b e n e f i t s

o f ex p e n s i n g

de v el opment c o s t s ar e c o n f i n e d t o

especially
oil

excessive

in t h e case o f

and gas and exempts a h i g h e r

prooortion

of the ea rn in g s o f t h i s

i n d u s t r y whi ch may exn°nse more o f
i t s devel onm®nt c o s t s t han t h e o t h e r
mineral

industries.

Third,

t he pr ov is i on has

f ound t o be o f

1i t t 1e b e n e f i t

sma 1 1 p r o s p e c t o r s
it

on whose beh

is so f r e q u e n t 1y s u o p o r t e d .

Fourth,
high

t h e s e d e d u c t i o n s enabl e

income i n d i v i d u a l s

t o r educe

woul d g a i n by

lim iting

some o f t hes e

soec ia I a l l o w a n c e s .
You w i l l

find

o f t he m a t e r i a l s
assist

f r om an exami nat i on

1 am s u b m i t t i n g

t he Commi t t ee

to

in c o n s i d e r i n g

r e v i s i o n o f t h e s e p r o v is i ons t h a t :

F irst,

t h e e s t i m a t e d r evenue

i s between $400 and $500 m i l l i o n
annually.

T h i s i s as much as t h e

y i e l d of a l l

Second,

the r e t a i l

excises.

t he a l l o w a n c e

is

I

o qs

‘‘V

x

- 87 paid.

The P r e s i d e n t me n t i o n e d one

o u t s t a n d i n g exampl e.
others

You w i l l

find

in t h e a t t a c h e d ma t e r i a I . •

( E x h i b i t 2)

In t h e exampl es c i t e d ,

annua I i ncomes,

on t he a v e r a g e ,

ov e r $1 m i l l i o n

were- o b t a i n e d on

whi ch an aver age t a x o f o n l y
p e r c e n t was p a i d .

This

of

22b

i s t h e1 r a t e
X.

now p a i d by per sons w i t h
of

incomes

l e s s t han $ 2 5 , 0 0 0 .
These i I I u s t r a t i o n s

much a d d i t i o n a l

s u g g e s t how

r evenue t h e Governm®

$2 m i l l i o n

was deduc t ed as deveIoomont

costs.

'

The c o m b i n a t i o n o f

o e r c e n t age

d e p l e t i o n and t he e x p e n s i n g o f
devel opment c o s t s p r o v i d e s a
mechanism f o r pyr ami di ng: e x t e n s i v e
holdings
of

little

in o i l
o r no

a s s e t s w i t h payment
income t a x .

As t he P r e s i d e n t has i n d i c a t e d ,
m i l l i o n s o f d o l l a r s a r e made a n n u a l l y
f r om o p e r a t i n g o i l
whi ch

little

p r o p e r t i e s on

o r no income t a x

is

by p r o v i s i o n s wh i c h p e r m i t
de v el opment c o s t s t o be deduct ed as
an expense
of

in t h e y ea r

incurred

bei ng t r e a t e d as a c a p i t a l

instesc

c o s t to

be r e c o v e r e d

la te r through depletion

deductions.

Thi s

is eq uivaIent to

a double ded uct io n

f o r #t h e same cost s,

once when t h e y ar e i n c u r r e d

and agai n

under p e r c e n t a g e d e p l e t i o n .

In the

oil

industry during

1947,

for

e v e r y $5 m i l l i o n

1946 and

percentage d e p le tio n ,

a l l o w e d as
another

Pe r c e n t a g e d e p l e t i o n c o n t i n u e s
for

the

life

o f t h e n r o p e r t y and

generally re su lts

in t h e t a x - f r e e

r e c o v e r y o f many t i m e s t he c o s t .

it

is granted to those purchasing
p r o p e r t i e s as w e l l

as t o t h o s e

operating p ro p e rtie s
developed.

t h e y have

The a l l o w a n c e s have

become more v a l u a b l e as t a x r a t e s
have been

increased.

Furthermore,

the b e n e f i t s

p e r c e n t a g e d e p l e t i o n ar e

from

increased

- 83 cost of mineral

o r o o e r t i e s , have been

aw si nce

n

Under p r e s e n t

9 1 8 .

law,

special

a l l o w a n c e s a r e g r a n t e d on t h e b a s i s
of s p e c i f i e d percentages o f gross
1

income f o r d i f f e r e n t
minerals.

types o f

The p e r c e n t a g e of g r o s s
/

income a l l o w e d
and gas,

i s 274 p e r c e n t f o r

23 p e r c e n t f o r

sulfur,

oil

15

p e r c e n t f o r m e t a l s and a l a r g e number
of nonm eta llic m inerals,
f o r coa I .

and 5 percentl

I,

mineral

p r o p e r t i e s o v e r t he

producing

life

o f the p r o p e r t i e s .

Depletion

i s t h e c o u n t e r p a r t of

d e p r e c i a t i o n whi ch

is

intended to

permit recovery of the cost of other
a s s e t s over t h e p e r i o d o f t h e i r
useful

life ,

f t h e n ' t he o r i g i n a l

i n v e s t m e n t ha s been r e c o v e r e d ,
further

depreciation

tax purposes.
of d e p l e t i o n ,

is allowed for

However,
special

no

i n t h e case

provisions

whi ch a l l o w r e c o v e r y o f more t han the

The r e c o m me n d s t i o n s

in t h i s

area

r e p r e s e n t t h e p r o d u c t of t h i s
effort.

Ot her

loopholes are s t i l l

under s t u d y and w i l l
t he a t t e n t i o n
some f u t u r e

Special

is

o f you r Commi t t ee a t

lixe

to r e f e r

allowances f o r

firs t

to

depletion.

D e p l e t i o n Allowances

Depletion
usage

be b r o u g h t t o

time.

I should
the spe cia l

jo in t

in o r d i n a r y

accounting

intended to p e rm it

ta x pa y er s to r ec ov e r the c o s t o f

r e g a r d our p e o p l e have f o r t h e
fairness

of our tax

adm inistration,

is

laws and t h e i r
w ill

strengthen

t a x p a y e r c o n f i d e n c e by c l o s i n g
l o o p h o l e s whi ch bestow u n j u s t i f i e d
benef i t s .
By a r r a n g e me n t w i t h y o u r
ittee.

our
iff

on I n t e r n a l

has been wor

k i ng

o f t h e J o i n t Committee

Revenue T a x a t i o n s i n c e

l a s t summer on d e v e l o p i n g ’ l e g i s l a t i v e
i ons f o r e I i m i n a t 1ng

loophol es.

79
w ith the

law.

We ar e u s i n g t h e most advanced
management methods t o f a c i l i t a t e
filin g

the

o f r e t u r n s and t h e s w i f t

d i s b u r s e m e n t of r e f u n d s .
Continuous e f f o r t s

are being

made t o a c h i e v e adequat e d e t e c t i o n and
c o r r e c t i o n o f under payment and
over oayment o f t a x e s .
We a l l

Know t h a t t h e worKabi I i t y

o f our t a x syst em and e s p e c i a l l y o f
t he

income t a x deoends on t h e h i g h

}

- 78 |1

f

f

s h o u l d be c l o s e d t o p r o v i d e replacement
revenue f o r e x c i s e t a x r e d u c t i o n s .
|v

I should

like

i mp o r t a n c e o f t h i s
indicating

its

t o emphasi ze t he
action

by

b e a r i n g on our work

i n f t a d m i n i s t e r i n g the tax
of my f o r e m o s t o b j e c t i v e s

laws.
since

One
I

became S e c r e t a r y o f t he T r e a s u r y has
been c o n s t a n t l y
relations

to

i mprove our

with taxpayers.

We have t ak en g r e a t p a i n s t o
inform taxpayers of t h e i r
well
i

§K' wj

as t h e i r

duties
...... .... -

rights

in c o m p l y i n g

as

e x c i s e t a x r e d u c t i o n o r t h a t some
of these t axe s,

p a rticu la rly

those

on cornmun ica t i ons and t r a n s p o r t s t i on
o f p e r s o n s , s h o u l d n o t be f u r t h e r
r educed fthen c o n d i t i o n s p e r m i t .
However,
situation

i n vi ew o f our b u d g e t a r y
we must d e f e r a w h i l e

longer r e v i s i o n s
manufacturers'

i n such a r e a s as the

excise ta x e s .

C l o s i n g o f Lo o p h o l e s
The P r e s i d e n t has c a l l e d a t t e n t i on
t o t h e more i m p o r t a n t

l o o p h o l e s which

j
¿‘resent
rate

Tax
Transportation of
proparty*••«»••*••••••••••*

Reduced
.. Ht».

Estimated
revenue
loss on an
AfioHJi1 basis
(millions)

X
3i

0

m o

Traenportatlon of
persona***««*»***••*•••••••

15

10*

Long distance telephone
and telegraph****••••#••••*

25

15

120

Retail excises
fUrs••*•••••**••#•»••»•*•••
Luggage********************
Jewelry**•••••»•*•*•••••••*
Toilet preparations ]/*•*••

ao
ao
ao
ao

10
10
10
10

35
m

Total

25

$695

Increase from including
television In present
manufacturers' excise
tax on radios**************

0

Total revenu* loss

1/

7f

Estimated rwvemie 1 c
powders and lotions*

10

40
$655

m

allows for the exemption ©f baby oils,

In s u g g e s t i n g t h e s e r e d u c t i o n s
I do n o t mean t o

i mpl y t h a t t h e r e

ar e no o t h e r c o u p e t i ng demands f o r

to

15 o 0^ C 0 n t , and r e d u c t i o n o f a I I

t he 2 0 - o e r c e n t r e t a i l
10 p e r c e n t .
revisions,

The n e t c o s t o f t h e s e
after

extension of
television,

excises to

allow ing f o r the

t he t a x on r a d i o s t o
whi ch

is r e o u ir e d

in t e r e s t of tax e q u ity ,
t o o v e r $600 m i l l i o n .

in t he

woul d amount
The d e t a i l s

o f t h i s pr ogr am a r e p r e s e n t e d

in

74
l ass can be a f f o r d e d a t t h i s

time,

t h e P r e s i d e n t ' s pr ogr am p e r m i t s excise
t a x r e d u c t i o n whi ch w i l l
most s e r i o u s

r e l i e v e t he

i n e q u i t i e s and s h o u l d

p r od uc e t h e most s i g n i f i c a n t
benefits.

S pecifically,

t h e program

p e rm its the e l i m i n a t i o n o f the
freight

tax,

r e d u c t i o n o f the

1 5 - p e r c e n t t a x on t r a n s o o r t a t i o n o f
persons to

10 p e r c e n t ,

re d u c tio n of

t h e 2 5 - p e r c e n t t a x on l ong d i s t a n c e
t e l e p h o n e and t e l e g r a p h commun i ca t i ons

73
taxed a r t i c l e s

were

increasing

s t i m u l u s o f excess consumer

under

p u r c h a s i n g power .

Under t h e
f|*

competitive conditions prevailing
today,

this

worKing ha

high r a t e

of t a x

is

ip on many b u s i n e s s e s

and t h e i r empl oyees.

Smal l

businesses.

often of a fa m ily type,

are

penalized.

in these

A reduction

ft

t a x e s woul d s t i m u l a t e empl oyment
product i o n .
Although only a l i m i t e d

revenue

72

consumers.

The r e d u c t i o n s woul d be

promptly r e f l e c t e d

in t h e c o s t s

those using the serv ices.

The

i n c r e a s e d use o f t r a n s o o r t a t i o n and
communication f a c i l i t i e s
involve

little

excess c a p a c i t y
therefore,

additional

would
c o s t where

now e x i s t s and,

woul d i mprove t h e p o s i t i o n

of the businesses a f f e c t e d .
The r e t a i l

e x c i s e s were r a i s e d

t o t h e i r p r e s e n t 20»p e r c e n t r a t e
d u r i n g t he war when t h e s a l e s o f the

71

4M»

The members o f t h e Congr ess t hrouJ
t h e i r own e x p e r i e n c e , wi t h t h e
1 5 - o e r c e n t t a x on p a s s e n g e r f a r e s
can r e a d i l y

a p p r e c i a t e the

d i s c r i m i n a t i o n whi ch busi nessmen face
in p a y i n g f o r

t h e t r a n s p o r t s t i on

o f t h e i r sal esmen,
goods,

shinping t h e ir

and m a i n t a i n i n g t e l e g r a p h o r

telephone c o n ta c t
The b e n e f i t s

w i t h t h e i r marKets.
f r om r e d u c t i o n o f

t h es e t a x e s woul d be w i d e l y
distributed

among b u s i n e s s and

S,

h

hi

r

70

of property

is almost e n t i r e l y a

cost of doing business.

Excise taxes

on b u s i n e s s c o s t s t e n d t o be
p y r a mi d e d t h r o u g h s u c c e s s i v e
marie-ups by t h o s e hand I i ng goods
in the v a r i o u s

stages of p r o d u c t i o n

and d i s t r i b u t i o n .
of a ll

The c o s t o f

consumers i s

i n c r e a s e d out

p r o p o r t i o n to the tax
addition,

living

imposed.

of

In

t h e t a x e s t h u s added t o

t he p r i c e s o f goods and s e r v i c e s
g e n e r a l l y ar e t he most burdensome on
l ower

income g r o u p s .

t h e changes
i 939

in e x c i s e t a x

rate s since

the e s t i m a t e d revenues f o r

and

t he f i s c a l

year

my s t a t e m e n t .

19 5 1 ar e a t t a c h e d t o
(Exhibit

I)

The t a x e s on t r a n s p o r t â t Î on o f
property,

on t r a n s p o r t â t i on o f persons

and on I o n g - d i s t a n c e t e l e p h o n e and
t e l e g r a p h communi c a t i o n s
oefects

in common.

regulated

have some

They a l l

public services,

fall

on

whi c h are

used w i d e l y ana p r e d o m i n a t e I y by
business.

The t a x on t r a n s p o r t â t ion

-

68

-

which taxes are most burdensome to the
industries affected,

which c r e a t e most

s e r i ous c o m p e t i t i v e probl ems,
fall

which

wi t h undue weight on low income

groups,

and which impose b a r r i e r s

to

investment and consumption.
The Committee has had the
b e n e f i t of o u r t e c h n i c a l
these taxes and I s h a l l

s t u d i e s on
be gl ad to

supplement them wi t h a d d i t i o n a l
i n f o r ma t i o n a t t he d e s i r e of t he
Committee.

Summary t a b l e s showing

I

67
I should

-

I i k e to s t a t e b r i e f l y

why t hese t axes have been consi dered
to have the most comoel l i ng c l a i m
V ,/

for a t te n tio n .
in our s t u d i e s of exci se tax
problems we have had the b e n e f i t of
di scussi ons wi t h numerous t axpayer s
and t h e i r
/-/V-

rep r e s e n t a t i v e s ,
*

i

,* ,

’ H

business
£-

and l abor o r g a n i z a t i o n s ,

and c i v i c

and governmental groups.

We have

c a r e f u l l y consi der ed t he f a c t s and
v i e wp o i n t s pr esent ed

in det er mi ni ng

V'N |

«*

66

Excise Tax Reduction
Since only a l i m i t e d amount of
revenue may be l os t at t h i s

ti me,

we

should s e l e c t f o r r e d u c t i o n those
exci se t axes which are most h a r m f u l .
The most u r g e n t l y needed r e d u c t i o n s ,
as the P r e s i d e n t

indicated,

are in the

exci se t axes on t r a n s p o r t s t i o n

of

p r o p e r t y , on t r a n s p o r t s t i o n of
persons,

on I ong- di stance' t el ephone

and t e l e g r a p h commun¡cat ions,
in the r e t a i l

excises.

and

65
Thi s means t h a t exci se tax
r e d u c t i o n must be l i m i t e d to about

$600 mi l l i o n .
The second recommendation of the
President

is t h a t a d d i t i o n a l

revenue

of $1 b i l l i o n be pr ovi ded by r e v i s i n g
and improving the e s t a t e and g i f t
t axes and the c o r p o r a t i o n

income

. tax.
I t ur n now to a d e t a i l e d
di scussi on of these recommendations.

-

It

64 -

important t h a t a beginning

Is

be made now.

It

is equally

important that we exercise
forbearance and undertaKe no more
than can be afforded.
To t h i s end,

t he P r e s i d e n t has

made two broad recommendations.
The f i r s t

i s t h a t exci se taxes

be reduced to t he e x t e n t t h a t t he
resulting

loss in revenue is

r epl ac ed by c l o s i n g
or esent tax

laws.

loooholes

in the

63

l arge tax r e d u c t i o n which f o l l o we d
a year

later

sur pl us ,

d i s s i p a t e d t he revenue

and wi t h

it,

o p p o r t u n i t y to

maKe d e s i r a b l e and necessary tax
improvements.
The recommendations of t he
P r e s i d e n t to the Congress a r e designed
to p l a c e t ax r e v i s i o n
perspective.
pursued,

in proper

I f the r i g h t course is

most of the fundamental

tax

problems 1 l i s t e d f o r a t t e n t i o n three
years ago can be d e a l t w i t h .

62
i n t e r f e r e n c e wi th
and i n v e s t ,

i n c e n t i v e s to worK

c o n t r i b u t e to the

maintenance of s t a b l e high

l evel

pr oduct i on and employment,

promote

improved

and

l i v i n g st andar ds,

f a c i l i t a t e t ax adm in i s t r a t i o n and
comp I i ance.
At t h a t t i me s u b s t a n t i a l
revenue

future

leeway was a n t i c i p a t e d f o r

c o n s t r u c t i v e tax r e v i s i o n and 1
pr esent ed

in some d e t a i l

the major

problems r e q u i r i n g a t t e n t i o n .

The

61
conducted on a c o o p e r a t i v e basis
wi t h the S t a f f o f the J o i n t Committee
on I n t e r n a l

Revenue Taxat i on and

s i m i l a r concl usi ons have been reached
on many problems of tax r e v i s i o n .
My views on the o b j e c t i v e s of
t ax r e v i s i o n were o u t l i n e d bef or e
t h i s Committee n e a r l y t h r e e years ago.
At t h a t t i me

I s e t f o r t h these
‘
4

goal s:

the Federal

tax system must

produce adequate revenue,

treat
*T

. V'

t axpayer s e q u i t a b l y ,

mi ni mi ze

■V!.
■

\\

60
I t s t r e s s e s those t hi ng’s which
$7

should come f i r s t .
As the Committee is aware,

the

Treasury has been g i v i n g conti nuous
study to the orobl ems of postwar
tax r e v i s i o n .

Var i ous aspects of

the t ax system have been consi dered
in terms of t he r equi r ement s of an
expanding economy.

As a p a r t of

t h i s wor k , a number of t e c h n i c a l
s t u d i e s have been prepared to a s s i s t
your Committee.

Aor« has been

59 -

u r g e n t l y needed to meet our g r e a t l y
enl ar ged responsi b } I i t i e s .
revisions,

however,

be postponed.

Some

should no longer

Th^y have become essenti

to s t r e n g t h e n i n g the economy and
removing the most s e r i o u s

inequities

from the tax system.
The tax program submi t ted by
the P r e s i d e n t r e p r e s e n t s a c a r e f u l
bal ance between revenues and
e x pe ndi t u r e s

in the l i g h t of present

and p r o s p e c t i v e economic c o n d i t i o n s .

58
The Immense tasK of
tax revenues dur i ng the

i nc r e a s i ng
war

overshadowed the e o u i t y consi derat i ons
which in norma I times coul d not be
disregarded.

In meeti ng the

unavoi dabl e o b l i g a t i o n s

imposed by

our postwar problems we have been;
compelled to postpone necessary
adj ust ment s

in the tax system.

Most

of the tax r e v i s i o n which must
u l t i m a t e l y be made w i l l

i nvol ve a

s a c r i f i c e o f revenue t h a t

is now

57
in hi s s o e c i a l

tax message to Congress

recommended a program which would
result

in i ncreased tax revenues.

I t u r n now to a d e t a i l e d di scussi on
of these recommendations,
The P r e s i d e n t has made c l e a r the
necessity for

integrating taxation

wi t h our broad n a t i o n a l
objectives.

economic

Tax r e v i s i o n can

c o n t r i b u t e to the maintenance of
national

prosperity,

cont i nued

economic o p n o r t u n i t y and wor l d neace.

56

lowest oos si bl e

levels consistent

wi t h ma i n t a i n i n g a st rong domestic
economy and f o s t e r i n g n a t i o n a l
\
s e c u r i t y and world oeace.
Proposed changes in the tax

laws

The a n a l y s i s of budget
expendi t ur e s manes i t c l e a r t h a t our
best hone of r educi ng the d e f i c i t
and worning toward a balanced budget
a t t h i s time

is the adopt i on of

measures which w i l l
Federal

revenues.

i ncrease
P r e s i d e n t Truman

T

to the v i t a l i t y

o f the American

peopI e.
In my appearance be f or e your
Committee t oday,
had t o

1 have „necessari Iy

r e s t r i c t my s e l f t o "a b r i e f
. ^ '$

summary o f t he budget ex pe ndi t u r e s
proposed by the P r e s i d e n t .
d e t a i l e d a n a l y s i s of these
however,

will

A
items,

bear out the

P r e s i d e n t ' s st at ement t h a t the budget
was c a r e f u l l y prepared wi t h a view
toward h o l d i n g e x pe ndi t u r e s t o the

54
reclamation,

and for

a score of other

a c t i v i t i e s which the Government
must perform
our n a t u r a l
importantly,

in order to conserve
r esour ces.

More

these expendi t ur es

f i n a n c e f u n c t i o n s which the
Government must perform in or der to
conserve our human r esour ces.

These

i ncl ude expendi t ur e s f o r educat i on,
f or p r i v a t e and p u b l i c housing,
social

security - -

for all

f or

the

Government programs which c o n t r i b u t e

- 5 3 expenses of t he Government.
Expendi t ur es

in t h i s group

f i n a n c e the Government’ s programs Vp
many broad areas such as housing,
educat i on,

soc i a l

agriculture,
and nat ur al
specifically

welfare,

r es ear ch,
r esour ces.

ai ds to

transportation,
They

include

such expendi t ur e s as

those of the Atomic Energy Commission,
and t he postal

deficit.

They

i ncl ude expend L,t ur es f or f l o o d
c o n t r o I , f or

soi l

conservation,

f or

- 52 By f a r the

l a r ge s t p o r t i on of these

expend i t u r e s

is for the European

Recovery Program.
These f our wwar and peace**
programs comprise,

as I have s a i d ,

71 per cent o f t he budget.

There

remains only 29 p e r c e n t of the
budget - -

$ 1 2. 5 b i l l i o n

--

to

f i n a n c e the r e s t of the Government's
operations.

Not a l l

o f these

e x pe ndi t u r e s by any means,
are what we might c a l l

however,

the running

Gov ernment

the core of our

economic system - -

I f eel

cannot

be overemphasized.
The l a s t program which we
classify

in the "war and oeace"

cat egor y

is the program for

internationaI

a f f a i r s and f i n a n c e .

Esti mat ed e x p e n d i t u r e s
year

1951 w i l l

billion,

in the f i s c a l

amount to $ 4 . 7

which i s 21 p e r c e n t below

the e s t i mat e f or

I 960.

These

e x pe ndi t ur e s are shown in Chart V.

50
Keepi ng the cost o f s e r v i c i n g t he
debt

low,

wi t hout r e g a r d f or o t h e r

c o n s i d e r a t i o n s of debt management.
1 have t r i e d

to ma«e i t c l e a r

Keeping the cost o f t he debt

t hat
low is

onl y one of many c o n s i d e r a t i o n s
i nvol ved

in debt management decisions,

The o v e r r i d i n g c o n s i d e r a t i o n

is to

promote sound economic c o n d i t i o n s
in the c ou nt r y .

The importance of

m a i n t a i n i n g conf i dence
credit

in the

of t he Uni t ed St at es

i n t e r e s t a t s t i p u l a t e d r a t e s on
p u b l i c debt s e c u r i t i e s - issued to f i n a n c e the
is something,

nredominantly

l ast war.

of course,

of d i r e c t concern to me,

which i s
as

Se c r e t a r y of the Tr easur y.
l arge

item - -

comprises

This

$5.6 b i l l i o n

It
--

is a
and

13 p e r c e n t of t he budget.

You might not e t h a t 59 p e r c e nt of the
total

budget

is now accounted f o r .

The Treasury Department has been
c r i t i c i z e d as being too concerned with

48
in the c u r r e n t f i s c a l
decline

year .

This

in t r end should cont i nue

in

the next few years as the temporary
r eadj ust ment b e n e f i t s under the

6. I . B i l l t a p e r o f f or e x p i r e under
existing

I eg is la t i on.

The next

item in the "war and

peace" group is one which cannot be
cut at a l l .

I r e f e r to the

on the p u b l i c debt.

interest

The amount

i nvol ved r e p r e s e n t s the c o n t r a c t u a l
o b l i g a t i o n of the Government to pay
¡¡¡¡I!

' |tV

-

1 47 I
as wel l as

i ncreases

in s e r v i c e s and

b e n e f i t s to v e t e r a n s g e n e r a l l y .
Most of the e x pe ndi t ur e s f o r veterans'
s e r v i c e s and b e n e f i t s deoend uoon how
many vet er ans or t h e i r
apply and q u a l i f y
some 300

dependents

for aid.

There are

laws under which payments

may be made.
Expendi t ur es f or v e t e r a n s ’
programs a r e shown in Chart

IV.

They

are expected to be $825 m i l l i o n
lower

in the f i s c a l

year

1951 than

- 46 f o r the f i s c a l

year

one-seventh of a l l
for

the y e a r .

1951
budget expend!tures

When we add these

expendi t ur e s to those f or n a t i o n a l
defense,

we have a l r e a d y accounted

f o r 46 per c ent o f t he budget.
The s i z e of t he r ea ui r ement s for
veterans'

s e r v i c e s and b e n e f i t s reflect

the f i v e f o l d

i ncr ease si nce

in the number of v e t e r a n s ,

1939
and

the new r eadj us t ment b e n e f i t s
pr ovi ded f o r World War I I

v e t e r a ns ,

45
atomic energy deve I opment progra.nl which
in i t s e l f ,

r e q u i r e s expendi t ur es of

$817 m i l l i o n .
The remainder o f
defense ex pendi t ur es
reserves,

nat i onal
i ? f o r organized

administration,

r e l a t e d mi no r

and ot her

i t ems.

The second l a r g e s t of the
"war and peace" programs is t h a t for
veterans'

s e r v i c e s and b e n e f i t s .

Expendi t ur es f or the v a r i ous v e t er a ns '
programs are est i mat ed a t $6.1

billion

-

44

-

Tner e are two l e s s e r
f a r as cost

items - -

is concerned - -

significance,

so

whose

i t seems to me, must

be apparent to everyone.

These are

the proposed expendi t ur es for the
s t o c K D¡ l i n g of s t r a t e g i c
critical

materials,

$b50 m i l l i o n ,
development,

and

amounting to

and research and
amounting to $606 million,

! might mention t h a t the r esear ch and
development programs c l a s s i f i e d under
national

defense do not i ncl ude the

43

expend i t u r e s are anal yzed by type of
program,

and by agency,

in Chart

H I.

Over o n e - t h i r d of the esimated
e x pendi t ur e s f o r

1951

pay and support,

al t hough the f i g u r e

is s l i g h t l y

less than f or t he

current fisc al
principal

is f or m i l i t a r y

year.

The other

items o f n a t i o n a l

e x pe ndi t ur e s - concerned - -

defense

so f a r as cost

is

are o p e r a t i o n and

maintenance of equipment and
facilities,
activities.

and maj or procurement

42
goal

so v i t a l l y

i mpor t ant ,

it

would

be very easy to per mi t expendi t ur es
f or n a t i o n a l
hand.

It

i s,

defense to get out of
therefore,

particularly

commendable t h a t vi gorous ac t i ons
have been taxen to

K eep

these

expendi t ur e s w i t h i n reasonabl e
limits - -

and at

l e v e l s which ar e

w i t h i n the c a p a c i t y of the economy
to s u s t a i n .
\

Defense e x pe ndi t ur e s comprise
a wide v a r i e t y of programs.

These

- 41 the Federal

budget - -

nearly

or i e - t hi r d o f the t o t a l .

In the fiscal

\

year

1951, they wi l l

amount to an

est i mat ed $13. 5 b i l l i o n .
present t i me,

n e a r l y the whole world

¡spi n a s t a t e of

"cold war". >*Under

these ci r cumst ances,
St a t e s

the Uni t ed

is making a v i t a l

toward the goal
keeping

At the

contribution

of world peace by

i t s defenses st rong and by

m a i n t a i n i n g a p o s i t i o n of r e l a t i v e
mi l i t a r y
Ipt •
p

r eadi ness.

Wi t h t h a t

t

o

V*

f§|

-■

•A

*

j

; .

^

-

t

■

I shave a 1re?)dy ment i o n e d ,
1
o f Federa 1 e xpf? n d i t u r e s i s

<ks

b u 1k

r e q u i r e d t o pa y t he c o s t s o f o a s t
wars and t o pr omote wor Id oeace.
These c o s t s can be summed ud in four
1

•
de f ense
'

categories --

national

exoend i t u r e s , v e t e r a n s *

expenditures,

i n t e r e s t on t h e p u b l i c d e b t ,
exoenditures

for

and

internationaI

programs.
National

d e f e n s e expend.i t u r e s

c o n t i n u e t o be t h e

largest

i t em in

and has operated wi t h a d e f i c i t

since

t hen.
The e s t i ma t e d expendi t ur e s of $42.
billion

in the f i scal

year

1951 represei

a decrease of $858 m i l l i o n from the
fiscal

year

1950,

but an i ncrease of

$8 . 6 b i l l i o n over the postwar
1948.

It

low of

the f i s c a l

year

therefore,

f o r us t o examine t he

projected expenditures,
note j u s t why t h i s

is important,

so t h a t we may

is so.

Chart

II

shows the breakdown of expendi t ur es
f o r the f i s c a l

year

1951 by program.

$8 . 4 b i l l i o n ,

p r i m a r i l y because of

the conti nued sharp d e c l i n e

in

e x pe ndi t u r e s

year .

Due to our

in t h a t f i s c a l

increased domestic and

internationaI

obligations,

however,

e x pe ndi t u r e s s t a r t e d upward again
in the f i s c a l

year

the meantime.

Congress had enacted a

t ax r e duc t i on b i l l

1949;

but,

in A p r i l

in

1948,

which cost us about $5 b i l l i o n
revenue a n n u a l l y .
Federal

of

As a r e s u l t ,

the

Government had a budget deficit;

of $ 1 . 8 b i l l i o n

in the f i s c a l

year

1949

- 37
the

last f u l l

war,

fiscal

year o f the

was $53. 3 b i l l i o n .

were reduced shar pl y
fiscal

year ,

Expenditures

in the f o l l o w i n g

w i t h the r e s u l t t h a t

t he budget d e f i c i t was reduced to
s l i g h t l y more than $20 b i l l i o n
dur i ng t h a t year.
fiscal

year s,

In the next two

t he Federal

Government

operated wi t h a budget s ur pl us .
In

1947,

million;

i t amounted to about $800
and in

1948,

the unprecedent edI y

i t reached

l arge sum of

36
the P r e s i d e n t ' s Budget Message
e s t i ma t e s t h a t r e c e i p t s
year

19 5 1 w i l l

total

under e x i s t i n g tax

$37.3 b i l l i o n

legislation,

t h a t e x pe ndi t ur e s w i l l
$42.4 b i l l i o n

--

in the f i s c a l

amount to

which gi ves the

p r o j e c t e d budget d e f i c i t
year of $5.1

and

billion.

are shown on Chart

I;

f o r the

These f i g u r e s
which al so

shows the budget p i c t u r e f o r each
of the f i s c a l
I 94 5.

years begi nni ng wi t h

The budget d e f i c i t

in I 945»

35
I should

-

l i k e at t h i s time to t ake

a few minutes to go over some of
the more

i mportant budget f i g u r e s

L

to show why i t would be d i f f i c u l t
to reduce the e x pe ndi t u r e s of the
Federal

Government below the estimates

which Pr e si dent Truman sent to the
Congress.
will

In t h i s connect i on,

I

pr esent some c h a r t s which I

believe w ill

make the di scussi on

somewhat c l e a r e r .
As a l l

of you know,

of course,

34
l a r g e s t p r o p o r t i o n of Government
e x pe ndi t u r e s has been r e q u i r e d to
pay f o r the costs of past wars,

to

keep the N a t i o n ’ s defenses s t r ong,
ana to f u r t h e r

the cause of world
/

peace.
year
f or

In the budget f o r t-he f i s c a l

1951,

such e x p e n d i t u r e s account

71 per cent of the t o t a l

budget.

I t seems to me t h a t t h e r e
general

is a

unawareness of the d e t a i l s

of the e x pe ndi t u r e s p r o j e c t e d
the Federal

budget.

in

Ac c or di ngl y ,

-

the Federal

33 -

budget.

sharp r e d u c t i o n s

Proponents of

in Federal

e x pe ndi t u r e s g e n e r a l l y base t h e i r
recommendat ions on the t h e s i s t h a t
the pr esent high l evel
e x pe ndi t u r e s
a return

of Federal

is not c o n s i s t e n t with

to normal

peacetime

Government ope r a t i ons.

But,

although,

we are not now engaged in a war,

we

cannot consi der the pr esent per i od
a normal

peacetime pe r i o d .

of the postwar year s,

In each

by f a r the

32
agenci es

in a l l

levels.

As the Pr e si dent has

explained,
funds f o r

fields

to e s s e n t i a l

many r e q u e s t s f o r additional
h i g h l y m e r i t o r i o u s purposes

had to be denied

in order to r e v er se

the trend toward hi gher governmental
expend i t u r e s .
Under pr esent c o n d i t i o n s ,
reductions

however,

in costs as a r e s u l t of

improved e f f i c i e n c y

in c a r r y i n g on the

o r d i n a r y a c t i v i t i e s of the Government
can have only a l i m i t e d e f f e c t on

31
no way t h a t

I know of to s p o t l i g h t

in these e s t i ma t e s the savi ngs
which they r e p r e s e n t ,

as compared

wi t h the costs of comparable services
rendered the p u b l i c

in f or mer years.

I believe,

t h a t most

however,

f a i r - m i n d e d c i t i z e n s who study the
Budget e s t i ma t e s f o r

1351 w i l l

agree w i t h the P r e s i d e n t t h a t they
r e p r e s e n t the most v jfiorous
a p p l i c a t i o n of a p o l i c y of hol di ng
the numerous a c t i v i t i e s

of Government

30
time and e f f o r t to making c e r t a i n
t h a t the people of t h i s count r y
get value r e c e i v e d f o r every t ax
do I I a r .
The improvements in methods of
o p e r a t i o n and management which have
taken pl ace in the Government and
which are planned f o r t he near
f u t u r e are r e f l e c t e d

in the budget

e s t i ma t e s f o r the f i s c a l

year

1951

submi t ted to the Congress by the
President

l ast month.

But t her e

is

29
cited

is p a r t i c u l a r l y

pertinent

to the mat t er s which ar e under
c o n s i d e r a t i o n by the members of
t h i s Committee.
the Government,

But,

throughout

similar

have been t a k i n g pl ace;

improvements
and, w h i l e

I cannot take more of your time to
di scuss them,

l should

l i k e to add

t h a t a share of the c r e d i t f o r

these

improvements should go to members of
Congr essi onaI commi ttees,
your Committee,

Uff
1

-

such as

who have gi ven t h e i r

-

28

mm

ene r gi es and resources on the work
which is at the hea r t of

i t s ac t i v i t i e s

and of our revenue system - -

enforces

of Federal

I need

t ax

legislation.

har dl y emphasize to the members of
t h i s Committee the

importance of

enforcement work in p r o t e c t i n g and
m a i n t a i n i n g the g r e a t v o l u n t a r y
system of sel f - asse ssme nt and col lectio
which is the fundamental

source of oHr
I

financial

s t r e n g t h as a democrati c

Government.
The example which I have j u s t

- 27
Internal
al one,

Revenue.

In t h i s Bureau

our r e c e nt a p p r o p r i a t i o n

r equest shows t h a t

improved procedures

adopted dur i ng the past year or two
have made i t pos si bl e f o r us to
decrease t he number of employees on
nonenforcement work by 657,
an annual savi ng of

representin

1, 400, 000 man

hours e q u i v a l e n t to a c o l l a r saving
of $ 2 , 8 0 0 , 0 0 0 .
made i t possi bl e

These savi ngs have
to con c e nt r a t e an

i nc r e a s i ng p a r t of the Bureau’ s

26
which the Treasury has pursued during
the past t hr ee and a h a l f year s,
i ncl udi ng the programs f o r management
improvement and g r e a t e r e f f i c i e n c y
of o p e r a t i o n s .
You may be i n t e r e s t e d a t t h i s
t i me,

however,

in an example of the

concr et e r e s u l t s which have been
achieved

in the Treasury Department

in connection w i t h one of the most
i mportant of our management
programs - -

improvement

t h a t of the Bureau of

25
Senate Committees
the

in connection with

T r e a s u r y ' s request s f o r

appropriations for
I SSI.

the f i s c a l

year

fVly time today does not permi t

a d e t a i l e d account of the t hi ngs
which we have been doing
Treasury.
I

s ha I

in the

Wi t hi n a few days,

however,

I submit to the Congress - -

as a p a r t of the Annual

Report of

the Se c r e t a r y of the Treasury on,
the S t a t e of the Finances - of

a summary

i mportant p o l i c i e s and programs

24
in the Government a t the pr esent
time and one which is r e c e i v i n g f a r
too

little

attention.

I am most f a m i l i a r ,
wi t h the

improvements

of course,

in management

and oper a t i on which have been
instituted

in the Treasury Department.

At v a r i o u s t i m e s , . I
these

have revi ewed

improvements bef or e Committees

of the Congress.

The most r ec ent

occasion was the st at ement which I
made l a s t month bef ore House and

23

essential

s e r v i c e s on the basi s of

c o s t l y or outmoded methods of
operation.

Rat her ,

we are engaged

in an a c t i v e campaign t o
efficiency,

improve

i ncrease s e r v i c e ,

lower cost s.

and

^

In the t h r e e and a

h a l f years si nce

I t ook o f f i c e as

S e c r e t a r y of the Tr easur y,

I have

seen the r e s u l t s of t h i s campaign
demonstrated

in a c t i o n ;

convinced t h a t

it

and I am

is one of the most

i mportant programs being c a r r i e d on

22
the Departments and Bureaus concerned.
In the aggr e gat e,
only add up to

however,

they not

i mportant savi ngs

terms of d o l l a r s ;

they r e f l e c t ,

my mind, a t rend which
...
>

in
to

is probabl y

, '

unique today among t he governments
of the world and which pr ovi des one
of the s t r o n g e s t assurances of the
conti nued success of democracy.

We

in t h i s c o u n t r y ■ar e not endeavoring
to r e t a i n unneeded s e r v i c e s ,

and we

are not content wi t h perf ormi ng

21

l a s t year

In a u t h o r i z i n g a s p e c i a l

fund f o r use in ext endi ng management
vr

improvement throughout the Government.
These programs,

however - -

as

the members of t h i s Committee ar e
well

aware - - do not make the head litnes

They do not cont ai n s i n g l e b i l l i o n - d o l l
items; and they r e l a t e ,
part,

to t e c h n i c a l

f o r the most

changes in

management and o p e r a t i n g procedures
which can only be a p p r e c i a t e d to
the i r f u l l

e x t e n t b y the members of

20
which i t renders to the p u b l i c ,

and

1

in r educi ng the cost of these
s e r v i c e s to the p u b l i c .
This

is not an unsupported

st a t e me nt ,
wi shf ul
trte war,

and i t

thinking.

is not based on
Since the end of

out st andi ng achievements

have been r e a l i z e d

in improving the

o r g a n i z a t i o n and o p e r a t i n g methods
of the Execut i ve Branch of t he
Government.
the

The Congress recognized

importance of these measures

19

of view of t h e i r r e l a t i o n s h i p to the
c u r r e n t Federal

financial

p i c t u r e and

to the h e a l t h and soundness of the
national

economy.

Reduced Government e x p e ndi t u r e s
There

i s,

first,

the

important

mat t e r of Government e x p e n d i t u r e s .
Cont r ar y to a b e l i e f which we of t en
hear expressed,

the people

Government are pr of oundl y

in
interested

in improving the e f f i c i e n c y of the
Government,

in i ncr ea si ng the servi ce

are,

as you w i l l

not e,

interm e-shed.

The success of each one is bound up
wi t h the success of the ot he r two.
I should

l i k e to di scuss,

first,

the

e x pe n d i t u r e si de of tne p i c t u r e ,
and second,

the f i s c a l

measures

designed to

i ncrease our revenue
1

.r1 •’

ana to d i s t r i b u t e the tax burden
more e q u i t a b l y among the
citizens

and ousi ness concerns of

the N a t i o n .
of

individual

I shall

approach both

these quest i ons from the p o i n t

corporation

income t axes.

This

decrease r e f l e c t s

the f a c t t h a t

cor por a t e p r o f i t s

in the c a l e ndar

year

I

194 9, as compared wi t h the

cal endar year
their f ul l
until

lower I

1948,

not have

I

e f f e c t on t ax r e c e i p t s

I

the f i s c a l

wi l l

year

1951.

The t hr ee p o l i c i e s o u t l i n e d
the f i s c a l
namely,

I

I
in

program of the Pr esi dent -- j

reduced Government expenditures

s t i m u l a t i o n to busi ness,
enl arged and

and an

improved revenue system -•

I

16
on the assumption of a conti nued
nigh r a t e of business a c t i v i t y .
P r e s i d e n t made t h i s c l e a r

The

in the

Budget Message when he sai d;

''The

e s t i ma t e s of r e c e i p t s assume economic
activity
l evel

at appr oxi mat el y the same

as a t

the present t i m e . "

decrease of $457 m i l l i o n
r e c e i p t s f o r the f i s c a l

The

in estimated
year

1951.

as compared wi t h the c u r r e n t f i s c a l
year,

is

l a r g e l y accounted f o r by an

expected decrease

in c o l l e c t i o n s from

-

Government,

1 5

-

( 2) measures aimed a t

encouraging and s t i m u l a t i n g business
expansion - result

which,

of course,

would

in e n l a r g i n g our revenue base -

and (3)

changes in the t a x

laws which

would serve the double purpose of
bringing

in some net a d d i t i o n a l

IJ !

revenue and improving the e q u i t y of
our t ax system.
I might add here,

p a r e nt he t i ca I Iy,

t h a t our est i mat es of revenue recei pts
for

the t iscal

year

1551 are based

_t ■
S.-

n

i V

14
st r ong domestic economy or the
conti nuance of needed measures in
t h i s country and el sewhere f o r defense
a g a i n s t aggr essi on.

In hi s tax

message to the Congress on January 23,
1350,

the P r e s i d e n t o u t l i n e d a f i s c a l

program designed to reduce the d e f i c i t
ano br i ng about budgetary balance
as r a p i d l y as p o s s i b l e .
embraced

The p o l i c i e s

in t h i s program were threefold

having to do wi t h ( I )

reduced

expend i t ur es on the p a r t of the

13
Government r e c e i p t s and ex pendi t ur es
be bal anced.
objective

I t was wi t h t h i s

in mind t h a t the Treasury

opposed t ax r e d u c t i o n

legislation

in

|

submi t t e d t ax recommendat i ons to the

j

1947 and 1948.
The Pres ¡dent r e c e n t I y has

Congress which

i f enacted

legislation will

into

lay t he groundwor k

f or achi e vi ng a bal anced budget,

withou

endangering t he cont i nuance of our
programs f or

the maintenance of a

j

achievements based on the new
discoveries

in e l e c t r o n i c s ,

in

s y n t h e t i c and p l a s t i c m a t e r i a l s ,
metallurgy,

in

and in many ot he r areas

of s c i e n t i f i c

r es ear ch,

a substantial

part

will

in our

pl ay

industrial

progress.
Unaer the e x c e p t i o n a l l y favorable
economic c o n d i t i o n s which p r e v a i l
today and the prospects f o r continued
economic progress

in the f u t u r e ,

a

sound budgetary p o l i c y demands t h a t

pr oduct s,
cost s.

and reduci ng pr oduct i on

Many of them,

l i k e the

m u l t i t u d e of new p l a s t i c products,
may be of small
but very
other

i ndividuall y

i mportant as a group.

i nst ances,

developments,
gi v e

importance

In

s i n g l e products or

such as t e l e v i s i o n ,

i n d i c a t i o n s of occupying a

major p o s i t i o n

in our n a t i o n a l

economy bef or e

long.

We st and,

in f a c t ,

begi nni ng of an era

at the

in which technical

10

to remember al s o t h a t our g r e a t
industrial

development has been

b u i l t on a c o n t i n u i n g pr ogr essi on
of new products which have gi ven
successf ul

support t o business

activity.
Today, we have the advantage
of the unprecedented t e c h n i c a l
developments of the war and postwar
//

years,
applied

wnich are r a p i d l y being
in b r i n g i n g out-new types

of consumer goods,

improving o l d e r

the war,

plus those

Mountain St at es
all

of Texas.

in the e i g h t

and in p r a c t i c a l l y
Moreover,

the not abl e

s h i f t of popul a t i on dur i ng and since
the war - -

particularly

the heavy

movement westward — has g r e a t l y
enl ar ged needs f o r new housing,
f o r new school s,

churches,

and

hospitals

and ot her community f a c i l i t i e s .
These a r e g e n e r a l l y r e c o o ^ i z e d
needs which we can a l l

see as we

look around us;

is i mportant

but

it

8
Moreover,

the accumulated demand

for certain

i mportant goods and

s e r v i c e s which was the r e s u l t of
short ages dur i ng the war and postwar
years has not yet been f u l l y
satisfied.
in p o i n t .

Housing is an i nstance
Since the begi nni ng of

the Second World War in
20 m i l l i o n

people have been added

to our p o p u l a t i o n .
to a l I

1939,

the people

That

is equal

in the P a c i f i c

Coast S t a t e s a t the begi nni ng of

7
st r ong economic s i t u a t i o n which is
being mai nt ai ned t hroughout the
count r y.

During the past year ,

the

country met and s a f e l y passed a
per i od of

i nvent or y r eadj ust ment

which completed the s h i f t
c o m p e t i t i v e markets.

to normal

Yet - -

as the

f i g u r e s which I have j u s t c i t e d
demonstrate - -

this

per i od of

r e a dj us t ment r e s u l t e d
di s t u r b a n c e
and t r ade

in very

in the r a t e

little

of a c t i v i t y

in the Nati on as a whole.

6
pr oduct i on of a l l

goods and ser vi ces

in 1943. was $259 b i l l i o n .
onl y about

1 - 1 / 2 per cent below the

a l l - t i m e record reached
Personal

sales,

in 1948.

income in 1949 was v i r t u a l l y

unchanged from the high
in 1948;

This was

level

reached

and the volume of r e t a i l

when adj ust ed f o r p r i c e

changes,
1949 than

was a c t u a l l y g r e a t e r

in

in trie precedi ng year .

The business s t a t i s t i c s are
unmi st akabl e evidence of the basically

revenue

5 *

in times of high employment,

pr oduc t i on,

and n a t i o n a l

income to

meet the necessary expendi t ur e s of
the Government and leave some surplus
f o r debt r e d u c t i o n . "

As you know,

we are now enj oyi ng a per i od of high
employment,

high pr oduc t i on,

high n a t i o n a l

income.

persons employed
the 6 0 - m i l l i o n

and

The number of

in 1943 held near

level;

and average

employment duri ng the year was only
one percent below 1948.

Total

4
that

in prosperous peri ods such as

tne pr esent ,

the Government should

be abl e t o pay f o r c u r r e n t expenditures
out of c u r r e n t
revenue,

income;

in a d d i t i o n ,

sufficient

and t h a t our
should be

to y i e l d a surpl us which

could be appl i ed to the r e d u c t i o n of
the Federal de b t .
As the P r e s i d e n t s t a t e d
tax message of January 23,
ft (

• genera I o b j e c t i v e
system which w i l l

in his

1350,

should be a
yield sufficient

l

3

outset,

I should

l i k e t o make one

p o i n t c l e a r beyond the p o s s i b i l i t y
of doubt.

As Cni ef F i s c a l

of the Na t i o n ,

I do not

on Federal d e f i c i t s .

Officer

look l i g h t l y

Duri ng my

per i od of o f f i c e as S e c r e t a r y of the
Treasur y,

I have taken every opportunitl

to express to the members of t h i s
Committee and ot her CongressionaI
committees - -

as well

as to

I

individual

c i t i z e n s and groups of c i t i z e n s

I

t hroughout the country - - my convictions

2
h e a l t h of the economy.
that r e s p o n s ib iIity ,

A p a r t of

in my view,

i nvol ves g i v i n g the members of t h i s
Committee t he most i n f o r m a t i v e
picture

of wnich I am capable concernin

the c u r r e n t s t a t e of the N a t i o n ' s
f i n a n c e s and the measures which,
my o p i n i o n ,

in

should be taken to assure

conti nued soundness of Government
fiscal

operations

in the years ahead.

i am going to endeavor to give
you t h a t p i c t u r e today.

At the

Mr.

Chairman and Members of the

Commi ttee:
i am pleased to have the

\j

o p p o r t u n i t y of appeari ng bef or e the
members of t h i s Committee t o discuss
the P r e s i d e n t ' s t ax program.
S e c r e t a r y of the Tr easur y,

As

I am

charged wi t h the r esponsi bi I i t y f or
managing t he N a t i o n ' s f i n a n c e s

in such

a way as to mai nt ai n the soundness of
the Government's f i s c a l
in so doi ng,

p o s i t i o n and,

to promote t h e f i n a n c i a l

Statement of Secretary Snyder
Before the
Coomittee on Ways and teeans
House of Representatives

XOtOO A* U #
Friday —

February 3 # 1950

TREASURY DEPARTMENT
Washington
Statement by Secretary Snyder before the
Committee cn Ways and Means,
House of Representatives,
February 3, 1950
Mr* Chairman and Members of the Committee: I am pleased to have the
opportunity of appearing before the members of this Committee to discuss
the Presidents tax program. As Secretary of the Treasury, I am charged
with the responsibility for managing the Nation’ s finances in such a way
as to maintain the soundness of the Government’ s fis c a l position and, in
so doing, to promote the financial health of the economy. A part of that
responsibility, in my View, involves giving the members of this Ccmmittee
the most informative picture of which I am capable concerning the current
state of the Nation’ s finances and the measures which, in my opinion,
should be taken to assure continued soundness of Government fis c a l opera­
tions in the years ahead.
I am going to endeavor to give you that picture today. At the outset
I should like to make one point clear beyond the possibility of doubt*
As Chief Siscal Officer of the Nation, X do not look lig h tly on Federal
deficits* During my period of o ffice as Secretary of the Treasury, I have
taken every opportunity to express to the members of this Consnittee and
other Congressional ccmmittee® — as well as to individual citizens and
groups of citizens throughout the country — my conviction that in
prosperous periods such as the present, the Government shcftild be able to
pay for current expenditures out of current income; and that our revenue,
in addition, should be sufficient to yield a surplus which could be
applied to the reduction of the Federal debt*
As the President stated in his tax message of January 23, 1950, °0ur
general objective should be a tax system which w ill yield sufficien t
revenue in times of high employment, production, and national income to
meet the necessary expenditures of the Government and leave some surplus
for debt reduction.0 As you know, we are now enjoying a period of high
employment, high production, and high national income. The number of
persons employed in 1949 held near the 60-million level; and average
employment during the year was only one percent below 1948, Total
production of a ll goods and services in 1949 was $259 b illio n . This
was only about 1-1/2 percent below the all-time record reach in 1948*
Personal income in 1949 was virtually unchanged from the high level
reached in 1948; and the volume of r e ta il sales, when adjusted for price
changes, was actually greater in 1949 than in the preceding year*

- 2 -

The business sta tis tics are unmistakable evidence of the basically
strong economic situation which is being maintained throughout the country.
During the past year, the country met and safely passed a period of
inventory readjustment which completed the sh ift to noimal competitive
markets. Yet — as the figures which I have just cited demonstrate —
this period of readjustment resulted in very l i t t l e disturbance in the
rate of activity and trade in the Nation as a whole. Moreover, the
accumulated demand for certain important goods and services which was the
result of shortages during the war and postwar years has not yet been
fully sa tisfied . Housing is an instance in point. Since the beginning
of the Second World War in 1939, 20 million people have been added to our
population. That is equal to a l l the people in the Pacific Coast States
at the beginning of the war, plus those in the eight Mountain States and
in practically a l l of Texas. Moreover, the notable sh ift of population
during and since the war — particularly the heavy movement westward —
has greatly enlarged needs for new housing, and for new schools, churches,
hospitals, and other community fa c ilit ie s . These are generally recognized
needs which we can a ll see as we look around us$ but i t is important to
remember also that our great industrial, development has been built on a
continuing progression of new products which have given successful support
to business activity.
Today, we have the advantage of the unprecedented technical develop­
ments of the war and postwar years, which are rapidly being applied in
bringing out new types of consumer goods, improving older products, and
reducing production costs. Many of then, like the multitude of new
plastic products, may be of small importance individually, but very
important as a group. In other instances, single products or developments,
such as television, give indications of occupying a major position in our
national economy before long*
We stand, in fa c t, at the beginning of an era in which technical
achievements based on the new discoveries in electronics, in aynthetic
and plastic materials, in metallurgy, and in many other areas of scie n tific
research, w ill play a substantial part in our industrial progress.
Under the exceptionally favorable economic conditions which prevail
today and the prospects for continued economic progress in the future, a
sound budgetary policy demands that Government receipts and expenditures
be balanced. I t was with this objective in mind that the Treasury opposed
tax reduction legislation in 1947 and 1948.
The President recently has submitted tax recommendations to the
onpess which i f enacted into legislation w ill lay the ground work for
achieving a balanced budget, without endangering the continuance of our
programs for the maintenance of a strong domestic economy or the con­
tinuance of needed measures in this country and elsewhere for defense
against aggression. In his tax message to the Congress on January 23,
950, the President outlined a fis c a l program designed to reduce the

—3 —
deficit and bring about budgetary balance as rapidly as possible. The
policies embraced in this program were threefold, having to do with
(1) reduced expenditures on the part of the Government, (2) measures
aimed at encouraging and stimulating business expansion —- which, of
course, would result in enlarging our revenue base —
<«•» and (3) changes
in the tax laws which would serve the double purpose of bringing in some
net additional revenue and improving the equity of our tax system*
I might add here, parenthetically, that our estimates of revenue
receipts for the fis c a l year 1951 are based on the assumption of a con­
tinued high rate of business activity* The president made this clear in
the Budget Message when he said: nThe estimates of receipts assume
economic activity at approximately the same level as at the present tirae*n
The decrease of 1457 million in estimated receipts for the fis c a l year
1951, as compared with the current fis c a l year, is largely accounted
for by an expected decrease in collections from corporation income
taxes* This decrease reflects the fact that lower corporate profits
in the calendar year 1949, as compared with the calendar year 1948,
will not have their f u ll effect Qfi tax receipts until the fiscal..year
The three policies outlined in the fis c a l program of the President —
namely, reduced Government expenditures, stimulation to business, and an
enlarged and improved revenue system — are, as you w ill note, intemeshed.
The success of each one is bound up with the success of the other- two*
I should like to discuss, f i r s t , the expenditure side of the picture and
second, the fis c a l measures designed to increase our revenue and. to d isribute the tax burden more equitably among the individual citizens and
business concerns of the Nation. I shall approach both of these questions
rrcm the point of view of their relationship to the current Federal
financial picture and to the health and soundness of the national economy*
Reduced Government expenditures
Th0r® i s > fir s t , the important matter of Government expenditures*
ontrary to a belief which we often hear expressed, the people in
Government are profoundly interested in improving the e ffic ie c y of the
Government, in increasing the service which i t renders to the public* and
m reducing the cost of these services to the public*
th-inw™
L ot f? uns"PPorted statement, and i t is not based on wishful
«.<.?< !*• . ce the end o- the war, outstanding achievements have been
1^Llmpr0Vins ’tiie organization and operating methods of the
executive Branch of the Government. The Congress recognized the important
measures, last year in authorizing a special fund for use in
ex&enaing management improvement throughout the Government*

These programs, however — as the members of this Ccmmittee are well
av/are — do not make the headlines* They do not contain single b illio n dollar items; and they relate, for the most part, to technical changes in
management and operating procedures which can only be appreciated to their
fu ll extent by the members of the Departments and Bureaus concerned* in
t ^ af? regatf? however, they not only add up to important savings in terms
of dollars; they refle ct, to my mind, a trend which is probably unique tod,
among the governments of the world and which provides one of the strongest
assurances of the continued success of democracy* We in th is country are
not endeavoring to retain unneeded services, and we are not content with
performing essential services on the basis of costly or outmoded methods
0£p?P?ratlon? Pather> m arG engaged in an active campaign to improve
efficiency, increase service, and lower costs. In the three and a half
* took offxce aa Secretary of the Treasury, I have seen the
^
demonstrated in action; and I am convinced that
i t is one of the most important programs being carried on in the
afctenSon^ ** the present time **** Q m wi5ich is receiving far too little

I am most familiar, of course, with the improvements in management
w^ h have be0n/natituted in the Treasury Department. At
+KTLnUS tlmes* 1 have reviewed these Improvements before Committees of
, The m0St recent OCGasian *** *bs statement which I made
last month before House and Senate C&mittem in connection with the
Treasury*s requests for appropriations for the fis c a l year 1951. My
lme today does not permit a detailed account of the things which we
suSi ^ t o

i

fhtj “ the TreaS1JJy‘ *ithin a

th

daysi however, I shall

Congr8s3 “ 33 a
of the Annual Report of the Secretary
® the ^ at® ° f the Idnaacea “ a summary of important
“ s T,to-Ch th0 Treasa^ has pursued during the past
mpn+ =2^ 3
yfars> including the programs for management improve­
ment and greater efficiency of operations.
™prove
concrete 17 5?.
^ «*>> time, however, in an example of the
conmeti™
Whl°5 i f Ve been. a=hieved in the Treasury Department in
programs — thn+°n? +£ t 5® most “ iportant of our management improvement
our recent
°- + •6 ®ureau o£ Internal Revenue, In this Bureau alone,
durinP the app£opriation request shows that improved procedures adopted
number „ f
i * year or two have made 111 Possible for us to decrease the
saving of » 0 0 0 ® n° nenforcemenh wrk hy 657, representing an annual
These s a v w f h ’o?00 ^ i f " 8 e(Jullralent to a dollar saving of §2,800,000.
the Bureau4
*5 poS3lble to concentrate an increasing part of
its S t i S t i e s end ?S
resources on the work which is at the heart of
legislation
T n id ^ ^ / ^ T ?ystem ~ enf ^cement of Federal tax
the imDortanne1n?e^ « hardly ®mPhasize to the members of this Committee
grearv0i00+
f e" foroement work in protecting and maintaining the
fm d L e O tO l^ n 873" ? 1 of self-assessment and collection which is the
amental source of our financial strength as a democratic Government.

The example which I have just cited is particularly pertinent to the
matters which are under consideration by the members of this Committee*
But, throughout the Government, similar improvements have been taking
place; and, while I cannot take more of your time to discuss them, I
should like to add that a share of the credit for these improvements
should go to members o f Congressional committees such as your Committee
who have given their time and effort to making certain that the people
of this country get value received fo r every tax dollar*
The improvements in methods of operation and management which have
taken place in the Government and which are planned for the near future
are reflected in the budget estimates for the fis c a l year 1951 submitted
to the Congress by^ the President last month. But there is no way that
I know of to spotlight in these estimates the sayings which they repre­
sent, as ccmpared with the costs of comparable services rendered the '
public in former years* I believe, however, that most- fair-minded citizens
who study the Budget estimates for 1951 w ill agree with the President that
they represent^the most vigorous application of a policy of holding the
numerous activities of Government agencies in a ll fields to essential
levels. As the President has explained, many requests for additional
funds for highly meritorious purposes had to be denied in order .ta-reverse
the trend toward higher governmental expenditures*
Under present conditions, however, reductions in costs as apresult -'
of improved efficiency in carrying on the ordinary activities ofnhe
Government can have only a limited effect on the Federal budget*
Proponents of sharp reductions in Federal expenditures generally base
their recommendations on the thesis that the present high level of
Federal expenditures is not consistent with a return to normal peacetime
Government operations. But, although we are not now engaged in a war,
we cannot consider the present period a normal peacetime period. In
each of the postwar years, by far the largest proportion of Government
expenditures has been required to pay for the costs of past .wars, to keep
the Nation!s defenses strong, and to further the cause of world peace*,•
In the budget for the fis c a l year 1951, such expenditures account for
71 percent of the to ta l budget*
It seems to me that there is a general unawareness of the d e ta ilsor the expenditures projected in the Federal budget. Accordingly, I
should like at this time to take a few minutes to go over some of th e-more important budget figureá to show why i t would be d iffic u lt to
reduce the expenditures o f the Federal Government below the estimates
which President Truman sent to the Congress* In this connection, I
will present seme charts which I believe w ill make the discussion some-wnat clearer.

-

x. Af

6-

°f you know» of course, the President's Budget Message

• in+-h°
1951 will tftbal $37.3 billion
JS?ef wn? ^ inS
,leg:LSl£t:Lon> ar^. that expenditures will amotmt to
'
r i n ? " whlcb gives.tbe Projected budget deficit for the year

b+13a° ? ’
budge!?

T^ese figlires are shown on Chart I: which also shows
for ea6h oi
ilscaX years beginning with 1945*
Jro
in*?45> the la st fu n fis c a l year o f the war, was
|53»9 b illion . E^enditures were reduced sharply in the following
f 3-fca^_year»
the result that the budget d e fic it was reduced to
v^rs^^ttS°Federfll p2° b l l l i ^n
that ^ a r . ^ the nexb two fis c a l
years, the Federal Government operated with a budget surplus. In 1947
it amounted to about $800 million; and in 1948, i t reached the unpreced­
entedly large sum of $8.4 b illion , primarily because of the continued
sharp decline in expenditures in that fis c a l year«, due to our increased
u Z r d ' L S n i f t h T ^ f ^ ^ a t i d n e , however, expenditures sorted
p
gain in the f i s c a l year 1949; but. in the meantime Con^rR^q haH
deficit I f

ri r tio:As,bm
*» Apiii
a fe su lt, the

d S S i sLctthe^

“

ion The esti?ate<1 expenditures

^

***

PedsraX Government had a budget

* * * 3949 “ ** haB °perated ldth a

at U2.A billion in the fiscal venr

an5inoreaseeof ^ S ^ S l l l °f $858. ^ U i o n
the fiscal year 1950, but
an increase of «*>8«6 billion over the postwar low of the fiscal vear 1Q/8

t ^ r ^ o t e 6^ ^ - 118 t0 — - e tha ProJeered°e^enditures^
3
e ^ n d it u r L
i f ' J * i ^ 3 is 30*
XI sho»s the breakdown
01 expenditures for the fis c a l year 1951 by program.
r e o u if d ^ n L ^ S 347 ®en ti ° nedi th e W it o£ F ed e ral expen ditures i s
c o s t i ^ L ^ P y th f ° ° 3tS ° f p a st wars and to promote world p eace. These
£ 5

2 . S I“ r

-

-K

k

™

*■» ■»“

i

« „ i

" «*.

£ £ * £ " •
“

« » • “ ■i-

thp
defense expenditures continue to be the largest item in
iw l h f 1
get ~ near:y
of the totaaf i f t t e ¿ s S l year
S
n e Z ^ L Z T . 1° SS f tiaated Sl3*5 h in io n * At the p r e S n f

ciromlt^s
^hfSnitS ^ tL
T l i f United S*ates

the Z

3

°f "ot>;ldwar"' Under these

1S « * * » « a v ita l contribution torard

a P o f i t i o f o f S a t i T O ^ S i t a ^ f 118
defenf es stro n 8 and * m ain tain in g
important
i f m lllta r y re a d in e s s. W ith th a t g o a l so v i t a l ly

defense to get o u ^ o ^ h S ^ e?ty t 0
exPenditurea f° r national
that Vigorous action«
Jt
f8?therefore» particularly
r e a s o n a b le L it!
t ^ " taken to keep these expenditures within
economy to S & T
at lOTels * * « * a^ within the capacity of the

- 7Defense expenditures comprise a wide variety of programs# These
expenditures are analyzed fcy type of program, and by agency, in Chart III«
Over one-third of the estimated expenditures for 1951 i 3 for m ilitary
pay and support, although the figure is sligh tly less than for the current
i is cal year# The other principal items of national defense expenditures —
so far as cost is concerned — are operation and maintenance of equipment
and fa c ilit ie s , and major procurement activities*
.
two lesser items — so far as cost is concerned — whose
significance, i t seems to me, must be apparent to everyone# These are
the proposed expenditures for,the stockpiling of strategic and c r itic a l
materials, amounting to $>650 m illion, and research and development
counting to $60b million* I might mention that the research and develop­
ment programs classified under national defense do not include the atomic
energy development program which, in it s e lf, reouires expenditures of
*>817 million#
The ranainder of national defense expenditures is for organized
reserves, administration, and other related minor items#
The second largest of the
and peacefr programs is that for
veterans’ services and benefits. Expenditures for the various veterans’
programs are estimated at &6#1 billion for the fis c a l year 1951 — oneseventh of a ll budget expenditures for the year# When we add these ex­
penditures to those for national defense, we have already accounted for
46 percent of the budget#
r.a-n^T+e
the requirements for veterans* services and benefits
° S ? fivefold increase since 1939 in the number of veterans, and
the new readjustment^benefits provided for World War I I veterans as well
p ™ n^ aSeS
services and benefits to veterans generally. Most of the
expenditures for veterans’ services and benefits depend upon how many
veterans or their dependents apply and qualify for aid# There are some
300 laws under which payments may be made.

exDeotS7^i ^ 7 n 9 ? r4T?iera? S'
programsare sh° T» in Cha
h? ->825 mip - on lower ln the fis c a l year 1951 then In the
fm r ^ L f
*\ye?r * TluS decline in trend should continue in the next
r„ years as the temporary readjustment benefits under the G. I . S i l l
taper o ff or expire under existing legislation#
cut at h! i ? eXfcTit a ? i n t h e "war and peace'1 group is one which cannot be
volved
5®*®?! t0
lnterest on the public debt. The amount in i n S w Pi s®!*s the contractual obligation of the Government to pay
issued^3* at stipulated rates on public debt securities - predominancy
to finance the last war# This is something, of course, which is

- 8 -

of direct conoern to mef as Secretary of the Treasury, It is a large
item — $5*6 billion — and comprises 13 percent of the budget. You
might note that 59 percent of the total budget is now accounted for« The
Treasury Department has been criticised as being too concerned with
keeping the cost of servicing the debt low, without regard for other
considerations of debt management, I have tried to make it clear that
keeping^ the cost of the debt low is only one of many considerations in**
volved in debt management decisions« The overriding consideration is to
promote sound economic conditions in the country« The importance of
maintaining confidence in the credit of the United States Government «■»—
the core of our economic system •**» I feel cannot be overemphasized.
The last program which we classify in the ’’war and peace” category is
the program for international affairs and finance* Estimated expenditures
in the fiscal year 1953. will amount to $4*7 billion* which is 21 percent
below bhe estimate for 1950, These expenditures are shown in Chart V*
far the largest portion of these expenditures is for the European
Recovery Program,

These four “war and peace” programs comprise, as 1 have said, 71 percent of the budget* There remains only 29 percept of the budget
^^•5 billion
to finance tbs rest of the Governments operations. Not
a ll of these expenditures by any means, however, are what we might c a ll
the running expenses of the Government»
Expenditures in this group finance the Government’ s programs in many
“
r \ V UCh !? h o ^ g » education, social welfare, aids to agriculture,
research, transportation, and natural resources. They include specifically
eh expenditures as those of the Atonic Energy Commission, and the postal
d e fic it. They include expenditures for flood control, fo r s o il conserva­
tion, for reclamation, and for a score o f other activities which the
muf i perfomi in order to conserve our natural resources. More
S S ! — - ’ bhes? expenditures finance functions which the Government must
° rdef . to conserve our human resources. These include expendifnk edn°at,lon* for private end public housing, for social security —
,
~
Government programs which contribute to the v ita lity of the
•American people,
^
re3+
?a+'anCel.b?i'2re your C(OTmittee today, I have necessarily had to
the*p«.«-a?*
^01aJ. brief sumnary of the budget expenditures proposed by
the
\d etailed analysis of these items, however, w ill bear w t
towaid hnlri” 11 S Sta^ ? f nt that the budSe'fc was carefully prepared with a view
maintain? 141'116 f^ n d itu r e s t 0
lowest possible levels consistent with
world^eace. 3 Str° ng domest;LC economy and fostering national security and
Proposed changes in the tax laws

Of reduci
brdge^ expenditures makes i t clear that our best hope
is
*
! 1 C 1 and
yrorkUigtOTiard a balanced budget a
IrumS S
° f measures which w ill increase Federal revenues. President
w m ^ r L u lt in ^ 1 3 1 tai ®essage to c°ngress recommended a program which

.¿ .n s * .“ s

s

s

.” ™

1 1

* « •u -*

•». ^

Ml

The President has made clear the necessity for integrating taxation
with our broad national economic objectives# Tax revision can contribute
to the maintenance o f national prosperity, continued economic opportunity
and world peace*
The insnense task o f increasing tax revenues during the war over­
shadowed the equity considerations which in normal times could not be dis­
regarded* In meeting the unavoidable obligations imposed by our postwar
problems we have been compelled to postpone necessary adjustments in the
tajc system* Most of the tax revision which must ultimately be made w ill
involve a sacrifice of revenue that is now urgently needed to meet our
greatly enlarged responsibilities* Some revisions, however, should no
longer be postponed* They have become essential to strengthening the
economy and removing the most serious inequities from the tax system#
The tax program submitted by the President represents a careful balance
between revenues and expenditures in the lig h t of present and prospective
economic conditions# Tp stresses those things which should come first#
As the Committee is aware, the Treasury has been giving continuous
study to the problems of postwar tax revision* Various aspects o f the
tax system have been considered in terms of the requirements of an expand­
ing economy* As a part o f tfe&g work, a number of technical studies have
been prepared to assist your OBMtttt«»* fork has been conducted on a
cooperative basis with the S ta ff of the Joint Committee on Internal Revenue
Taxation and similar conclusions have been reached on many problems of
tax revision#
My views on the objectives of tax revision were outlined before this
Committee nearly three years ago* At that time I set forth these goalsj
the Federal tax system must produce adequate revenue, treat taxpayers
equitably, minimize interference with incentives to work and invest, contribute to the maintenance of stable high level production and employment,
promote improved living standards, and fa c ilita te tax administration and
compliance#
,*t that time substantial future revenue leeway was anticipated for
reoiHrt«»i I l tai - reViSmun and 1 Presented in some detail-the major problems
q nng attention, .he large tax reduction which followed a year later
anrtSiTated ^ r e v e n u e surplus, and with i t , opportunity to make desirable
ana necessary tax improvements*
n,
f he ree°™endaticns of the President to the Congress are designed to
most n f f h T I f i ° n T pr° per perspective. I f the right course is pursued,
1 fundamental tax problems I liste d for attention three years
ago can be dealt with.
y

10

—

I t is important that a beginning be made now# I t is equally* important
that we exercise forebearanee and undertake no more than can be afforded*
To this end, the President has made two broad recommendations#
The fir s t is that excise taxes be reduced to the extent that the
resulting loss in revenue is replaced by closing loopholes in the present
tax laws#
This means that excise tax reduction must be limited to about ^600
million#
The second reccssimendation of the President is that additional revenue
of *>1 billion be provided by revising and improving the estate and g ift
taxes and the corporation income tax#
I turn now to a detailed

of these recommendations•

Since only a, limited amount of revenue may be lost at this time, we
should select for reduction those excise taxes which are most hamful.
The most urgently needed reductions, as the President indicated, are in
the excise taxes on transportation of property, on transportation of
persons, on long-distance telephone arid telegraph communications, and in
the retail excises#

,
I should like to state briefly why these taxes have been considered
to have the most compelling claim for attention#
In our studies of excise tax problems we have had the benefit of
discussions with numerous taxpayers and their representatives, business
and labor organizations, and civic and governmental groups# Ve have carexuiiy considered the facts and viewpoints presented in determining which
axes are most burdensome to the industries affected, which create most
c^Petitxve problems, which f a l l with undue weight on low income
groups, and which impose barriers to investment ard consumption.
has had the benefit of our technical studies on these
+ L af ?■ ^ i 1 De giad to supplement than with additional information
evMof desire of the Committee# Summary tables showing the changes in
ve ickt * ratef since d.939 and the estimated revenues for the fis c a l
year 1 9 5 1 are attached to my statement. (Exhibit 1 )
ard nlh? taX?? f n transP°rtation of property, on transportation of persons#
d e fW e T ng'^i l s t a n c 6 telephone and telegraph ccmmuni cations have some
used wido? GGrn? on* J Th?y a 1 1 f a l 1 on regulated public services, which are
pronertv0^" ^ pf edominantly b7 business# The tax on transportation of
property is almost entirely a cost of doing business. Excise taxes on

-11

-

business costs tend to be pyramided through successive mark-ups by those
% a\h* TOrious ***• of production and distribution, ihe
cost of living pf a ll consumers is increased out of proportion to the tax
imposed. In addition, the taxes thus added to the prices o f goods
services generally are the most burdens o on lower income groups.
The members of the Congress through their own experience with the
ihlchrb u s i n ™ ? : ! ! T er &reS/ an readil? appreoiSe the discrimination
which businesomen face in paying for the transportation of their salesmen
their^arkets. ® S’
"aintainine telegraph or telephone contact with'
The benefits from reduction of these taxes would be widely distributed
among tasiness and consumers. The reductions would be promptly reflected
in the costs o f those using the services. The increased use o f transpor­
tation and communication fa c ilitie s would involve l i t t l e additional c ^ t
where excess capacity now exist« anA
costof the businesses affected!
'
’ W°Uld Mpr0Ve the P°sition
The retail excises were raised to their present 20-percent rate during
the war when the sales c f the t wr&tt
rave
e
B n t u m were increasing under
the
n f
? eSS <
:orf m!er p a w n in g power. Cnder the competitive conditions prevailing today, this high rate o f tax is working hardship on
many businesses tad their employees. Small businesse^ ^ften o f a f ! ^ y
and production«126^* * reduotion ln these taxes would stimulate employment
the Pre^ !U6.h . ° nly 3 Uraited revenue ioss can be afforded at this time,
th! lo*f
S PTOeram P8rmitS 6X0iSe tax reduction which w ill relieve
S p L S L i T 0^ lnequitiee aj>d should produce the most significant benefits
tUejl^of the f r e i g h f ^ , S ! '
reduction
o
l
T
f
J“l ? ° f
t 0 1 0 percent*
eonmnicatiols to l V ! ! ! ! ! ^ !
T '1StanCe telephone aad telegraph
excises to
'if °f ^
2 °-Perdenb retail
the extension of the tax on r a d i o s t o - h e s e revit^ons, after allowing for
interest of tax eouit!
, di to television, which is required in the
of this program arc
are presented
prised m
f nthe
T following
l6°°
miUion'*
table*»

The stalls

12

-

\

Tax
Transportation of
property............................. T71

i

Present
rate

Reduced
rate
........

3%

Transportation of
persons..............................

13

Long distance teleph ae
and telegraph..............................

p«

Retail excises
Purs................................. ,
Luggage........... ............................
Jewelxy......................................
Toilet preparations 1 / ............

20
20
20
20

0
10$

& 310
75

15

120

10
10
10
10

25
35
80

Total

£0

695

Increase ffom including
television in present
manufacturers1 excise
tax on r a d io s ...............

0

10

Total revenue loss
no other comoetinf L
taxes » a r t S

Estimated
revenue
loss on an
annual basis
(millions)

40
1
s? 6 55

^
w l f

1 ?° "0t mean to iraP ^ that there «
tax
°r that some of thes

*

uua areas as utie manufacturers» excise taxes.
Closing of Loopholes
The President has ca
^hich should be closed to led attention to the more important loopholes
provide replacement revenue for excise tax reductions.
its bearing^on^our

^Portance of this action by indical

objecti^sSsx?nce I i c L e S e ^ ^ 6^
improve our relations with taxpayer^

11

^

laîîS* 0116 of 4 i o r ^
Treasuiy has been constantly

- Ï S S Î ;f,venue X°ss allows for the exemption
01 baby oils, powders and lotions.

- 13 -

We have taken great pains to inform taxpayers of their rights as
well as their duties in- complying with the law*
We are using the most advanced management methods to fa c ilita te the
filin g of returns and the swift disbursement of refunds#
Continuous efforts are being made to achieve adequate detection and
correction of underpayment and overpayment q? taxes#
be a ll know that the workability o f our tax system and especially of
the income tax depends of the high regard our people have for the fairness
of our tax laws and their administration# We w ill strengthen taxpayer
confidence by closing loopholes which bestow unjustified benefits#
o ^ 5 rrSngemeni With ^0X3X
our s t a ff has been working with
uhe S ta ff of the Joint Committee on Internal Bevenue Taxation since last
summer on developing^legislative suggestions for eliminating loopholes,
ihe recommendations in this area represent the product o f this joint
eifort# Other loopholes are s t i l l under study and w ill be brought to the
attention o f your Committee at some future time.
I should like to refer fir s t to tb® special allowances for depletion#--Special Depletion Allowances
Depletion in ordinary accounting usage is intended to permit taxpayers
recover the cost of mineral properties over the producing lif e of the
properties# .Depletion is the counterpart o f depreciation which is intended
° f th? . cost of other assets over the period of their
useiui lire# vihen the original investment has been recovered, no further
appreciation is allowed for tax purposes. However, in the case of deplelon, special provisions which allow recovery- of more than the cost of
mineral properties, have been in the law since 1918.
.E?d®r Present law, special allowances are granted, on the basis of
T ti'iiiS r ,percen*a2e3 ° f gross income for different types of minerals.
23 ^ ! ? ^
° f gross income allowed is 2 7§ , percent for o il and gas.
n t. for ®ulfur> 15 percent for metals and a large number of nonta lliC minerals, and 5 percent for coal#
o p ™ ^ ?iC8ntag! , depletiDn continues for the li f e of the property and
Sa n ta ^ t r®3ults 111 the tax-free recovery of many times the cost. I t is
Hjose P h a s i n g properties as well as to those operating
as S
5 hV® deyeloped* The allowances have become more valuable
as tax rates have been increased#

14 Furthermore, the benefits from percentage depletion are increased by
provisions which permit development costs to be deducted as an expense in
the year1 incurred instead of being treated as a capital cost to be •
recovered later through depletion deductions# This is equivalent to a
double deduction for the same costs, once when they are incurred and
again under percentage depletion. In the o il industry during 1946 and
1947, for every $3 million allovied as percentage depletion, .another $2
million was deducted as development costs*
The combination or percentage depletion and the expensing o f develop­
ment costs provides a mechanism for pyramiding extensive holdings in o il
assets with payment o f l i t t l e or no income tax*
As the^President has indicated, millions of dollars are made annually
from operating o il properties on which l i t t l e or no income tax is paid.
The President mentioned one outstarding examplea You vd.ll find others
in ohe attached material. (Exhibit 2) In the examples cited, annual
incomes, on the average, of over $ 1 million were obtained on which an
average tax o f only 22| .percent was paid. This is the rate now paid
by persons with incomes of less than 1 2 5 , 0 0 0 »
These illustrations suggest how much additional revenue the
Government would gain by limiting some of hese special allowancesa
You m ill find from an examination of the materials I am submitting
th a tf
Committee in considering revision of these provisions
, ,

estimated revenue loss is between §4 0 0
million annually* This is as much as the yield
of a l l the reta il excises«
0

Second, the allowance is especially excessive in
the case of o il and gas and exempts a higher proportion
e earning of this industry which may expense, more
of its development costs than the other mineral industries.
,
provision has been forced to be of l i t t l e
benefit to small prospectors on whose behalf -It' is- so
frequently supported.
/
thf s 9 deductions enable high income individ­
uals to reduce to negligible proportions taxes on income
»cm sources to ta lly unrelated to these industries.
There are a
allowances can be

number of ways in which the necessaiy revision of present
accomplishoi« in general, these involve either the

- 15 limitation of percentage depletion, or the termination o f the option to
expense development costs® The benefits of expensing development costs
are confined to the finding of new properties» Percentage depletion on
the other hand may be obtained on established as well as new properties,
and regardless o f whether the recipient contributed to the development
of the property* The reduction o f percentage depletion would tend to
reduce windfalls while protecting incentives for exploration*
A reasonable way to reduce the excessive benefits would be to lim it
the percentage o f gross income which might be deducted as depletion*
A reduction in the present net income lim itation would leave the more
excessive allowances untouched while reducing the benefits on the small
less profitable properties®
*
Specifically i t is proposed that percentage depletion for o i l. gas
and sulihr be reduced to 1 5 percent o f gross income and that percentage
depletion for nonmetallic minerals be reduced to 5 percent* The existing
15 percent rate for depletion allowed to the metals would be le ft unchanged.
. *
Pr°Posed that o il and gas operators who elect to expense
intangible drilling and development costs be required to reduce income
from the property by the amourt o f such expensed costs in computing their
depietion allowance« This requirement w ill reduce the extent of the double
now enjoyed by o il and gas enterprises with respect to certain
o f their capital costs.
Together these proposals would remove the more obvious inequities of
tiv e s r Sent SyStem mthout interfering significantly with production incenBusineSs Operation of Charitable
and Educational Organizations
.
^ suSgest- the consideration of legislation to eliminate the abuse o f
toons
by charitable and educational organizations* T hese exempactiv 5+*i l
a ^ S -sta n d in g Federal Government policy to encourage the
activities o f such organizations*
to thIhLo?7
be62 interPreted by some courts to "attach the exemption
des^inf^ lon o:f the income rather than its source. Some colleges
taking61*-«ln_st^ ut:Lons are engaging in a wide variety of business underware^an/^CHUCani
Production of such items as automobile parts, chinagins*
dfcod ^>T0±xct8 and the operation o f theatres, o il wells and cotton
anri

alS° being taken of the exe®Ption by the purchase o f rental
properties with borrowed funds. In this type o f operation the nonprofit

- 16 organization enjoys advantages over privately owned business which is
measured by the amount o f the tax privately owned enterprise is required
to pay* This advantage permits these institutions to apply a larger portion
o f rental receipts to repayment of borrowed funds than is possible for a
privately owned business paying income tax* The exemption should be limited
to income received from ordinary investments which involves nq abuse*
The correction of present abuses, which sh ift additional burdens
to the rest o f the population, becomes essential for reasons o f equity* This
calls for a solution which w ill eliminate the abuse but w ill not interfere
with the basic activ itie s o f these organizations*
To meet this problem, i t is recommended that the income derived by
these institutions from the operation o f busiaesstti which are clearly
unrelated to their primary functions be taxed at regular corporation income
tax rates.
Another closely related abuse of tax exemption involves the establish’«
ment o f so-called charitable foundations or trusts which serve as a c 3.oak
for controlling businesses» The present law permits the transfer of business
investments to tax-exempt trusts and founcyations for these purposes without
payment o f estate or g ift taxes* The income subsequently received from
the business by the trust or foundation is exempt from income tax*
The abuse to which this type o f device lends it s e lf is the retention
and reinvestment o f a major share of the trust income in a manner which
will benefit the grantor«
One method to eliminate this abuse would be to require that such
trusts or foundations pay out substantially a ll net income within a speci­
fied period after the close of every taxable year* A further requirement
should be a prohibition against dealings between the trust and its creator
or businesses under his control and against the use of the t w s t for the
personal advantage o f the g rantor*
Life Insurance Companies
The President has urged legislation to terminate the undertaxation of
lif e insurance companies without impairing the abilitj^ o f individuals to
acquire l i f e insurance protection*
The action you have recently taken in the House of Representatives
will correct the provision which unintentionally relieved this industry of
ax for 194-7, 1948, and 1949* The spirit in which this was accomplished
s ighly gratifying* However, as you know, legislation is also required
. 0 Provide an equitable basis for the taxation of l i f e insurance companies
in the future*

- 17

As the Committee is aware, the staffs o f the Treasury and the Joint
Committee have devoted a great deal of attention to this matter, I believe
that the thorough consideration already given this problem has developed
the information you w ill require in devising a satisfactory solution.

S £

5

atnot. income»
corporation on it s own

from writinc"S?f!T Ce COmpany «^rations generally are based on profits
d ifferen ces^ f o ^ “ o f ^ o * f
m° re C0Bprehf* 3ive treatment of the
companies. S e v e r a T a ^ ^ h L “ th» t S a tfr n
^ indlvidual
discussed in material attached to this statement. (Exhibit 3)
Other Tax Loopholes

Committee on Internai Svenue T ^ t i o n ,

ireasury Apartment and the Join!

tax strSure,°whichSp r o v ï d e f f
°Ut °f defects “ the eapltal gains
from capital ¿ s s e t s h o i ^ ^
maximum effective rate of 25 percent on gain

recent
message to Îhe 0 "
**“" 6
The President, in his 8
the "collapsible" corooration^+h5’ gav®, a" eiamPle °f °«e of these loophole
corporation, through which individuals, engaged in the

ra

. Since 1921 l i f e insurance companies have been taxed on only one source
an Muitebirmeth’ d1?00“ 6
investments. I t is d ifficu lt to develop
d f0r 00mPuting a deduction for obligations to policy­
holders when this income alone is taken into consideration. I consider
the industry-wide average which has bean used since 19 42 a most ineouitable
.
or Permanent taxation. The present system which is in effect a fla t
“
.grosf J ncome disregards the wide variations in p ro fita b ility of

va

In considering this matter X have been continually impressed with the
magnitude o f the stream of l i f e insurance income amounting to more than
billion a year from investment income alone. The $60 b illion assets of thi
^dusury constitute an important fraction o f our total wealth. I do not
believe that favored taxation is in the best interest o f this industry in
“ , 2 ”6 T 1* N° r d0, 1 b6iiev® that
would be supported by the policy­
holders, who are a majority o f the population,
p
7

18
business of producing certain types of property, have attempted to convert
ordinary business and earned i$iccvne Into long-tern capital gains.
Another important loophole provides a “ one way street“ for taxpayers
selling property which th oy have used in their trade or business» At the
present time, ^such taxpayers are allowed capital, gains treatment when the
sales result in a net gain* wfail© net- losses frcci such transactions are
allowed in fu ll as offsets against ordinary income»
In ^addition, there is the loophole through 11311 ch investors in
securities and commodities, for son© years now, and without any appre­
ciable risk, have been able to convert short-term gains into the more
favorably treated long—
term gains, and to create largely fic titio u s short—
tern losses, by means of short sales*
The tax laws also contain seme loopholes and tax havon through
which taxpayers are able to avoid tax completely. Domestic corporations,
for example, are frequently able to avoid income tax on income from
operations abroad through the ¿'omutdon and subsequent liquidation of
foreign subsidiaries.
Another loophole has in the past enabled many corporations desiring
to s e ll property to avoid income tax upon such transaction by fir s t
distributing the property in kind to a parent company,
„ ,

Alf°J

T

? ™

exfnption provided in section 251 of the Internal Revenue
1 1 0 ™ 3 a U ^verrment aaplcyees working in Possessions
oi one^united States from income tax upon their salaries, and enables
many o er American citizens to obtain exemption for all of their foreign
income from businesses and other sources.
f u

* 1?

™

It is of course not possible to estimate with any degree of accuracy
we revenue consequences of an extensive loophole-closing program of the
type proposed by the President. Shis progrL v d ll have d fr e c ^ e v e n u f
eiiects ty closing loopholes which now permit leakages throughout the
.,
®lR'* -^n addition, i t w ill indirectly increase revenues, since
ertfSSi 1^°^ competitive disadvantages which now retard taxable private
J e he}ieVQ that in the 2-ong run the closing of these loop*.
+Qt ?? including the proposals on percentage depletion and lif e insurance
taxation, has a revenue potential of upwards of 4)500 million a year
assuming present economic levels. The immediate revenue gain m i l be
appreciably le ss . The $500 million is exclusive of the approximately
JL ™
^ c h will be produced by the Committee*s stop-gap life
insurance legislation.

Additional Revenue
be o H ? * l f f ldent. has
that $1 billion in additional revenue
c o r o X T ^ ^ reTO-31nS and improving the estate and g ift taxes and the
corporation income tax.

- 19 This additional revenue is essential to the objective of balancing the
budget as rapidly as requirements of national economic policy permit«
As the members of this Committee well know^ I consider the protection
of the financial position of our Government the major responsibility of my
office* Xn the fis c a l years 1947 and 1949 there was a substantial surplus
for debt reduction» The defxcit which subsequently developed has given me
serious concern and I have earnestly considered the ways in which a favorable
budget position might be restored«
As i pointed out earlier, the President has stressed the fa ct that present
expenditures are necessarily at a high rate because of obligations undertaken
at an earlier date, and that he expects reductions in expenditures in subse­
quent years as the cost of some of the extraordinary postwar programs tapers
off*
I believe that we would be ill-advised at this time to raise the general
level of taxation su fficien tly to cover the cost of a ll of the extraordinary
expenditures embraced in the postwar adjustment programs*
The tax revisions recommended by the President provide a basis..for
achieving the revenue goals necessary to maintain our Government on a sound
basis« The amount of net revenue immediately involved in the Presidents
program is not a fu ll measure of what we can expect from his recommendations*
In the long run the removal of inequities w ill make for a more v ita l economy,
and th?s in turn w ill reflect it s e lf in higher tax yields«
Revision of estate and g ift taxes
The President has recommended that a substantial part of the additional
revenue be obtained by revising and strengthening the estate and g ift taxes in
a manner which would bring these taxes nearer to their proper long-term place
in our tax system*
As the President said, ”To the extent that these taxes remain too low,
the remainder of our tax structure must bear a disproportionate load*«
The disparity in present tax burdens becomes striking when the trends
o the estate and g ift taxes and the individual income tax are compared* This
comparison is shown in charts appended to this statement* They »how that
the estate and g ift taxes have not kept pace with the income tax*
The total yield from the estate and g if t taxes has barely doubled since
1939 while total internal revenue is eight times as large and the individual
income tax is IB times as great* This is shown in Chart 6* Because of the
relatively greater expansion in other tax revenues, the estate and g ift taxes
produced only 2 percent of internal revenue in 1949 compared with 7 percent
ten years earlier*

t

- 20

Chart 7 compares the current exemptions under the estate tax and indi­
vidual income tax with those in effect ten years ago, You Yd.ll note that
individual income tax exemptions have been reduced substantially during
this period. By contrast, the estate tax exemption, especially for married
persons* has increased.

The estate tax reaches only a l i t t l e more than 1 percent of adult
decedents, virtually the same proportion as 10 years ago. On the other
hand the individual income tax is paid by more than 40 percent of a ll per­
sons over 14 years of age, 10 tijnes the proportion taxed in 1939, This
comparison appears in Chart 8,
The effective rates of tax on incomes at a ll levels have increased
substantially. Those on estates, on the other hand, have actually been
reduced for married persons. This is illustrated by Chart 9, For example,
the tax on an incone of $10,OCX) has risen from 4 percent to 3.6 percent.
Tax on an estate of $250,000 has fallen from 11 percent to 4 percent.
The weakness of the present estate and g ift taxes results from?
(1) the overly favorable treatment of property placed in trust for several
generations, (2) the opportunity to escape the higher estate tax rates,
ty making g ifts subject to lower tax rates, (3) the 3.arge exemptions,
and (4) the ineffectiveness of the present rate schedule. The la st two
weaknesses were greatly magnified by the estate and g ift sp littin g pro­
visions introduced by the 1948 Act,
(1) Life estates, —I f property is le f t outright to a child,, i t may
beccme taxable in the estate of the child# This may be avoided by placing
the property in trust for the child^s li f e since the termination of the
child*s interest in the trust is not considered a taxable event under the
present law, A study accompanying this statement reveals that individuals
with large estates are placing a substantial part of their property in
trust for more than one generation, (Exhibit 5) An examination of several
hundred large estate tax returns showed that about 45 percent of the property
available for distribution was placed in trust. The trusts were frequently
created to endure, not only for the lives of the children, but also for the
lives of more remote descendants.
This widespread practice seriously depletes the base of the estate
and g ift taxes and penalizes those less motivated by tax considerations
or lacking the opportunity or counsel to take advantage of i t . Substantial
additional revenue could be obtained ty revising the present treatment* The
Treasury s ta ff is prepared to present a proposal dealing with this problem
at the convenience of the Committee®

21

(2) PuAl_ transfer tax system»—-The imposition of separate, unrelated
taxes upon property disposed o f during l i f e and at death defeats the objective
of estate taxation* The property given away during l i f e is removed from
the highest bracket o f the estate, i t is taxed at only three-»fourths the
rate of the tax on an estate of equal amount, and the g ift tax unlike the
estate tax is not included in the tax base« An individual with $10 million
can, by giving away $2 million o f this amount during l i f e instead o f at
death, reduce his total taxes by aoout $1. .million» As is indicated in the
attached study on property transfers (Exhibit 5)j the discrimination against
transfers made at death favors the larger estates and prevents equal treat­
ment of transfers of the same amount distributed in different ways*
The discrepancies in present treatment would be removed by integrat­
ing the separate g ift and estate taxes into a single transfer tax* The
same exemptions and tax rates would then apply to a ll property whether
transferred during l i f e or at death* Under an integrated estate-gift tax
structure, i t would be possible to provide incentives for property distri­
butions during l i f e , in the event such encouragement is deemed to be desir­
able*
A report based on a comprehensive study by an advisory committee of
the Treasury, consisting o f prominent tax practitioners, which I transmitted to your Committee three years ago deals with this entire problem*
ihe Department has since given .further study to this matter and is prepared
to present proposals to the Committee*
. #
Exsppt xons and exclus ions *—»The present estate tax exemption
is $60,000 and the g i f t tax exemption is $30,000, In addition, annual
3 1USr£nS ° 1 13*000 for eacb o f an unlimited number of donees are accorded
under the gift. tax*, By taking advantage of the 1948 amendments a man with
lo/' l and thr6e children* 'wh0 has $300,000 of property, may give them
$¿4,000 a year, plus an additional lump sum o f $60,000 without paying any
f: , r f* .
death* he has mother $60,000 exemption. I f he leaves
least hal* his estate to his widow, then the $120,000 remaining at his
M .ha

^S^^otally exemPt, half as a result of the marital deduction and the

thp
**T aS
exemP ^ on* Thus, during a five-year period
the family would have received the entire $300,000. free of any tax,
ft/r onr?6

transfer tax would require only a single exemption o f

no tint ^ e°n^hlCh W0Ui d be available ho the estates o f persons making

d u 4 n */ l5j,00° o f the **5,000 exemption would be available for transfers

of gifts
o ^ ld Sb
° f t K6
tax ex°g lifts
U3i ° made
n for by
each
g u ts could
bernvSS
overcome
by ??'???
lim itingg ift
tax-free
anyrecipient
one

— 22 «“

individual each ya§r "to $3,0G0# An additional allowance of perhaps $500
for each donee might be adopted to avoid the need to account for small
gifts*
(4-) j^teso««»There are two principal weaknesses in the present rate
schedule« Pirst the estate tax begins at the low rate o f 3 percent and the
g ift tax at 2-1/4 percent* Second the higher rates in the present schedule
are reached only in the case of unusually large estates. I t would be neces­
sary for a married person splitting his property under the 1948 amendments
to have an estate in excess of $20 million before any part would be taxable
at the top bracket rate*
A rate schedule which would overcome these objections and raise sub­
stantial revenue is attached* The schedule would start at 10 percent and
reach the present top rate o f 77 percent at $3 million instead of $10
million*
These adjustments in rates and exemptions w ill do l i t t l e more than
restore the yield o f the estate and g ift taxes to their strength prior to
estate splitting between husband and wife by the
1948 Revenue Act* If this provision were eliminated* the President’s
revenue objective could be obtained by relatively m£nor changes in rates
and exempt ions©

In estate and g ift tax revision* i t would also be desirable to make
certain minor improvements in these taxes* These include repeal o f the
deduction for support of dependents and the substitution of a tax credit
lor the present deduction for prior taxed property*
4rt
*“ 7® staJ ed in some detail the present deficiencies in these taxes
in order to emphasize the urgent need for revisions* Only by taking such
years* **** Can the
P°te n tisli ties o f these taxes be realized in future
eift
1 have outlined w*>uld increase the yield o f estate and
gift taxes on an annual basis by about $400 m illion.
serious
ra±s±nZ tdis additional revenue would have less
a
economy* The amount of tax on the estate involving
affect Iht *hich mi2ht Properly be considered small would not materially
in which liquidity ^ e opme^ o f ®^ch a business* In the infrequent instances
by Present ?awd,^ y+
problem, the extension of tax payments permitted
make forced
ten yearS P * * « * « estates from having to
e -creed sales of property at a seiious financial lossc
Revision of the Corporation Income Tax
tax tohLprevedthe
revisions ^ the corporation income
P
he present rate structure and provide additional revenue*

- 23
During most of it s history the corporation income tax law has accorded
preferential tax treatment to small business. To preserve such treatment
when the wartime rates were imposed, an excessively high rate of $3
percent was applied to corporations with incomes between $25,000 and
$50,000. This so-called «notch11 rate provided the transition from the
low rates or; small corporations to the generally applicable higher rates#
The elimination of this high «notch« rate would remove an obstacle
to the expansion of small business#
?his objective could be attained by applying the general corpora­
tion tax rate above $25*000 and to allow a ll corporations the reduced
rates below $25,000* This would substantially reduce the tax on cor­
porations in the present «notch« area ard also accord some reduction to
corporations with incomes above $50 , 0 0 0 #
The general corporation income tax rate should be increased to
recover the revenue loss associated with the suggested «notch« rate adjust­
ment and also to contribute to the reduction of the Budget deficit#
£ suggest that the present 33-percent general corporate rate be
raised to 42 percent* This would produce an estimated $675 million
additional revenue annually, after allowing for the revision in treat­
ment of smaller corporations as suggested by the President#
Although the great majority of corporations are relatively small,
the large oulk of corporation income is concentrated among the very large
corporations© This is apparent from Chart 10 which shows that one—eighth
of a ll corporations receive 90 percent of to tal income*
Under the revised program only those corporations with net income
above approximately $120,000 or less than 10 percent of a ll corporations
would have increased tax lia b ilitie s # The taxes on corporations vclth
incomes between $2 5 ,0 0 0 and approximately $120,000 would be reduced,
he reduction reaching a maximum of almost 15 percent of the present
tax at $50,000. They represent about 15 percent of a ll corporations#
¿lie relative changes in tax for corporations of different size are shown
m Chart H and in more detail in the following table:

24 «

Net Income

$5*000
10,000
25,000
30,000
50,000
60,000
75,000
100,000
118,750
250,000
1,000,000
10,000,000
100,000,000

fax l i a b ility
Present u s '
T
law
s Proposal
]
$1,050
2,200
5,750
8,400
19,000
22,800
28,500
38,000
45,125
95,000
380,000
3,800,000
38,000,000

$1,050
2,200
5,750
7,850 *
16,250
20,450
26,750
37,250
45,125
100,250
415,250
4,195,250
41,995,250

Percent
change
0
0
0
—6o55
-14»47
-10.31
•**6*14
—
1®97
0
/5.53
¿9*28
A0o40
¿10*51

Corporate profits and dividends have increased substantially since
the present rates were adopted in 1945* fhe proportion o f profits retained,
and thus not subjected to tax in the hands of stockholders, is considerably
in excess o f the normal prewar proportions* In view of the relatively
strong position of large corporations at the present time, I believe that
the small tax increase proposed w ill have no important adverse effects on
the economy*
In addition to the revision o f the corporate tax rates, I also
recommend the extension of the period for offsetting losses against profits
01 subsequent years* The need for giving business greater leeway to
recover losses has been widely recognized in disucssions o f postwar tax
revision® Taxing profits without adequate recognition o f losses creates
nequities and restrains risk-taking* A dynamic economy requires a con­
tinued stream of new ventures, which often result in losses for a series
oi years before they become profitably established* A longer period for
carpang over loss w ill be especially beneficial to small and new busi-

nesses#

wn , / rec?^mend a five-year carryover with a one-year carryback. This
affai n<J^r0Vl*M t0ìtl period o f seveR ^ears i R which losses might be offset
against p ro fits. This provision would involve no immediate loss in revenue*

- 25 -

The President also referred to tax revisions which would fa c ilita te
the extension o f financial and technical assistance to underdeveloped
regions of the world. These recommendations are designed to implement
in part the Point IV program and I should like to review them b riefly.
As you know, the earnings of a foreign subsidiary of a domestic
corporation are not taxed u n til such earnings are transferred to the
parent corporation in the United States as dividends. An American busi­
ness which prefers to conduct it s foreign operations as a branch of a
U. S. corporation does not .have this advantage. I t must include in
the taxable ine cane each year the current earnings of it s foreign
branch® Foreign branch operations should be placed on an -equal footing
with foreign subsidiaries by allowing postponement o f tax on their
income u n til i t is returned to the United States. This is not only a mat­
ter of equity, but would also encourage new investment abroad aid the
reinvestment of foreign earnings.
The credit for taxes imposed by other countries helps to elimi­
nate international double taxation, but i t needs to be adapted to our pol­
icy of encouraging private investment abroad. A U. S . corporation may
now claim credit for the taxes paid by a foreign^corporation with res­
pect to the dividends received from the foreign corporation only when i t
owns a majority of the voting stock* One o f the consequences of this
requirement may be illustrated by the case of two domestic corporations
which pool their resources to foim a foreign subsidiary. I f each owns
50 percent, neither one obtains a foreign tax credit* Bhere the ownersinp is divided unequally only the one having majority control is allowed
a credit. To fa cilita te joint ventures abroad and to meet the reouirements
f °reigu countries for local participation in these ventures,
we should reduce the present ownership requirement for foreign tax credit!
„ , J ^ eig? investment ^ u ld also be encouraged by the liberalization
ox the foreign tax credit in the cases where losses in one foreign
country offset profits in another»
Service abroad by American experts is essential to the Point IV
program both in the provision of technical assistance in the s tr ic t sense
ln+ r e 7 unctionlnS
private investment. Vie should remove discour­
agement to Americans participating in these a ctivities by making the
exem5tion o£ their earnings applicable to the entire period they
reside -oroad once they have established a bona fide foreign residence.
fM .i/ hei ° r! ign bax credit has worked successfully in the income tax
thP
I1 Can be exfcerded with equally satisfactory results to
W h i r r s 1 ^ so
w?
remove another o f the barriers
as<ri om + lmeS ^eeP ad~e technicians and businessmen from undertaking
3f bs4.aDroad> .a^ I urge the Committee to take such action* These
(Exhibit^6)V1S^°nS arS ddscussed more fu lly in an attached state—

*"• 26 •»

They should not b© vi©*f©d as the only necessary incentives for
the participation of private capital in foreign economic development#
Their po tential effects w ili ba'realized only i f foreign countries
take positive steps to crest# conditions under which private capital
can operate satisfactorily# This can be accomplished to an important
degree by the negotiation of investment and tax treaties, which the
Mministration is endeavoring to secure#

Comparison of al" .ornative estate tax rate
schedule with present law

Taxable net estate
(thousands)

0 -$ 10
20

$ 10 20 30 bo 60 100 150 -

30
40
60

100
150

2002

200 - 250
250 - 300
3*00 -Uioo
boo - 500
500 - 600
600 - 700
TOO - 850
850 - 1,000
1,000 - 1,200
1,200 - 1,400 •
1,400 - 1 ,7 0 0
1 ,7 0 0 - 2,000
2,000 - 2 ,5 0 0
2 ,5 0 0 - 3,000
3,000 - 3,500
3,500 - 4,000
4,000 - 5,ooo
5,000 - 6 ,0 0 0
6,000 - 7 ,0 0 0
7 ,0 0 0 - 8 ,0 0 0
8,000 - 1 0 ,0 0 0
1 0 ,0 0 0 and over

••

;

: Present lavi

njyrfa
IX.
14
.18-

Alternative

10 i

13
16

19
22
26*

282
30
30

30
33

30

36

■xo
52
32

J*'
%/z
n
t
r
^
7
- J y<~
\
37

89
39-42
42-45
45
49

56
59

39
42
45

48
51
54
57
60
63

66
69
72
75

63

77
77
77

67
7'0
73
76
77

77
77
77
77
77

Treasury Department,
Tax Advisory S ta ff of the Secretary

Comparison of amounts and effective rates of Federal estate taxes
under
and
laws and under proposed revision

1942

1948

Net estate
Single person
* Married person
before
19*12
:
:
and
.Proposed.,; 1942 law; 1948
specific
exemption 1 9 W laws: re vi s1on'-' 1

2j :
law :

Proposed
revision
¿/

Amounts of tax
$50,000
100,000
150,000
200,000
250,000
500,000

400'000

500,000
750,000
,
/
■>
C
.,
c,
,500,000

4

$ ,800
17,500
31,500
45,500

59,100
87,700

$500
,100
21 ,700
36 ,050
51 ,500
,450
105 ,900

9

68

146

$

$500

$1,050

4,800

10,700
17,500
31,500

116,500
,350
116.500
45,300
191,800
257 ,900
270^300
383
270,500
116,500
626,600
962 ,450
270,300
2,058,800
,850 ,038,800
830,000
* ,454^7.00
3,454,200
,
6,115 ,850 k
,
2,038,800

1000,000
000,000
000,000
2,941
7
4
,553
10
4975,000
0
0
0
V«
0
Ò

4,800
17,500
31,500
45,300
59,100
87,700

_

191,800 80,500
626,600
2
1 400,900

3,900
9,100
15,200
21,700
36,050
51,500
96/200

146,350
383,250
1,281,900
2,116,550
,

2 941,850

Effective rates
$50,000

100,000
150,000
200,000
250,000
500.000

400.000

500,000
750,000
,000,000

4.8/0
11.7
15.8
18,1
19.7
21.9
23.3
25.6
27.0
31.3

1
000,000
R 0
0,000 40.8
* y0
7,500,000 46.1
10,
000,000

49.8

1 0*3i
14.5
18.0
20.6
.
9.1

22.8
26.5
29.3
34.4
38.3

48.1

58.8
60.7
61.2

4.8/

—

0.7/
2.4
18.1 4.3
19.7 5.8
21.9 7.9
23.3 9.1
25.6
10.7
27.0 11.7
31.3 13
40.8 16.6
46.1 18.7
49.8 20.4
11.7
15.8

0.5/
2.6
4.6
6.1
7.2
9.0
10.3

12.8
1
4,6
IQ O
25 6
28.2
29.4

Treasury- Department, Tax Advisory Staff of the Secretary
—

J

taxpayers make no gifts during life and reserve full
$
exemption until death.
Assuming full use of marital deduction.

45,000

February 3,1950

OFFICE OF THE SECRETARY OF THE TREASURY

Chart I

FEDERAL BUDGET OUTLOOK
Actuals

vvîv
wlv
Ä«
V»W
»Ä*X»
V*W
H«

Expenditures
Receipts

FI

Fis.Yrs.4

1945

535

20.7

^-------Deficit------- ^

O ff« of th* Sanrtary of the

R

v— Surplus— \

Chart 2

EXPENDITURE PROGRAMS FOR 1951
Four Program s

Genera!\

O ther
D om estic
Program s

In te rn a tio n a i

Defense

¥ * Veterans
§ 5.6ÌI ^ in te re s t
BwMtTtlrTt1

imp

Chart 3

B y P ro g ra m

B y A g e n cy

A ll Other
Î4.6S

Military Pay
and Support

24.6?
/Xwi

Operationsand
Maintenance
Reserves,

w Research, etc.
^Stockpiling
%3.10

Major
' Procurement

FISCAL YEARS

O ffe* <1Î thé SKWtory o f the &»**>»>

M* Air Force

Chart 4

TOTAL
Insurance

Pensions

^ ^ ^ SMSSSiSSSSS!!

m M M B ilim

1945 ’46

’47

’48

’49

’50 ’51

v------------- FISCAL YE A R S ------------ <

Medical,etc.

1945 ’46 ’47

’48

’49 ’50 ’51

v------------- FISCAL YE A R S------------ 'i

Chart 5

INTERNATIONAL AFFAIRS A t e FINANCE

B ritish
'■ Loan
.6 ^ M utualDefense

'B retton
Woods'
European
Recovery

I

R e lie f

4 T*

r|jft O ther Program s
1945
1946
1947
1948
1949
1950
'----------------------------------FISCAL Y E A R S ---------------------

Chart 6

— .— INTERNAL REVENUE DERIVED FROM______
INDIVIDUAL INCOME AND ESTATE AND G IFT TAXES
19 3 9 su d 19 4 9
D o lla r A m o u n ts (billions)

P ercent o f T o tal

40.5,- - TotalInternalRevenue.

'/'/A

8 tim es prewar

100— TotalInternalRevenue

IndividualIncome__

IndividualIncome__

18 tim es prewar

2 ‘/4 times prewar

'Estate and G ift..

Estate and Gift.

%o f prewar

2 times prewar

Fiscal Years

Oflh» of te S m m y «r « * Hawy

fiscal Years

Chart 7

In d ivid u a l Incom e T a x E xem ptions

E sta te T a x E xe m p tio n s
$120,000

Change,

Change,

1 9 3 9 to 19 49 :

1 9 3 9 to 1949:

Married, down 5 2 %

Married, u p .2 0 0 %
Single, up.__ 5 0 %

Single,dow iL-40%
Dependent, up, 5 0 %

M arried
$ 6 0 ,0 0 0

M arried
$ 4 0 ,0 0 0

Dependent ^

Chart 8

In d iv id u a l Incom e Tax
P ercent o f population (14 and over)
w ith tax ab le incom es

E sta te Tax
P ercent o f a d u lt decedents
w ith taxab le estates

41%__ 10 times prewar

1.2%— Same as prewar

Figures fort9 4$ estim ated.

Chart 9

Married Person

In d iv id u a l Inco m e T a x

N et Income b efo re Exemp. ( $ Thous.)

* Biute tax rotes assume M

E s ta te T a x

N e t E state befo re Exemp. ( $ Thous.)

m o f the maritai deduction

Chart 10

N um b er o f C o rp o ra tio n s

T a xable N et Incom e

13 % of all corporations receive 9 0 % of corporate income.
7 8 % of all corporations receive 6 % of corporate income.

Under25

2 5 -5 0

5 0 and over

Chart II

m

m

m

u m

tax

rates

Present Law and Proposed Revision

Effect of Proposed
Revision

Income Levels

No change in tax.. .$25,000 and under
Taxes reduced__ .$25,000 to 118,750
Taxes increased... .Over $118,750

P roposed R evision
P resent Law

100

19

Taxable Net Income {Thousands of Dollars)

»HIB» 1

Xxeis® Taxesj Bates and Yields

To Aecospaay Statuent of Secretary Snyder
Before the Commit tee on Kays and Means,
House of Ropre sentati ves
February 3 , I95O

R a t e s

Item

Admissions

Alcoholic “beverages
Distilled spirits
Rectification
I’ermented malt liquor
Still wines
Sparkling wine»
lutomo'biles
Passenger automobiles

f o r

Hates in effect
December
*

31 1939

of I9 U0

1939—*+9 l/

Revenue Act
of

19^1

Revenue Act

of 19^2

Revenue Act
of
H

19 3

(Present rates)

$2.25 per proof
gal.
30/ per proof gal.
$5 per bbl.
U , 10 ^, 20/ per
gal.
2Jp per l/2 pint

$3 per proof
gal.
Ho change
$6 per bbl.

$4 per proof
gal.
Ho change
Ho change
6/, IS/, 30/
s/, 30 /, 65 /
per gal.
per gal.
3 / per l/2 pint 7 / per l/2 pint

3$ of mfrs* price

>-l/2$ of mfrs. 7$ of mfrs.
price
price
2-l/2$ of mfrs. *
5$ of mfrs.
price
price
2-l/2$ of mfrs. 5$ of Mfrs.
price
price
$5 per year
$10 per year
per unit
«10$ of mfrs.
price
2 / per 10 / or
5$ of total
fraction on
charge
20$ of charge
$10 and $50
per
per machine

$10 and $100
per ÿ-aar
per machine

Ho change

5 5 / per $500

Ho change

Ho change

Parts and accessories

2$ of mfrs. price

Use of automobiles
Billiard and bowling
Business and store machines
l-l/2¿ per 10/ or
fraction on 20$
of charge

Coin-operated devices 2/

See last page for fo tnotos,

Revenue Act

ta x e s »

l/ per 10/ or
fraction if
21/ or more

2$ of mfrs, price

Documentary stamps
Deeds of conveyance

e x c is e

l/ per 10/ or
fraction if Ul/
or more

Trucks and busses

Cabarets

p r i n c i p a l

50 / per $500 or
fraction if value
is over $ 1 0 0 ____

1/ per 10/ or
fraction

Ho change
or fraction “if
value is over $100

Ho change

$6 per proof

l/ per 3 / or
major fraction

Ho change
$7 per bbl.
10 /, Uo/, $1
per gal.
10 / per ^ pint

$9 per proof
gal.
Ho change
$8 per bbl.
15 f, 60^, $2
per gal.
1 5 / per l/2 pint

Ho change

Ho change

Ho change

Ho change

Ho change

Ho change

Ho change
Ho change
Ho change

Ho change 1J
$20 per year
per unit
Ho change

Ho change

30 $ of total

gal.

charge l/

Item
Issues of stocks ihcL bonds ¿/
Transfers of stocks and bonds U/
Dues and initiation fees
Electric, gas and oil appliances
Electric light bulbs

Rates in effect
December 31» 1939

Revenue Act
of 19^0

10/ per $100
b<( per $100
10$ of amount paid

ll/ per $100
5 / per $100
11$ of amount
paid

Electric signs
3$ of sale price

Firearms, shells, cartridges

10$ of mfrs. price

Pur articles
Gasoline
Jewelry

l/ per gal.

Leases of safe deposit boxes

10$ of amount
collected
per gal.

Lubricating oils
Luggage
Matches
Musical instruments
Optical equipment
Phonographs and phonograph records
Photographic apparatus

See last ^

for footnotes.

-

Ho change
Ho change
Ho change

Revenue Act
of 10^2
Ho chango
Ho chango
i\iO change

10$ of mfrs price Ho change
5$ of mfrs.price Ho change

-

Electrical energy

Revenue Act
of 19^-1

3-1/3$ of
sale price
11$ of mfrs.
price

No change
No change
20$ of amount
paid
Ho change ¿/
20$ of mfrs.
price

10$ of mfrs.
price
Ho change

Repealed
Ho change

Ho change

Ho change

Ho change

Ho change

Ho change

20$ of reta.il
price
Ho change
20^ of retail
price 6/
Ho change

10$ of retail
price
1-1/2^ per t;~i , Ho change
10$ of retail
■oricc
11$ of amount 20$ of amount
collected
collected
U-l/s/ per ga , Ho change
10$ of mfrs.
price
2 / por M
10$ of mfrs.
prico
10$ of mfrs.
price
10$ of mfrs.
price
10$ of mfrs.
prico
-

:
Revenue Act
:
of 19 H3
: (Present rates)

Ho change
Ho change
Ho change
6/ per gal.
Ho change
Ho change
Ho change

Ho change
20$ of retail
price 7 /
Ho change
No change

Repealed
Ho change

Ho change

25 $ of mfrs.
price

Ho change

Item

Photographic film

* Rates in effect
| December 31,

1939

-

Pistols and revolvers

10$ of mfrs. price

Playing cards
Radios

10 / per package
5$ of mfrs. price

Refrigerating equipment
Household refrigerators

5$ of mfrs. price

Commercial refrigerating equip,
Air conditioning units
Rubber articles
Sporting goods
Sugar
Telephone and telegraph
Domestic telegraph, cable and
radio; leased wires
International telegraph, cable
and radio
Toll telephone

*

Revenue Act

Revenue Act

of 19^0

of 19 Ul

-

5 -l/2$ of mfrs. 10$ -&f m&rs.
price
prige
10$ of mfrs.
price
■
10$ of mfrs.
price
10 $ of mfrs.
price
10 $ of mfrs.
price
Approx. l/2/ per lb. Ho change
Ho change
5$ of amount
charged 8/
5$ of amount
charged 8 /
10 /. 1 5 / 20 /

Tires
Tubes
See last page for footnotes.

;

of 191+2

15 $ of mfrs.
■price
Ho change

11 $ of mfrs.
price
ll/ per package 1 3 / per packag«3 Ho change
5 -1 /2$ of mfrs. 10$ of mfrs.
Ho change
price
price

Ho change

Ho change
Ho change
Ho change

Ho change

Repealed
Ho change
Repealed

Ho change
—

Ho change

Ho change

10$ of amount

15/0 of amount

25$ of amount

charged
Ho change

charged
Ho change

20/0 if charge
is over 2U/

25$ if charge
is over 2 ^/ .

10$ of amount

15 $ of amount

charged
Ho change
Ho change
Ho change

charged
8$ of amount
charged
Ho change
Ho change
p

Ho change

charged
2-1/5/ per lb.
H per lb.

2 -1 ¡2.j per lb
U-l/2 / per lb

5 / por lb.
9 / per lb.

Ho change

Ho change

Ho change

5$ of amount

1'To change

Ho change

Revenue Act

:
of 1943
t (Present rates!

Ho change

charged
lCg of amount
charged
5 / per 50 /
fraction there­
of if over 2U/
6$ of amount
charged
Ho change

Local telephone
Wire and equipment service

10$ of mfrs.
price
Ho change

Revenue Act

Item
•Tobacco
Cigarettes (small)
Cigars (large)
Tobacco and snuff
Toilet preparations
Transportation
Persons
Property

Transportation of oil by pipeline
Wanhing machi non (co»me rci al)

* Rates in effect
; December 31, 1939

Revenue Act
of 19*40

3.25

$3 per M

$2 - $13.50 per
18$ per lb.

)

M

10fi of mfrs. price

Ho change
Ho change

IT0 change
11$ of mfrs.
price

Ho change
10$ of retail
price

-

-

-

-

Revenue Act
of 19 hi

$
per M
Ho change

-

*4$ of amount paid

j
;

5% of amount
paid
-

*4-l/S$ of amount Ho change
pan-dt
10 $ of mfrs.

:
Revenue Act
[ Revenue Act
:
of
;
of 19U2
: (Present rates

19^3

3.50
$20

$
per M
$2.50 per M
Ho change
Ho change

Ho change
Ho change

10$ of
amount paid
■ffl of

15$ of amount
■paid
Ho change

amount paid
( coal *4f( per
short ton)
No change

Ho change

Repealed

Ho change
20$ of retail
price

-

price

Treasury Department
If Hates effective in 19*+3 Act represent the 19*4-9 excise rates with the exception of the tax on cabarets which was re­
duced from 30? to 203 of charge by the Public Debt Act of 19*1*4 and the autonolle use tax which was repealed by the
itqvenue Act Of 19*4$.
2 / lower rate for amusement devices, higher rate for gambling devices.
3 / Por stock without par or face value (a) if actual value is less than $100 , ?.<l per $20 or fraction in 1939 and 3 / in
19*40; (h) if actual value is more than $100 , 10 ^f per $100 or fraction in 1939 end 1 1 ^ in 19 *+0 .
b/ Por stock without par or face value *4^ per share in 1939 end 5 / in 19*40. If soiling price is $20 or over,' whether
with or without par or face value rate was 5 ( in 1939 end 6^ in 19*40.
9 / Vacuum cleaners exempted.
oj Watches retailing for not more than $65 and alarm clocks retailing for not more than $5 teaxed at 10$. Silver pleated
flatware exopipted.
7/ Handbags, wallets, etc. added to tax base.

Classification of excise taxes by amount of estimated r svenile,

fis c a l year 1951

Estimated Revenue
($ millions)

$1

Over
billion
Distilled spirits...... ...... ,____ *
Cigarettes (small)*... . . . . . .......
Total..................... V *
...................

I

Jnr\

*C, (JJ

sp500 million, to $>1 billion
F emiented malt liquors......... .
Gasoline .....................

&500

&300 million to
million
Passenger automobiles and w
otezrowlzm........ ......... .
Admissions, exclusive of cabarets, roof gardenis, etc,,...
Transportation of property.... t.... „
Long distance telephone, t$X&|p?aph, radio and cable
facilities, leased wires, etc.......
Total................ .......
T

qco
395

OO/r
fuX

&300

|200 million to
milliof
Local telephone service.......... ^
Transportation of persons*.........
Jewelry.
iOUa-L*

##

ÌÌZ

$200

ilOO million to
Tires and inner tubes--TT
Automobile trucks, buses, and trailers.....
Total............
........

50|million

l

to $.100 million
i'pilet preparations......__ T,,.
Parts and accessories for automobiles............
Electrical enersv.......__ »..
Lubricating oils........
............ .
Dégage, handbags, wallets, etc........ .
...... .....
sugar tax.............
.........

Wines (domestic and imported)...............
Peirigerators, refrigerating apparatus,
and air conditioners......
Electric, gas, and oil appliances*..........
Total,.......

.

............ .. • • •

on
ZV
rr

Or\
«7
r.

Classification of excise taxes by amount of estimated revenue,
fis c a l year 1951 (concluded)
Estimated revenue
(I Sillons)

Cigars (large)•*««^ •••?»*'
Radio receiving sets, phonographs# phonograph
records, and musical instruments*«**.*• •«****** *•*•*♦#•*■••*
Photo graphic apparatus .»#*#•♦#•*..«**o.#*****«.•♦♦•*•»••••*••
Cabarets, roof gardens, etc...••»••*««.
Issues of securities, bond transfers,
deeds of conveyance*.*•*«••••*........**•.... •*••#••♦•••••
Tobacco (chewing and smoking)
Business and store machines•
Oleomargarine, etc., including special taxes
and adulterated butter*
Rectification tax«..a...*..*..»......................««.»••• *.*
Club dues and initiation fees*
Electric light bulbs *****#**.#*•*«*. *••*..«.. »».>,4*♦*••**•*•••
Total.•••***.... ........................... ...............

45
45
42
40
40
34
30
30
29
29

3S9

$10 million to $25 millionr
Coin operated amusement and gfcung; devices* .................
Stock transfers* •••*.•»••.•«......... .
............ . • .•
.... *•
Transportation of oil by pipe line*
Coconut and other vegetable oils processed«.«•••••••**.*«••••
Sporting goods*»*••«*•.«#*...•*»••••».o*..*».*..*••.«•*•••••*
Special taxes in connection with liquor occupation*..........
0ontainar stamps «»**.#«•••*.. «•»*. •••*«•*•*«••• *»••*«♦ ..«*•**
Matches*.*.**«...a...........
Leases of safe deposit ocxoy.
To tal*

MsLÍ12jsiáiá2a
Other taxes.*«*.

9

Grand total.

21
20
20
20

18
15
12
10

22
7,642

Treasury Department/ Tax Advisory Staff' of the Secretary
Source:

She Budget,of the Iftited, States fc/regnpiqptj. Fiscal Year 1951*»

EXH1BIS 2

Special Depletion Allowances for Mineral Properties

«***»,«•

To Accompany
#f $*$ret&ry Snyder
Before the
oft y<Qrt and Means,
House of Representatives
February 3 * 195^

Tabi© of Coat©uts

Special Depletion Allowances for Mineral Properties

Page Ho«
1«

Present provisions

#

.

1

A* Percentage depletion ....................... .

1

3« Discovery depletion ............ .............................. ..

2

Co Cost or adjusted-basis depletion

2

#

D« Expeasing of capital costs

3

II , Background and development of special

III*

depletIon allowances #****#*. i**'***.#s».i ,**•«• *•••«♦••«»•*

^

Survey of depletion and related allowances

5

...... *

A, Excess depletion and resulting revenue loss
Be

Distribution of excess depletion by
Industry group® .............. 6

C*

Distribution of special depletion and
related allowances by mineral products

6

Depletion allowances in relation to size of
firm .......................... ..............

8

D*

IV*

6

Illustrative cases showing tax effects
of special allowances v.............. ...........♦. •

8

Tables
1*

2*

3»

Percentage of allowable mineral depletion included
in survey of selected corporations, I9U 6 «•**«•*••*•»

11

Mineral depletion allowances for selected
corporations, by industry groups, lÿ+6 and 19 U7 »•»•

12

Computed revenue loss resulting from excess mineral
depletion deductions, selected corporations, by
industry garoups, 19^6 and iSkf * * . • « , * * * . , « < . 13

ïable of Contents - 2

k.

Mineral depletion and related allowances for
selected corporations, by principal mineral
products, I9U 6

5e

Mineral depletion and related allowances for
selected corporations, by principal fcineral
products, 1947

60

Allowable and basis depletion related to income,

19 U 6CInd ^ ^ ° r s U o n s *
7*

principal mineral products,

Mineral depletion and related allowances for
selected corporations, by sise of total assets,
*0^6 and 19 Î1 7 ...... .,.. ,***,*..*. w .

8„ Allowable and basis depletion related to income,
selected corporations, by fti&ft of total assets*
19^6 and 19^7 *..... .

9*

Income, deductions, end tax liabilities of ten
selected individual oil and gas operators, for the
five-year period 19 ^3 -19*17

10 , Income, deductions, and tax liabilities of
20 selected mineral corporations, 19*47

Special Depletion Allowances for Mineral Properties

One of the major avenues of escape from income tax is the
special depletion allowance now accorded mineral properties.
This subject has received consideration by Congressional
Committees on a number of occasions»
Nearly 25 years have passed, however, since the date of
the investigation of depletion costs on which present allowances
were established, In the intervening years there have been
important basic changes in these Industries*
This study presents current information on the basic
aspects of this problem and discusses the considerations
affecting the desirability of the present allowances.
X. Present provisions
The Federal income tax recognizes depletion of wasting
mineral assets as a deductible cost in determining net taxable
income. The purpose is to allow the taxpayer to recover tax-free
the capital he has invested in the mineral property. Special
allowances in excess of cost are granted to certain groups of
taxpayers. In most cases these special allowances are based on
a percentage of gross income,. Of less Importance are special
allowances based on discovery value,
A.

Percentage depletion

Percentage depletion is computed as a specified percentage
of gross Income, without regard to the capital cost of the
property. The rates range as high as 27 | percent of gross income
m the case of petroleum, but the deduction is limited to 50
percent of the net income (computed without regard to depletion)
rom the particular property. The following percentages of gyoss
income are allowed different minerals under present law.

Mineral

Rate qn
gross income

Oil and gas
Sulfur
Metals
Coal
Bauxite, fluorspar, flake graphite,
vermiculite, beryl, feldspar, mica,
talc (including pyrophyllite), lepidolite,
spodumene, barite, ball, sagger, and
china clay, phosphate rock, rock asphalt,
trona, bentonite, gilsonite, thenardite,
and potash

15

- 2~

Percentage depletion continues to be deductible even after
100 percent of the invested c o i t a l has been retrieved tax-free,
Ihe to .a l tax-free recoveries nay be substantially in excess ef
the cost 01 the property, and in a large number of cases amount
to many times the capital investment,
B,

Discovery depletion

Those minerals which are cot eligible for percentage depletion
may qualify for discovery depletion, under certain conditions.
Owing to the wide range of minerals excluded because they are e ligible for percentage depletion, and the special conditions attaching
to the use of discover depletion, i t applies only to certain nontim S 1
tancee asld iB of
Sign ifican ce at the present
Under discovery depletion, a taxpayer who discovers a "mine»
on an unproven tra ct, the value of which is materially larger than
to
°
taXpayf r * is
d e letio n deductions designed
to amortize the appreoiataifiiscovery value over the economic l i f e
10 th® 0fVBe of P®rcentege depletion, the annua
deduction for discovery depletion is limited to 50 percent of the

fr ®“ *he Property, However, aggregate tax-free recoveries
under this method ape limited to the discovery value.
Cost or adjusted-basis depletion
..
Percentage depletion is one of the most complex provisions in
,„®
1f'% depletion allowances are computed with respect to each
Mir
Minera taxpayers commoay own severa,
V ° B th0U8andE of Properties. Each year for each
property the taxpayer takes the largest depletion deduction
allowable. Both gross and net income must be determined for
Property to compute percentage depletion. Moreover,
J ! 2 f *V 6? 65'” 3 accounting for each property entitled to
d9plei lon “??* reflect each of the three different
„ J5,, 0 concepts« (1) allowable depletion, including percentage
: au

S

?

l6 ti°n* (£) a4JUSted-basi6 d^Pl**ion,°fnd <3) strtot

as a
llCasr the
r
e
y
a
p
x
tei allowed depletion based on cost
basis denl'eti
annual cost depletion (u su aiy termed adjustedaB B. depdetdon\ ls computed by spreading the o rig ln a eoet, less
ltfiT o f the ,,r ^ 1L reC° Vered tax“ f ree, over the estimated remaining
W e ! , e ! pr0perty* “ oasured in units of minera product.
c o s r o r ' L u s t ^ r V " Per° eni ° ee dePlo«on reduce the remaining
d e p letio ^ w M ^
“ ° re rapldly* Therefore, the adjusted-basis
"blch represents the minimum annua deduction, must be
P
at a lower figure each year after percentage depletion

- 3 is taken# 1 / When t&e original cost is exhausted through
depletion allowances the adjusted-basis depletion is reduced
to zero# although percentage depletion may continue to be deducted#
Corporations also account fpr annual cost depletion computed
without regard to amounts recovered from time to time through
percentage depletion# in determining their net profits for reports
to stockholders and other purposes# Cost depletion in this sense
is also recognized for tax purposes in connection with the treat­
ment of liquidating dividends in the hands of the stockholders. 2/
For purposes of determining gain or loss upon sale or other
disposition of a depletable property, the tax basis Is reduced
by the total amount of allowable depletion (percentage, discovery,
or adjusted-basis depletion) in previous years. Jj/ While per­
centage depletion may continue even though more than 100 percent
of the basis has been recovered tax-free, the bagis f*>r determining
gain or loss is reduced only to zero*
D#

Expensing of capital costs

In addition to depletion allowances, certain capital costs
of developing mineral properties are treated as expenses
incurred in doing business and allowed as deductions in the year
incurred. This expensing treatment does not reduce allowable
percentage depletion in future years, which is based on the in­
come from the developed property. This results in a double
deduction for recovery on the same capital investment.
lj In addition to determining the minimum annual allowance, the
adjusted—basis depletion is important in computing the net
^operating loss deduction® Under the present 3 -year carryback
and 2-year carryforward of net operating losses, the loss to
be carried over is reduced by the excess of percentage over
cost depletion (and similar tax-exempt items) in the year in
which the loss occurs# Similarly# the amount of the loss
which is deductible is reduced by the amount of such exempt
income in the year to which the loss is carried.
2/ Under existing law dividends to stockholders are taxable to
the extent they are paid out of earnings and profits. For
this purpose, earnings and profits are computed on the basis
of cost depletion*
^or yQ&rs prior to 19 32 # the excess of percentage over cost
depletion was not applied to reduce the tax basis*

- k ~

Owner« of oil or gas wells have xd.de opportunities for
expensing cepital costs incurred in developing their properties.
At their option they may treat intangible drilling said develop«**
ment costs of wells (including expenditures for labor* supplies,
repairs* and hauling) as current expenses deductible from tax­
able income from any source. For example, 9° percent of an
oil operator*s oapltal outlay, exclusive of depreciable items,
may be for intangible drilling and development costs. If this
is deducted as a current expense and thus recovered tax free at
the outset, only 10 percent of the Investment remains to.be
recovered through depletion allowances» Hence, depletion
allowances based on the entire income in effect overlap the
initial deduction of a large portion of the capital outlays.
In the case of mines, development costs can be immediately
offset against income only to the extent that there aJe receipts
derived from the mine during the development peldod. However,
if considerable quantities of ore are taken out while develop­
ing a mine to full producing status, it is possible for a
taxpayer to recoup tax-free immediately a large part of the
capital costs of development,
II.

Background and development of special depletion allowances

The original income tax legislation provided a reasonable
allowance,* not to exceed 5 percent <*f gross income, for wast­
ing mineral assets, This was later changed to a more specif!o
allowance of depletion based on cost or 1913 value.
Allowances in excess of cost depletion were fiist granted
in the form of discovery depletion in 1913 as a measure to
stimulate mineral exploration for war purposes and to lessen
tax burdens on small-scale prospectors who made discoveries
after years of fruitless search* Discovery depletion deductions
allowed the discoverer of any new mineral deposit to retrieve
not only his costs but also the materially larger appreciated
value of the property at the time its profitability was estab­
lished. Since no limit was placed on the discovery depletion
deductions, in many cases the deduction was in excess of the
Income from the discovered property and served to offset income
from other sources. To prevent such excessive discovery deple­
tion allowances, the annual deduction was limited in 1921 to
100 percent of the net income from the mineral property» In
192 ^, the limit was reduced to 50 percent of the net income from
the property, in order to provide for the taxation of at least
one-half of the income from thbse properties»

Percentage depletion was substituted for discovery &©••
pietion in the case of oil and gas properties in 1926 and
extended to metals» sulfur, and coal in 1938* The original
percentage depletion rates* still ©©bodied in present law,
were in general fixed at levels which would permit the
respective industries approximately the same total annual
depletion they had previously enjoyed under discovery
depletion.
Despite the reconsnendation of the Treasury in 19*12 that
percentage depletion he eliminated, it was extended in 19 U2
and 19^3 as a temporary measure to certain nonmetaliie minerals
at the 15-percent rate applicable to metals. In 19*17 the
temporary wartime extensions were made permanent, and in
addition some items not previously covered were granted the
special allowance. Since 19^7 a wide range of nonmetaliie
producers who have not been granted percentage depletion have
sought similar preferential tax treatment. 1 /
Survey of depletion and related allowances
Information on percentage depletion and other special
allowances for mineral producers has been recently developed
through a special survey of 35 $ corporation income ta% returns*
These returns accounted for about three-fourths of all corpoiqhron inco^‘e tax allowances for depletion for the year
(Table l) Although the survey group does not
necessarily represent a cross-section of the mineral industries,
the high proportion of tax allowances for depletion provides
reliable information on the mineral déplétion provisions. The
statistical data obtained in the course of this survey are
presented in Tables 1 - 1 0 .
While tile surv®y covers corporations only, it is estimated
that corporations account for more than SO percent and indiv­
iduals for less than 20 percent of all depletion deductions.
1/ Within the past three years bills have been introduced in
Congress to extend percentage depletion to amblygonite,
oil shale, tripoli, marble, pumice, scoria, limestone,
crushed stone, perlite, diatomaceous earth, granite,
00rax, calcium and magnesium carbonates, shell, sand,
gravel, stone, and all other nonmetaliie clays *nd
minerals.

• D •*
A*

Excess depletion
end resulting revenue loss
1
'*** *

*

' iail>l*r ** w* l|*‘*** * —w>»»M»awf<»iiiniii i

mi " h<t«Miii

»■«..

•**»*»■—■ r - " r - - ‘ r —

^ rir*^ '!!

mm n

The allowable depletion deducted by the corporations „
Included in this survey eammted to $555 million in 1 ^U6 and
$S39 million in 19^7• Of those amounts only 10-15 percent
represented adjusted-has it depletion which would have been
required to recover original investment cost* ¿/ The remain­
ing 85-90 percent constituted the excess allowance attribut­
able to the special depletion provisions for mineral industries*
(Table 2 )
The Indicated revenue lose for all corporations in the
survey due to excess depletion was about $180 million in 19^6
and $290 million in I9U 7 . (Table 3 )
On the basis of these
findings it is estimated that the total revenue loss for all
corporations due to excess depletion was nearly $250 million
in 19 h6 and $U00 million in 19 ^7 « 1
B,

Distribution of excess depletion by industry groups

The excess of percentage depletion over cost er basis
depletion was correspondingly high for most industry groups.
Eelatively low excees depletion for a few industries, such as
coal and the stone, clay end glass group, reflects either a
low percentage depletion rate (5 percent for coal) or in­
eligibility of important components of the industry for
percentage depletion,
A high proportion of the excess depletion shown in
Table 2 was received by corporations whose major activity was
other than mining and quarrying. In I9 U6 , for example,
$3^5 fflillion or more than JO percent of the total excess was
deducted by manufacturing enterprises (notably in the
petroleum field) representing large integrated firms whose
predominant industrial activity was not mineral extraction,
0*

Distribution of special depletion and related
allowances by mineral products

Survey data for 19^6 and 1947 showing the distribution
of depletion allowances (including deductions for development
costs) classified by the
principal mineral products, are
presented in Tables H and 5* As shown in these tables, the
bulk of the benefit of percentage depletion in excess of
basis depletion was derived by the oil and gas group. They

l/

®oat cases the adjusted-basis depletion was approx*
imately equal to coat depletion*

~ 7 ~
received almost S5 percent of the emcees depletion compared
with 55 percent of the gross Income for corporations included
in the survey*
Total deductions for development costs by the selected
corporations were $394 million in I9 U 6 and $486 million in
19^7« Comparison of the development cost deductions with the
excess of percentage over basis depletion for these two years
indicates that for every $3 allowed as percentage depletion
another $2 was deducted as development costs. In addition,
substantial deductions were taken for exploration costs and
losses on abandonment, amounting to $2C& million in 19U6 and
$255 million in I9H 7 *
Hearly all of the development cost deductions were taken
by oil and gas producers, and these producers also claimed most
of the allowances for exploration and losses on abandonment*
Substantial variations are algo shown by Tables U and 5
in the relative tax benefits derived from special depletion
allowances among different types of mineral producers, due in
large part to disparities in the rates of percentage depletion.
In 19h7, for example, allowable depletion was about equivalent
to basis depletion for nonmetallics not entitled to percentage
depletion, about 3 times basis depletion for coal, 5 times
basis depletion for metals, and l 6 times basis depletion for
oil* Sulfur producers were entitled to virtually"no basis
depletion, yet more than one—third of their aggregate net
income was excluded from taxation through excess percentage
depletion.
The relative importance of special depletion allowances
for different types of mineral producers is presented in
Table 6 * As shown in this table, all the corporations in­
cluded in the survey had depletion deductions equal to about
°f their net income before depletion in the years
19 ^0- 1947 , By contrast, the amount of basis depletion required
to recover remaining cost ratably over the useful economic life
lQh7 °nl? 6 percent of net income in 191*6 and 3 .6 percent in
m? '*
variations are shown among mineral products0
inus, depletion allowances in I9 U6 amounted to
percent of
ae
ncome in the case of oil and gas compared with li percent
lor nonmetallic products not entitled to percentage depletion,
and IS percent for all nonmetals*

iS

- 8 -

D*

Depletion allowances in relation to size of firm

The distributionsof various mineral depletion allowances
in dollar amounts said in relation to income, by size of firm,
for I9 U6 and I9 U 7 , are shown in Tables 7 and 8*
As shown in Table 7* about three—fourths of the total
depletion allowances and of the excess of percentage over
basis depletion was received by very large corporations,
with assets of at least $100 million* By contrast these firms
received slightly less than two—thirds of the total gross in­
come from mining*
The percentage of income excluded from taxation through
depletion allowances tbnds to be greater for larger corpora­
tions* (Table 8) In 19^7* for example, firms with assets of
$100 million and over had depletion allowances of 20 percent
of their gross and 38 percent of their net income, as against
9 percent of gross income and 3^*5 percent of net income for
corporations with assets between $100 thousand and $1 million.
The benefits of special depletion allowanceSi reflected in
the ratio of allowable depletion to basis depletion, also
tend to increase with the size of the firm* In 19^7» for
example, the allowable depletion of corporations with assets
of $100 million and over was 13 times their basis depletion
as compared with about 8 times for corporations with assets
between $1 million and $10 million*
IV*

Illustrative cases showing tax effects of
special allowances

In connection with the survey of special depletion and
related allowances, the effect of these provisions on the tax
liabilities of particular -taxpayers was studied*
Substantial reductions in income taxes were obtained by
a number of individual oil and gas operators for the five
years, I9 U3 to 19^7* In ten illustrative cases, summarized
in Table 9* the effective rate of tax on net economic income
(based on cost or basis depletion) varied from 6 3 .5 percent
to as low as *6 of 1 percent. This represents a striking
difference between the effective rates of tax actually paid
and the general statutory rates on such income, which ranged
as high as 90 percent in these years*
During the 5~year period these ten individual taxpayers
received a total economic net income of $52*6 million from oil

- 9 -1 0

and gas properties* This net ijicome was computed after ell
deductions for operating expenses, depreciation, basis deple­
tion, exploration costs and losses on unsuccessful ventures«
These taxpayers also received a total of $9*3 million of net
income from other sources« Qf their aggregate net income
from all sources, totaling $ 61,9 million, 7 7 percent was
eliminated for tax purposes through the special deductions«
Similar information for twenty corporations taken from
income tax returns for 19^7 is shown in Table 10,

Treasury Department, Tax Advisory Staff of the Secretary

Table I* Percentage of allowable mineral depletion
included In survey of selected corporations» 19h6
(Money figures in millions)
♦
Industry group i f

[
ê
«

Mining and quarrying
Metal mining
Coal
Crude oil and natural gas
Nonmetallie mining
Mining not allocable
Total mining and quarrying
Marni?ac tur ing
Chemicals mid allied products
Petroleum and coal products
Iron, steel and products
Nonferrous metals and products
Stone, clay and glass products
Other manufacturing
Total manufacturing
Other groups
Total all groups

Allowable
s
depletion
for all
t.
corporations 2/ :

$ h6*l

5 1 .0
12 U . 1
I 5 .S

¿llowabl© depletion for
selected corporations 2/
?
Percent of
Amount
: industry total

$ 3 5 .1

1 7 .6

72*7

76 ,0^
3 h.h
58*6
80 08
3 2 .0

*3

1 2 .8
.1

237.3

i3 s a

58.2

9*7

6 7 .1
9 0 .3

I k .k
3 8 6 ,0
2 1 .0
23.5

35 0 .6
17*3
1 U .5

3.3

0

0

U5 a.U

392*2

8 6 .7

55.5

2U .5

Uh. 2

7 U 5 .1

55^ .9

7*+-5

2 .1

a

82.3

6l *8
7.1

-For footnotes, see page 21 «
Sources

Statistics of Income for 19^6, Part 2 , preliminary» for all corporations;
Bureau of Internal Revenue, Statistical Division, Special Tabulation, for the
selected corporations.

Table 2*

Mineral depletion allowances for selected corporations, by industry groups, I9H6 and I9Î+7
(Money figures in millions)

m r
_____
19 U 7
<%
*
•
»
Excess over
*
♦
Excess over
¡Allowable* basis depletion hf
•
Allowable!
basis
depletion 3/
Number■¡depletion*
: Percent of •Number idepletion;
Percent of
:
if
: Amount % allowable
♦
2/
; Amount • allowable
e
*
*
■*
* depletion
depletion

0
•

Industry groups 1/

Mining and quarrying
Metal mining
Coal
Crude oil and natural gas
Hornet el lie mining
Mining not allocable
Total mining and quarrying
Manufacturlag
Chemicals and allied products
Petroleum and coal products
Iron, steel and products
Honfsrrous metals and products
Stone, clay, and glass products
Total manufacturing
Other groups
Total all groups

68

82.056

66

$ 6 U .0

52

12.5
*

59*9
85.1+
98.1
5.0

17
l

21,6
H O .5
16 .O
*1

1 1 3 .8

S2.1*

196

2X2 ,2

185.8

8 7.6

75*5

lU
Hk

9 U .5
6 6 .3

5

*2

9.k
509.0
17-2
10 ,k
•1

80.3

16
8

H.?
538-7
25.9
17.5

% 35.1

1 7 .6

$ 2 8 .7

53

66

72. T

1 0 .5
6 2.0

18

12 .8

1
206

A
138.1

1**
**5
Ik

8

3 5 0 .6
*7 .3

7*3
321.9

1 1 .0

9 1 .8
63 .**

60

15*8
*

69 .2
90.6
98.8
23*3

l*f*5
*2

5.1
*

3*f«S
32.5

86

392.2

3 ^5 .3

8 8.0

87

59^.0

5 U6 .1

91.9

60

2U .5

20.8

8U .9

61

32 .6

2 8.0

8 6.0

352

55^ .9

^79-9

8 6 .5

3kk

8 3 8 .7

759*9

90.6

Dess than $50*000.

Source}

10 0 .2

85.9#

5

T o t footnotes, see page 21*
*

$ 5k<9
lfc.9

Bureau of Internal Revenue, Statistical Division, Special Tabulation.

59.6
56.3

Tab!,«.- 3 * C4sapttt#& r«»‘
renn& !oaa resulting from excess i&iti&ral
depli&tSe« deduct!ong, selected eorpurat1 on3 , by industry groups» 1946 and I9 U 7 bj

(In millions)
IMustsy group

ji/

Kinin§ m d qcarsylng
Matal mining
Goal
Cr'‘
Ode ®il $s& Ä&ttsr&l ga$
lic n&aiag
Mining skH alleeabla

t
s

Ì94 S
(352 re turne)

$ X0«9
4.0

23*6
4«8
*

$

ipf

:

(344 retarne)

$ 20.9
5*7
38.1
'
'j, ~
6 .0
e

fatal isiaiag stad «pierrying

4 3* 3

70*6

Öttoi«als
clliM
Petroleum and acaX producta
Iran* eie^l and prodoeta ■
Mo&fe^raaa sata&a *ä*e.& px'O&uöia
5tor.*, ¿Xay ead gXasä protesia
Ötkesr iaanuft&etarlc^

2c 8
122.3
4*2
1*9

19 3 ,1*
6 .5

fötal ssaaufasturiag
Oihor groug*0 .
fötal

all grsnpß

* X«0t than $50s000

*

3*6
3*9

«

«
-

1 3 1 .2

207.5

T*9

10*6

1 8 2 .1*

288,8

Table bc

Mineral depletion and related allowances for selected corporations, by prin cip al mineral products, 19U6

•
Principal
mineral products

Metals
Iron
Copper
Lead and sine
Gold and silver
Other metal a
jfetfiCLs not «auboca&fc#

«to*

Sulfur

Nonmetals
Entitled to percentage
depletion 9/
Not entitled to percentage
depletion

G-rand total

$ 335.0
240«U
6 s „9

2

^7.1
37«*
3^.1

15

T& .3

t

£o£sl coat
Oil and gas

Total nonmetals

Number
of
corpo—
i
» rations :
20
12
22
lU

i’eial melMkts
Coal^
Jtothracit©
Lita&Riaeua*

î

*

(Money figures in millions)
Income subject
Depletion
bu (lepres/ion
*•
*
•«
*
Gross • Net
ï Allowable : Basis
:
2/
5/
2
ÿ
* 2/
Î

P?
ÌJ3.&
«9

$ 56.2
91«2
21.0
x6*o
7*2
300,>2

$ 18.9
23.3
10.5
6,1
3 .3
3*0
u5#0

$ 5.6
12.0
.3
*
.3
20*g

Other capital
recovery deductions
* Exploration
Development i costs and
costs
: losses on
: abandonment
u
i
s/
$ 6.1
.6
5.0
#9
.1
*

$ a
1 .0
•,3✓
,x
♦

*2.7

ijk

.2

2 7 .7

8,1

5.0

*

Wt.5

3,6.2

5 .0

*

*

7 2 ,2

zk.i

10*G

»

’ *

3 2 1 .2

1 6 1 .3

•m

1 S3

1,837.6

90^2

>»U7.1

U1 .9

s

66.2

3**-5

1 2 .3

*

19

90.*4

20.0

5#9

2.0

s

,5 6 .2

1 3 *1*

.2

.2

.3

20.0

27

1 U 6 .6

33.3

6 .2

2 .2

.3

2 0 .2

352

3,1+ 5 M i

l t2UH.U

55^.9

7**«9

39^.2

2Q^#0

—

2 0 .7

.

for footnotes, see oaire PI.
Less than $50,000
Sources Bureau of Internal Bevenue, Statistical Division, Special Tabulation.

•Ï

-rr
l

Table

5<=

+7

Mineral depletion and related allowances Tor selected corporations, by principal mineral products, igl
(Money figures in '

Principal
mineral products

•
♦ Numb er
of
:
î corpo­
•
rations
t

Metals
Iron
Copper
Lead and zinc
Gold and silver
Other metals
Metals not allowable
Total metals
Coal
Anthracite
Bituminous* lignite, etc«
Total coal
Oil and gas
Sulfur
Norunetals
Entitled to percentage depletion 9 /
Not entitled to percentage
depletion
Total nonmetals
Grand total

21

11
O*2
12
7
12
S6

Income subject
to depletion
Gross
5/

$ 310»s
432,1
99.4
660S
45.5
54.6
1 , 0 0 9 .2

:

Bet

:

$ 90.3
22^.3
35*3
24.3
7.5
17*6
399.2

dons)
•
♦

«

Other capital
recovery deductions
:
t
Development : Exploration
Allowable : Basis :
• costs and
costs
• losses on
zJ
:
^
:
U
:ab ando nment S/
Depletion

$ 2 6 .7
U5 . 3
IKS
9 .1
3 .0

5.5
10U.2

$ 7 .2
«9

.2
*
.4

loi
ol

23.3

.1
14.3

$ .3
♦9
.1
1.6
*

.3
3.2

1
lé
55

m,s
&s,5

71

Ä a

1S.3
S7.2

7.5
25

6 .2

—

&

a

•3

1

105.4

33eO

1 0 .9

9X

.3

153

2,631.5

1,544.9

6 7 7 .7

U. 26

4 7 1 .1

199-9

g

SO. 3

43.8

1 U .9

*

—

25.8

17

6S. 7

20.2

8.7

i*g

*

.2

9

10 2 .2

5 3 .4

.3

.3

25.1

26

170*9

7 3 .6

9.0

2*1

25.^

3kk

4,775-9

2 , 1 6 6 .9

S3S.7

7 8 .8

For footnotes, see page 21«
Source:

$ 7 .5
12.1
3d

Bureau of Internal Revenue, Statistical Division, Special Tabulation,

ifS6 .o

254.5

Table S0 Allowable and basis depletion related to income, selected
corporations, by principal mineral products, I9U6 and I9 U 7
*1 '
—
•

Principal mineral product»

■■■"■■■ - ■
Percent of
gross income

19^
j

, .
'
!
Percent of

i
£

'
Percent of

IWt
s

[
Percent of

*
:
net income
£ gross income
l
net income
îAllowables Basis :Allowsble; Basis ; Allowable; Basis tAllowable % Basis
•depletion;depictioni depletion; depletdcs&î depl et ien ; deple t ion zdopi et ion ; depicti on
1/
» 2/
.
3/
J
2/
L JisL... * _________•
_____ ï

Metale
Copper
Lead and zinc
Gold and silver
Other metal«
Metals not allocable

5. 65g
9.6
15*2
12* S
8.6
9.»*

Total metals

Iren

Coal
inthreeite
Bituminous, lig n ite , peat
Total coal
O il and gas
Sulfur

Nonmetals
Entitled to percentage depletion -9/
Not entitled to percentage depletion
Total nonmet&ls
Grand total

3-5
o»5
*
0*9

32. 6#
25*5
50.0
37.8
*&*3
35.6

9-9$
I3.I
il» 7
1*5
0.3
3 .7

8Ȥ

2*7

32.2

3*8
5*7

1 .1

2*5

3*7

1*5

2>».3

2.2

13.6
6.6
10.Ö

29.556
20ȓ
U l.J
37*^
U0 .3
31.0

8.356
5*3
8.6
0*9
o .l
2*2

10,3

10*3

2*3

26.0

5 .8

29.O
35*5

17*9
l i .o

3*5

2.2
1*0

U0 .8

Kl

28*7

25.6
6.9

33*1
U9 .3

13.6

3*9

1*3

3O.8

10 .1

U .6

25.1

1*5

U3.8

2.7

18.6

»

35*7

*

18.5

33*9

«

6»5

2.2
0.2

29*7

0 .3

2.6
0.2

U3.O

8*9

1.5

10.1
1*2

12,6

0 .3

0.6

0%

U .2

1 .1»

18.»»

6.5

5*2

1.2

12*2

2.8

16.0

2*1

6.0

1 7 .5

1.6

38.6

3*6

Por footnotes, see page 21»
* lees then 0,1 of 1 percent»
Sources

8.556
10. U

2,*$
2*7
3*0
0 .3
♦
0*7

h>$

/

Bureau of Internal Berenue, Statistical Division, Special tabulation*

7

Table o Mineral depletion and related allov/ances for
selected corporations, by size of total assets,

19 U6 and 19^7
(Money figures in millions)

Total assets classes 10 /
( In thoua©$f|ft)

• Humber
:
of
* corpo—
î rations
:
10 /

Income subject
to depletion
Gross

Net

5/

y

Depletion
Allowable
2/

Basis

5/

Other capital
recovery deductions
Explorâtion
Development
costs and
costs
losses on
abandonment 8 /

.

X/

12 M
$ 100 Under
1*000 under
5,000 tinder

10,000 Under
5O,öO0 ander

} 1 ,0 0 0

3*000
1 0 *0 )0

$ 5 .3
^7 . 3
^7 . 7

100,0 00

1 9 0 .7
88.6
8 61,3
1,25+1,0

100,000 and
Total

$ 2,0
18.9
18,9
81*8

$ ,1
3*8
7. h

$.1

9 .2
5 .3
5+905*

$*1
2,0
2.3
19.3
8,9

395.7

13.*+
8,7
5+5.*+

1 5 .7
3 1 3 .2

1 7 1 .2

553.2

7^.8

392*9

2 0 3.7

$ 2 .3

$ .1
3.*+

$ «1

*

11*0

$ 1 .8
25o8

3 5 .9

iäa

$ 100
1,000
5»000
10,000
50,000
100,000

under $ 1,000
under
5,000
under 10,000
under 50,000
under 100,000
and over

Total

20

101

$ 25.8

268,3
160*1
870,2

$ 6 .7

7 2 .5
60,0
3 0 1 .7

kz
97
Ik
6S

335.3

117*2

3,108,7

1 ,6o5+,S

3^2

4 ,76806

2 ,162 .9

26.8
2 3.5

3 .6

118,5*

lU,5*

7+k
59.0

51.'*+

61U .3

10.7
kja

1 6 ,5
390.8

1 3 .2
209,6

336*8

7 8 .8

5*g5+.8

25H.X

For footnotes, see page 21«
* less than $50, 000.
Sources

3 .1

Bureau of Internal Revenue, Sta tistica l Division* Special Tabulation«

I
M

Table S. Allowable sad basis depletion related to income, selected
corporations, by sire of to ta l assets, 192+6 and 19H7

Percent of gross income
'
Total assets classes lo/J*
;
Basis
;
(In thousands) """ s Allowable
depletion ,2 /«
depletion tJ ;

Percent of j*et income
Allowable
depletion 2/

19U6
$ 100 under $ 1 ,0 0 0
1 .0 0 0 under
5 ,0 0 0
5 .0 0 0 under 1 0 ,0 0 0
1 0 .0 0 0 under 5 0 ,0 0 0
5 0 .0 0 0 under 1 0 0 ,0 0 0
1 0 0 ,0 0 0 and over

1 2 ,2
1 2 06
is , 5

2 .0
3*0
2*1

T otal

1 6 ,0

2 ,1

o„
l.B
2*5

S.9$
9*1
13*9

3 8 *2$
39*H
39*7
1+2*6

H
6.9

U5 .S

9*7
5*2

kOtb

1*7$

6 .0

6 .0

*22

$ 100 under $ 1 ,0 0 0
1 .0 0 0 under
5 .0 0 0
5 .0 0 0 under 1 0 ,0 0 0
1 0 .0 0 0 under 5 0 ,0 0 0
5 0 .0 0 0 under 1 0 0 ,0 0 0
1 0 0 ,0 0 0 and over

15*3
39*7

Total

17.5

Por footnotes, see page
Sources

9.00
9*9
1M
13*6

0„3#

36, 8
3 9 .1

3*+.5$

1 *0 $
fc.6
5 .1

x.5

39*2
U3*g
38.2

H.7
9*1
2.9

1*6

36.6

3*6

1 .2
1*3
1*6
3 .1

21«

Bureau o f Internal Bevenue, S t a t is t ic a l D ivision, Special Tabulation,

CQ
f

mmm

mmm

Table 9*

Income, deductions, and tax liabilities of ten selected individual oil and gas
operators, for the five~year period 19 H3 -I9U 7

(Money figures in millions)
•*
Ret income
1 Special deductions
Individual i From oil 1 From •
Percentage ¡Development
operator * and gas : other J Total •depletion :
costs
v ...12/ .
«
m • sources
V
A

$10*5

$3*8

$14.3

$2*2

$13*0

B

5.0

0*8

5*8

3*1

2.1

G

3*9

0*5

4.4

3*2

4*4

B lU /

9*3

0*3

9.6

2*7

£

2*7

0*8

3*5

f

1*7

i*4

G

7*7

H

Taxable
net
income

Income tax lia b ility
.
• Percent
. Amount * of total
•.
1 net income

- $0.9 13/ $0.08

0*6$

0*6

0*5

8*6

3.2 £2/

0.15

3.4

0

6.9

6*1

63.5

1*0

0*3

2.2

1*4

40.0

3*1

0*8

1*5

0*8

o«6

19.4

- 1*3

6*4

3.5

2.1

0.8

0*5

7*8

2*1

3*6

5.7

1.0

0*6

4.1

2*2

38.6

I

1*7

0*1

1*8

0*5

1*0

0*3

0.2

llo l

J

8*0

- 0*7

7*3

2.9

1 .7

2*7

2*2

30.1

52.6

9*3

61.9

20.9

26.7

14.3

13*93

22.5

Total

For footnotes, see page 21*
Source*

Bureau of Internal Revenue, Special Tabulation

-

Table 10 *

Income, deductions, and tax liabilities of 20 selected mineral corporations, 19^+T

(Money figures in millions)

Corporation *

1
2

Total
net
income
15/

*
Special deductions
i Percentage : Development
*• depletion *
costs
:
12/
. 7/

$ 27*6
75*3
7*1
IDS* 9
2.g

$1 1 .3
19.7

$9*9
5*7

2 .1

0 .9
0
0

4.7
1+.5

10

15*3
9*3
3*9
3 4 .$
12.9

11
12
13
14
15

3
k
5
€
T .

6
9

19*7
1*3

:
•
•
:

Taxable
net
income
$6.4
49.9
4.1

î

:

Income tax liability
s
Percent
Amount
: of total
• net income
$2.4

19 .0

S./ft

89*2

1*5
33*9

2 5 .2
2i.l
3 1 .1

1.5

0*6

21.4

3*9

20 o2
10 .8
12 .8

1 0 ,3
2 .6

2 .2
1 0 .9

*0
2*2
0
0

4*8

2*4

5-7

1 2 .0
1 1 .6

g .2
4*7

5 .1+

- 1 .6

6.5
4*6
io *5

2 .1
1*9

3*9
2 «8
0.7
6.4

3 .0
1*6
2*0
2 .1

1 .1
0 .6
0 .8
0 .8

1 7 .4
7 .6

0 .7
22.0
3 6 .0

1.4
53*9

85*0

0.5
21.4
30.7

12 .8
1 9 .1
2O. 3

2 .0

1.7

2 3.6

1 .0
0 .5
8 .7
2 .2

25.2

1 7 .1
9*5
9*2

l6
17
lg
19

3*9

l.g

1 1 2 .2

3 6 .3

151.5
144*9

30.5
42.1

20

65.5

29*3
32.3

73*5
69.5

2 3.0
26.4

15*9

1 6 7 .3

Total

926.6

2 76 .3

164.9

1+S5»1*

179 .O

19*3

For footnotes, see page 21.
Sources

Bureau of Internal Revalue, Special Tabulation

1 5 .8

Tables X through 10?

Hotel

Footnotes

Jlgures are rounded and will not necessarily add to totals*
of unrounded figures«

Percentages were computed on the basis

\J The

industry classification is the business activity reported on the tax return* When multiple
businesses are reported, the classification is the business activity which accounts for the largest
percentage of total receipt«*

Zf Allowable

depletion is the deduction permitted for income tax purposes, and is the larger of either
adjusted-basis depletion ot percentage depletion*

2/ Basis depletion is the deduction necessafy to recover the unamortized portion of the taxpayers depietable property over its estimated remaining useful lif e * The unamortized portion* or adjusted basis,
is reduced each year by the amount of allowable depletion*

k/ Computed

at the standard corporation rate of 38 percent*

*j/ Gross income subject to depletion represents the amount for which the taxpayer s e lls , or could
s e ll, in the immediate vicin ity of the mine or v e il, the crude mineral output thereof*
6/ Bet income subject to depletion represents the gross income subject to depletion less the allowable
tax deductions attributable to the particular mineral property,

Jj Development

costs are expenditures for the preparation of mineral properties for production, which
are deducted as expenses in the year incurred* Consequently, these expenditures are not included
in the tax basis of the property and future cost or adjusted-basis depletion is* correspondingly
reduced. The treatment of development costs as a current expense, however, does not diminish
percentage depletion in subsequent years, since the latter i s determined on the basis of income in
those years*

8/ Tax deductions for exploration costs represent expenditures which are made in the search for mineral
deposits but which cannot be attributed to the capital costs of particular depletabie properties.
Abandonment losses represent tax deductions for recovery of capital invested in particular mineral
properties which are abandoned before “recovery of adjusted basis* Both exploration costs and abandon­
ment losses represent tax deductions for capital recpvery in addition to depletion deductions*

&

^

nooMtaliios ara entitled to percentage depletions fluorspar, tall and eacear clair
P w k asphalt, potash, flake graphite, mnnicrjltte, baryl, feldspar mica tale i
l8y*
e p e d ^ n a . tacite, bauxite, china clay,
g m » n f ^nardite.

classes are
dopletion, amortisation
t h i L^tho^tab^lat^ « 6
™ 111 t a tabulations

based ou the net amount of total assets after reserves for depreciatien
and had debts, as of the close of the taxable
S^ o ratio n s
>nCdU^ dl Con^ ^ 2entIyp the number of corporations differs slightly from
by industry groups and by principal mineral products*
^

asr^^'sLgLsr““'
Excess of percentage depletion over adjusted-basis depletion,

^

f 0 total » t i » ° « * for tbs 5 years. some income ta*
! r * re Ve'^ d i fi c i t * only Sa K®3 years, A d e ficit caused by excess percents^
depletlo» cannot be carried eyarsgaliisS net taxable ineome of other years.
1

Ü / Include« only if years, 191+3—1946,
cost®?0“ 16 f ° r

tSX pUrposes

51,13 <SePl®tion In excess of adjusted-basis depletion and deselopoent

EXHIBIT 3

Taxation of Life Insurance Income

To Accompany Statement of Secretary Snyder
Before the Committee
Ways and Mean#.
House o f Repre „atstive#
Eebruary 3 *

Table of Cc.¿tents

Taxation of Life Insurance Income
Page No»
1»

Introduction...................... .........................................................

1

II.

Present lav and its background ........................................ ..

1

Proposals for

U

III*
IV.

l top-gap

legislation .................... ..

Alternative methods of taxing l i f e insurance income

5

A,

Total net income approach ............................................

6

B„

Investment income approach ........... ..

8

1.
2.

Industry-wide method. . . . . . . . . . . . . . . . . . . . . .
Company-by-companyapproach........................

8
9

Treasury Department Press Service No. 3-577»
December 26, 19^7 .............................................................

11

Treasury Department Press Service Ho. S-997»
February 21, 19^9................ ........................................................

13

Tables
1* Life insurance policy reserves and assets,
Selected years, I 9OO-I9H8 ................................................
2.

Dividends to policyholders, dividends to stock­
holders, and additions to contingency reserves and
surplus, 1939-191# .....................................................................

3* Net gain from insurance and investments, 19^7
and I 9US ...................................

lU

15
16

Federal income tax of lif e insurance companies,
1929-19^6, 19^9i Humber of tax returns, net invest­
ment income, and tax lia b ility ..............................

18

5* Life insurance company income tax returns, I 9H6 , by
total assets classes for returns with net income,
and in aggregate for returns with no net income?
Number, net income or d e fic it, tax lia b ilit y , and
total assets

19

Taxation of Life Insurance Income

I*

Introduction

One of the major problems in revenue revision concerns the
method of taxing the large stream of income originating in life
insurance companies. Owing to a technical breakdown of the
present statutory formula, the existing tax provisions have the
effect of treating the entire life insurance business as a deficit
industry, with the result that it would have virtually no Federal
income tax liability for 19 *+7 » 19 *'' or 19^9.
Legislation of a stop-gap nature, which would correct this
situation for past years, is nov under Congressional considera­
tion. If enacted, this legislation would produce about $90
million of income tax revenue with respect to the period Ì9 *+7-*
19*+9. The President, in his special Message to the Congress
on January 23, 1950, urged that steps also be taken to develop
a permanent system for the taxation of life insurance companies
which would remove the inequities of undertaxation in this area
without impairirg ihe ability of individuals to acquire life
insurance protection.
The seriousness of the existing gau in the revenue laws as
they apply to life insurance companies is reflected by the fact
that it involves an industry which in 19^8 had a total income
from premiums and investments of about $9-l/2 billion. The
investment assets of life insurance companies total about $60
billion and produce annually a net investment income in excess
of $1- 1 /2 billion.
Background data on the size and growth of the life insurance
industry are presented in Tables 1, 2 and 3» Figures on the
Federal ; ;ome «ax liability of life Insurance companies in rela­
tion to "hell noi; j.n:vstment income for the past 20 years are
presented in Table U. Data showing the distribution of life
insurance c impanies and their net investment income, tax
liability, and assets by asset-size classes for 19*+6 are pre­
sented in Table 5»
Prepent lay, and its backgrour
Under existing provisions, adopted in 19 *+2 , life insurance
companies are taxed on their net investment income after deduct­
ing a credit, termed a '‘reserve and other policy liability credit,”
which was intended to rejjresent the amount which they must set
aside to meet commitments to policyholders. This credit is a
flat percentage of net investment income detfsrmined by the Secretary

of the Treasury each year In accordance with a statutory formula
on the "basis of representative industry-wide data for the preced­
ing year. The same percentage applies to a ll companies regardless
of their individual experience* Tve net investment income remain­
ing after the deduction of the ret v© and other policy lia b ility
credit is subject to the general corporation income tax rates,
including the graduated lower rates applicable to small corporations
The ratios proclaimed since 19^2 are shown below. Since the
figure for 19^7 and 19H$ exceeded 100 percent it resulted in a
deduction greater than the companies1 income, thus freeing them
from tax on their lif e insurance investment income.
Reserve and other policy lia b ility credit ratios for
l i f e insurance companies, as proclaimed by the
Secretary of the Treasury, 19^2-19^8
Year
19^2

19^3
I9 UU
I9U 5
I9 U6
I9 U 7

Ratio &T

•93

•919S
.9 2 6 1

•9539

191*8
®y The ratio is applied as a percentage of net investment
income in determining the deduction each company is
allowed in computing its tax base. In 19^2, for
example, the ratio provided for a deduction of 93 per­
cent of net investment income. This le ft 7 percent of
net investment income taxable at regular corporation
income tax rates.
In substance, the figure proclaimed by the Secretary is
designed to represent the ratio of what the industry needs to what
it has in the way of investment income to meet policy obligations.
The net result of employing this figure in determining the companies
reserve interest credit ia a low rate of tax, equal to a fraction
of the generally applicable corporation income tax rate, on the
entire net investment income of the industry. With certain minor
adjustments the ratio is obtained by relating the aggregate interest
allowance for a large representative group of companies to their

- 3 aggregate net investment income. ¿/ However, the amount which
the formula allows ^or interest on policy reserves is not the
actual reserve interest requirement of the industry but is com­
puted by taking an arbitrary percentage of their reserves equal
to a weighted average of 3-l/fc percent and the actual interest
rate assumed by the companies in computing their reserves. In
computing this average, the 3—1
percent is weighted 65 percent
and the companies1 own rates are weighted 35 percent.
The high ratios for the last three years are due primarily
to the heavy weight which the statutory formula attaches to the
assumption that the companies need 3—1
percent of their reserves
to fulfill nolicy obligations. While representative of I9 H2
conditions the 3—l/^—percent figure is out of line with current
conditions since the average rate assumed by the companies is
now less than ^ nercent on the combined old and new business
and in most companies ranges between 2 and 2-3/k percent on
new business.
1/

Specifically, the statutory formula provides that the numerator of the ratio consist ofi (a) the statutory reserve
earnings allowance on life reserves, aggregated for all
companies, plus (b) 2 percent of reserves for deferred divi­
dends, plus (c) interest paid by the companies. The denomi­
nator consists of (a) net income on investments, plus
(b) tax-exempt interest, minus (c) adjustment for nonlife
reserves.
The statutory reserve earnings allowance is equal to the
mean of the adjusted reserves at the beginning and end of the
taxable year times the reserve earnings rate. The statutory
reserve earnings rate is the average of 3—1
percent,
weighted 65 percent, and the average rate of interest assumed
by the company in computing its life insurance reserves,
weighted 35 percent.
The insertion of the item tax-exempt interest in the
denominator is designed to lower the ratio in proportion to
such income and thus avoid a double deduction for reserves
which are invested in tax-exempt securities. The adjustment
for nonlife reserves (computed at 3 — 1
percent of certain
reserves (not included in life insurance reserves) accumu­
lated in connection with some forms of health and accident
insurance) tends to increase the ratio, taking this amount
of income out of the tax base for the industry. However,
the same aggregate amount is then added back to the tax
base on an individual company basis by including each
company* s nonlife reserve adjustment in its taxable
income.

- U Prior to 1921 life insurance companies were, in principle,
taxed as ordinary corporations. A ' 7 their receipts including
premiums as well as investment inc a were included in gross
income. Deductions were allowed for all expenses, benefit
payments to policyholders, legally required additions to
reserves, and policy dividends used to reduce current premiums.
Thus, underwriting profits as well as surplus investment earnings
above reserve interest requirements, exclusive of amounts rebated
to policyholders as a return of premium, were included in the
tax base. This method was abandoned presumably because of
imperfections and administrative difficulties in determining
the allowable deductions for additions to reserves in arriving
at net income.
Beginning with 1921 the tax base of life insurance companies
was restricted to net investment income, thus excluding under­
writing profits. Het investment income consisted of interest,
dividends, and rents, less deductions for investment expenses.
A deduction was also allowed for policy reserve interest computed
as a specified percentage of legal reserves. Prom 1921 to 1931
the percentage used was h percent. In 1932 this was reduced to
3-3A percent except for certain older reserves computed on a
higher interest basis.
The 19^2 legislation embodying the present method brought
the deduction for reserve interest temporarily into closer
alignment with the then prevailing interest rates. It also
represented a technique of eliminating the double deduction of
tax-exempt interest implicit in the T>revious method, whereby
such income was excluded from the tax base while a deduction
was also taken with respect to reserves invested in tax-exempt
securities. In addition, it reitov\ s^me of the more obvious
disparities in the distribution of burdens among companies
under the previous method which had exempted important sectors
of the industry while imposing a large share of the industry*s
tax on a f ew companies.
Proposals for stop-gap legislation
In statements issued on December 2 6 , 19^7 and February 2 1 ,
19^9» the Secretary of the Treasury called attention to the urgent
need for corrective legislation to insure a fair tax contribution
oy life insurance companies, 1 /

y

See Treasury Press Service Ho. S- 5 7 7 , December 26 , 19^7, and
Treasury Press Service Ho. S-9 9 7 , February 2 1 , I9 I49, pp, 1 !U1 3 .

~ 5 ~
On August l6 , 19^9* the Treasury forwarded to the Committee
on Ways and Means a recommendation for stop-gap legislation
revising the income tax provisions applicable to life insurance
companies for the taxable years 19*+8 and 19 ^9 * It proposed that
the Secretary’s ratio be frozen at °2 percent (equivalent to a
tax of about 3 percent on the entire net investment income)
which would have produced about
million of revenue for each
of these two years or a total of $90 million. The Treasury
emphasized that its proposal was intended for temporary legisla­
tion only and did not reflect the Department’s vievs with regard
to the proper long-range approach to life insurance taxation.
A joint resolution (H. J. Res. 371) embodying the Treasury
recommendation was introduced by Chairman Doughton of the Committee
on Ways and Means, October 10, 19^9* The matter was then made the
subject of study by a special subcommittee of the Committee on
Ways and Means on taxation of life insurance companies, which held
conferences with Treasury and insurance company representatives.
The subcommittee developed a legislative proposal to revise the
statutoxy formula for computing the Secretary’s ratio applicable
to each of the years 19^7, 19^8» and 19^9» 1/ The proposal would
rely on the average interest rate assumed by the companies, thus
eliminating the fixed 3 ^r*PerCi5n^ rat© partially relied on under
present law in determining the Secretary*s ratio. In addition,
the proposal would prescribe procedure© designed to neutralize
the effect of particular companies vhoee interest requirements
exceeded their income or the industry--wide ratio. This proposal
was estimated by the subcommittee to yield about $90 million in
revenue for the three years 19^7—19^9* the same as the Treasury’s
proposal for the two years 19^-8—19^9« The Committee on Ways and
Means subsequently reported favorably on H. J. Res. 371 with an
amendment adopting the subcommittee's proposal to adjust the
formula used in computing the Secretary’s ratio applicable to the
years 19^-7» 19 ^-S, and 19 ^ 9 * Zj This measure was passed by the
House, January 26 , 1950. j/
IV • Alternative methods of taxing life insurance income
The problem of how to tax life insurance companies is a
difficult one, partly because of the unique and complex nature of
the business and partly because of the structure of the industry,
comprising both stock and mutual elements. Life insurance com­
panies combine the functions of investment institutions and
insurance underwriters. Their earnings therefore consist of two
sourcesi (l) surplus investment earnings, and (2 ) so-called under­
writing profits derived from favorable mortality experience and
lower administrative costs as compared with premium charges.
2J Income Taxation of Life Insurance Companies. Report to the
Committee on Ways and Means from the Subcommittee on the Taxa—
tion of Life Insurance Companies, January 3» 1950»
Taxation of Life Insurance Companies. Report of the Committee
on bays and Means, House of Representatives, 81st Cong., 2 d
sess., Report No. 1522, January ?kt 1950.
jJ As passed by the House, H. J, Res. 371 included an amendment
to relieve particular hardship situations.

- 6 In considering the basic revision of* the life insurance
provisions, it should he kept in view that favorable tax treat­
ment has always been accorded to the income received by indi­
viduals from life insurance policies. Thus, the interest element
in policy proceeds is largely tax rxetypt at the individual level.
At the same time, interest required to meet policy obligations
has always been allowed in one form or another as a deduction
to the companies, thus avoiding taxation at the company level.
By contrast, the earnings of other investment institutions are
taxed at either the corporate or individual level or at both
levels,
The actuarial problems and uncertainties involved in the
life insurance business raise difficulties in measuring the net
income of life insurance companies on a basis comparable with
that of other eorporations. These difficulties are enhanced by
the peculiarities of the accounting methods and financial state­
ments of life insuv '.nee companies, which are designed primarily
for the purposes oi the State regulatory bodies. In the case of
the mutuals or stock companies doing a participating business,
a further difficulty arises in allocating the various streams of
income as between the company and its policyholders. It is
sometimes held that, consistent with the principle of mutual
enterprise, the policyholders in the mutuals must be identified
with the company and that the oosBpfcsy itself has no income.
Others maintain, however, that in the life insurance business
the mutual form of organization represents essentially an
advantageous method of meeting the risks of long-term contracts,
characteristic of life insurance.
The method of restricting the tax base of life insurance
companies to the net investment income avoids the nroblem of
measuring underwriting profits. Under this simplified approach,
insurance companies may be viewed
savings banks, entitled to
a deduction for interest reouiremeuts akin to the interest paid
to depositors. However, even this limited apnroach encounters
difficulties. The determination of the interest charge is not
clear-cut since it is not based on actual current payments. It
depends on accounting estimates which within limits &re subject
o the discretion and business policy of each individual company.
Total net income approach

116 approach to the development of a permanent system for
the taxation of life insurance companies would be to tax them
a regular corporate income tax rates on their entire net profits
erived from underwriting as well as investment sources. Under
s method, net profits would be computed on the basis of total
receipts (including premiums, investment income, and other income)

- 7less expenses, payments to policyholders, and net amounts added
to legally required policy reserves to meet commitments to
policyholders* Policy dividends paid under participating con­
tracts would be deductible in arriving at net taxable income.
Special provision would be made to avoid a double deduction for
tax-exempt interesti(which would result if the companies both
excluded tax-exempt interest from income and deducted interest
accruals to policy reserves invested in tax-exempt securities).
Capital gains and losses of life insurance companies might be
recognized for tax purposes in the same way as for other corporar*
tions.
In general, the tax base under this method would correspond
(in the case of stock companies) to stockholders1 dividends plus
net additions to earned surplus. Mutual companies would be
treated in essentially the same way as the stock companies.
However, in the case of the mutual companies there are no stock­
holder dividends. Hence, the taxable base of the mutuals under
this method would consist of net earnings retained by the company
as reflected in net additions to surplus, including special or
contingency reserves in the nature of surplus.
This approach would differ from present law and proposed
stop-gap legislation in two important respects» (l) it would
eliminate the exemption of uaderwr Ing profits of life insurance
companies which restricts the tax
to part of the net invest­
ment income; and (2 ) it would relate the tax to the actual net
income position of the particular company, in contrast to the
present and proposed stop-gap treatment, which in effect applies
a flat-rate tax on the investment income of every company without
regard to its particular profit experience. The broader tax base
under this approach would substantially increase the revenue
potentialities in this area of taxation. At the same time, the
more comprehensive definition of income and policy reserve
requirements would provide a sounder basis for measuring varia­
tions in ability to pay among companies. The concept of taxable
income developed under this approach would be comparable to that
applicable to corporations generally* This method would also
protect the financial interests 9f policyholders since payments
to policyholders and accruals to reserves needed to fulfill
policy obligations would be excluded from taxation.
The total net income approach would represent a return to the
general method of taxing life insurance companies, developed
largely by administrative and court rulings in the absence of
specific statutory provisions, prior to 19 2 1 . Former administrar*
tive difficulties might be worked out with improved accounting
methods and clearer concepts of income and with the assistance

- g r
of specific statutory provisions* Possibilities of varying re­
serves for tax avoidance purposes would need to be limited* if
An effective solution to the technical difficulties of apply­
ing the total net income approach to life insurance companies would
provide a basis for taxation which would meet the major criticisms
of the present type of flat-rate tax on investment income* These
criticisms are concerned with the taxation of many smaller and
weaker companies whether or not they have actual net earnings as
well as the relatively light burden on the more profitable companies.
This disparity would be eliminated under the total net income method*
B,

Investment income approach
1*

Indue try-wide method

The present industry-wide investment income approach, embodied
also in the proposed stop-gap legislation, attempts to avoid the
difficulties of measuring underwriting profits or of ascertaining
the actual reserve interest requirements of the particular company.
The industry-wide percentage deduction provided under this method,
even though accurately determined with respect to the industry* s
experience, would not be related to the individual company*s interest
needs* This approach in effect produces a gross-income tax levied
at a reduced rate as compared with the general corporate tax rate*
Such an approximation of net income has important equity and
economic effects where it involves ruch an important item as the
reserve interest obligations of 1 5 » insurance companies* It also
disregards underwriting profits (or losses) which are a substantial
element in the earnings of many companies* This has been defended
in the case of mutual companies on the ground that the retained
underwriting profits belong to the policyholders end the only
economic income of such companies is that derived from investments*
In any event, this method necessarily confers tax advantages on
some companies while working hardship on others, and may impose
a tax on companies which have an actual deficits

If However, the scope of possible tax avoidance or inequities due
to variations in the assumptions underlying reserve computations
would appear to be less under the total income method than
under the investment income approach* The effect on reserve
accruals of varying interest rate assumptions v/ould tend to be
compensated by offsetting differences in the addition to the
reserve from premiums. Moreover, such inequalities in reserve
deductions as might arise would reflect primarily differences
in timing rather than the ultimate amount of the allowances*

- 9~
The Industry-wide or gross income tax method tends to "be
limited to the rate of tax which reflects the average situation
in the industry* This may he greater than can properly he borne
by the weakest members of the industry« Substantial increases
in the tax on life insurance companies* at least with respect
to oufcstanding^buslneas, are therefore difficult under this method*
The seme results as those produced by the industry-wide
formula method might be achieved more simply by levying a flatrate tax of,perhaps, 5 to 10 percent on the entire net investment
income* If imposed at more than nominal rates such a tax might
impair outstanding contracts« except in the case of mutual or
participating contracts where the tax might be absorbed by a reduc­
tion in policy dividends« As applied with respect to investment
income accruing under future policies such a tax could be borne
by the companies ty shifting it to the policyholders in the form
of higher net costs of insurance (.a fleeted in higher premiums or
lower policy dividends), much like the premium tax imposed by
many of the States* If a substantial tax were imposed on this
basis, the uncertainties with regard to future changes in the
level of the tax might h a w erratic and undesirable effects on the
pricing of insurance« i f

2*

gonp^y~byr^ ^ p r , , ^ p ^ ^

The alternative company-by-company approach of taxing net
investment income would attempt to measure the actual reserve
interest needs and surplus investment income of the particular
company«, Under thir. approach, each company would be taxed on its
net investment income after subtracting an amount equal to its
reserve interest accrual as computed at its own assumed interest
rates.
The revenue potentialities of this method are not significantly
greater than under the industry-wide approach» However, the dis­
tribution of tax burdens would be different in important respects,

•v For example, some companies might discount the possibility of
future increases in the tax by shifting more tax to the policy­
holders in the form of higher premiums than was currently paid
to the Government* This would be especially serious in the ease
of non-participating contracts whore the surplus charge would
not ultimately be refunded to the policyholders. Similarly,
uture reductions in the tax eo il not be passed on to the non—
participating policyholders to v aom the tax was originally
shifted.

-

10

-

since the individual company approach would impose a lighter tax
on companies whose reserve interest needs absorbed a greater part
of their investment income»
While this method is restricted to the investment income
approach, it would tend to be more nearly in accord with the
principle of net Income taxation« iowever, this would encounter
difficulties in the life insurance field« It might tend to penalize
conservatism in the financial policy of insurance companies, since
those assuming a high interest rate in computing reserves would
obtain a larger deduction* As applied to the already existing
situation this method might tend to result in differences in tax
as between companies in an essentially similar situation* With
respect to future business, it might te|td to induce the use of
high interest assumptions to reduce tax liability. 1 /
Safeguards might be devised to prevent such distortions and
curb the possibility of ^assuming away11 interest income by deliber­
ately adjusting reserve interest, mortality, and expense assump­
tions to obtain tax advantages* Such safeguards were included in
the company-by-company approach with special weighting provisions
proposed by the Treasury in 1$42* tinder this method the reserve
deduction was to be based partly on the company^ own rate and
partly on a fixed rate in m effort be neutralize the effect of
variations in the interest rate aaeumed by different companies. 2)
Under this approach low-rate, hi|$w*eserve companies would benefit
by the partial use of a fixed interest rate so as to offset the
disadvantage of their own low rate. On the other hand, high-rate,
low-reserve companies would be at a partial disadvantage in the
application of a fixed rate to their low reserves as an offset to
the advantage of using high assumed rates* Such a formula would
thus tend to avoid unfair discrimination as well as undesirable
considerations of tax consequences in the determination of the
Interest rates used by the companies*

if For example, a company assuming a high interest rate (which might
normally be reflected in lower premiums) might add additional
•loading” or expense charges in fixing its premiums* These addi— onal charges could then be ploughed into surplus or contingency
reserves so that the actual financial position of the company
essentially the same as that of another company with
e same earningB but assuming lower interest rates in computing
its legal policy reserves. However, the tax liability of the
Company basing its reserve computations on higher interest rates
would tend to be lower.
& Ihe formula originally proposed was later modified and embodied
present law for application on an industry—wide basis. As
applied on an industry-wide basis the weighting system lost
®ost of its significance.
treasury Department, Tax Advigojy staff of the Secretary

~ IX -

COPY
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
Friday, December 26, 19^7.

Press Service
No, S-577

Secretary Snyder today proclaimed the figure to be used in
computing the "reserve and other policy liability credit" of
life insurance companies under the Federal income tax for the
taxable year 19^7« This figure, determined from year to year
in accordance with a formula set up under statutory provisions,
governs the portion of net investment income which life insurance
companies are allowed as a deduction for earnings needed to
maintain their reserves and meet commitments to policyholders.
The figure proclaimed for 19^7 is 1,0066. As in previous years,
the proclamation was made in the form of a Treasury decision.
In connection with the proclamation, the Secretary issued
the following statement:
"Since the figure 1.0066 determined under T.D, 5595»
December 19, 19^7 to be used by life insurance companies in
computing their reserve and other liability credit for the
taxable year 19^7 is
excess of one, it will result in deduc­
tions in excess of the aft Investment Income on life insurance
reserves. This will not only have the effect of entirely
relieving life insurance companies from Federal income tax with
respect to their life insurance investment income, but will
also exeiapt them in considerable part from tax on investment
income derived from non-life insurance reserves. Under the 19^7
reserve and other policy liability credit ratio, only a small
proportion of companies, those doing a relatively large volume
of accident and health insurance business, will peer any Federal
income tax for 19^7• This development raises questions of
public policy with respect to the method of taxing life insurance
companies which call for the immediate attention of the Congress
and others concerned. Representatives of the life insurance
industry at their request have already conferred with the
Treasury with regard to these problems.
"The figure for 19^7 has been determined in accordance with
the provisions of Section 202 (b) of the Internal Revenue Code,
as amended by Section 163 of the Revenue Act of 19^2, on the
basis of representative data furnished by life insurance
companies on their income tax returns for 19*46. The figure for
19^7 is in all respects consistent with corresponding figures
determined for previous taxable years as follows: 19*46, ,9595 »
l9 **5 t *9539 ; 19 ^, .9261 ; 19U3, .919 «; 19 tef .9 3 . Under the'
law, I have no alternative but to determine such a figure. How^*
ever, the unavoidable result is the effective removal of
Federal income tax/Liability from life insur^ice companies.

12
nThe present taking formula applicable to life insurance
companies is based on conditions existing at the time of its
adoption in 19 *+2 . Ï am confident that the life insurance
industry will cooperate with the Treasury and the Congress in
developing revised methods of taxation that will be fair and
equitable and will not endanger ^heir obligations to their
policyholders.”

0Q0

- 13 -

COPY

TREASURY DEPARTMENT
Washington

IMMEDIATE RELEASE
Monday, February 2 1 , 19^9

S-9 9 7

Secretary Snyder today proclaimed the figure to be used in
computing the ’’reserve and other policy liability credit” of
life insurance companies under the Federal income tax for the
taxable year 19^8* This figure, computed annually in accordance
with a formula prescribed by Act of Congress, determines the
portion of net investment income which life insurance companies
are allowed as a credit (on account of reserve requirements and
other commitments to policyholders) in arriving at net income
subject to tax. Under the statute, the figure is the same for
each life insurance company and is based on industry-wide data
for the preceding year. The figure for 19^-8, proclaimed in
a Treasury Decision, is 1.02*43.
In connection with the proclamation, the Secretary issued
the following statementi
’’Under the figure 1,02^3 determined today under T,D. 5689#
to be used by life insurance companies in computing their 19^+8
reserve and other liability credit, this important industry will
again be exempt from Federal income tax. Under the law, X have
no alternative but to dftefjBdn© such a figure. Last year, when
a similar situation arose, t directed attention to the need for
corrective legislation.
”In the absence of corrective legislation, these companies
will continue to be exempt indefinitely from Federal income taxa­
tion. This matter requires urgent attention, and at the first
opportunity the Treasury Department will present to the Congress
suggestions for taxing life insurance companies. At their own
request, representatives of the industry have already conferred
with the Treasury on this matter* Our investigations have made
it clear that the tax provisions applicable to the life insurance
industry can be revised to insure that this industry makes its
fair contribution to Government revenues, with due regard to the
companies* obligations to policyholders.”'
The figure for 19^8 was determined in accordance with the
provisions of section 202 (b) of the Internal Revenue Code, as
amended by section 163 of the Revenue Act of 19^2, on the basis
of representative data furnished by life insurance companies on
their income tax returns for 19^7* The 19^8 ratio of 1.02^3
compares with corresponding figures determined for previous
taxable years as follows: 19 ^7 , 1 .0066 ; 19 ^6 , .9595 ;
19^5. .9539 ; i9>+4, .9261; I9 U3 , .9198; lgHa, .9 3 .
0 O0

- IH -

Table 1,

Life insurance policy reserves and assets

United States life insurance companies
Selected years, 1900 ~ 191*8
(in millions)

;Life insurance;
Year i
policy
;
; reserves }J i

Assets

;
Excess of
:
Excess of
; asset9 over ; percentage of
ipolicy reserveaipolicy reserves

2 0 .7 Jf

1900

$ 1 ,41*3

$ 1,742

$ 299

1910

3,226

3.876

650

2 0 .1

1920

6,338

7,320

982

1 5 .5

1930

16 ,2 3 1

10*880

2,61*9

16.3

1939

25,227
27,238
28,945
30,797
33,049

29,243
3 0 ,m

3 .4 1 6
3 ,5 6 4

3 2 ,7 3 1
3 4 .9 3 1
3 7 ,7 6 6

3,786
l*,l3l*
4,717

13.2
13.1
13.1

35,577

1*1 ,051*
4 4 ,7 9 7
U8 ,19 l

5,477

51,743

6,861

55,600

7,415

1940
19l*l
1942

191*3
191*1*
19%
191*6
1947
191*8

38.667
1*1 ,7 0 2
l*l+,882
48,185

6 ,1 3 0
6,1*89

1 3 .4
14« 3

1 5 .4
1 5 .9
1 5 .6
1 5 .3
1 5 .4

Treasury Department, Tax Advisory Staff of the Secretary

A/ Life insurance policy reserves include life, annuity, supple­
mentary contract, disability and double indemnity reserves,
but do not include contingency reserves and surplus funds.
Source!

Institute of Life Insurance, Life Insurance Pact Book,

19U9.

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

- 15 Table 2* Dividende to policyholders, dividends to
stockholders, and additions to contingency
reserves and surplus
United States life insurance companies, 1939-19^8
(In millions)

Year

Dividends
:
Dividende
to
:
to
policyholders : stockholders

:Additions to odptin:gency reserves and
:
surplus

1939

$ U66.U

$ 17-7

$ SU. g

I9U0

ui+5 , 1

16.9

55.0

I9UI

>♦2 3.6

17.4

106 .H

19^2

U 2 5 .0

lb. 2

175.5

19^3

*37.1

37.0

229.9

19UU

U6 5 ,0

23.1

273.1

191+5

500.9

3 0 .0

3 6 8 .7

19^6

5*6 .7

3 3 .3

9 6 .8

19^7

57S.U

?3*3

129 .H

iÿ+s

626 .I

3 6 .3

3 0 2 .U

Treasury Department, Tax Advisory Staff of the Secretary
Source:

The Spectator, Insurance Year, Books, Life Volumes,

I9UO-I9U9,

”

*

- 16 ~
Table 3*

Net gain from insurance and investmenta

United States life insurance companies
19^7 and I 9U8
(in millions)
T

19U7

i

Premiums and other considerations
Div, aceum. and suppl. contr. without
life cont!g*
Investment income (less investment expense
incl, taxes)
Other income
TOTAL INCOME (A)
DISBURSEMENTS*
Deaths
Maturities, disabilities, annuities
Surrender
Div* aPCura. and suppl. contr. without
life cont’g.
Commission, taxes and other insurance
expenses
Other disbursements
TOTAL DISBURSEMENTS (B)
Increase in reserves on contracts
involving life contfg*
Increase in reserves for dividend accumula­
tion and suppl. contracts without life
contingencies
Increase in other reserves and assets not
admitted
TOTAL INCREASE IN RESERVE (C)

.

I9U8

$ 6,582.8 $ 7,082.7
663.5
698.2
1 .3 7 9 .2

1,521.8
57.5
9.360.2

1 ,37 ^.1
935-9
387 .H

1,>(71.6
1,016.2
U7 1 .3
U6U.6

Hi.8
8,667.0

*»0 3 .3
1 ,1(0 6 .9
96.8
U,6o U.5

112.0
5,oHi.U

2,782.0

2,813.1

Uli.H

386,0

us.9
3.2U2.3

NET GAIN EROM INSURANCES
Industrial
Life
Total and permanent disability
Accidental death benefits
Annuities (excluding disability annuities)
Group and group annuities
Accident and health
TOTAL GAIN EROM INSURANCE (A-B-C)
(Concluded on next page)

1U9.5
5 2 7 .1
- 9 .1

26.2
- 5 1 .6
103.1
HU. 8
8 2 0 .1

1 ,5 0 5 .7

50. u
3 .2^9 .5

163.6
671.7
2 9 .9
9 .*
1 3 3 .8
5 3 .6

1.069.3

- 17 -

Table 3 (concluded)

t•
••
INVESTMENTS:
Net profit on sale or maturity
Increase by adjustment in book value (net)
Gain, change in d iff. book and admitted
values
Gain, other investment items
NET PROFIT FROM INVESTMENTS
NET GAIN FROM UNDERWRITING AND
INVESTMENTS
Dividends to policyholders
Dividends to stockholders
Increase in general contingency reserves
Gain from miscellaneous items
TOTAL NET LOSS FROM MISCELLANEOUS ITEMS
INCREASE IN SURPLUS DURING YEAR

19 H7

;
••

I 9 U8

$ 8 9 .7
- 33*3

$ 3 7 .5
- 3.1

4 I 2 3 .9

- 1 3 .8
- 1.0

- 11.1
- 78.6

1 9 .6

1,088.9

7 ^ .5
578.1+
33.3
2 0 .7

*

626.I
3 6 .8

77,u
- I23. 7

6 3 2 .8

108.7

8 6 ^ .9

224.9

Treasury Department, Tax Advisory Staff of the Secretary

* Negative figure, less than $5 0 0 , 0 0 0 .
Source:

The Spectator, Insurance Year Books, Life Volumes,
19l+S-19h9.

IS Table U*

Federal income tax of li f e insurance companies»
1929-19^6, I 9 U9 S Number of tax returns,
net investment income, and tax lia b ility
(Dollar amounts in thousands)

« Number
:
Taxable 5 Of
;
year
«returns 2/i

Net
investment
income 2/

Tax
J
i Amount i Percent of net
«investment income
s

1929
1930
1931
1932

§59
6H9
631
622

$ 716,512

$ 12,097

775,118

12,8U3
10,3U8
10,811

1933
193H
1935
1936

626
668
665
665

697,070
707,277
68^,156
724,911

1937
193S

673

721,719
742,191
775.673
816,140

1939
1990

722
730
7*5

19U1
19^2
1993
19bb
191+5
19U6

776
719
732
668
715
806

19U9

—

701,1+70
766,067

950,194
1 ,027,713

1,098,965
1 ,157,114
1 ,256,521
1 ,296,328

1,500,000 (e s t.)

1.7$
1 .7

1.3
1 ,4

2.451

.4

1,84 0
410

.3

.1

499

.1

392
%3

.1
.1
.1
.1

459
738
1.190
27,427
3H,l+82
3M 62
24.725

21,821

.1
2 .7
3 .1
3 .0

2.0
1 .7
—

Treasury Department, Tax Advisory Staff of the Secretary

2/

Includes returns of inactive corporations.
Consists of interest, dividends, and rents received, less
deductions allowed for investment expense, taxes paid, depre­
ciation, and other real estate expenses. This Item excludes
wholly tax-exempt interest received which in 19 ^ , for example,
amounted to $52,538,000, and does not take into account (l)
special deductions and credits allowed li f e insurance companies
for the maintenance of reserves, ( 2 ) deductions and credits for
interest paid, or ( 3 ) net operating loss deductions ajppllcajble
in the years 19UO-4l.

Sources

Statistics of Income and tabulation by Sta tistica l
Division, Bureau of Internal Revenue.

- 19 Table 5* Life insurance company income tax returns, 1946, by
total assets classes for returns with net income, and in
aggregate for returns with no net incomes Number, net
income or deficit, tax liability, and total assets
(Money figures in thousands of dollars)

Total assets classes

•

lumber

*

of

1 Net in- •
Tax
\
/' vestment liability*'
* returns £ / :
income J
s

Total
assets

Returns with net income
Under $ $0
$ 50 under 100
100 under 2§0
250 under 500
500 under 1,000
1,000 under 5 ,000
5,000 under 10,000
10,000 under 50 ,000
50,000 under 100,000
100,000 and over

Grand total

1

$

2

573

10

6 ,91+9
8 ,35 6

Grand total

57,951

l4l
111
ggo

5 2 ,1+65

1,12 0

i,l$g,8l4

19,521

26,387
307,821
324,696
2,237,001
2 ,0 36 ,011+
UU, 0 79,251

1*295,5*49

21,792

1+9.037,398

I6 I

1,113

29

-

7 OH

1 ,296,662

21,S21

-

iti

&
m

ItO

1

27

-

315

46

-

19

73

-

33^

1n
5,159

-

«

mm

mm

treasury Department, Tax Advisory Staff of the Secretary
i1 Excludes returns of inactive corporations.
Source:

1 ,1+67
2,083
7,037
15,641

3

Returns with no net income
Returns with balance sheet
Returns with no balance
sheet

$

3

94
292

il
¡+5
39

Total returns with
balance sheet
Returns with no balance
sheet

$ 17
38

59
30

Source Book, Statistics of Income for 1946, Part

2.

EXHIBIT U

Miscellaneous Tax Loopholes

To Accompany Statement of Secretary Snyder
Before the Committee on Ways and Means,
House of Representatives
February 3 , 1950

Table of Contents

Miscellaneous Tax loopholes
Page No,,
I*
II.
III*
IV,
V*

Collapsible Corporations .......... .

1

Sal.es of Business Property ,.......... .

3

Short S a l e s .......... *...................

4

Foreign Subsidiaries ...................

6

Dividends Received Credit for
Di stribution a in Kind ....................

7

VI,

Income from Possessions , *..r.... ......... #

8

VII.

Dividends Paid Out of pro-1913 Profits ,,,,

9

VIII,
IX.

X,
XI,

Capital Gains of Hoaresident Aliens
Interest Element on life Insurance
Paid in Installments

9

.... ..

10

Transfers in Contemplation of Death ......

n

Estate Tax Deduction for Allowances
for Support of Dependents a...,,,,.,....,,,

n

MI SCELLAIÎSOUS TAX LOOPHOLES

I*

Collapsible Corporations

The President, in his recent tax message to the Congress,
referred to the loophole through which individuals, engaged in
the production of certain types of property, have attempted to
convert their ordinary business income into the more favorably
treated capital gains by means of corporate shells, Por
example, if a motion picture producer made all of his pictures
as an individual, his entire gain from such operations would
be taxed at individual rates which range as high as 82 percent*
If he produced all of such films through a single corporation,
the corporation would pay a tax of as high as 38 percent on
the profits as realized, and the producer would pay an indi­
vidual income tax as such profits are distributed by the cor­
poration. Producers have tried to avoid these results by
organizing separate corporations for each motion picture;
upon completion of the film but prior to the realization of
any income therefrom, the corporation is liquidated and the
assets are distributed. In such a ^ase, the corporation pays
no tax claiming that it has realized no income. The producer
pays tax upon the difference between his cost and the fair
market value of the assets so distributed; but such gain is
reported as long-term capital gain with a maximum effective
rate of 25 percent. After liquidation, the estimated value
of the released production will be amortized against the
income from the film as it is received. If the income from
the film does not exceed its estimated value, there is no
further tax.
An actual case illustrating the problem is, as follows:
M Productions, Inc. was organized by an independent producer
in March, 1942 under the laws of the State of California, for
the sole purpose of producing picture X to be distributed by
Studio Z. All the capital stock of the corporation (1,750
shares having a par value of $1,750) was issued to the pro­
ducer who held it jointly with his wife as community property.
On June 2, 1943, the picture having been completed and distri­
bution contracts executed, the corporation was liquidated.
■Che estimated value of the motion picture rights thus dis­
tributed in liquidation was $1,452,000. After deducting
liabilities assumed by the producer on liquidation of the
corporation, his net gain was approximately $615,000 and
his net tax thereon approximately $154,000. The estimated
value of the assets distributed ($1,452,000) must be amor­
tized against future income on such assets prior to the
imposition of any further tax with respect thereto.

Thus, the producer’s profit from the picture, which would
ordinarily he taxable first at the corporate rate and then at
the individual income tax rate v/hen received as dividends, has
borne only a single 25 percent tax. Moreover, where, as some­
times occurs, the actors, or writers, acquire stock interests,
they also benefit since the compensation for their personal
services is taxed at the capital gains rate instead of at the
full individual income tax rate.
It is understood that the tax saving device of organizing
and liquidating a corporation for the purpose of securing simi­
lar tax benefits is also being used to some extent in the
building and construction trades. Individuals engaged in the
building or construction business organize a corporation for
each development project, not only for the purpose of limiting
liabilities, but for the purpose of securing these benefits.
The corporation is organized at the beginning of construction
and is liquidated upon completion of the project and before
any sales are made. If the corporation continued in existence
and sold all the units itself, it would pay an ordinary income
tax on the difference between the amount received for the units
and the cost of construction.
In order to secure tax benefits, the corporation is per­
mitted to exist only until the construction is completed or
for six months after its stock was issued, whichever date is
the later, and upon liquidation the value of the assets dis­
tributed is estimated at the amount for which it is expected
the units will be sold. On this basis, the stockholders
report as a long-term capital gain the difference between
the net amount they expect to receive and the cost of the
stock owned by them at the time of the liquidation. Having
received the assets, the stockholders proceed to sell the
units and to report for tax purposes as an ordinary gain or
loss the difference between the value at which the units were
acquired on the liquidation and the actual selling price.
It is by no means clear that taxpayers using this device
will be able to accomplish fully their tax savings objective,
for the corporate form would appear to be in these cases a
sham. However, the Department recommends that the statute
be amended so that the use of this device for the future
will clearly result in no tax advantage. At the present
time, there are over a hundred cases being examined by the
Bureau of Internal Revenue which involve this type of loop-»
hole. If corrective legislation is not enacted, the practice
may spread more widely.

- 3 -

It is recommended, to cure this problem, that long-term
capital gains treatment be denied to any shareholder who sells
or liquidates his securities in any corporation so utilized by
him for such tax abidance purposes,

n.

Sales

..arsine aa_ Property

Another defect in existing lav is the «one way street*
now provided for taxpayers under section 117 (j) of the
Internal Revenue Code in the case of sales of land and depre­
ciable property which is used in the taxpayer*s trade or busi­
ness. Under present lav, where such sales result in a net
gain, the amount of the gain is taxable only at capital gains
rates. Where a net lose results from such sales, however,
the amount of the loss is allowed in full as a deduction from
ordinary income. The provisions of this section were enacted
in 1942 to facilitate the disposition of obsolete business
properties and encourage the acquisition of new equipment
necessitated by the war emergency. The justification which
the section might have had at the time of its enactment is
believed to have disappeared with the termination of the
war.
With respect to productive business property, there have
been numerous cases of abuse. Many plants, stores, warehouses,
etfcp., have been sold at large losses, and full deductions
taken against ordinary income which would otherwise have been
taxed at the normal or excess profits tax rates. An actual
case will illustrate the problem2 Corporation D, in 1944,
sold
department store building, together with the land on
vhich it was located, at a loss in excess of $7,400,000.
Such loss was allowed as an ordinary deduction under section
(j) and resulted in a minimum tax benefit (by reason of
excess profits tax) of $5,600,000. It is significant, that
in this case, the sale was made to a trustee for a tax exeapt
organization and leased back by the corporation. Thus, the
corporation continued to enjoy the use and possession of such
property while, at the same time, securing the benefit of sub­
stantial tax savings.
Another illustration of the manner in which the loophole
operatfs to prejudice the revenues is presented in the case
of livestock sales. Many cattle and dairyisregularly sell
a part of their breeding and dairy herds each year. It is
difficult to justify the difference in treatment between
profits realized on such transactions and their other busi­
ness profits. Yet, under section 117 (j), the courts have
held that gain from the sale of breeding cattle or dairy

herds is taxable only at capital gains rates because such ani
inals had been used in the taxpayer*s cattle or dairy business
Losses from these transactions on the other hand, are fully
deductible as ordinary business expenses in computing net
income.
This complete lack of symmetry in the treatment of gain
and loss arising from the sale of business property should be
eliminated. Accordingly, it is recommended that land and
depreciable property (other than breeding and dairy animals
regularly culled for sale e&ch year) used in the taxpayers
trade or business be included within the definition of
^capital assetsrt, so that all gains and losses from the sale
or exchange of such property shall be treated as capital
gains and capital losses, In the case of breeding and dairy
animals regularly culled for sale each year, the proceeds
should be given ordinary income and loss treatment.

III, Short Sales
A further defect in the present capital gains structure
is the device through which, investors have for some years
now been able, without any risk whatever, to convert short­
term capital gains into long-term capital gains, and to
create largely fictitious short-term losses (100 percent of
which is taken into account for tax purposes) to set off
against their long-term gains (only 50 percent of which is
taken into account). The device most frequently employed
to achieve these results is the short sale which is", in
effect, a sale of borrowed property,
For example, an investor buys 1,000 shares of X company^
stock on January 1, 1950 at $50 per share. Three months later

- 5 -

on April 1, 1950, the market price of such stock rises to $43
per share, so that a sa,le of the stock on that date would
result in a short-term capital gain of $12,000 (100 percent
of which would he includible in gross income). By effecting
a short sale of 1,000 shares of X company’s stock at $42 per
share in April 1, 1950, and holding this hedged position for
an additional three months, the investor can insure a gain of
$12,000 at long-term capital gains rates. Moreover, should
the market price of the stock continue upwards after the
short sale to $54 per share, the investor will have not only
insured a long-term gain treatment for his gain, hut will
also have created a potential short-term loss sufficient to
avoid any tax whatever upon his profit of $12,000 from the
entire transaction.
An actual case will illustrate the abuse: From January 1,
1949 to August 31, 1949 an individual speculator in cotton
futures, through this device was Able to report long-term
profits in the amount of $485,000 and short-term losses of
approximately $250,000. She short-term losses (deductible in
full) were more than sufficient to offset the long-term gains
(only 50 percent taken into account). This individual’s
operations fell outside of Regulation 1.46 under the Commodity
Exchange Act as well as the Bureau of Internal Revenue ruling
dated March 8, 1948 since his transactions were effected on
different cotton exchanges.
It is recommended that amendments be adopted to eliminate
this loophole. First, a loss upon the closing of a short sale
should be deemed to be a long-term capital loss if on the date
of the short sale the taxpayer had held for more than 6 months
property substantially identical to that sold short. Second,
a gain upon the closing of a short sale should be deemed a
short-term capital gain if on the date of the short sale the
taxpayer had held for less than 6 months, or if after the
date of the short sale and prior to its closing the taxpayer
acquired, property substantially identical to that sold short.
Third, the holding period of property held or acquired by the
taxpayer as described in the iast sentence should be deemed to
begin on the date the short sale is closed or on the date of
the disposition of such property, whichever is earlier. For
the purposes of the above rules, substantially identical prop­
erty held or acquired by the spouse of the taxpayer should be
deemed to be held or acquired by the taxpayer, Such provisions
would effectively prevent the creation of fictitious loss
offsets and the riskless conversion of short-term gains into
long-term gains through the medium of short sales in

-

6

-

»substantially identical" securities or commodities. The amend­
ment would have no effect, however, upon legitimate hedging operations conducted by farmers, securities dealers, grain merchants
and others who now receive ordinary income and ordinary loss
treatment on all such operations.
IV. foreign Subsidiaries
A loophole exists through which domestic corporations avoid
income tax on income from operations abroad through the forma­
tion and subsequent liquidation of foreign subsidiaries.
Existing law generally requires that a domestic corporation
shall pay income tax on its entire net income, irrespective of
^ derived from sources within or outside
the United States. Where such a corporation, however, owns a
foreign subsidiary engaged exclusively in business abroad, no
Federal income-tax is payable on the subsidiary's income until
it is distributed in the form of dividends to the parent
th Which1tin® U i3 t o d at the full corporation rate
without the usual intercorporate dividend credit,
are n ^ i t t o ^ o ® arises. ^ ° ” the
that foreign corporations
are permitted to merge with domestic corporations in tax-free
reorganizations and liquidations on virtually the same terms
case o ? T f o ° °OrPOrati0n\ - the only difference being, in the
S T J i j * f°reign “ operation, that it must be established that
avoid tfiv®6 raer®er or liquidation is not designed primarily to
in mn +& ' Inasmaoh as a business purpose may be established
for»? *
.!eh . EUbstantial a“ 0"11*® of income accumulated by
f " e ^ subsidiaries on which no United States tax has been
^ o s e d are permitted to be transferred to such domestic corporations without tax consequences.
latio^of I*0« 11*3 the use of foreign subsidiaries for accumubrouaht h i f®
°'U3atf °f foreign earnings which can be
brought bach to the United States without any tax.
that thpeiini?att thiv 1°°ph°le' the law should be amended so
earning tu liZat,?n by the domestic corporation of the foreign
ingf to t ^ 0U^ 11?uidatiorl or raerser will subject such earn-

7*

Mvl^ends Received Credit for Distributions in Kind

One of the more troublesome problems under existing law
involves distributions in kind made by corporations to their
shareholders, A striking loophole in this area is presented
in cases where such distributions are made by a subsidiarv to
its parent company. Ho gain or loss is recognized to the*sub­
sidiary in such cases; and the parent company is allowed an
intercorporate dividend credit equal to 85 percent of the
market value of the property so received. Moreover, the
parent company takes the property at a new basis equal to
its market value at the time of the distribution.
Moreover, it has been contended that the principles ap­
plied under court decisions relating to dividends in kind are
applicable to distributions of inventory. If so, a subsidiarv
corporation could effect a substantial reduction in taxes by
distributing inventory to its parent company. Ohe subsidiary
would pay no tax, and the parent would pay only a 5,7 percent
tax on the dividend. Since the basis of such inventory in
the bands of the parent company equals its market value, the
parent thereafter may sell the inventory on the open market
n T 5?! rfallzinS any taxable gain. If the subsidiary had
sold the inventory, it would have been required to pay a 38
percent tax on the gain from such sale; and the parent would
f7e, °
an additional 5.7 percent tax on any dividend
which it might subsequently receive. A simple illustration
s as follows: Corporation A distributes to its parent B a
dividend of merchandise which cost A $3 million but which
has a fair market value of $11 million. If the contentions
su.?tained» Corporation A will pay no tax, and
Corporation B will pay a tax of only 5.7 percent of the
$11 million dividend, or $627,000.
r e c e i ^ i 0^ 01® °°?ud
reduoed
computing the dividends
received credit upon the basis in the hands of the distribu°°rp°r^1tlon of the Property distributed, so that upon
eipt of the property by the parent corporation a full
tax would be paid by the parent upon the increase in value
of the property distributed.

- i f

VI.

Income from Possessions

Legislation is also required to eliminate certain tax
avoidance possibilities under section 251 of the Code. This
section provides that United States citizens engaging in a
trade or business in a possession (other than the Virgin
Islands) are not subject to tax on any of their income from
such source or any other source outside the United States, if
80 percent of their gross income is derived from such posses­
sion and 50 percent of it is derived from a trade or business*
For this purpose, the rendition of personal services consti­
tutes a trade or business.
Under this section, therefore, an American citizen may
obtain complete exemption of his foreign income from Federal
tax for any portion of the taxable year during which he qual­
ifies* There is no need for him to be abroad for any partic­
ular time as long as his income is from sources within a. pos­
session. United States citizens employed or operating busi­
nesses in such possessions are exempt on their foreign income
regardless of whether they are bona fide residents thereof
and whether their business income represents earned income or
primarily a return on capital. There has come to the atten­
tion of the Treasury Department the case of a radio entertainer
who recently entered into an arrangement with the Government
of Puerto Rico under which he agreed to produce all of his
radio and television transcriptions and films on that Island
in return for an exemption from the Puerto Rican income tax.
He also may be able at the same time to qualify for exemption
from United States tax even though he may stay in Puerto Rico
for only a short period.
In addition, virtually all United States Government
employees, including military and naval personnel, in Puerto
Rico, Panama Canal Zone, Guam, American Samoa, Uake Island,
Midway and other Pacific Islands are completely exempt from
Federal income tax.
Besides the foregoing loophole, this section grants
American citizens in possessions more favorable tax treat­
ment than is accorded citizens in any other pert of the world,
irst, except as to the possessions, Government employees
are always subject to tax on their salaries. Secondly,
citizens can obtain this complete exemption of all foreign
income for any period for which they qualify under this sec­
tion. On the other hand, citizens in foreign countries must
e there an entire taxable year before obtaining exemption

~ s

-

of only their earned income. It seema only equitable to place
all of our citizens on a uniform basis vherever employed.
Accordingly, it is recommended that citizens in the
possessions be given the same treatment as is accorded to
citizens who reside in foreign countries.
VI1•

Dividends Paid out of Pre-1913 Profits

Section 115 (b) of the Internal Revenue Code provides
an exemption for dividends paid by corporations to their share­
holders when such dividends represent earnings and profits or
gain from an appreciation in value irhich accrued prior to
March 1, 1913. This exemption was originally enacted in 1916
because of doubts as to the constitutionality of imposing tax
upon such dividends. Since that time, however, the courts
have made it very clear that the Constitution is no longer
any barrier to the taxation of these distributions. Further­
more, elimination of the present requirement to distinguish
between pre-1913 and post-1913 accumulations would aid sub­
stantially in the administration of the law.
An actual case illustrating the inequity of this exemp­
tion is that of a mining corporation whose ore properties
had substantially appreciated in value after acquisition but
prior to March lt 1913. The company had no accumulated earn­
ings or profits since February 28, 1913, but each year distrib­
uted substantial amounts to its shareholders (a number of
steel companies) out of depletion reserves representing the
pre-March 1, 1913 appreciation in value of the ore properties.
One of the steel company shareholders by 1941 had already
recovered through such depletion distributions the entire
cost of most of its shares in the mining corporation. Yet
under the court decision, it continues to receive annual
distributions of approximately $88,000 tax free.
It is recommended that this exemption be repealed with
a view toward simplification and to prevent any further wind­
falls to shareholders of corporations making distributions
out of^pre-March 1, 1913 earnings and profits or gain from
appreciation in value accrued prior to such date.
^ C a p i t a l Gains of Nonresident Aliens
Under existing law, capital gains of nonresident aliens
not engaged in a trade or business in the United States are
exempt from income tax. This exemption applies even though
e nonresident alien may be physically present in the United
tates at the time such gains are realized. A typical example

-

10

-

of this loophole is the recent Fubar, case, in which it was
held that the alien taxpayer was' completely exempt from tax
on over $600,000 of trading profits realized by him while
in the United States,.'
It is recommended that a tax eoual to the tax now ap­
plied with respect to other income of such nonresident aliens
(30 percentum) be also applied with respect to the net capital
gains realized by such individuals who are physically present
in the United States from United States sources*
"IX. Interest Element on l i f e Insurance Paid in Installments
Existing law provides an income tax exemption for "amounts
received under a li f e insurance contract paid by reason of
the death of the insured," Court decisions have held that i f
the proceeds of life insurance policies are paid in in sta ll­
ments rather than in a lump sum, whether by direction of the
insured or election by the beneficiary under an option in the
policy, the entire amount of the installment payments is exempt
from tax* Thus, the excess of the aggregate amount paid in
installments over the amount of the lump sum that would have
been payable at death escapes tax, even though it is clearly
a payment of interest by the insurance company for the use of
the funds.
Illustrative of this loophole is the actual case of a
taxpayer whose husband died leaving a $100,000 lif e insurance
policy naming her as beneficiary. The policy contained a pro­
vision giving the taxpayer the right to receive the proceeds
in installments. She elected to be paid in installments over
the period of her life-tim e, each monthly installment to be
$59? (or $7,164 per year}. The taxpayerrs lif e expectancy
at the time of her election was approximately 19045 years,
Dividing the $100,000 face amount of the policy by her lif e
expectancy, she would be entitled to aggregate annual payments
of only approximately $5,141, i f the payments represented
only installments of the $100,000, The difference of $2,023
is attributable to interest on the policy proceeds retained
by the company. It was held, however, that a ll payments
received by the taxpayer were exempt from tax.
To remedy this loophole the statute should be revised
as to provide a tax upon the interest element contained in
the installment payments.

- ir X.

Transfers In Contemplation of Death

One of the more d iffic u lt problems in the administration
of the estate tax is the determination of whether g ifts which
the decedent made during his lifetime were in contemplation of
his death. The purpose underlying the subjection of g ifts in
contemplation of death to the estate tax is the prevention of
tax avoidance. The present statutory provision attempts to
reach those g ifts which are induced by the same motives which
customarily underlie disposition by w ill. In depending for
its application upon nroof of the state of the decendent's
mind, the provision has produced administrative complications
and a great deal of litiga tio n and has not been very effective
in preventing estate tax avoidance.
The seriousness of this problem would be reduced i f the
present estate and g ift taxes were replaced by an integrated
transfer tax, under which transfers made during life and at
death would be aggregated and taxed under the same rate
structure. Hovrever, i f the integrated tax is not adopted
at this time, it is recommended that the contempiation-of~*
death provision be replaced by an objective rule. Specifically,
it is recommended that a ll g ifts made within three years of
death be required to be included in the gross estate.
XI*

Estate Tax Deduction for Allowances for Support of
Dependents

The estate tax law now permits a deduction for amounts
allowed under State law for the support during the settle­
ment of the estate of those dependent upon the decedent.
Since these allowances are a part of the decedent's net
wealth and are received by reason of his death, they should
be a part of the estate tax base.
Another objection to this deduction is that it does
not apply uniformly because of differences in State laws.
In those States which permit large allowances for this pur­
pose, the deduction is sometimes abused. Fairly large
amounts may be transferred tax free under the guise of a
support allowance to legatees who were legal denendents of
the decedent.
It is recommended, therefore, that this deduction be
repealed.
Treasury Department, Office of the Tax Legislative Counsel

EXHIBIT Ç

Characteristics of Property Transfer# During life and at
Death as Revealed hy Special. Analyses of I9U 5 Estate Tax
Returns and Prior Gift Tax Returns

To Accompany Statement of Secretary Snyder
Before the Committee on Ways end Means,
House of Representatives
Pefcruary ', 1950

Table of Contents

Characteristics of Property Transfers During L ife and at
Death as Revealed by Special Analyses of 19^5 Estate
Tax Returns and Prior G ift Tax Returns

I,

I n t r o d u c t i o n ......,,,,,........... .................................

I I , Characteristics of I 9U5 estate tax
returns................................................
III,

Special study of estates of $500,000
or more...............
A,

IV,

1
2
3

Characteristics of estates of
$500,000 or m o r e . . . , . . . , . . , . . . , , , , , , , , , ,

3

B,

Amount and composition of t r a n s fe r s ......

5

C,

Outright transfers vs. transfers
in t
r
u
s
......... .......................

6

D,

Duration of tr u s ts ...............................

7

S.

Recipients of property transferred
outright and in t r u s t . . . . . . .........

S

Analysis of matched estate and g ift
tax returns.......................................................................

10

A,

Frequency of prior g ifts ....................................

11

B.

Amounts transferred during l i f e
and at death,...........
............................

11

Appendix;

Explanation of Tables

Table of Contents - 2
Page No.
Tables
1* Humber of decedents by size of gross
transfers and by marital sta tu s.......................
2.
3»

Composition of gross transfers by
age of decedent...................................... ...................

19

Composition of grose transfers by
sise of gross transfers*..................................... .

20

Disposition of gross transfers by
size of gross transfers..................... ................. ..

21

5* Number of decedents by size of gross
transfers and by ratio of transfers
at death to gross transfers........................ ..
6.

7.

8.

9.

10,

18

22

Number of decedents with noncharitable
transfers in trust by size of gross
transfers and by ratio of noncharitable
transfers in trust to gross t r a n s fe r s ......

23

Noncharitable trusts created during
lif e or at death by size of gross
transfers and by duration of trusts..................

2U

Noncharitable transfers other than in
trust by size of gross transfers and
by relationship of recipients..................... ..

25

Noncharitable trusts created during
lif e and at death by relationship
of l i f e tenants or tenants for a
term of years to grantor..........................................

26

Noncharitable trusts created during
life and at death by relationship
of the remaindermen to grantor. . . . . . . . . .........

28

Characteristics of Property Transfers Daring Life and at
Death as Revealed "by Special Analyses of I 9H5 Estate
Tax Returns and Prior G ift Tax Returns
I,

Introduction

The present estate and g ift tax system has two structural
defects which weaken its equity and reduce its yield.
F irst, the taxes Imposed on outright transfers and on
transfers in trust are unequal. Outright transfers are taxed
each time the property passe© from one person to another.
Property settled in trust is not taxed when the income rights
pass from one lif e tenant to another or when the trust termi­
nates. By settling property in trust, estate taxes in one or
more future generations may he avoided.
Second, separate taxation of g ifts and estates discrimi­
nates against transfers at death by reason of (l) the differen­
tial between estate and g if t tax rates, l/ (?) the unlimited
number of annual exclusions allowed under the g ift tax in addi­
tion to the separate lifetim e exemption, and (3) the fact that
amounts paid as g ift tax do not enter into the tax base while
the amount paid as estate tax is part of the base on which the
tax is computed. Thes#,
between estate and g ift tax
provisions produce dif£ar#*|##S in bsMf burden between those who
manage to transfer large portions of their wealth during life
and those who are not able or v/illing to relinquish ownership
of property until death.
Although the tax advantages of transferring wealth in
trust and prior to death are well-known, the amount of property
passing in these ways has seldom been accurately estimated.
The two special studies of estate and g ift tax returns here
summarized provide quantitative information on transfers in
trust and on transfers during life useful in analyzing these
problems,

¿ / G i f t tax bracket rates are 75 percent of the corresponding
estate tax bracket rates.

-

2

-

In one study estate tax returns file d in 19^5 f°r net
estates of $5^0,000 and over were examined with their support­
ing w ills, trust instruments, and g ift tax returns file d by
these decedents prior to death to determine the magnitude and
characteristics of transfers in trust relative to outright
transfers among wealthy decedents.
In the other study a ll estate tax returns file d in 19^5
were matched with g ift tax returns file d by the same individuals
for the years 1932-HU to provide an indication of the relative
magnitude of transfers during lif e and at death for smaller as
well as larger estates.
Although these two studies were limited to estate tax
returns file d in 19^5 and the results may deviate somewhat
from those revealed by returns file d in other years, they
indicate (l) that among wealthier decedents extensive use is
made of trusts, a substantial fraction of a ll property passing
in this form, and (2) that although decedents as a group dispose
of a relatively small part of their wealth by g ifts during l i f e ,
the greater the wealth the larger the part that is transferred
inter vivos.
II,

Characteristics of ,19^5 estate tax returns

Only sligh tly in excess of 1 percent of the adult deaths
in the United States result in any federal estate tax lia b ility .
In I9U5, the latest year for which detailed figures are avail­
able, there v/ere less than 1^,000 taxable estates as compared
with about 1,200,000 adult deaths, if Although the total value
of annual testamentary property transfers is unknown, the pro­
portion of this total reached by the estate tax is undoubtedly
much higher than the percentage of estates taxed, perhaps of the
order of 10 percent,
In 19^5 the value of estates for which taxable returns
were file d amounted to more than $3*2 billion-4 before deduc­
tions and $2.7 b illio n after deductions. 2/ Exemptions re­
duced this figure to an estate tax base of only $1.9 b illio n ,
on which tax lia b ility amounted to $531 million or 28 percent.
At present, although the 19^8 Act greatly increases the aggre­
gate deductions by allowing inter-spousal transfers up to onehalf the estate to be deductible, the estate tax base and tax
17 In addition to the 13,869 taxable estate tax returns,
2,029 nontaxable returns were file d making a total of
15, 898.
2/ Deductions for estate tax purposes include outlays for
support of dependents during settlement of the estate,
bequests to charitable, educational, or religious organi­
zations, funeral and administration expenses, net losses
during settlement, and property owned by the decedent that
was taxed within 5 years prior to death.

- 3lia b ility are estimated at sligh tly in excess of I 9U5 levels
due primarily to continued appreciation of property values.
The bulk of estate tax revenue comes from a limited number
of large estates, In 19*45, nearly one-half the taxable returns
covered net estates of less than $100,000 but these yielded
only 2 percent of estate tax revenue. On the other hand, returns
covering estates of $500,000 and over numbered only 6 percent of tax
ablereturns but accounted for 6*4 percent of the tax. Details by
estate classes are given in the following table?
Distribution of taxable estate tax returns file d in 19*45
Net estate
before
exemption
classes
(thousands)
Under $100
500
- 1,000
- 5,000
and over

100
500
1,000
5,000

Total

«
Taxable
Net estate
; Federal estate tax
i
returns
before exemption :
liability
?
{Percent
{Percent
Amount
Amount
1Number;distri- (millions)'bistri-:
(millions) {distri-^
t
;bution
ibution :
:bution

6 ,7 *40
6,3^2
525
23 U

*49^
*46
*4

2

360

19$
**3
13

Jgf

16

90
135

9

117

100

531

#515
1,187

*

P it

13,869 100

2,729

28

$ 10

178

2>j
3*4
17

25

22

100

* Less than 0,5 percent.
Note:
Source:

Figures are rounded and may not add to total.
Statistics of Income for 19*4*4. Part 1 (preliminary).

111 * Special study of estates of $500,000 or more
A.

Characteristics of estates of $500,000 or more

Of the 7S7 estate tax returns with $500,000 or more net estate
before specific exemption filed in 19*45, 753 were available for the
special study of transfers in trust. The remaining 3 I4 returns were
cases in litigation or under field investigation and therefore not
accessible at the tiftie data were transcribed.

~ k -

The marital status at time of death of the decedents included
in the study was as follows:
Number
Husbands
Wives
Widowers
Widows
Divorced or separated
Single
Total
Source:

3^3

56
I 05
153
17
J2
753

Percentage
U6
7
1U

20
2
11

100

Appendix table 1,

While it is d iffic u lt to determine the r epr es entat i ven es s of
this sample of decedents from marital status alone, the higher frequency of married men than of married women and of widows than of
widowers corresponds with t&o generally known fact that women on the
average outlive their hashands. The marital status figures also
indicate that the frequency of large estates is greater among women
whose husbands have predece&aed them than among those who predecease
their husbands.
The age distribution 0#

ts covare & was a follows:
Number

percentage

Under 50
50 and under 60
60 and under "JO
70 and under $0
SO and over
Hot stated

27
6U
174
261
212
15

U
8
23
35
28
__ 2

Total

753

100

Source:

Appendix table 2 ,

These decedents were sligh tly older on the average than other decedent
whose estate tax returns were file d in I 9U5.
The total amount of property known to have been transferred by
the 753 decedents was almost $1,3 b illio n . Of this amount about $1
billion or SO percent was transferred at death* another $150 p illio n
was reported as transferred in the period after the enactment of the

present g ift tax between June 7* 1932 and the end of I 9M+; l/
the remaining $11*4 million was reported as transferred prior to
the enactment of the present g ift tax, 2/ (See Appendix table 3»)
Thus, in to tal, the amount of recorded g ifts plus g ift tax repre­
sented about one-fifth of the total amount of property transferred
by these decedents during life and at death.
In this connection the reported g ifts unquestionably under­
state the amount of property actually transferred during l i f e .
Gifts of less than the amount of the annual exclusion under the
g ift tax need not be reported and hence are not included in the
amounts compiled from g ift tax returns. The g if t tax annual
exclusion was $5,000 per donee between 1932 and 193$# $*4,000 in
1939-^2, and $3,000 since 1$*42, Since tax-free g ifts of this
size can be made to an unlimited', number of donees* substantial
amounts of property may have passed under these exclusions. In
addition, the information regarding g ifts made prior to the
enactment of the g ift tax was obtained from Schedule G of the
estate tax return. This ife an information schedule (as dis­
tinguished from schedule» used for computing tax) and is likely
to underreport g ifts substantially,. For these two reasons g ifts
may actually have accounted for considerably more wealth than
the figures indicate.
The amounts tabulated wosr# usually taken directly from the
return forms as originally file d , without correction for subse­
quent changes made by audit. Consequently the total amount of
property transferred is understated sine» changes resulting from
audit usually increase the value of the estate and the tax lia ­
b ility .
B.

Amount and composition of transfers

Of the nearly $1*3 billion worth of property known to have
been transferred by these decedents#Federal estate and g ift taxes,
before the estate tax credit for State death taxes, amounted to
almost 30 percent. ¿/ Charitable transfers were less than 8 per­
cent, leaving $S1S million or 63 percent as the amount actually
received by the families and other beneficiaries of this groun
of decedents. (Appendix table *4.) Hearly *45 percent of this
This amount includes $11 millions of g ift tax paid.
2/ Mot including g ift tax paid in 192*4-25.
1 / On an over-all basis State death taxes amount to more than
the Federal credit. Since the excess of State death taxes
over the Federal credit has not been deducted, the amount of
property le ft after tax is sligh tly overstated.
17

„ 6 -

amount or $366 million was transferred to trustees in 1,466
separate trusts, an average of nearly 3 per'docodont for the 524
decedents creating trusts. The remining 55 percent or $¿52
million was transferred outright.
Although reported g ifts and g ift tax accounted for only 20
percent of the wealth known to have heen transferred hy this
group of decedents, this fraction was larger the greater the
value of property transferred hy the decedent. Decedents who
transferred more than $3 million disposed of less than three—
fourths of their property at death and more than one-fourth
during life * In contrast those who transferred only between
$500,000 and $1 , 000, 000, had more than 9^ percent of this wealth
at death after having disposed of less than 10 percent during
life . While the significance of this variation is limited by
the relatively small size of the sample, it accords with,ex­
pectations since the greater the wealth the larger is the rela­
tive tax saving available through transfers nrior to death.
Details concerning ratios of transfers at death to total trans­
fers by size are given in Appendix table 5 .
C.

Outright transfer® vs. transfers in trust

Among the wealthier decadents included in the survey trans­
fers in trust ranged from a third to over one-half of gross
transfers. However, no consistent pattern of variation by size
of gross transfers is apparent although the wealthiest decedents
did transfer relatively more in trust than those with smaller
accumulations, as shown in the following table:
Size of total transfers

Percentage of noncharitable transfers made in trust

$ 500,000 - $1 , 000,000
1 . 000. 000 - 1 , 500,000

37
46

1,500,000 -

2,000,000

2. 000. 000 -

3 , 000,000

3.000. 000 and over
Total

Source:

38

55
M
ij.5

Appendix table 4.

It should be emphasized that many of these decedents transferred
substantially larger proportions of their property in trust than
is indicated hy the averages above (Appendix table 6) . Among
decedents with estates of less than $500,000 it is probable
that transfers in trust are both less numerous and account for
a smaller proportion of total transfers.

~ 7—
D.

Daration of trusts

Even more important than the fact that nearly half the
property of this group of decedents was transferred in trust
is the fact that many of the trusts created are to endure for
relatively long periods. Of the 1,U66 trusts covered, only
23^, accounting for 12 percent of a ll property placed in trust,
were for less than 1 generation. The remaining 1,232 trusts,
accounting for 88 percent of a ll trust property, were for
various longer periods as indicated by the following table:
•t
Duration aJ

of
\ Number
trusts

Less than 1 generation
1 but less than 2
generations
2 generations or more

*

Value of trusts

:
Amount
t
: (millions) :

Percent
of total

23U

$ HU

12

1,026
206

216
107

59
29

1 .U66

366

100

a/ Duration of trusts was classified by the generations covered
by the l i f e tenants* Trusts with one life tenant (e.g., to
wife for li f e or child for life)o r with two or more lif e
tenants in the same generation (e.g. to son and nephew for
life)are classified as 1-generation trusts. Those with two
or more l i f e tenants in different generations (e,g.t to wife
for li f e and at her death to son for life)are classified
as 2-generation trusts. Trusts for a term of years or ter­
minating on the occurrence of a specific: event such as
marriage are classed as less than 1 generation.
Note:

Source:

Figures are rounded and may not add to totals.

Appendix table 7*

Of the $366 million of trust property covered in this
survey, $107 million or nearly 30 percent were settled for 2
generations or longer, thereby avoiding future estate taxes at
least twi&e compared with outright transfers to the same re­
cipients*

- g Moreover, the larger the amount of wealth transferred the
longer is the average duration of trusts* Decedents who trans­
ferred property worth between $ 500*000 and $1,(100,000 put less
than 15 percent of their wealth into trusts for 2 generations
or more whereas decedents who transferred property worth more
than $3 million put more than *40 percent of their wealth into
trusts for this period (Appendix table 7) • Thus the figures
indicate that the wealthiest taxpayers make the most effective
use of the tax advantages of transferring property in trust.
$,

Recipients of property transferred outright
and in trust

The bulk of the property transferred by these decedents,
whether outright or in trust, passes either to spouses or in a
direct line to children and grandchildren. Of the $*152 million
transferred outright by these 753 decedents, $11& million or
26 percent went to spouses and $205 million or U5 percent went
to children; direct transfers to grandchildren were small —
less than 3 percent of the total* Only about one-fourth of
^hese decedents* outright transfers were to parents, other
relatives, or individual® cut aide the family group (Appendix
table S).
The property transferred
trust likewise went primarily
to spouses or descendants,
tÉi life interests and the
remainders. Of the $366 million transferred in trust, $26U
million or about 72 percent provided for life interests to
spouses, children, grandchildren and great grandchildren
(Appendix table 9)* This figure does not include a nufober of
trusts in which descendants share life interests with other
persons and therefore understates the extent to which trust
property is actually enjoyed by direct descendants, 1/ Re­
mainder as opposed to life interests show a similar pattern,
70 percent going entirely to direct descendants 2 / (Appendix
table 10 ).
As between life interests and remainder interests the
chief difference is that the remainderman are, of course, con­
centrated one or more generations latei* than thé life' tenants.

Ï/

2/

Direct descendants shared with others the life interests
from almost 6 percent more of the total trust property
transferred by these decedents.
Another 3 percent of remainders was shared by direct de­
scendants with others.

9
For example, whereas spouses and children account for over onehalf of all life interests* they account for only about onefifth of remainder interests. Grandchildren and great grand­
children on the other hand account for only 6 percent of the
life interests hut for UU percent of the remainders. This does
not include remainder interests which grandchildren share with
their parents and others.
The foregoing figures indicate that there is probably
little difference between the eventual disposition of property
transferred outright and in trust. In the case of outright
transfers the property is generally received in the first
instande largely by spouses and children. If these recip­
ients follow a similar pattern of transfers, such property
will in turn be transferred to grandchildren and great grand­
children of the decedents covered in this study. In the case
of transfers in trust, spouses, children, and grandchildren
frequently receive only life interests so that grandchildren
and great grandchildren receive the property undiminished by
estate taxes.
This effect of trust transfers In skipping tax liability
for one or more generations is shown in the following table
>rhich indicates when the next estate tax on the property
transferred by these decedents will be imposed.

- 10

Person at whose death
the next estate tax
falls due
________________________
Spouse
Children
Grandchildren
Great grandchildren
Other
Total

*/

»Outright transfers1 Trust transfers
:
:
: Amount
sPercenti Amount
iPercent
:(millions)softotal ¿(millions) :of total
$118

205
1?
V
lib

452

26$
^5
3
a/

Æ
100

li

2
76
136
56

37
15

96

26

36 6

100

$

21

Outright transfers to great grandchildren were not tabulated
separately, hut the amount is negligible and is included in
transfers to “others.1*

Source:

Appendix tables $ and 10.

As the table indicates moi,e than half the trust property
will escape estate tax nafcll death of the grandchildren or
great grandchildren. Ox the other hand only a very small por­
tion of the property transferred outright will escape tax for a
similar period.
IV,

Analysis of matched estate and gift tax returns

Less detailed information on relative amounts of property
transferred during life and at death by all decedents whose
estate tax returns were filed in 19^5 is available from the
study of matched gift and estate tax returns. In this study
transcripts of each of the nearly 16,000 19^5 estate tax returns
were compared with transcripts of all gift tax returns on file
for the years 1932 — UU and special tabulations of matched returns
were prepared.
Nearly 13 percent or 2,038 of the persons for whom estate
tax returns were filed in 19^5 were positively identified as
the same persons who had previously filed gift tax returns. 1/
l/

In addition to the 2,038 cases mentioned above, there
were Ulh estates of individuals whose names were identical
with donors shown on gift tax returns. These Hi 4 cases
were considered as doubtfully matched because the addresses
of the decedent and donor were different and information in
the files did not confirm the fact that the decedent and
donor were the same individual.

-Il
The statistical information obtained from these matched returns
is more limited in scope than that obtained from the more in­
tensive study of estates of $500,000 or more for several reasons.
First, the study of matched transcripts does not include
gifts made prior to dune 7, 1932 when th$ present gift tax was
enacted. Second, the disposition of property asp between out­
right transfers and transfers in trust could not bè determined.
Third, some duplication between property reported both for gift
and estate tax purposes, probably amounting to lees thah 1 per­
cent, could not be eliminated, Despite these limitations the
data from matched estate and gift tax returns provide a better
indication than has hitherto been available of the frequency
and amounts of gifts made by small and large estate tjtxpfeyers
respectively.
A,

Frequency of prior gifts

As already indicated, 2,038 or almost 13 percent of the
estate tax returns filed in 19^5 were positively matched with
gift tax returns filed during the period June 7, 1932 to the
end of 1 9 ^ *
The table on page "12, which shows the distri­
bution of these returns by net ©state classes, indicates that
gifts requiring gift tax returns to be filed were made most
frequently in the wealthier groups.
In net estate classes below $100,000,6 percent of the
estate tax returns were matched with prior gift tax returns*
The proportion increased gradually as the net estates increased
until it reached a maximum of almost 80 percent for net estates
of more tha© $5,000,000. The proportion of estate tax returns
of individuals who had paid gift tax also increased as the size
of net estates increased, rising from abou,t 1 percent in the
lowest levels to 75 percent in the highest.
B.

Amounts transferred during life and at death

A comparison of amounts of property transferred and reported
for gift tax purposes with amibunts transferred at death is given
in the table on page 13 *
These figures indicate that, for all decedents as a group,
transfers made between enactment of the gift tax and the date
of death were small as compared to trausfers at death. The
total transfers of these decedents after June 7* 1932 amounted
to $3.2 billion, of which $3«D billion or almost 9 *+ percent
were made at death* The remaining $0#2 billion, or 6 percent
of gross transfers, was the total value of gifts and gift tax
reported On gift tax returns.

Humber of estate tax returns filed in 19^5 which were matched with
prior gift tax returns, by net estate before exemption classes

Net estate
i Number pf »Estates with? Estates with prior gift
before exemption? estate tax , no prior ?________tax returns______
classes
{returns filed* gift tax ? _
?tyift taxj^o gift
($000)
?
in 19 U 5
f returns
?
| paid »tax paid
Number
No net estate
$1 - ko
Uo 60 - 100
100 - 200

200
300
500
1,000
2,000

-

300
500
1,0 0 0
2,000
3»000

3,000 - 5,000
5,000 and over
Total

63
^57
1.596
6 ,69 $
U,^oà

1 .1 U9

56
1+145
It 517
6.353
3.323
S71
513
283

7

12
79
Uoo
577

278

k
k

3

20

59
307
392

93
179

99
129
160

8

179

kl

70
17

280
zkz
91
30

k

6

20
22

16

28

a

1

15,S9S

13,2 6 0

2,032

822

i,a6

6 .3

M

0.9
1.3
l.k
U.l

3.7
Û .6
9.0

793
525

161

151
82
18

73
zk

6

Percent of total
No net estate
$1 - 1*0
1*0 - 60
60 - 100
100 - 200

100
100
100
100
100

S3.9
97.1*
95.1

il.l

9 ^ .0
86.9

6 ,0
1 3 .1

200
300
500
1,000
2,000

100
100
10 Q
10 Ô
100

7 5 .8

2^,2

6it.7
53.9
^3.5
36.3

35.3
U 6 .i

56 .5
63.8

30.5
^ 5 .3
51a

1 5 .6
1 9 .0
1 5 .6
1 1 .2
1 2 .8

3,000 - 5,000
5 »000 and over

100
100

23*1

76 .9
7 8 .6

6 1.5

1 5 .u

2i#h

75.0

3-6

Total

100

87.2

1 2 ,8

5.2

7.6

-

Source:

300
500
1,0 0 0
2,000
3,000

2,6
M

8 .6
1 6 ,3

1 .8

Special tabulation. Statistical Division, Bureau of Internal
Revenue,

- 13 -

Property transferred at death and by gift since 1932 by
decedents whose estate tax returns were filed in I9I+5
(Money amounts in millions)
Net estate
before
specific
exemption
classes

Transfers at death
Total

:Net estate:
Chari­
: before ;
Total
table
:specific : bequests
:exemption :

Gifts reported between
June 7» 1932 and
Dec, 31» 19*+*+
Gift
Total
Total
tax
gifts
paid

Amounts
Under $ *11/
.1 - .2
.2 - .3
.3 - .5
•5 - 1

1 -2
2 - 3

$ 6s6

660
313
3 I+1+
l+l3

$ 665

$ 605

632
296
319

602

3SO

260
130
129

238
115
'1 1 s

5 and over• 2S3

2ks

3 - 5

Total

2S3

302
360
219
ui
95
2k 2

3 ,2162 / 3 ,0 1 1 2/ 2,819

$ 60
31
13

16
20

$ 21
2S
17
25
33

*
*
*

$ 20

27
17
2k
31

1
2

$

19
1+
23

21

20

15

Ik

11

6

10

1
1
1

35

31

k

205

19^

12

3.0

**

1+,1

0 ,1
0 .1

192 2/

Percent of total
Under $ ,1
.1 - ,2
.2 - .3
.3 - .5
.5-1

1 -2
2-3
3-5
5 and over
Total

*
*
'Jj
J

100
100
100
100
100
100
100
100
100
100

97.0

9 5 .8
9^.6

9 2 .8
9 2 ,1
9 1 .3

8 8 .3
91.1
9 O .5

88.0

87.2

k.l

3.0
k.2
5.1*
7.2

1+.8

7 .9

5.3
7.0
7.5

7.14

8 .2
1 1 .S

1 0 .7

8,7
**•7

1+.0

9 1 .6
2 7 .7

SU.3
8U.*
7 3 .9
85.6

3.3
17.8

9 3 .6

87.7

6,0

SS.2

2 .0

S.1+

1 2 .3
6 .1+

0.3

0 .1+

7.5
10.9

0 .6
1 .1
0 .9
1 .1+

6 .0

0 .1+

7.7

Less than $500 ,000 ,
Less than ,0 5 percent,
deludes returns with no net estate before specific exemption,
Does not include $ 31,000 of charitable bequests reported on returns
of persons who died before August 3 1 , 19 35 , which 'cannot be distri­
buted by net estate classes*
Figures are rounded and may not add to totals.
Statistics of Income for I9 I+I+» Part 1 (Preliminary), and
Special tabulation, Statistical Division, Bureau of Internal
Revenue,

- Ih Since these figures are aggregates for all decedents, they
cover up significant variations in the patterns of property
distributions at different estate levels. As might he expected,
persons who died with small estates transferred, on the average,
relatively small amounts of property before death. Those with
the largest estates, on the other hand* transferred larger
amounts of property inter vlyps, For decedents with net
estates of less than $100,000, *gifts and gift tax reported on
gift tax returns amounted to 3 percent of their transfers sub­
sequent to June 7» 1932. However, the 28 decedents with net
estates of more than $5»000,000 transferred 1? percent of
their total wealth in this way.
The relatively small use made of gifts by these decedents
cannot be attributed to any known peculiarities of the sample.
The proportionate distribution of estates by size of estate
classes and the composition of estates in 19^5 were consistent
with preceding years as reported in Statistics of Income.
Moreover, 81 percent of the decedents were over 66 years old
and 58 percent were over JO years old when they died, indicat­
ing that most of the decedents had adequate time before death
to plan their estate distributions.
The data indicate that meet estate taxpayers could have
effected additional t&$ saving# by transferring relatively
more of their wealth during
i^evertheless, among the
wealthier groups gifts weftite
$6or& frequent and account for
relatively more total wealth* Although these v/ealthy taxpayers
transferred less than the optimum amount of property, from a
tax standpoint, by gift, the tax— saving effect of even relatively
small gifts is substantial since property is removed from the
highest estate tax brackets and taxed separately beginning with
the lowest gift tax brackets and the gift tax is not included
in the transfer tax base.

Treasury Department, Tax Advisory Staff of the Secretary

- 15 -

Appendix
Explanation of Tables

The following tables present statistics on the amount and charac­
teristics of transfers made during life and at death by individuals
with estate tax returns filed in 19^5 showing net estate before
exemption of $500*000 or more»
The aggregate value of transfers by each decedent, designated
as gross transfers in these tables, was obtained by combining data
from the estate and gift tax returns. The distribution of property
transferred outright by gift was generally available on gift tax
returns. Distributions at death among legatees and heirs were obtained
from wills and other documents attached to the estate tax return* The
characteristics of the nmcharitable trusts created by the decedents
(including amounts, duration, life tenants and remaindermen) were
obtained by an analysis of the trust instruments and wills submitted
with the returns. Since the wills were examined in conjunction with
estate tax returns, it is believed that most lapsed legacies were
discovered. However, there may have been a few cases in which the
fact was not discovered that a person named as legatee, life tenant
or remainderman failed to survive the testator.
According to Statistics of Income for 1 9 ^ » Dart 1, there were
737 estate tax returns with $500*000 or more net estate before
specific exemption filed during 19 *45. Of this number 753 were
available for this study. The remaining 3 ^ were cases in litigation
or under field investigation and therefore not accessible at the time
the data were transcribed.
Since some property transfers were reported as gifts and were
also included in the net estate, it was necessary to eliminate this
duplication in order to obtain the total wealth transferred by each
individual during life and at death. Such duplication was eliminated
y an adjustment to the net estate before exemption. Consequently,
the amounts of net estate before exemption shown in these tables do
not equal the corresponding figures tabulated in Statistics of Income.
The number of returns and net estate before exemption in Statistics
Income for 19*4*4. Part 1, are compared with those in this study in
he following table. In the aggregate, the reduction in the net
estate before exemption resulting from the elimination of the dupli­
cation amounted to less than 1 percent of the original total of
$9b2 million.

16

-

-

(Money amounts in thousands)

Statistics
of Income
Size of
net estate
before
exemption

$ 500
600
700
soo
900

-

600
700
soo
900
1,000

1,000 and over
Total

: Net
;Number: estate
of re-: before
turns :specific

188
125
88
75
262

$ .1 0 3 ,0 5 2
81, 0^1
65,1+71
63.615
1+6,703
667,190

787

1 ,0 2 7 .0 7 2

Bstate tax
returns not
Included in this study
available for
this study
Number; Net estate before :
: Net
of :specific exemption :Number: estate
estate; Statis— ;Adjusted:of £e-*; before
tax ; tics of :for thisiturns :specific
exemption

duplication of inter vivos gifte

180
123
85
73
'1+5

$ 98,687
79.765

j&I

61,971
>*2,853
615.891+

$ 97.328
79,201
61,986
6 1.9 71
>*2.853
610,9^8

2
3
2
1+
15

$ >*.365
1 .2 7 6
2.287
1 , 61*1*
3,850
51,296

753

9 6 2 ,35>*

95>*.287

3^

61+.718

63,lgl*

s

....T5T
study is adjusted to eliminate
ver# Included in the net estate.

Except for the adjustment in the net estate before exemption, the
amounts shown in the various tables were usually taken directly from the
return forms as originally filed, without correction for changes later
made by audit. In some cases, gifts between 1932 and I 9UU included
changes made by audit but the amounts added were, in general, small
relative to total gifts«.
The following are the definitions of terms used in the tables;
Gross transfers represent approximately the total amount of wealth
(including tax) transferred during life and at death. Specifically,
gross transfers are defined as the sum of (l) net estate before specific
exemption adjusted to eliminate amounts also reported as gifts,
(2) charitable bequests, (3 ) the net deduction for property previously
taxed, (1*) total gifts (charitable and noncharitable) made between
June 7» 1932 and December 31» 1 9 ^ » as shown on gift tax returns or in
Schedule G of the estate tax return, (5 ) Federal gift tax paid
(excluding the amounts paid under the 192 U and 1925 gift tax which
were not available), and (6) total gifts made prior to June 7 * 1932,
as reported in Schedule G of the estate tax return.

- 17 Noncharitable transfers represent the total amount of wealth trans­
ferred during life and at death after the payment of estate and gift taxes.
It is gross transfers less charitable transfers and less the gross Federal
estate and gift taxes. Noncharitable transfers are« therefore, overstated
in cases where the State death and inheritance taxes actually paid exceeded
the credit allowed against Federal basic estate tax.
Transfers at death represent the amount available for distribution
and for payment of Federal and State taxes at death; it is the sum of
(l) the adjusted'net estate before specific exemption, (2) charitable
bequests, and (3) the net deduction for property previously taxed.
Charitable transfers are the total transfers made to charity during
life and at death, as reported on estate and gift tax returns (including
charitable remainders and other limited interests).
Noncharitable trusts are those set up for the benefit of private
persons. Also included arc those in which the life interests are
assigned to private persons with remainders to charity and those in
which individuals share the trust income with charitable organizations.
In the mixed cases, however, the value of the charitable interests
has been omitted from the value of the trust.
Duration of trusts was tabulated according to the number of
generations covered by the life interests in the trust property.
One generation trusts are those with one life tenant (e.g*, to wife
for life or to a child for life) or those with two cr.more life
tenants in the same generation (e.g., to children for life or to son
and nephew for life). Two generation trusts are those with two or
more life tenants in different generations (e,g., to wife for life
and at her death to son for life, or to son for life and at hfe death
to grandson for life).
Money amounts in the tables are rounded to the nearest million
dollars and will not necessarily add to totals.

Table 1*

Size of
gross
transfers
(Millions)

•5
*6 ~
•7 -

#6
.7

*■

•9

•8

&

mo

1 *0 ,

•9
1*0 1*25 1.5 —

l>25
1.5
1*75

1.75 « 2*0
2*0 - 3.0
3»0
5.0
5.0 - 1 0 .0
*<•

Number of decedents by size of gross transfers and by marital status

♦
i
î
•

dumber
of
decedents

Husband

95
110
S3
69

1*5
5^
1*2
30

4'-"

21
36
l6
22

87
51
hi
28

63

i{Q

23

10*0 and over

11

Total

753

Source:

s

... dumber of decedents bv marital status
*'
.
î Divorced •
:
Wife
: Widower !
Widow
îtTnioarried
•
or
•
0
•
•
ï separated a

10
S

14

k
6

12
9

1*

6
12
9

10
5
1

15
32

«*

IS
S
1*

2
1*
1

3U3

1

56

13

H

6
IX
6

16
19
14
16

1
2
1
1

10
13
10
7

6
22
10
7

7:

3

5
13
16

2
1
1

5

10
6

2
*■»

6

2

5

2
1

c

1

3

1+

-

1

105

153

17

79

Bureau of Internal Revenue, Statistical Division, Special Tabulation,

Table 2 .

Coirmositlon of gross transfers by age of decedent
(Money amounts in millions)

* Humber
Age of decedent :
of
idecedents

Under 30
30 under
under
50 under
00 under

^0
50

2

k

%
26
90
319

k
25
83
259

UlS
3S^

267

70

17U

70 under £0
SO under 90
90 and over
stated

261

Total

Transfers
at
death

2
21
6U

SO

Total
amount

1S5
27
15
753

$

2

3U3

Gross transfers •a
Gifts plus gift tax between
June 7» 1932 and
December 31. 19^4 '
Humber of
Total gifts
decedents
plus gift
___with, gilts__ «
tax
*
*

1
2
S
37

116
172

$

1

k

5
ki

7
35

k s

$

1
2
IS

22

3^

13 U
16

57
53
s

Ik

12

k°
5

b

1

1

1
2

1,299

1 .0 3 5

U92

150

165

llH

* Less than $500»000*
Source:

Gifts prior to
June 7* 1932
Humber of
:
Total
decedents
•
gifts
with gifts 1

Bureau of Internal Revenue, Statistical Division, Special Tabulation.

67

•Table 3 . - Composition of gross transfers by size of gross transfers

(Money amounts in millions)
Gross transfers
Size
of
gross
transfers

$.5 - .6
.6 - ,7
.7 - .8
.8 - .9
.9
1 .0
1.25
1.5

- 1.0
- 1.25
-1.5
-1.75

1.75 - 2.0

2 .0
3-0
5 .0

- 3 .0
- 5 .0
- lo .o

10.0 and over
Total

*

Humber
of
Total
dece­ amount
dents

95
110
S3
69

$53

^3
87
51

Transf ers
at
death

Gifts between June 7, 1932 and
December 31. 19HH
•
i
Number Total •
; g if ts
of
* Total \ G ift
*
plus
dece­
\ g ifts *
tax
dents • g ift
î tax
•
•

30

62
58

$50
66
57
52

Hi

Hi
98
69
66

37
85
57
53

32
62
38
29

28
63
H9
23
ll

53
152
186
166
22H

38
121
iHS
132
1H0

2H

1.035

753

n

1.299

6H

51

Hi

$2
5
5
5

$2
5
5
5

*
♦
*
*

1
1
8

J

*
*
*
$1

H

11

H
10

9

9

*
*
*
$1

7
IQ
IS
16

*
7
j
7
j
5

iH
29
25

6

15
10
165

9

8

52
38
22

9
17
22
21
30

9
16
19
27

1
1
2
2
3

H92

150

lHO

11

q

20

Less than $500,000.

Sources

Gifts prior to
June 7* 1932
Number
of
* Total
dece­
* g ifts
dents

Bureau of Internal Revenue, Statistical Division, Special Tabulation.

iH

16
12
5^
llH

Table U.

Disposition of gross transfers by size of gross transfers

(Money amounts in millions)

Size of : Humber
:
Charitable
Total !
gross * of
transfers
transfers*decedents amount :Humber of: Amount
:decedents:
$•5
.6
•7
.g

»6
*7
*3
*9

95
110
S3
69

.9 - 1.0
1 .0 -1.25
1 . 25- 1 .5
1 .5 -l«75

U3
67
51

~
-

$

53
71
62
56

25
35
¿Let

Gross transfers
•Honcharitable tran sfors
Gross Federal
:
In
trust
:
Other
than
in
trust
estate
Total
:
Humber
of:
:
Humber
of:
and
g ift
amount
Amount
Amount
:decedents*
: decedents:
taxes

#
$ 1
«
1

$ 39
53
U6

1

30
71
50
^7

32
65
36
33
20
56

lU

Hi

H9

H9

20
10

36
60

23
11

H2

12
39
55
61
gH

52U

366

7H6

U52

381

Hi

Hi

98
69
66

19
35
18
13

7.75-2.0
28
2.0 - 3.0
63
3 .0 - 5.a
U9
5 .0 - 10.0
23
10.0 & over 11

53
152
186
166
22U

13
36
32
19
9

15
18
37

36
96
Il6
86
103

303

100

818

Total

753

Hi

1,299

H

2
3
2
1H

5U
69
U5

$ 16
19
16
15
12
31
2H

18

* Less than $500»000.
Source:

Bureau of Internal Revenue, Sta tistica l Division, Special Tabulation.

SH

109
82
oS
^3
65
50
Hi
28
63

$

23
3b

jp
28
18

Ho

25
29
2H
hh

66
U9

$ 13 '
18
16
3.5
10
2H
18
17

Table

5<*

Humber of decedents by size of gross transfers and by ratio of transfers at death to gross transfers

.
Mumber of decedents by ratio of transfers at
Size of
’ Humber of
gross transfers [decedents :
jo : 30? : lio? : 50? î soi
10? : 2Cf
•
* under
îunder
: under îunder : under :under
(Millions)
•
20? .=. 30^ : kOfo z 50? :
Soi *

.6
.7
.8
*9

95
110
S3

1.0
1.2 5
1.5
1.75

1*3
87
51
i*i

i-*•* 75
«j ~ 2.0
2.0
~ 3.0
3.0 ' - 5.0
5.0
- 10.0
10.0 and over

28
63
49
23
ll

-

1
1

753

l

J

$.5

-

fk
*V

-

.7
.8

—
-

.9
1.0
1.25 -

Total

Source:

k
S
J

15
27
15

10
20
12
7

2
2
5
2
1

5
10
o
2
2

3
15
7
7
2

5
16

1*5

69

126

**

—

-

1

-

1

l

—

-

—

6

M
—

«0H|K

8

1

S
T?

1*
5

5
7
s
6

1

1
u
2
1

1*
<
2
1
1

11

18

29

•m

~

mm

—
-

«*
*»
-

—
-

1
1

—

—

—

mm

mm

wBt
Z
-,

5

■*

10
19
5
8

1

—

1
7
8
7

100?
61*
1*5
32
27

—

-

gross transfers
: 80? ;
90?
îunder : under
: 90? : 100?
2l*
37
27
15

2
-

~

death to
î 70?
i under
:
80?

Bureau of Internal Bevenue, Statistical Division, Special Tabulation

3
6

¿0
r, Ì

11*
13

g

ik
8
1
212

3
10
6
mm

1

237

Table 6 •

Humber of decedents with noncharitable transfers in trust by size of gross transfers
and by ratio of noncharitable transfers in trust to gross transfers

Size of
gross
transfers
(Millions)
$ .5

06 •7 -

»8

*•“

•9
1.0

**
-

I.? 5
1*5

-

1.75

-

2.0
3.0

5.0
10»0

-

-

n
s

Decedents with noncharitable transfers in trust
by rati 0 of nonchari table tra nsfers in trust to gross transfers
ffjc ; uo$ ; 5<# ; 60$ : 7<$ ; sojb
; io$
! 2$
; I
#undor .under . under .under under
.under .under
’under
’ 8 $ •! 50$ ;« Ho£ I 5o> ! 60$
! 80$
:• 7$
; 90^

.6
*7
.8
#9

55
110

Hi

n
%

3S
28

Hi

1*0
.2$
1 .5
1*75

*3

11
22
8

32
65
33
33

2.0
3.0
5*0

28
63
U9
23

8

20

H

—

2

1

10*0

and over
Total

Source:

:Humber of
*Humber
idecedents
Humber
•with uo non—
Total
*
of
î charitable
Under
number. 10$
decedents » transfers
.........1
V trust

B f
%

hi

13

£9

12
6

H

«

8

10

1

H
8

7

56

6

8

Hi

3

20
10
52H

8
6
2

11

1

753

229

1
8
3

73

3
5

2

H
2
3
5
H
a

i
7
8

5
x
H

5
11
3

5
10

15
12

12
7

8
11

3

8

MW

3

9
2

13

5

2

b

10

2

*

7

7

—

—

H

3

X
s

2
7

1

H
8
7
r

—

ll

J

_
MW
-

MW

8

•»
1
_

3

2

ww

5

H

—

H

11
7

6
2

1

—

mm

1

3
3

—

1

1

-

-

-

H8

H9

52

71

75

92

8

8

15
11
7
3

Bureau of Internal Hevenue, Statistical Division, Special Tabulation.

H

5H

2

5

Table 7•
Non chari table trusts created during life or at death by size of gross traj
and by duration of trusts
(Money amounts in millions)

Size of
gross
transfers

$ .5
•b
•7
-*5

/•
Aw
#
*7
•8
#9

mm

-

~
1.25 1.5 •9

1 .0

1 .0
1.25
1.5
1*75

1*75 - 2 .0
2.0 ~ 3*0
3*0 — 5*u
5*o ~ 10*0
1 0 .0 and over
Total

Number of
decedents

who ore---tor
nonoh?ri—
table '
trusts
; 5k
69
-5
hi
32
65
3«
33

20
56
ki

20
10
52k

¡Total noncharitable:
Duration
» trusts created
: For a term :Cne veneration
Total
: of years
:
only
number
a «ue ‘Number* Value:Number :Value
of
: of : of * of
I of
trusts __ r^S— s_.»trusts* trusts: trusts *trusts

SO
78

l6
19
it
15

10

2
1

77

12

a

O
c

6

17

12 k

$

IO
17
Ik

$

2
3

53
83

61
55

$ 10

5
7

1
2
1
2

7

7

d

7

17

8

2
2
1

23
20

12
11
10

$

3

Ik

1

39

10

5

7i

q

1

17

32

33
32
15
15

932

19 k

31
2k
IS

36
16
7

69
2^0

12

2

33
18

7

21

3
6

135
60

76

Ik
5k
k9
38
So

19

7

l,k66

3 66

23 k

kk

33
155

* Less than $500 ,000 .
Source :

J

g

k2
120
6k

187
105
70

17k
QQ
JJ

of trusts
One generation ulus lW o generations
a term of years
and over
Number : Value
Number: Value
»X :
of
of
:
of
trusts : trusts
trusts? trust#

Bureau of InternalL Revenue, Statistical Division, Special Tabulation.

9

16
10
6

$

3

3
2

15

2
5
6
6

H
k

k
3
*

15
35
15
Ik

10
11
16

1

21

37

9k

22

206

107

5

6

k

Table £>•

Noneharitable transfers other than in tnint by sir:e of gross transfers and by relationship
of recipients

Size o r
J
gross transfers ♦
Total
(Millions)
amount
$ .5

.6
.7
•8

-

.6

23

$

.7
.8
«9

.9 1 .0 1 .2 5 -

1 .0
1 .2 5
1 .5

1*5 1.75 -

1.75

•

Spouse

$

8

2.0 - 3 .0
3 .0 - 5 .0
5 *o - 1 0 .0
1 0 .0 and over

Relationship of recipient
ï Other
: NonChildren * Parents : Brothers • Grand♦
•
:or sisters : children ♦relatives : relatives

30
28

9

13
13

8

11

18
ÎÉ0
25
é
24

6
12

7

*

10
11
12
15

$ 1

5

8
7

$

9

*
*
*
*

10

2.0

Total

«
•

tt

H

♦
*
*
*

1
2

*
*

5

3

2

♦
*

2

1

H

l
*

6
11
8

J
5

2

U

1
*

1

1

1

7
♦

k
2
*

10
11
10

20
26
26
26

H
*

452

118

205

7

2

* Less than $500,000«
Source:

$

*

m
66
h9
k2

lU

$

h»

Bureau of Internal Revenue, Statistical Division, Special Tabulation.

12

$

3
5
H
H

2

1

$

1
1
1
1
1

1
r

3

1
1

59

16

Table 9*
Noncharitable trusts created during life and at death
by relationship of life tenants or tenants for a term of years to
grantor
(Money amounts in millions)

0
i
Life tenants or tenants for a term of years ;
Spouse
Children only
Parents only
Brothers or sisters only
Grandchildren only
Great grandchildren only
Other relatives only
Nonrelatives only
Grantor or decedent only
Income to accumulate until death of spouse
Income to accumulate until death of child
Income to accumulate until death of other
relatives
Income to accumulate during grantor,s life
Income to accumulate for a term of years
Income to accumulate during life of grantor;
at his death income to go to children
Income to accumulate during life of grantor;
at his death income to go to grandchildren
Income to accumulate during life of grantor;
at his death income to go to other relatives
Spouse and children
Spouse and brothers or sisters
Spouse and grandchildren
Spouse and other relatives
Spouse and grantor or decedent
Children and parents
Children and brothers or sisters
Children and grandchildren
Children and other relatives
Children and nonrelatives
Children and grantor or decedent
Brothers or sisters and grandchildren
Brothers or sisters and other relatives
Brothers or sisters and nonrelatives
Brothers or sisters and grantor or decedent
Grandchildren and great grandchildren
Grandchildren and other relatives
Grandchildren and grantor or decedent
Other relatives and nonrelatives
Other relatives and grantor or decedent
Continued on next page.

Number of
trusts

199
385
5
85
13U
U
229

99

Value of
trusts

$69

83
*

15
20
*
3**
7

9

1

7

2
1

5
3
15

*

2

7

2

1

*

1

*

1

*

103
2
5

ko
*

6

2

1

3

56
6
2
k
1

19

5
1
1
1
3

27
2
1
2
♦

1

10
♦
*

6

3

1

H
l
g
1

1

*
3
#

- 27 Table 9 (concluded)

Number ofjValue of
trusts * trusts

Life tenants or ter ants for a term of years

Spouse, children9 and brothers or sisters
3
Spouse, children, and grandchildren
16
Spouse, children, and nonrelatives
1
Spouse, children, and grantor
1
Children, parents, and brothers or sisters
1
Children, brothers or sisters, and grandchildren
1
Children, brothers or sisters, and nonrelatives
1
Children, grandchildren, and great grandchildren
5
Children, grandchildren, and other relatives
5
Children, grandchildren, and grantor
l
Brothers or sisters, other relatives, and nonrelatives 1
Other relatives, nonrelatives, and grantor
1
Spouse, children, other relatives, a d nonrelatives
Spouse, brothers or sisters, other relatives, and
nonrelatives
Children, brothers or sisters, other relatives,
and nonrelatives
*
Children, grandchildren, great grandchildren,
and other re}ative3
Grantor, children, grandchildren, and other
relatives
Spouse, children, brothers or sisters, grandchildren,
and other relatives
Children, grandchildren, great grandchildren, . ;
other relatives, and nonrelatives
’
Brothers or sisters, grandchildren, great grand­
children, other relatives, and nonrelatives
Total

*

$ 1

13
1
*
*

1
w*

2
*

1
*

2

1

1

*L

1

•»

*

n

*

^

*

^

*

1

2

1

1

1,1+66

366

Less than $500,000.

Source:

Bureau of Internal Eevenue, Statistical Oivision, Special
Tabulation.

28
Table 10 *
Noncharitable trusts created during life and at death
by relationship of the remaindermen to grantor

(Money amounts in millions)

Remaindermen

Spouse
Children only
parents only
Brothers or sisters only
Grandchildren only
Great grandchildren only
Other relatives only
Nonrelatives only
Charity only
Grantor or decedent only

' Number : Value
:
of
:
of
: trusts Jtrusts
19

2

310
1
12

73
*

1*27
10 U
309
36

2
109
29
66
k

68
2

10
1

Subject to power of appointment in life tenant

7

l

Spouse and children
Spouse and brothers or sisters.
Children and brothers or sisters
Children and grandchildren
Children and other relatives
Children and nonrelatives
Children and charity
Parents and charity
Brothers or sisters and grandchildren
Brothers or sisters and other relatives
Brothers or sisters and nonrelatives
Grandchildren and great grandchildion
Grandchildren and other relatives
Grandchildren and charity
Great grandchildren and other relatives
Other relatives and nonrelatives
Other relatives and charity
Nonrelatives and charity

6

1

l

*
4*

Continued on next page.

1
145
1
1

17
*
*

k

2

1
2

♦
*

9

2

1

#

38

23

19

5
1

3
3

♦

6

1

7

3

1

1

- 29 Table 1 0 * (concluded)

Remaindermen

•

Children, brothers or sisters, and grandchildren
Children, brothers or sisters, and nonrelatives
Children, grandchildren, and other relatives
Children, grandchildren, and charity
Brothers or sisters, great grandchildren, and charity
Brothers or sisters, other relatives, and nonrelatives
Brothers or sisters, other relatives, and charity
Brothers or sisters, nonrelatives, and charity
Grandchildren, great grandchildren, and charity
Grandchildren, other relatives, and nonrelatives
Other relatives, nonrelatives, and charity
Children,
grandchildren, other relatives, and
charity
Grandchildren, great grandchildren, other relatives,
and charity
Total

*

1,1466

1
l

*
*

6

2

2
1
3.
1
1

*
*

1
1

1
1
*
*

1
h

^

*

^

o
366

Less than $500,000,

Source:

Bureau of Internal Revenue, Statistical Division, Special
Tabulation.

BXHÎBIT 6

The Tax Treatment of Foreign Inviarne

To Accompany Statement of Secretary Snyder
Before the Committee o» Itëgjre arvd Meen»,
Houee of Representatives
February 3* i95^

The Tax Treatment of Foreign Income

This memorandum provides background information on the
proposals for the revision of the tax treatment of the foreign
income of V. S* taxpayers which have been advanced with a view to
promoting private investment in undeveloped foreign countries*
in accordance with the President*6 Point IV program. One of
these proposals would alter the tax status of income derived by
foreign branches of U.'S* firms* Two relate to the credit allowed
for income taxes paid to foreign countries* One deals with the
tax exemption accorded IJ* S* citizens who become foreign residents,
and another vdth the estate tax*
I*

Present tax treatment of foreign income

In general, U* S* citizens, residents, and corporations are
subject to Federal tax on a ll their income whether i t is of
domestic or foreign origin* Double taxation of foreign income is
avoided by the allowance of an offset or credit against U* S* tax
for income taxes paid to foreign governments* Iii addition, the
law grants, under certain conditions, exemption or preferred taxa­
tion of income derived in certain geographic areas. Income
earned abroad by foreign subsidiaries of U# S* corporations is
taxed here only after i t is remitted to the united States*
A.

The foreign tax credit

When income arises from transactions which involve the move­
ment of capital or persons between countries, each of the countries
involved may impose a tax on such incane* Many foreign countries
in which there are American investments do impose income taxes,
and to cope with the resulting problem of double taxation, the
foreign tax credit has been devised* The credit provision
permits taxpayers to apply income taxes paid abroad against their
U. S* tax lia b ility on foreign income* I t thus tends to limit
the combined foreign and U* S* income taxes paid by American
corporations or individuals to the level of the Federal income
tax, in effect the Federal Government absorbs, up to the U* S,
rate, the taxes paid to a foreign country on foreign income*
In addition to meeting the prqblem of double taxation through
the credit device, the United States has entered into treaties
which deal with certain selected aspects of the double taxation
problem* For example, the credit device is ineffective in elimi­
nating double taxation when a given item of income is considered
by each of two countries as having originated within its borders*

- 2 -

By means of the treaty approach, i t is possible to allocate such
income to one of the countries in a manner satisfactory to both.
The United States now has treaties with six countries: Canada,
Great Britain, Sweden, Denmark, France, and The Netherlands*
Treaties with five countries are before the Senate for ra tific a ­
tion —- Belgium, New Zealand, Norway, Union of South Africa, and
Ireland. Agreements with a number of other countries, including
Colombia, Cuba, Mexico, and Ita ly , are ynder active discussion*
B.

Exemption provision^

Existing law provides partial or complete income tax
exemption for income obtained in certain areas* The most sign if­
icant provision is the exemption from the corporate surtax (now
1A percent) fir s t granted in the Revenue Act of 1942 to so-called
Western Hemisphere Trade Corporations* In order to qualify,
these firms must derive substantially a ll their income from the
active conduct of trade or business in the Western Hemisphere
but outside the United States*
Of less importance is the complete exemption granted to
individuals or corporations deriving 80 percent or more of their
income from the operation of a business in a U* S* Possession*
At the present time the benefits of th is provision go to
enterprises conducted in Puerto Pdco, the Canal Zone, Samoa,
Guam, aid a few other Pacific island^* $Mna Trade Act Corpo­
rations are another class of If* 6* entefuprise which receives
complete tax exemption* Complete tax exemption is also granted
to U* S* citizens on their earned income from foreign sources
i f they have established bona fide residence i!p a foreign
country*
>
II«

Foreigm branches of U* S . firms and foreign subsidiaries

The tax lia b ility of an American company with respect to
profits derived from business operations abroad varies according
to whether the foreign enterprise r s conducted as a branch of a
U* S. corporation, or as a foreign subsidiary. Even though i t
may be wholly owned in the Uhited States, a corporation organized
under the laws of another country f a lls outside the scope of the
U. S* income tax* 1/ Therefore, the earnings of a foreign

i/ To the extent that i t derives income from sources within the

"
Uhited States, i t is of course subject to tax* I t may be noted
that, while the determination of taxable status by reference to
the country in which the corporation is created is basic under
U. S* law, many countries do not employ such a test* They
frequently u tilize instead a "management and control11 test*
I f a corporation is managed and controlled within the country
using this te st, i t is taxed on income from a ll sources, regard­
less of where the corporation was organized*

subsidiary can be accumulated, indefinitely free of U® S® tax®
The earnings become taxable to the U. 5# parent corporation
only when and to the extent that the parent receives dividends
from the foreign subsidiary®
In contrast to the exempt status of the income retained
abroad by a foreign subsidiary* the income of a foreign b ranch
of a U. S® firm is included currently in the taxable base. The
tax applies whether the foreign income is retained abroad or
remitted to the "United States,
The difference between the tax treatment of branches and of
subsidiaries gives the subsidiary form of organization an
advantage in many cases, A If. S* enterprise which intends to
expand its foreign operations from earnings abroad would tend to
establish a foreign subsidiary. I t could then devote each dollar
of earnings abroad to that purpose. I f i t establishes a foreign
branch, i t would have at it© disposal 62 cents out of each dollar
of income to expand its bustm m a c tiv itie s, assuming it was
subject to the standard 36 percmk tax rate. In addition, foreign
subsidiaries have a tax advantage over branches in that they
possess greater leeway in offsetting the losses of one year
against the income of other years. In effect they have an un­
limited carryforward of losses.
Despite the fa ct that business operations abroad conducted
through foreign subsidiaries generally have a tax advantage,
branch operations actually occupy an important place in the
foreign investment picture. In 1947, for example, it is estimated
that of about ¿>1.2 b illio n of income from direct private invest­
ments abroad, approximately one—third was derived by branches of
U. S, corporations. 1/
It would be d iffic u lt to account for a ll the factors that
enter into a decision to operate a branch abroad instead of a
subsidiary, but some of the more important ones may be noted© A
branch of an American firm has a stronger claim to the o ffic ia l
protection of the United States, and may have greater freedom in
conducting its operations abroad* A foreign subsidiary, on the
other hand, is the creation of the country in which i t is
organized, and is more lik e ly to be subject to certain require­
ments as to the participation of foreign capital, the use of
l/The $1,2 b illio n includes the earnings of branches, dividends
received in the United States from foreign subsidiaries, and
the undistributed profits of the foreign subsidiaries®

—

4

—

foreign management personnel, the employment of foreign employees
and the like* A foreign branch may possess certain historical
rights in a particular country which would be lost i f a corpo­
ration were created* Finally, i f branch operations result in a
loss, that loss may be offset against income from other sources
including income from the United States*
Investment decisions are made by taking into account a ll the
foreseeable risks and balancing them against the opportunity for
profit* The weighing of the different considerations becomes
more complicated when the investment is to be raade abroad* To
the extent that U* S* law introduces tax differentials which have
to be balanced against various nontax factors, further complica­
tions are introduced* In general, the tax laws should be adjusted
so as to minimize such complications to the extent consistent
with the over-all requirements of an equitable tax system*
One such adjustment can be mad© by granting U* S* firms the
election to have the income of foreign branches treated for tax
purposes in substantially the same raanndr as that of foreign
subsidiaries* I t is therefore proposed that the tax on foreign
branch profits be postponed un til they are remitted to the
United States* Such a method of taxing foreigi branches has
other advantages from the point of view of stimulating foreign
investment* I t would enable branches to obtain the benefit of
tax incentives which some foreign countries offer for the re­
investment of earnings within their borders* At present a reduc­
tion in the foreign tax maybe offset by a commensurate increase
in the U* S . tax, and the inducement to reinvest is dissipated*
I t may also be possible as a result of the proposed treat­
ment of branch income to minimize troublesome problems that
arise whai foreign exchange controls are imposed in a foreign
country* At the present time, i t is necessary to ascertain,
for example, whether the income earned abroad is available for
use by the taxpayer, and hence taxable, or whether i t is in fact
blocked by the laws of the foreign country ard therefore not
taxable*
III*

The credit for taxes paid lyy foreign subsidiaries

An American corporation is permitted to apply, within certain
lim its, the income taxes paid abroad as a credit against its U* S*
income tax* The corporation is also permitted such a credit viien
i t receives dividends from abroad for the taxes paid by a foreign
corporation provided there is a parent-subsidiary relationship
between the two* The domestic corporation must own a majority of
the voting stock of the foreign corporation*

- 5 -

The foreign tax credit -with respect to dividends from a
foreign subsidiary dates from the Revenue Act of 1921. I t has
been a highly suitable method of eliminating double taxation
throughout the years that have elapsed. However, the nature of
the foreign investment picture is such that a modification of
the original provision would be highly desirable.
There has been an increasing emphasis in foreign countries
on the participation of local capital in the ventures of U# S .
businessmen. Such participation enables the foreign country
to benefit to a greater extent from the development of its
resources and to educate it s businessmen in the technique of
modern enterprise. From the point of view of the U. S# investor,
the participation of local capital maybe desirable, because i t
helps to achieve a more receptive attitude toward the business.
It is also a growing practice for American businessmen to spread
the risk (and the profits) from a foreign venture by joining v/ith
other U. S . firms in organizing a corporation to conduct the
enterprise.
I f the foreign firm is owned in equal shares by the American
corporations, none of them obtains the benefit of the foreign
tax credit. I f there is a 60-4.0 distribution of ownership, one
of them is eligible fo r the foreign tax credit and the other is
not.
It is proposed therefore that the majority-control test be
abandoned so that the credit w ill be available to a ll owners of
a foreign enterprise. This would encourage potential investors
to pool their resources in undertaking new ventures in foreign
countries, and i t would fa cilita te greater participation of
foreign capital in enterprises that U. S. businessmen undertake.
IV.

The "over-all1* limitation to the foreign tax credit

The credit for foreign income taxes is limited by two
provisions. One is frequently referred to as the nover~all
limitation'1 and the other is the "per country" lim itation. The
•*over»-all limitation" provides that the credit for a ll foreign
income taxes shall not exceed that proportion of a taxpayer^
lia b ility which his entire income from foreign sources bears to
his total income. This limitation was adopted in 1921, several
years after the foreign tax credit was inserted in the law.
At that time the Ways and Means Committee explained the need for
the "over-ell limitation" as follows: "The income tax law allows
a credit, dollar for dollar, against our tax for any income or
profits taxes paid to any foreign country •••• Where foreign

-

6

-

income or proxies taxes are imposed at rates higher than those
carried by similar taxes in this country, this credit may wipe
out part of our tax properly attributable to income derived from
sources within the United States." 1/
The "per country limitation" came into existence 11 years
later. It imposes the same restriction with respect to the taxes
paid to each foreign country individually, as the over-all lim ita—
tion imposes with respect to the taxes paid to a ll foreign countries
in the aggregate. As a result, the high tax rates of one foreign
country are prevented from increasing the credit allowed for taxes
in another foreign country having low rates*
With the adoption of the "per country lim itation," the
effectiveness of the "over—a ll limitation" became limitod to
taxpayers that conduct business operations in more than one
foreign country, and realize a loss in one country and a gain
i?
Suppose, fo r example, that a taxpayer derives
$1*000 of income in Country A, and suffers a loss of $1,000 in
Country B. On a not basis he has no income from foreign sources,
an under the over-all lim itation, ho is not permitted any credit
for the taxes paid to Country A«
^3mitafcion in it s present form thus impedes the
establishment of additional enterprises by firms already engaged
in business abroad. The risk of incurring a loss i s , of course,
the major^ obstacle to new investment, and the over-all limitation
tends to increase the burden entailed by a lo ss,
i t would be possible to meet the d iffic u lty by liberalizing
, e provisions governing the foreign tax credit so that greater
tax relief would accrue to a taxpayer whose a ctivities result in
a net profit in one country and a net loss in another.
V.

The exemption of earned in conge abroad

.
virtue of our use of the concept of citizenship as a
oasi^ for tax, individuals who go abroad even for extended periods
stl11 remain subject to U. S. tax laws, However,
individuals who establish a bona fide residence in a foreign
tw ^
6Xempt on their earned income £rom foreign sources.
They continue to be taxable on their unearned income.
nnw
exem^i°n provision for earned income begins to apply
y with the fir s t f u ll year of bona fide residence abroad.
1 /¿ogse^Report NoTj^O on Revenue B ill of 1921, 67th Cong.,
■LS u SQSSm

— 7 ■-

Accordingly, if an individual leaves the T M t e d States in
February of 1950 to oak© up a bona fide residence in a foreign
country, h© can Qualify for the exemption only with respect to
his earnings for the year 1951« The tendency of this provision
is either to delay the departure of those contemplating service
iu foreign countries until the encx of a year, or to accelerate
the departure of such individuals* The result, in either case,
is to in t e n ere with the optimum arrangements for training
programs by business firms, and with the proper settlement of the
business and personal affairs of those going abroad*

It is suggested therefore that the exemption provision be
made applicable oo the entire period of an individual's bona fide
residence abroad. The present e lig ib ilit y requirement for attain­
ing an^ exempt status would remain but, once it was acquired, the
exemption would apply to the individual^ entire earned income
from foreign sources* This would require a refund of tax on
income^earned during the fir s t part—
year of an individual's
bona fide residence abroad*
^

Credit for foreign estate taxes

The present Federal estate tax applies to a ll transfers of
property by U* S. citizens and residents irrespective of the
location of the property. As a result, the estates of individuals
o go abroad or make investments in foreign countries may be
subject to tax in more than cue country. Both as a matter of
equity and in order to encourage the expansion of foreign invest­
ment, i t is desirable to eliminate such double taxation*
A start in this direction has been made by entering into
treaties with foreign countries to eliminate double taxation on
the transfer of property* However, the treaty process is
necessarily a slow one. And estate tax treaties are no?/ in effect
with .only three countries— Great Britain, Canada, and France.
.
elimination to a large extent of double taxation of
J L ? teS^Car\ be achieved by a foreign tax credit similar'to that
P oyed under the income tax. The principles of such a credit
provision are well-known and ?ddely understood. Such a credit
provision w o u l d not eliminate the need for treaties, but it
ouia solve a substantial segment of the *problem which new
ftVl or p*

Treasury Department, Tax Advisoiy S ta ff of the Secretary

Supplemental Treasury Department
Statement on Miscellaneous Loopholes
for presentation to the
Canmittee on 'Jays and Means,
House of Representatives,
February 6, 1950,

In Exhibit 4 appended to the Secretary’s statement, there are
11 specific areas or loopholes, for which remedial legislation is recm—
mended.

I,

Collapsible Corporations

The xirst of these loopholes is the one to which the President
referred in his recent tax message to the Congress, namely, the socalled collapsible corporations by means of which individual taxpayers
seek to convert ordinary business income into long-term capital gains.

As you know, the rates on ordinary business income, in the case
of individuals, range as high as 82 percent, while the maximun effect­
ive rate on long-term capital gains is only 25 percent. I f a motion
picture producer made^ a l l of his pictures as an individual, his entire
gam from such operations would be taxed at the individual rates. I f
he produced a ll of such films through a single corporation, the corpo­
ration would pay a tax of as high as 38 percent on the profits as
realized, and the producer would pay an individual income tax as such
profits are distributed by the corporation. Producers have tried to
^ * hes! results ty organizing separate corporations for each motion
S f * ] * ! * Up?n c^Pletion of the film but prior to the realization by
corporation ox any income therefrom, the corporation is liquidated
no
distributed. In such a case, the corporation pays
uoon thoh^pc118 that, J has reall2Gd no income. The producer pays tax
a s s e t s ^ ; J T - kC?
hefmenMS 00St
the fa ir market value of
° o
Ui - SUCh jp1“ 18 rsPorted as long-term capital
t h T f S r l h v f f f ^ e ff®°hve rate of 25 percent. After liquidation,
amortf^H o ^ ^
?X the rel<3ased production is ordinarily
income ■ 'V™S* inS*i ?he, “ O'1116
the film as i t is received, i f the
n T t o t h e T t ^ 6 fl3m d06S n0t 6X° eed SU°h ia ir ma;rket value, there is
M
tUal ?ase lUcstrating the problem is the case of
in Pnl-s
Inc. which was organized by an independent producer
All t h T n h J 1 i°rJ hf s0le purpose oi Producing one motion picture.
^ u e of
°°k -0i Lhey ofP°ration (1,750 shares having a pai
h i s ™ ?f ! ? 750) T,af lssued t0 the Producer who held it jointly vri.th
pr? f f ty‘ One year later, the picture having
w m liS!+!^
m.dlstfibutlon contracts executed, the corporation
distrtbS^d S * v
^ Value
motion picture rights thus
assumed ^ t S
",as ^1,452,000. After deducting liabilities
ty
producer on liquidation of the corporation, his net

-

2 -

gain was approximately ^615,000* I f he is successful in the use of
this device, his net tax on such gain w ill be approximately 0154* 000*
In the absence of such corporation, the tax at present rates would
be approximately $455,000 - or an avoidance of approximately $301,000
in income tax*
Moreover, where, as sometime occurs, the actors, or writers,
acquire stock interests, they also might benefit tax-wise through
capital gains treatment on the appreciated value of their shares which,
in large part, may represent compensation for their services*
I t is understood that the tax saving device of organizing and
liquidating a corporation for the purpose of securing such tax benefits
is also being used to seme extent in the building and construction
trades. The corporation is organized at the beginning of construction
and is liquidated upon completion of the project and before any sales
are made. I f the corporation continued in existence and sold a ll the
units i t s e lf , i t would pay an ordinary income tax on the difference
between the anount received for the units and the cost of construction.
This tax would be in addition to taxes payable by the shareholders
with respect to dividends received by them. In order to secure tax
benefits, the corporation is permitted to exist only un til the con­
struction is completed and, upon liquidation, the value of the assets
distributed is estimated at the amount for which i t is expected the
units w ill be sold* On this basis, the stockholders report as a
long-teim capital gain the difference between the net amount they
expect to receive and the cost of the stock oymed by them at the time
of the liquidation* Having received the assets, the stockholders
proceed to s e ll the units and report for tax purposes only the d if­
ference, i f any, between the value at which the units were acquired
on the liquidation and the actual selling price*
I t is by no means clear that, taxpayers using this device w ill be
able to accomplish their tax saving objective, for the corporate form
in many of these cases may be held to be a sham* However, the
Department believes that legislation should make certain that this
tax avoidance technique w ill not be used to advantage in the future*
At the present time, there are over a hundred cases being examined by
the Bureau of Internal Revenue which involve this type of loophole*
In considering the remedy for this problem, recognition must be
given, of course, to the fact that most corporate enterprises are
organized to do business and are designed to operate for profit* We
do not propose any change in the present treatment applicable to the
liquidation of such corporations.
On the other hand, where i t appears that a corporation was
organized or acquired by an individual or group of individuals to
manufacture or produce property without any intention to operate the

-

3-

corporation in a normal manner or without a view towards realization
of profits by such corporation* it iq recommended that such share­
holders be denied the favorable long-term capital gains treatment
which might now be applicable with respect to the sale or liquidation
of their stock*

II,

Sales of Business Property

Another defect in existing laW is the ,rone way street” now
provided for taxpayers under section 117 (j) of the Internal Revenue
Code* Under that section* if gains from the sale or exchange of land
and depreciable property used in the taxpayers business (and held
for more than 6 months), and from the involuntary conversion both of
such property and of capital assets (held for more than 6 months) exceed
the loss«* from such transactions and events* the net gain is treated
as a long-term capital gain* A net loss from such transactions and
events is treated as an ordinary loss deductible in full from the tax­
payer^ other income*
Under the law in effect prior to 194-2* the sale of land produced
a capital gain or loss* while the sale of depreciable buildings or
other improvements on the land produced an ordinary gain or loss*
This difference in treatment required a difficult apportionment of
basis and sale price in the case of the sale of improved realty used
in the trade or business of the taxpayer* In the Revenue Act of 1942*
the definition of the term ’’capital assets” was amended to exclude
land as well as the improvements thereon when used in a trade or
business. This amendment* of course* would have treated all gains
and losses from the disposition of such property as ordinary gains
and losses* It was believed that the imposition of the tax at
ordinary rates on the appreciation in value of such property might
unduly impede the speedy transfer of this property from peacetime
activity to wartime industry* Accordingly* section 117 (j) was en­
acted as part of the same revenue act to provide the more favorable
capital gains treatment upon the disposition of such appreciated
property.
The justification of section 117 (j) disappeared with the
termination of the war* There is no longer any valid reason for
*a provision which will treat the same transaction as producing an
ordinary loss or a capital gain. The fundamental nature of the
transaction should now control its tax consequences* rather than the
question of what treatment is always most favorable to the taxpayer.
The character of the transaction is the same whether a gain or loss
results therefrom.
With respect to productive business property there have been
numerous cases of abuse under this section of the Code* Many plants*
stores* warehouses* etc** have been sold at large losses* and full
deductions taken against ordinary income which would otherwise have
been taxable at the excess profits tax rates* An actual case will

illustrate the proolemi Corporation D, in 1944* sold a department
store building, together "with the land on which i t was located, at
a loss ^in excess of «¿7,400,000« Such loss was allowed as an ordinary
deduction under section 117 { j) and resulted in a minimum tax benefit
(by reason of excess profits tax) of $>5,600,OCX)* I t is significant
that, in this case, the sale was made to a trustee for a tax>»exempt
organization and leased back by the corporation« Thus, the corporation
continued to enjoy the use and possession of such property while at
the same time securing the benefits of substantial tax savings*
It^is also significant that some of the courts have gone quite far
in holding property to qualify for the generous treatment provided by
this section* For example, in one case the court held that vacant land
purchased in 1926 and soM in 1943 was used in the trade or business
of the taxpayer, and that an ordinary loss deduction was allowed under
the provisions of section 117 (j)* The vacant land had been purchased
by the taxpayer for the purpose o f erecting a building on i t , but this
WaS abandoned in 3.934, and the only use of the property since
that time was for billboard advertising*
Another Illustration of the manner in which the loophole operates
to the prejudice of the revenue is presented in the case of livestock
sales* Many cattlemen and dairymen regularly sell a part of their
breeding and daily herds each year* It is difficult to justify the
dir f i e?Ce
tr€atmen’
fc between profits realized on such transactions
and their other business profits* Yet, under section 117 (1). the
courts have held that gain frcm the sale of breeding cattle or daily
rds is taxable on3y at capital gain rates because such animals had
been used in the taxpayer’s cattle or dairy business* Losses frcm
these transactions, on the other hand, are fully deductible as
orainaiy business expenses in computing net income.
• Thi® ccmPlete 3-ack of symmetry in the treatment of gain and loss
n031 the Sale of business property should be eliminated*
1S recommended that land and depreciable property
v e ^ r nof? ^ref?lnf ^
dairy annals regularly culled for sale each
L a J i U ? i n the taxpayer's trade or business, be included within
th?
°£ caPital assets», so that all gains and losses frcm
;L°r efchf lge of such Property shall be treated as caoital
resulariv
Intthe case of deeding and daily animals
o rfr
*culled for sale each year, the proceeds should be given
ordinary income and loss treatment*

H I*

Short Sales

devif*« f ^ heJ
the Present capita* gains structure is the
ever
S^orS haVB t>een abI0> without any risk whatgains L CT ert sborb~tenri capital gains into long-tem capital
6
5 and to create -largely fictitious short-teim losses (100 percent

- 5

of which is taken into account for tax
their long-term gains (only 50 percent
The device most frequently employed to
short sale which is, in effect, a sale

purposes) to set off against
of which is taken into account)#
achieve these results is the
of borrowed property#

A short sale is not deemed to be consummated for income tax
purposes until delivery of the property to cover the short sale, and
the percentage of the recognized gain or loss to be talien into account
is computed according to the period for which the property so delivered
was held. It is possible, therefore, to convert a short-term gain
into a long-term gain by making a short sale instead of selling the
stock outright, thus fixing the amount of gain on such stock and
enabling the taxpayer to select a future date for delivery#
For example, an individual bought 1,000 shares of "X" stock on
January 1, 1949 at $30 per share. Three months later, on April 1,
1949, when the market price of such stock had risen to $42 per share,
he made a short sale of 1,000 shares of ttX" stock with instructions to
his broker not to deliver the "long1* stock but to borrow 1,0 0 0 shares
for such purpose. Had he delivered on April 1 the 1,000 shares bought
on January 1, a short-term gain of ^12,000 would have resulted (100 per­
cent of which would be includible in gross income)# However, by main­
taining the short position for an additional 3 months, and thereafter
covering the short sale by delivering the shares purchased on January 1st,
he was able to convert the $12 ,0 0 0 gain into a long—term gain, only
50 percent of which is taken into account#
It is also possible for the short—seller not only to convert a
short-term gain into a long-term gain, but to offset the long-term gain
with a short-term loss by the simple expedient of covering the short
sale with securities purchased in a rising market#
For example, assume, as in the first illustration, that the
individual purchased 1,000 shares on January 1st at $30 per share and
on April 1st sold short 1,000 shares when the market price was $42#
Further assrne that he maintained his short position until July 1st
when the market price had risen to $54 per share# If, on July 1st
he sold for $54 the stock bought on January 1st, he would have realized
a $24,000 long-term capital gain, of which only 50 percent, or $12 ,000 ,
would be taken into account. If on the sane day he purchased 1,000
shares for $ 54,000 and delivered than to cover the short sale made on
April 1st, he would have sustained a $12,000 short-term capital loss
(100 percent of which is taken into account).# Thus, by manipulation,
a <ipl2 ,000 actual net profit would be converted into no gain or loss
for tax purposes.
This device has also been used by speculators in commodity futures
by "holding open" offsetting positions in the same commodity in such
a. manner as to place the profit end of the transaction into the long­
term category while closing out the loss end as a short-term loss#

-

6-

Although this practice has been partially eliminated through the
issuance of regulations 1*46 under the Commodity Exchange Act and
Mimeograph No* 6243 by the Commissioner of Internal Revenue, these
traders have developed a practice of maintaining long and short
positions in closely related futures either in the same or in
another commodity market* In one case an individual speculator in
cotton futures, was able through this device to report long-term
profits of $485,000 and short-term losses of approximately $250 ,000 *
The short-term losses were more than sufficient to offset the long­
term gains since only 50 percent of the long-term gains are taken
into account*
It is recommended that amendments be adopted to eliminate this
loophole. First, a loss upon the closing of a short sale should be
deemed to be a long-term capital loss if on the date of the short
sale the taxpayer had held for more than 6 months property substan­
tially identical to that sold short. Second, a gain upon the closing
of a short sale should be deemed a short-term capital gain if on the
date of the short sale the taxpayer had held for less than 6 months,
or if after the date of the short sale and prior to its closing the
taxpayer acquired, property substantially identical to that sold
short. Third, the holding period of property held or acquired by
the taxpayer as described in the last sentence should be deemed to
begin on the date the short sale is closed or on the date of the
disposition of such property, whichever is earlier* For the purposes of the above rules, substantially identical property held or
acquired by the spouse of the taxpayer should be deemed to be held
or acquired by the taxpayer* Such provisions would effectively
prevent the creation of fictitious loss offsets and the riskless
conversion of short-term gains into long-term gains through the
medium of short sales in «substantially identical« securities or
commodities. The amendment would have no effect, however, upon
legitimate hedging operations conducted by farmers, securities
dealers, grain merchants and others who now receive ordinary in­
come and ordinary loss treatment on all such operations.
IV*

Foreign Subsidiaries

Another loophole exists through which domestic corporations
avoid income tax on income from operations abroad through the
formation and subsequent liquidation of foreign subsidiaries.
Existing law generally requires that a domestic corporation
shall pay income tax on its entire net income, irrespective of
whether such income is derived from sources within or outside the
United States. Where such a corporation, however, owns a foreign
subsidiary engaged exclusively in business abroad, no Federal in­
come tax is payable on the subsidiaryfs income until it is distrib­
uted in the form of dividends to the parent compary at which time
it is taxed at the full corporation rate without the usual inter­
corporate dividend credit*

- 7 -

The loophole arises from the fact “that foreign corporations
are permitted to merge with domestic corporations in tax-free re­
organizations and liquidations on virtually the same terms as a
domestic corporation — the only difference being, in the case of
a foreign corporation, that it must be established that the pro­
posed merger or liquidation is not designed primarily to avoid tax.
Inasmuch as a business purpose f&ay be established in most cases,
substantial amounts of income accumulated by foreign subsidiaries
on which no United States tax has been imposed are permitted to be
transferred to such domestic corporations without tax consequences.
This permits the use of foreign subsidiaries for accumulation
of large amounts of foreign earrings which can be brought back to
the United States without any tax.
This problem, however, goes further than the use of completely
tax-free transactions in bringing accumulated untaxed profits back
tc the United Statesa Frequently, a few large domestic corporations
participate in the Joint ownership of a foreign corporation. The
untaxed earnings of such foreign corporation may later be returned
to this country upon liquidation at capital gain rates. The opera­
ting assets of the foreign company may thereafter be re-established
in another foreign corporation. Such accumulated profits should be
subject to the rates applicable to ordinary income when they are
brought back to this country.
To eliminate this loophole the law should be amended to provide
that, on liquidation of a foreign corporation over 50 percent of
whose stock is owned by domestic corporations, the gain realized
by a domestic corporation shall be taxed as a dividend to the ex­
tent of such corporations ratable share of the foreign company*s
accumulated profits from sources outside the United States. The
amount so taxed as a dividend will also be treated as a dividend
for purposes of any foreign tax credit,
Dividends Received Credit for Distributions in Kind
One of the more troublesome problems under existing law in­
volves distributions in kind made by corporations to their stock­
holders.^ The controlling court decisions in this area afford
corporations many opportunities for tax avoidance. Under these
decisions, if^ a corporation declares a dividend in cash and sub­
sequently satisfies the obligation by a distribution of property,
g a m or loss may be recognized to the corporation in the amount of
he difference between the amount of the declared dividend and the
cost or other basis of such property in the hands of the corpora­
tion. However, if the corporation declares a dividend payable only
in property, no gain is recognized to the corporation, no matter
how much the property may have appreciated in value between the
date of its acquisition by the corporation and the date of distribu­
tion.

The combination of the above-described principles and the
previsions of law allowing corporations a credit of 85 percent of
the dividends received from another domestic corporation, provides a
striking loophole for tax avoidance where distributions in kind are
made by a subsidiary to its parent corporation# No gaih or loss is
recognized to the subsidiaiy (the distributing corporation) in such
cases, and the parent corporation (the distributee) is allowed an
intercorporate dividend credit equal to 85 percent of the fair market
value of the property so received (not to exceed 85 percent of its
adjusted net ine erne). Moreover, the property take» a new basis in the
hands of the parent corporation equal in amount to the fair market
value of such property at the time of distribution.
It is now being contended that the principles applied in these
distributions are applicable as well to distribution of inventory.
If so, a subsidiary corporation could effect a substantial reduction
in taxes by distributing inventory to its parent company. The sub­
sidiary would pay no tax, and the parent would pay only a 5*7 per­
cent tax on thie dividend (the 38 percent rate applied to 15 percent
of the dividend equals an effective rate of 5*7 percent on the amount
of the dividend)# Since the basis of such inventory in the hands of
the parent company would be equal to its market value, the parent
thereafter may sell the inventory on the open market, without
realizing any taxable gain. If the subsidiary had sold the inventory
it would have been required to pay a 38 percent tax on the gain from
such sale; and the parent would have to pay an additional 5#7 per­
cent tax on any divident which it might subsequently receive. A
simple illustration is as follows: Corporation A distributes to
its parent B a dividend of merchandise which cost A $3 million but
■which has a fair market value of $11 million# If the contentions
above were sustained, Corporation A will pay no tax, and Corporation B
will pay a tax of only 5*7 percent of the $11 million dividend, or
$627,000*
This area of tax avoidance could be reduced by requiring that
the dividends received credit be computed on an amount no greater
than the basis in the hands of the distributing corporation of the
property distributed# Under such requirement, a full tax would be
paid fcy the parent upon the difference between, the basis in the
hands of the subsidiaiy and the fair market value of such property
at the time of the distribution#

VI#

Income from Possessions

The present tax treatment of income from United States
possessions originated in the Revenue Act of 1921, and is con­
tained in section 251 of the Code* This section provides that
United States citizens and corporations engaging in a trade or
business in a possession (other than the Virgin Islands) are
not subject to tax on any of their income from such source or
any other source outside the United States, if 80 percent of
their gross income is derived from such possession and 50 peiw
cent of it is derived from the active conduct of a trade or

- 9 -

business in a possession* Income from the active conduct of a
trade or business includes personal service income and the entire
amount of business income of corporations and active individual
proprietors and partners.
Under this section, therefore, an American citizen may obtain
complete exemption of his foreign income from Federal tax for any
portion of the taxable year during which he qualifies. There
is no need for him to be abroad for any particular time as long
as his income is from sources within a possession. United States
citizens employed or operating businesses in such possessions are
exempt on their foreign income regardless of whether they are bona
fide residents thereof and whether their business income represents
earned income or primarily a return on capital. There has come
to the attention of the Treasury Department the case of a radio
entertainer who recently entered into an arrangement with the
Government of Puerto Rico under which he agreed to produce all
his radio and television transcriptions and films on that Island
in return for an exemption from the Puerto Rican income tax. He
also may be able at the same time to qualify for exemption from
United States tax even though he may stay in Puerto Rico for only
a short period each year.
In addition, virtually all United States Government employ­
ees, including military and naval personnel, in Puerto Rico,,
Panama Canal Zone, Guam, American Samoa, Wake Island, Midway
and other Pacific Islands are completely exempt from Federal
income tax.
Besides the foregoing loophole, this section grants American
citizens in possessions more favorable tax treatment than is
accorded citizens in any other part of the world. First, except
as to the possessions, Government employees are always subject
to tax on their salaries. Secondly, citizens can obtain the com­
plete exemption of all foreign income for any period for which
they qualify under section 251. On the other hand, citizens in
foreign countries must be there an entire taxable year before ob­
taining exemption of only their earned income under section 116 (a).
Moreover, in the case of a business carried on in a foreign coun­
try in which capital is a material income producing factor, the
exemption under 116 (a) is applicable with respect to not more
than 20 percent of the net profits. It seems only equitable to
place all of our citizens on a uniform basis wherever employed.
Accordingly, it is recommended that individual citizens in
the possessions be given the same treatment as is accorded to
citizens who reside in foreign countries.

-

TOE,

10

-

Dividends Paid out of Pre-1913 Profits

Section 115 (b) of the Internal Revenue Code provides an exemp­
tion for dividends paid by corporations to their shareholders when
such dividends represent earnings and profits or gain frcm an ap­
preciation in value which accrued prior to March 1, 1913#
This exemption was originally enacted in 1916 because of doubts
as to the constitutionality of imposing tax upon such dividends*
The Supreme Court later removed, all doubts as to their taxability,
however, in the case of lynch v. Hornby,!/ Accordingly, there is
no longer any valid reason to distinguish between pre-1 9 1 3 and post1913 accumulations* Certainly, frcm the average shareholders
stardpoint, the only difference between them is the tax windfall
which accompanies distributions from the former.
An actual case illustrating the inequity of this exemption is
that of a mining corporation whose ore properties had substantially
appreciated in value after acquisition but prior to March 1, 1913*
The company had no accumulated earnings or profits since February 28,
1913, but each year distributed substantial amounts to its share­
holders (a number of steel companies) out of depletion reserves
representing the pre-March I, 1913 appreciation in value of the ore
properties* One of the steel company shareholders by 1941 had
already recovered through such depletion distributions the entire
cost of most of its shares in the mining corporation* Yet under
the court decision, it continued to receive annual distributions
of approximate3y $ 88,000 tax free.
In addition to the direct increase in revenue which would
result from a repeal of the exemption, there would be an indirect
saving at the administrative level through elimination of the
burdensome requirement of determining where the pre-1913 accumu­
lations end and the post—1913 accumulations begin.
It is recommended that the present exemption of such dividend
distributions be repealed with a view toward simplification and to
prevent any further windfalls to shareholders of corporations
making distributions out of pre-March 1, 1913 earnings ard profits
or gain frcm appreciation in value accrued prior to such date*

VIII*

Capital Gains of Nonresident Aliens

Individuals who are not citizens of the United States are
divided, for Federal income tax purposes, into two major classes,
yiz., resident aliens and nonresident aliens* Resident alien
individuals are, in general, taxed the same as citizens of the
United States, that is, on income derived from gll sources. An
alien actually present in the United States who is not a mere
transient or sojourner is a resident of the United States for

-

11

-

income tax purposes. As to whether he is a transient or a so­
journer is determined by his intentions with regard to the length
and nature of his stay.
Nonresident alien individuals are divide^ for income tax pur­
poses, into two further groups: (a) those no| engaged ih trade or
business within the United States, and (b) those So engaged. Those
falling into the former class are generally sqb'jeci to a flat rate
of tax, currently 30 percent (in the absence of treaties contain­
ing provisions to the contrary, as in the case cf Canada, for
example, providing for a 15 percent rate), upon the gross amount
of their dividends, interest, royalties, and the like, from united
States sources , 2/ They are not allowed any deductions} but they
are not subject to tax upon capital gains, if any, from United
States sources. On the other hand, those aliens who are engaged
in business in the United States are subject to tax on net income
from United States sources, including capital gains.
Under existing law, therefore, an alien individual is not
taxed on capital gains unless he is either (1 ) resident or (2 )
engaged in trade or business within the United States. It is
specifically provided in the faw that an alien is not engaged in
trade or business merely because he trades on the security and
commodity exchanges through a resident broker. In a recent Tax
Court case, Nubar v. Commissioner. ¿/ it was held that an alien,
who was present in the UnitedStates from 1939 to 1945, was not a
resident of the United States
since during the entire period he
intended to return to Europe as soon as possible. Finding that he
was not engaged in a trade or business in the United States, the
Tax Court held that he was completely exempt from tax on over
$600,000 of profits realized while in the United States from trading
on our security and commodity exchanges.
It must be acknowledged that there are difficulties in the
collection of taxes on all capital gains of nonresident aliens.
But, it is believed that these difficulties mainly arise in the
case of individuals who are not present in the United States.
Where an alien spends a considerable period of time in this coun­
try he should pay a tax on his capital gains as do our own citizens.
Accordingly, it is recommended that a tax equal to the tax now
applied with respect to other income of such nonresident aliens
(30 percentum) be also applied with respect to the net capital
gains realized by such individuals who are physically present in
the United States from United States sources,
2/

If a nonresident alien not engaged in business in the United
States receives more than $15,400 from dividends, interest,
etc., he is taxable at ordinary rates, with allowances for
deductions attributable to such income, but his ultimate tax
can never be less than 30 percent of the gross amount*

2/

13 T. C. No. 75.

^

Interest Element on Life Insurance Paid in Ingyfcallments

Existing law provides an income tax exemption for MAmounts
received under a life Insurance contract paid by reason of the
°figinally, the Treasury Regulations
took the position t^at, where the life insurance tfropeeds are
^
amount exempted is t*he amount that
would be payable had the insured or the beneficiary not elected
to have the proceeds paid in installments* These regulations
!?rf contested and, in a series of court decisions, it was held,
that the entire amount of each annual installment is exempt
~r™ J ; nC0™: taJ whei*e the option was exercised by the insured,
ubsequently, the principle of these decisions was extended by
the courts to cases whefe the proceeds of insurance are paid in
instailments pursuant to an option exercised by the beneficiary.
The Treasury Regulations were later amended to conform with such
ecisions. Thus, the excess of the aggregate amount paid in
installments oyer the amount of the lump sum that would have
been payable at death escapes tax, even though it is clearly a
payment of interest by the insurance company for the use of the

Illustrative of this loophole is the actual case of a taxn S d n / w 8 hu^band died h a ving a $10 0 ,0 0 0 life insurance policy
2??* +
hf f beneficiary. The policy contained a provision
giving the taxpayer the right to receive the proceeds in inS ? L el®?ted
136 Paid 111 installments over the
r llfe i*2116* each monthly installment to be $597
year)# The taxpayer *s life expectancy at the time
$10 ^
T
tiOn was approximately 19*4-5 years* Dividing the
fa+Ce+^ Uit of the policy by her life expectancy, she
aggregate annual payments of only approximately
ThoT^ f
6 P7 l T ts rePresented only installments of the $100 ,000 .
c e ^ d s l e S d 2 f^ 023 18 * « * * • » • to interest on the p o i S y p r ^
received b ^ t L X ^ 6 COinpai3y’ Xt was held> however, that all payments
received by the taxpayer were exempt from tax»
Vr’
?2 ,

In another case, the taxpayer was the beneficiarv of a U f a -in

P° f 1Cy °“ the l i f e « f S s fa th e r. T h e > H ^ f v l d S l o ^ "
t e r n r S ° t h e ° L l ^ ty f f “ ?1 inEtallments nf
each. Under the
anv of
ihe i?furanoe company agreed not to anticipate
« S inn+ = ? i ^ + ailmentf ‘' The 00urt f'ound M a faot that, except for
would have^benn
c o i t i o n s in the policy, the amount that
$ 53,000
Tf +„-PT i e immediately upon the death of the insured was
the amoimt
were paid in fifty annual installments,
#2 ?000 ™ ^ ,
!
■instaUment w u l d be only $1,060 instead of the
feieSe of l o ^
the te™
of the oontraoW The difretained hv^ 0 1S attributable to interest on the polity proceeds
each“ S t a n ^ n V ° ”
; The °0brt held that bba e S i r e a l u n t of
1 installment payment
was exempt«

13
To remedy this loophole, the statute should be revised so as
to provide a tax upon the interest element contained in the in«
stallment payments* This can be done by treating the installment
payments as payments under an annuity contract purchased -with the
amount which would otherwise have been payable on death of the
insured#
X*

Transfers in Contemplation of Death

If the estate tax is caap&etsiy integrated with the gift tax,
as suggested by tlie Secretary in his statement last Friday, there
would no longer be any need to determine whether a gift, made
during life, was made in contemplation of death and should be sub­
ject to the estate tax# Under an integrated transfer tax, the
transfers made during life as well as those at death would be
aggregated and taxed under the same rate structure.
In the event that the integrated tax is not adopted, however,
it is recommended that the present "contemplation of death" pro­
vision be replaced by an objective rule#
The present statutory provision attempts to reach those gifts
which are induced by the same motives which customarily underlie
disposition by will# In depending for its application upon proof of
the decedent’s state of mind, the provision has produced adminis­
trative complications and a great deal of litigation# Moreover,
it has not been very effective in preventing estate tax avoidance#
Specifically, the Department recommends that in lieu of the
contemplation of death provision, all gifts made within three years
of death be required to be included in the gross estate for estate
tax pirposes# Conversely, gifts made prior to the three year period
would no longer be subject to the contemplation of death provision.
Such an amendment would greatly improve the administration of the
estate tax and make it a more effective instrument fbr taxing
property transferred at death.

XI# Estate Tax Deduction for Allowances for
Support of Dependents
Another weakness in our estate tax structure is the deduction
now permitted for amounts allowed under State law for the support
of the decedent’s dependents during settlement of the estate#
The amount of the deduction varies from State to State because
of differences under the various State laws# In those States which
permit large allowances for this purpose, the deduction is frequently
abused# Thus, large amounts are often transferred tax free under
the guise of support allowances to legatees who were legal de­
pendents of the decedent#

•* 14 •*
It is the Department *s view that all such allowances are part
of the decedent*s net wealth and are received by reason of his
death, and that no distinction should be drawn between amounts
distributed pending settlement of the estate and the amounts re­
ceived on final distribution# It is accordingly recommended that
this loophole be closed by repealing the provision of the estate
tax under which the deduction is now allowed.

•0 O0 -

SUPPLEMENTARY- TREASURY DEPARTMENT STATEMENT
CN TAX EXEMPT ORGANIZATIONS
K)fy PRES ENT ATICN TO THE
COMMITTEE CN WAYS AND MEANS
OF THE HOUSE OF REPRESENTATIVES
FEBRUARY 6, 1950

I*

Unrelated business activities

Seme of the organizations now e x m p t frem the corporate inccme
tax under section 101 of the Internal Revenue Code» such as charitable
and educational institutions and social clubs, were granted exemption
because Congress desired to encourage their particular altruistic or
group interest activities, which generally were not conducted for
proiit* However, nowhere does it appear that Congress contemplated
that such organizations would engage in the active conduct of a
business*
feason*.1when
came to the attention of the Treasury
that certain educational and other organizations were
1x1 -m -ne3s operations which had no relation to their exempt
- u b Ib m » purposes, it attempted to deny the benefits of tax ex°r^ isations* However, this approach has not been
^
:'3* £ave ±n lsolated cases,. Court decisions have
5 ???* bA°ad view in construing the more important exempting pro2

Srt

"
^
?
in
^
j sec_„4.ng

'Y.ini?rprsting “

eaj'1y Supreme Court "decision
th® source, of income .is the
question of exemption (Trinidad v„ Saprada

Stl? fti0^ * * not

d i s t e i P i h a t ' 1924, 263 U„ S. 578). Sane courts have further
itself'™!v
aalf sss organization^which conducts no exempt activities
„I®®1?
reoe.*» tax exemption if the ultimate recipient of its in-

is - in te T
chart t»hier^ i iCl
, spread in recent years, particularly among
burtness1 and educational institutions, and a iri.de variety of 8
it t ^ ^ S t r J S T .
engaged 11 ^
of accfs^rte.^oor! ? e:®«;P^organizations engage in the manufacture
si“
?craxL0S» f0°d products, leather goods and chinaivare.
to file^Yf ^
f ? 3 Under Seotion 10 1 are not required by law
avails
reburns ^ th the treasury Department, the data

i t S ^ S WM n b h. D®partraei?t does not disclose all the business active
rules m which such organizations may engage.
of charitable6^

0^ , re°anraef ed that « » unrelated business activities
educational organizations, business leagues, labor
rates
°1UbS b? sub3eo'b to tax at the ordinaiy corporate
since ’thrt S ^ h » rT
J'aS presented t0 th® Canmittee in 1942;
such a c t i r t ^ ! !
abuf b£! sPread- Wader the recommendation, if
exemption of th. rS °°nducted by the exempt organization itself, the
th organization w o u U not be disturbed, but such
ss income would be segregated and subjected to
tax* I f a
unions = n f 18 ^

^ c h organiz

2
separate organization conducts those activities for the exempt ii>*
stitution, the entire income oí the separate organization would be
taxed«
Under the proposal, the traditional sources of income of these
institutions, consisting of interest, dividends, rents, royalties
or capital gains would remain tax exempt. Dues, contributions
assessments, gifts, grants and the like would also continue to be
tax exempt« Moreover, only business income which is not incident
or related to the exempt purpose would be taxed. For example, a
university bookstore may continue to sell textbooks to students
an agricultural college may rurt^a wheat farm in connection with^its
educational program, a social club may sell food to its members
without affecting its tax exempt status. All of these activities
would continue to be exempt from tax. Only the unrelated business
would be taxed
the spark plug or chinaware factory run by a
while the Treasury might, after a considerable period
of litigation, succeed in taxing such activities under present law
it seems highly desirable for Congress to provide clearly that such
will be the result«
B.

leasebacks

An additional practice has been engaged in by exempt organiza­
tions during the last several yeais which, in effect, allows such
organizations to trade on their tax exemption. These arrangements
are commonly known as leasebacks, and, under them, an exempt in­
stitution may purchase commercial or industrial properties from a
business concern, using borrowed funds, and lease those properties
back to the same business concern under a long-term lease. The
properties may also be purchased elsewhere, or constructed under
an agreement with a business that it will immediately enter into a
long-term lease with respect to the properties.
. Such transactions result in a compounding of the exemption
privilege since they do not involve the investment of their own
iunds but result in the expansion of an exempt organization through
x-ne accumulation of tax-free earnings upon borrowed funds. These
transactions are particularly attractive to exempt organizations,
tax savin& ma*ces it feasible to apply the entire rental
payment towards amortization of the indebtedness. Illustrative
r w J
purchase of properties for $16.5 million, with no money
t, ever b®J;ne put into the purchase price by the exempt organiza«
year! a™ bbe rece^Pb
rental payments amounting to $1,000,000

proposed that the rental income from commercial and
t“" 3 i
1- properties acquired by exempt institutions under long«
™ leaseback arrangements be subject to taxation in the same

- 3 -

proportion that the unpaid indebtedness on the {froperty bears to
the total purchase price. Thus, if an institution purchased a
$1 ,000,000 department store, using no funds of its own, the entire
rental income of $100,000 would be taxed in thè first year^ When
only $500,000 remains to be paid on the purchàèé price, only
$50,000 of the rent would be subject to taxation.
The need to foreclose the above abuses of the exemption privi­
lege has been recognized by prominent leaders in the altruistic and
educational field. There is no intent to reverse the long-standing
policy of giving preferred treatment to such organizations* the
only purpose is to terminate the abuses.
C.

Charitable Trusts and Foundations

Numerous abuses appear to have occurred in the field of certain
charitable trusts and foundations, which are not supported generally
by the public, and which are privately controlled. These abuses
appear to be related primarily to the possibility of private benefits
inuring to the founders or donors of such trusts. This can occur
through the accumulation of tax-free income over a long period with­
out its application to the avowed charitable purposes, and through
loans, investments and other transactions which make it possible for
such persons to acquire, expand and retain control of business enter­
prises in which they are interested.
It seems desirable for Congress to provide clearly that such
abuses with tax-free funds may not occur. Therefore, it is recom­
mended that trusts and foundations which are privately controlled
and which are not supported by the general public be required to
pay out substantially all net income for the stated exempt purposes
within a specified period after the close of the taxable year.
There are, of course, some cases where a reserve for contingencies
would be required as a matter of prudence. This could be provided
by allowing the trust or foundation to retain, for example, an
amount equal to its highest annual income during the preceding five
years. There should be another »safety valve» provided far the
trust or foundation which has a lo©^*term ccmmitment to furnish funds
for research or similar projects. Thus, it should be allowed to
accumulate such monies as are paid over to an independent fund,
under an escrow agreement, to be held for a limited period up to,
say, five years prior to actual payment.
It would also seem desirable to provide that contributions to
these private organizations not be allowed as deductions for income,
estate, and gift tax purposes unless the instrument under which the
organizations is established affirmatively provides, and the organ­
ization is operated in accordance therewith, that no part of the

-

A

-

organizations assets may be loaned to the founder of the organ­
ization or any of its officers or trustees, or any member of their
families or to a corporation controlled by them; that only a rea­
sonable compensation for services actually rendered may be paid to
such persons by the organization; that the services of the organ­
ization may not be made available to such persons on a preferential
basis; and that no substantial part of the assets of the organiza­
tion may be used to purchase securities or other property from such
persons ^
Moreover, in the cases of those private organizations that are
created^ to continue control of an existing business by the donor or
his family, deductions for contributions should also be disallowed '
for^the income^ estate and gift taxes 0 This might be done by pro­
vision for such disallowance in any case where the contributions
consist of stock, which, when added to the stock owned by those
persons controlling the exempt organization, amounts to 50 percent
or more of the value of the outstanding stock in a particular cor­
poration, or 50 percent or more of the voting stock of that corpora-

Such provisions would tend to forestall dealings between a
trust and its creator or businesses under his control, and the use
oi a trust for the personal advantage of the grantor, As in the
e?ri1 !rui‘eCOiniIlendationS' U is not t e n d e d to hinder ordinaiy
°+!fr eief?fc purP°ses* The objective is to eliminate
existing abuses through the use of tax-free funds, which tend to
discredit the properly conducted organizations0

■oOo—

SUPPIEMENTARY TREASURY DEPARTMENT STATEMENT
ON SPECIAL DEPLETION ALLOWANCES
FOR PRESENTATION TO
TIE COTOTTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES FEBRUARY 6 , 1950

In his statement to this Committee on February 3 , 1950 the
Secretary described in a general manner the tax loophole provided
by the existing special depletion allowances and outlined the methods
proposed for removing the more obvious inequities in the present
system.
This supplementary statement deals with the subject of* percent­
age depletion in greater detail* It describes the way in which the
present provisions operate, the findings of a special survey recently
completed by the Treasury Department, and the considerations involved
in the proposed revisions*
I#

Present provisions

The Federal income tax recognized depletion of wasting mineral
assets as a deductible cost in determining net taxable income. The
depletion allowances for mineral resources correspond in principle
to the depreciation allowance for plant and equipment* In both
cases the purpose is to allow the taxpayer to recover tax-free the
capital invested.
The principal provision exempts from tax a specified percent­
age of the mineral income. Such special treatment was first accorded
to oil and gas in 1926 and extended later to other minerals.1/ A
special depletion allowance based on discovery value applies in the
case of certain minerals, but this provision is now of relatively
minor importance.
Percentage depletion is computed as a specified percentage of
gross income, without regard to the capital cost of the property.
The rates range from 5 percent of gross income for coal to 27| per­
cent in the case of petroleum. The following percentages of gross
income are allowed different minerals under present law.
Mineral

Rate on gross income
Oil and gas
27fe
Sulfur
23
Metals
15
Coal
5
Nonmetallies s bauxite, fluorspar, flake graphite,
vermiculite, beryl, feldspar, mica, talc (ir>~
eluding pyrophyllite), lepidolite, spodumene,
barite, ball, sagger, and china clay, phosphate
rock, rock asphalt, tronaA bentonite, gilsonite
thenardite, and potash
15
i/ A summary of the historical development of special depletion
allowances will be found in Appendix I to this statement.

-

2

-

The allowance computed on the basis of the specified percent­
ages of gross income is subject to a provision which limits the
deduction to 50 percent of net income from the property. However,
no limit is imposed on the aggregate amount which may be recovered
tax-free under percentage depletion. Deductions continue for the
life of the property and may substantially exceed the actual in­
vestment ,
In addition to percentage depletion taxpayers are allowed to
deduct as current expense a substantial part of the capital costs
of developing mineral properties. The amounts deducted as expense
in this way do not reduce the future percentage depletion allowance
since this allowance is computed as a prescribed percentage of the
gross income from the property, without regard to the investments
it represents,
These provisions, in combination, result in a double deduction,
once when the costs are incurred and again through percentage deple­
tion, The operation of these provisions can be readily illustrated.
Assume, for instance, two taxpayers each of whom invests ¿>160,000
in oil properties of which $75,0 0 0 is for depreciable property,
$75,000 for intangible drilling and development costs, and $10,000
for leaseholds and other depletable capital costs which cannot be
expensed. Assume further that each taxpayer obtains $55,000 gross
income and $30,000 net income per year from his property following
the year of development. When the operation begins, Taxpayer A
has $75,000 net income from other sources and is therefore able to
deduct the intangible drilling and development costs from his other
income. Taxpayer B has no income in the beginning against which to
offset his development costs. Under present law, these two tax­
payers will be treated differently, as follows.
Illustrative example of two taxpayers1 income
tax deductions for expensed development costs
and percentage depletion
Year *
Type of deduction
----- :_____ .
____________
Development costs expensed
Percentage depletion
Percentage depletion
Percentage depletion
Percentage depletion
Percentage depletion
Total deductions for 6 years

*------ r-- ^a ~£.
aZer— ~
?______ A
;
B
$ 75,000

0

15,000
15,00 0
15,00 0
15,00 0
15,000
150,000

$ 15,00 0

15,000
15,000
15,000
15,000
75,000

-

3-

As shown in this example, over the 6-year period Taxpayer B
would have deductions of $75,000 for percentage depletion. Tax­
payer A would have deducted, in addition to the $75,000 for per­
centage depletion, $75,000 development costs. His deduction would
have totalled $150,000, or double the amount allowed Taxpayer B
with respect to the same investment;
The opportunities for expensing capital costs incurred in
developing properties are especially important in the oil and^ gas
industry. Much of the initial outlay is for so-called intangible
drilling and development costs, consisting of labor and supplies,
used in drilling a well. At their option taxpayers may treat such
intangible drilling and development costs as current expenses
deductible from taxable income from any source. Frequently, these
amount to as much as 90 percent or more of the original capital
outlay, exclusive of depreciable property. When this is deducted
as a current expense, and thus recovered tax-free at the outset,
only 10 percent of the investment remains to be recovered through
depletion allowances.
In the case of mines, development costs can be immediately
offset against income only to the extent that there are receipts
derived from the mine during the development period. However, if
considerable quantities of ore are taken out while developing a
mine to full producing status, it is possible for a taxpayer to
recoup tax-free immediately a large part of the capital costs of
development.
The provision for percentage depletion does not obviate the
necessity for computing depletion based on cost since, in all cases,
the taxpayer is allowed cost depletion as a minimum. Corporations
also account for annual cost depletion computed without regard to
amounts recovered from time to time through percentage depletion,
in determining their net profits for reports to stockholders and
other purposes. Cost depletion in this sens© is also recognized
for tax purposes in connection with the treatment of liquidating
dividends in the hands of the stockholders. Under existing law
dividends to stockholders are taxable to the extent they are paid^
out of earnings and profits. For this purpose, earnings and profits
are computed on the basis of cost depletion.
For purposes of determining gain or loss upon sale or other
disposition of a depletable property, the tax basis is reduced by
the total amount of allowable depletion (percentage, discovery, or
adjusted—basis depiction) in previous years. 1/ While percentage
depletion may continue even though more tfaan 100 percent of the^
basis has been recovered tax-free, the basis for determining gain
or loss is reduced only to zero,
l/ For years prior to 1932, the excess of percentage over cost
depletion was not applied to reduce the tax basis,

-

4

il9 Revenue and equity considerations
Current information on percentage depletion and other special
allowances for mineral producers has been recently assembled by the
Treasury Department through a special analysis of the income tax
returns of approximately 350 corporations* This information was
summarized in Exhibit 2 submitted to you by the Secretary with his
statement on February 3* This analysis was undertaken to ascertain
the revenue and equity consequences of the existing statutory provisions.
The corporation income tax returns examined accounted for about
three-fourths of all depletion, allowances claimed by corporations
for the year 1946 and therefore provide comprehensive information
on the operations of the mineral depletion provisions* (Table 1)
Data provided on individual and partnership income tax returns
have not made it practicable to make a similar analysis of mineral
operations conducted by unincorporated operators* It is estimated!
however! that corporations account for about BO percent of depletion
deductions claimed by all taxpayers *
A*

Excessiveness of depletion allowances

One of the outstanding facts revealed by the survey was the
extent of the excess of percentage over cost depletion. The allow­
able depletion deducted by the corporations included in this survey
amounted to $555 million in 1946 and $839 million in 1947, Of
these amounts only 10 to 15 percent represented adjusted-basis
deoletion which would have been required to recover original in­
vestment cost. The remaining 85 to 90 percent constituted the
excess allowance due almost entirely to percentage depletion*
B*

Effect on tax revenues

The indicated revenue loss for all corporations in the survey
due to excess depletion was about $180 million in 1946 and $290
million in 1947, (Table 3) Since the survey group included about
three-fourths of the total depletion taken in 1946 , it appears
probable that the total revenue loss for all corporations due to
excess depletion was nearly $250 million in 1946 and $400 million
in 1947* The 1948 tax returns, in various stages of processing by
the Collectors of Internal Revenue, have not been available for
similar survey purposes. However, data taken from a smaller number
of 1948 tax returns as well as reliable published sources of infor­
mation on the trend of profits in the oil and other mineral indus­
tries Indicate that the revenue loss increased in 1948 *

- 5 -

C*

Special position of the oil and gas industry

The bulk of the excess of percentage depletion over basis de­
pletion is accounted for by the oil and gas group. As shown in
Tables 4 and 5, they received almost 85 percent of the excess de­
pletion compared with 55 percent of the gross income for corpora­
tions included in the survey.
Total deductions for development costs by the selected corpora­
tions were $394 million in 1946 and $436 million in 1947. Comparison
of the development cost deductions with the excess of percentage
over basis depletion for these two years indicates that for every $3
allowed as percentage depletion another $2 was deducted as develop­
ment costs. In addition, substantial deductions were taken for
exploration costs and losses on abandonment, amounting to $204 million
in 1946 and $255 million in 1947. Nearly all of the development cost
deductions were taken by oil and gas producers, and these producers
also claimed most of the allowances for exploration and losses oh
abandonment.
D.

Sulfur producers

Sulfur producers are currently able to exclude more than onethird of their aggregate net income from taxation through excess
percentage depletion. Previous tax-free recoveries, including those
under the 23 —percent depletion rate enjoyed by the industry since
1932 , have reduced their remaining recoverable cost in the aggregate
practically to zero, (Tables 4 and 5) Their relative tax benefits
from percentage depletion are even greater than those derived by
oil and gas producers, whose depletion in 1947 was 16 times basis
depletion, as compared with 5 times basis depletion for metals and
3 times basis depletion for coal.
E.

Depletion benefits of large non-mining enterprises

While special depletion treatment has often been advocated as
a means of aiding the small prospector or ore producer, the facts
shew that the bulk of the benefits of this treatment go to an
entirely different type of taxpayer.
A high proportion of the excess depletion is received by cor­
porations whose major activity was other than mining and quarrying.
(Table 2) In 1946, for example $345 million or more than 70 per-­
cent of the total excess was deducted by manufacturing enterprises
(notably in the petroleum field) representing large integrated
firms whose predominant industrial activity was not mineral
extraction.

-

6

-

Public utility corporations and financial and real estate cor­
porations also deduct significant amounts of depletion. While
these integrated business concerns are engaged in part in mineral
extraction, they generally have wide opportunities for offsetting
losses on extractive ventures against income from their other types
of business activity.
F.

Depletion allowances in relation to size of firm

About three—fourths of the total depletion allowances and of
the excess of percentage over basis depletion was received by cor­
porations with assets of at least $100 million. (Table 7) By
contrast these firms received slightly less than two-thirds of the
total gross income from mineral production,
The percentage of income excluded from taxation through de­
pletion allowances tends to be greater for larger corporations.
(Table 8 ) In 1947, for example, firms with assets of $100 million
and over had depletion allowances of 20 percent of their gross and
38 percent of their net income, as against 9 percent of gross income
and 34.5 percent of net income for corporations with assets between
$100 thousand and $1 million, The benefits of special depletion
allowances, reflected in the ratio of allowable depletion to basis
depletion, also tend to increase with the size of the firm. In
■^947, for example, the allowable depletion of corporations with
assets of $100 million and over was 13 times their basis depletion
as compared with about 8 times for corporations with assets between
$1 million and $10 million.
G,

Tax effects of special allowances on
particular taxpayers

One of the most inequitable results of the special depletion
allowances is their effect in freeing individual taxpayers from
their fair share of taxes, Some of the more conspicuous cases of
tax reduction are shown in Table 9, In ten illustrative cases in
which the taxpayers income history was traced over the 5—year
period 1943-1947, the effective rate of tax on net income (based
on cost or basis depletion) varied from 6 3 .5 percent to less than
1 percent. These taxpayers, who on the average had annual incomes
in excess of $1 million each, paid an average tax of only 22 | per­
cent. This represents a striking difference between the effective
rates of tax actually paid and the general statutory rates on such
income, which ranged as high as 90 percent in these years?.
During the 5-year period these ten individual taxpayers received
a total net income of $52 ,6 million from oil and gas properties.
This net income was computed after all deductions for operating ex­
penses, depreciation, basis depletion, exploration costs and losses

- 7 -

on unsuccessful ventures* These taxpayers also received a total
of $9*3 million of net income from other sources. Of their aggre­
gate net income from all sourtees, totaling $61*9 million, 7 7 per­
cent was eliminated for tax purposes through the special dteductidrid*
A number of corporate cases involving relatively large tax savings
under • the special depletion provisions are presented in Table 10*
This method of reducing taxes is not unusual* Attracted by
opportunities for preferential tax treatment, mapy high~income
individuals have invested heavily in oil ventures* These taxpayers
thus reduce current taxes on income from any source by the amounts
invested in development costs, and they obtain sources of future
income which are tax-free to the full extent of percentage depletion*
In addition, corporations in unrelated fields, such as brewing com­
panies and manufacturers of ordnance, have in recent years found it
advantageous to invest profits in mineral ventures, particularly oil
and gas wells*
IV*

Proposed revisions

The Secretary in his statement proposed that percentage deple­
tion for oil, gas, and sulfur be reduced to 15 percent of gross
income and that percentage depletion for nonmetallic minerals be
reduced to 5 percent* The existing 15 percent for metals would be
left unchanged* The 50 percent limitation in terms of net income
for all groups would be left unchanged* The present and proposed
depletion rates compare as follows:

Mineral

:Percentage depletion rate on gross income
:
Present law
:______ Proposed

Oil and gas

27§#

15#

Sulfur

23

15

Metals

15

15

5

5

15

5

Coal
Nonmetallics

The suggested changes are designed to correct the more excess­
ive special depletion allowances permitted under present law* The
scale of depletion deduction in excess of investment costs has been
particularly large for oil, gas, and sulfur* Also the proposed
rate for nonmetallics would grant a more realistic type of special

-

8

-

depletion allowance than the rate selected as a temporary war measure ,
It is believed that the proposed changes will result in a better
alignment of percentage depletion rates in the light of present con­
ditions * Even at the suggested ^educed rates of allowance, the tax
saving value of the oil and sulfur allowances under existing corpora­
tion income tax rates will ba substantially in excess of what it was
when percentage depletion Was originally introduced for these minerals,
The Secretary also proposed that oil and gas operators who elect
to expense intangible drilling and development costs be required to
reduce income from the property by the amount of such expensed costs
in computing their depletion allowances * In the computation of per­
centage depletion, the gross income and net income from the property
with respect to which development expenses were previously deducted
would be reduced each year by the amount of such expenses until such
reductions equaled the total of such expenses.
These proposals will retain the desirable incentive effects of
the right to immediate deductions for recovery of capital invested
in the development of wells. Oil and gas operators would retain
their option to deduct these costs, either when they are incurred
or later &.s depletion. But the extent to which these operators now
ènjoy a double deduction for the same costs would be reduced*
V • Effect of proposed adjustments on incentives
A,

The oil industry

For those not familiar with the operations of the oil industry,
■technical details tend to obscure the manner in which the benefits
derived from the special tax provisions accrue to the various types
of participants in oil operations. Those who are intimately familiar
with the industry, on the other hand, tend to take for granted the
benefits of the special tax provisions. In order to evaluate the
effects of the proposed revisions, a brief statement of some of the
basic relationships in the industry may be helpful.
Oil operations, as well as most other mineral ventures, involve
the recovery of materials below the earthfs surface. Access to
these materials can be obtained only through the owner of the surface
land,^ The land owner is said to have a right to the sub-surface
materials, and usually must be compensated in some manner before the
sub-surface area may be explored. This is usually effected through
a lease or sale of the sub-surface rights with the land owner becom­
ing a potential participant in the future mineral production. This
is generally referred to as a royalty interest, which may be sold
either in part or outrighti

The person obtaining the rights to the sub-surface mineral has
a wide choice of ways to exploit his interest. On the one hand he
may proceed entirely on his own, retaining a ll of the rights, doing
a ll the exploratory work and actual d rillin g of w ells, and cSntinuing to operate properties yielding productive w e lls. On the other
hand, however, instead of handling the operation entirely himself
he may and usually does s e ll a share in the potential product in *
return for capital contributions or exploratory and developmental
work by others. In s t i l l other cases, he may retain only a partial
velormentand
°thers to carry throu&h the exploration and de~
As a result of the d iv is ib ility of ‘o il and mining inerests.
the arrangements for the conduct of exploration and development
work are normally complex. Once the property has proven productive
a ll persons having an »economic interest» in the property may deduct
from the income received from the property on account of special de­
pletion the percentages of gross income specified in the law in addit­
ion to a ll other ordinary and necessary producing expenses.
I t is important to note that the allowance for percentage depieion is granted with respect to each individual property and not with
reference to the over-all operations of the taxpayer. The individual
property may vary in size from a few acres to one covering thousands
o acres. In general, a property is defined as the property interest
in an area from which a person holding such an interest is entitled
to a share of the o il production.
In view of the extensive subdivision of interests, an o il operaor ususally has a number of different properties. This permits him
high^r of cost °* percentage depletion on each property
and thus obtain a larger allowance on his to tal operations than i f he
were required to use one method or the other for a l l properties.
sPecial Repletion provisions, which have remained unchanged
?aS f i nc! 1926* were originally enacted at a time when
the exploratory risk was assumed by the soaiied independent operator or wildcatter. With the large growth
llslZTtment
industry , the pattern of operations hfs
substantially different character. Economic data on
Appendix6I I l0PmentS in th8 p?tro*teljm industry are presented in
a

One of the principal developments has been the integration by
rge companies of the prospecting function with the actual produc' t ^af®P°rtaiio n , refining and marketing of the product. In
dmîf!« 4.U 8 f ?riBer predominance of individual prospectors and-pro-.
fJartA* * ??^or in^egrated o il companies today account for a large
a ï ^ i ° n. ° Î . the Production as well as refining and marketing. As
^ndlcatedi they now obtain most of the benefits from the
special tax provisions.

-

10

-

The small operators are still an important factor in the oil
industry, and should be encouraged in common with other small busi­
nesses # The small oil operator now obtains the benefit of lowerrates under the corporation income tax. The small operator in the
oil business also may now expense most of his capital costs a
privilege not granted tq small business in any other industry.
No one who is familiar with the oil business would underrate
the significance of the ¿so-called wildcatter even under present
day conditions wfyer© the bulk of exploratory work is carried on by
the large integrated corporations, The wildcatter performs a
™ L function and -s
^ U y appreciated by those familiar
with the oil community. The unusual strikes made by the wildcatter
sometimes where more conservative interests have given up are no *
less important than dramatic. The present depletion provisions how­
ever, do not contribute Substantially to his preservation. The wild—
catter, as the very term signifies, is one who is constituted to
take the long chance0 Ha is not ordinarily the type who is inter­
ested m the conservative business of operating an established well.
The gains he usually makes from his ventures are obtained from
transferring to others the properties he has explored. He usually
sells his property before or Shortly after it is developed. In
doing this, he new has the adnatage of the favorable capital gains
treatment from the sale of his property. During the developmental
stage percentage depletion is usually of little or no benefit to
him because the expenses of development equal or exceed the gross
income from the property, and he is therefore unable to benefit
from these tax-saving opoortunities. The depletion deduction is
of no value to those without taxable income, Instead, the benefits
of percentage depletion go to those who purchase the property from
the wildcatter after it reaches production on an established basis,
ibe proposed reduction in the percentage depletion allowance would
nave little effect on this type of operation.
The small individual operator who is constantly expanding his
operations may deduct percentage depletion with respect to his
developed producing properties. But he would probably pay little
or no tax for the reason that net income after depletion is devoted
expanding activities and charged off as expense until there is no
remaining net income subject to the tax.
.
This situation might be called the story of how to make profits
n
°^-1 business without paying an income tax. The following
example illustrates the method of avoiding tax liability*

to

-

11

-

$1 ,000,000

Gross income, oil and gas sales
Costs?

Operating costs
Development costs

$250,000
200.000
¿50f000
$

Net income before depletion

550,000

Depletion at 27i$ of gross income

275.000

Net income after depletion

275,000

Capital cost of drilling 6 addi­
tional test wells at $50,000 per
well for intangible drilling cost#

300.000
- $25,00 0

Net loss from total operations

The proposed tax revisipn would decrease the rate of percentage
depletion but would continue to allow the deduction of development
costs^ In the example above the result of the proposed decrease in
percentage depletion would be as follows?
$ 1 ,000,000

Gross income, oil and gas sales
Costs:

Operating costs
Development costs

$250,000
200.000
¿50*000

Net income before depletion

$

Depletion 15$ of $800,000
($1 ,000,000 minus $200 ,000 )
Net income after depletion

1 2 0 f000
$

Capital development cost of 6 addi­
tional wells at $50,000 each
Net income from total operations

550,000

¿30,000

300.000
$

130,000

The effect of the proposed revision would be to bring this tax«
payer into the taxpaying class unless he elected to extend his opera­
tions by drilling more wildcat wells#
In considering the probable effect of the proposed tax revision,
it is well to distinguish clearly between those who have actually
participated in the exploration and development of oil properties,
and consequently assume risk, and those who obtain benefits without
taking risks * The royalty owner is generally a passive recipient of

-

12

-

income resulting from the efforts of the wildcatter or independent
developer. He may claim 27g' percent of his royalty income as a
deduction* although he usually has no capital investment which he
would be entitled to recover through cost depletion.
Another type of operator in the oil industry is the so-called
stripper producer. He is far removed from the prospecting and devel­
opment phase of the oil industry. Oil wells typically rise to a
maximum production, after which, depending upon the character of the
property and the restrictions of the State pro-ration agencies, the
production declines to a point where there is little if any natural
flow. When this stage is reached, pumping or other force methods
are used to continue the recovery of oil. This is known as a stripper
operation. It is frequently carried on by small operators on a h i g ^
cost, low-profit basis. Because of the low margin of profit, they
are sometimes referred to as ’‘marginal11 operators.
These operators generally are prevented from obtaining the full
deduction based on gross income specified in the law by reason of
the net income limitation. In order to obtain the full 27§ percent
of gross income, the stripper well would have to be so profitable
that the net income before depletion would amount to 55 percent of
gross income or twice the 272 ~percent of gross income allowed by law.
The net income of stripper wells, however, rarely is this high and
in most cases percentage depletion for them is determined by the
50-percent net income limitation. It often amounts to less than 10
percent of gross income compared with 2 7 § percent that may be taken
by the more profitable operators,
B,

The sulfur industry

The sulfur producers have made their property acquisitions by
following closely on the heels of the oil producers since the latter
often reported sulfur in their dryholes encountered in drilling for
oil. The sulfur industry does not carry on extensive exploration
programs of its own but appears to rely on the results of drilling
for oil. At the present time, the known United States reserves of
sulfur are very large, being equivalent to approximately 30 years
supply at current production rates. Moreover, these known reserves
are being extended by new discoveries. The sulfur industry has
nevertheless enjoyed a liberal depletion allowance.
C.

Taxpayers producing natural gas only

like the sulfur producers, the natural gas industry has relied
to a considerable extent on the oil producers to discover new re­
serves for the natural gas industry. Of the 7,294 wildcat wells
drilled in 1949, 2 . 7 percent were completed as gas wells.

- 13 -

D«

Nonmetals and percentage depletion allowance

The nonmetalss other than coal and sulfury cover a wide variety
ranging from sand and gravel to little known minerals such as thenardite and perlite* A large number of these now enjoy the benefits of
percentage depletion*
Most of the nonmetallic minerals are in abundant supply and
properties containing such minerals may be purchased or leased at
low cost. The unit cost of such minerals when purchased in the ground
is frequently one cent per ton or even less* The Treasury*s survey
showed that percentage depletion at the present rate of 15 percent
of the gross sales value of the nonmetallic minerals in 1947 amounted
to 5 times basis depletion* (Table 6 ) The supply of many of the
nonmetallics appears to be virtually inexhaustible.
It is believed that a 5—percent depletion rate would be adequate
in all the nonmetallic cases, This would put these minerals on a
comparable basis with coal mines.

:
0.

me» 14. ••

APPENDIX I
Development of Special Depletion Allowances
The original income tax legislation provided a nreasonable allow­
ance,” not to exceed 5 percent of gross income, for wasting mineral
assets* This was later changed to a more specific allowance of depletion
based on cost or* 1913 value*
f.
Allowances in excess of cost depletion were first granted in the
form of discovery depletion in 1913 as a measure to stimulate mineral
exploration for war purposes and to lessen tax burdens on small-scale
prospectors who made discoveries after years of fruitless search*
Discovery depletion deductions allowed the discoverer of any new mineral
deposit to retrieve not only his costs but also the materially larger
appreciated value of the property at the time its profitability was
established.
In the ensuing years, it became apparent that large corporate
taxpayers received most of the deductions based on discovery depletion*
Under the high tax rates of World War I and immediate postwar years
discovery depletion exceeded the income from mines or oil wells and
even resulted in large amounts of taxable income from other separate
and distinct lines of business being offset* In 1921 Congress limited
annual discovery depletion to the amount of net income derived from
the mineral property, and in 19&4, this limitation was lowered to
50 percent of such income* Congressional investigators also pointed
out that a very minor part of discovery depletion deductions was taken
by prospectors and wildcatters who were the express object of concern
in 1913* It was estimated in 1926 "that approximately $10,000,000 out
of the $ 300 ,000 ,000 , or 3 - 1 / 3 percent of the annual deductions for
discovery depletion (for oil and gas) has gone to the wildcatter”.1/
There was considerable criticism of the continuation of discovery
depletion beyond the war period in which it had first been deemed to
be justified. However, instead of being removed, the special allow­
ance was modified in 1926 to a percentage of gross income in the case
of oil and gas properties* A similar substitution for metals and
sulfur was made in 1932* The rates on gross income were set at levels
which it appeared would permit the respective mineral industries to
deduct approximately the same total annual depletion that they had
enjoyed in the early 1920’s. The 50-percent net income limitation
was retained.
The percentage rates on gross income selected in 1926 and 1932
were designed to provide depletion deductions approximating those of
the base period of the 1920’s. It was apparent that as mineral prices,

l/

Senate Select Committee on investigation of Bureau of Internal
Revenue, Partial Report * Senate Report 27, 69th Congress,
1 st Session (1926), pp* 20 ff*

- 15 and. hence, gross income changed, the amount of depletion allowed for
a given quantity of mineral would vary widely irrespective of the costs
of the mineral asset to the taxpayer4 For example, from 1921 to 1925
the annual Average price of a barrel Of crude oil ranged from $1*34
to $>1*73* At present, the average price of crude oil is approximately
$2*65* Thus the percentage depletion deduction per barrel of oil is
now between 53 and 9 $ percent higher than it was when the 27gf percent
rate was selected as a substitute for discovery depletion* These and
other historical data on the economic condition of the petroleum
industry will be found in Appendix IX*
Since coal and honmetallics, other than sulfur, had never enjoyed
any significant amounts of discovery depletion, the percentage rates
on gross income for these items were not based on special tax depletion
experience* Instead, rates Yrere selected to afford tax relief and tax
incentives which seemd to Congress reasonable at tha.t time as com­
pared to the treatment given oil, sulfur, and metals*
During World War II, the percentage depletion rate of 15 percent
of gross income was temporarily granted to specific nonmetallics as a
wartime incentive measure* The arbitrariness of this rate was
criticized by members of the Senate Committee on Finance because no
investigation of the appropriateness of the rate for nonmetallics had
been made* In 1947, however, the wartime grants were made permanent
and in addition seme items not previously covered were granted the
special allowance. Since 1947 a Yd.de range of nonmetallic producers
who have not been granted percentage depletion have continued to
press their claims for similar preferential tax treatment.!/

if

Within the past three years other bills have been introduced in
Congress to extend percentage depletion to amblygonite, oil shale,
tripoli, marble, pumice, scoria, limestone, crushed stone, perlite,
diatomaceous earth, granite, borax, calcium and magnesium carbon­
ates, shell, sand, gravel, stone, and all other nonmetallic clays
and minerals*

«■» 16 —

APPENDIX II

Economic Dat& on the Petroleum Industry

Basic data on conditions in the oil industry, the major industry
affected by the percentage depletion provisions, are presented in
the accompanying tables.
As shown in Table A, the production of crude oil in the period
1947-1949 was the largest in the industry’s history. In spite of
this greatly increased rate of production, known reserves have also
been increasing for the past 10 years and in 1948—1949 were at their
all-time peak.
Data on the production of crude oil in New York and Pennsylvania,
primarily from so-called stripper wells, are shown in Table B. The.
depletion allowance for stripper wells would generally be unchanged
under the Treasury’s proposal# Because of the low net income in
relation to gross income, the depletion allowance of most stripper
wells is subject to the 50 percent of net income limitation, and would
continue to be equal to 50 percent of net income even with the proposed
reduction in the percentage rate based on gross income# Moreover, as
shown in Table B, the production of the stripper wells is primarily de­
pendent on cost—price relationships and technological developments#
The increase in stripper production after 1926 is traceable to the
gradual introduction of the water—flooding method of extraction,
first permitted by State law in 1921# Stripper production increased
in the early war years under the stimulus of higher oil prices# Since
then production has receded to about the same level as in the early
1930’s.
Data presented in Table C indicate that the number of oil and
gas wells drilled in 1949 was about one-third higher than in the years
immediately before the war# Variations in the rate of oil-well drill­
ing over the years have been responsive to changes in the price of oil#
This suggests the basic importance of ordinary profit considerations
rather than special tax incentives in oil discovery.
Information on exploratory oil and gas wells (generally termed
’'wildcat” wells by the industry) are presented in Table D# Wildcat
wells represent wells drilled in unproven areas as contrasted with
development wells drilled on proven properties in producing fields.
They represent the more risky type of oil development activity. From
these data, it will be noted that the ratio of successful wildcat wells
to the total has risen since the war to about one in five, as compared
with one in ten in the prewar years shown# This increase in the pro­
portion of successful wells reflects improved scientific methods of
locating and developing oil reserves#

17
Table A *
United States petroleum production* consumption,
imports, exports, and estima.ted reserves, 1926—
I 9H9
(Millions of barrels)
sProductionî

Year : crude
: oil
1926
771
90I
I927
901
I92S
1,007
1929
I93O
898
851
1931
785
1932
906
1933
90S
193U
1935

997

1936

1,100

1937

1 ,2 7 9

1939

l,2lH
1,265

I9H0

1 ,3 5 3

19H1
I9U2
I9H3
19HH
19U5
19H6
19U7
19Hg
19U9

1,H02

I93S

1 ,3 8 7

1,506
1,678

1 ,7 1 4
1 ,7 3 4
1 ,8 5 7

2,01/
l,SHl

Domestic consumption

sImports sExports Estimated
lreserves
of
of

ï crude S crude • of
*1f Total •1 Gasoline i* Fuel
oil s oil î oil îcrude oil
8 ,8 0 0
60
3U0
267
780
15
10,500
l6
58
803
339
305
11,000
38Ú
80
861
19
339
13,200
26
H15
9H0
79
383
13,600
2H
62
398
369
927
13,000
26
Hos
47
335
903
12,300
308
27
378
H5
835
12,000
324
380
32
868
37
Hi
3Ho
1 2,177
HlO
36
920
1 2 ,4 00
98H
32
51
367
435
13.063
50
Hll
32
H82
1 ,0 9 3
HH2
1
5 ,5 07
67
1,170
27
519
17
,3^8
26
77
H09
1 ,1 3 7
523
1
8
.H
83
72
H58
1,231
556
33
1
9
,0
2
5
52
501
43
589
1,326
3H
19,589
l,Hg6
556
667
51
2
0 ,0833H
591
1 ,4 5 0
589
13
20,06H
Hi
lH
56s
1,521
675
20,453
H5
721
632
3 *+
1,671
20,827
74
696
750
33
1,773
20,87H
Hi
86
720
735
1 ,7 9 1
21,H88
H
6
1 ,9 9 0
97
795
23,280
—•
Ho
120
871
2 ,1 0 8
IH9 1/ 331/ 25,000 1/
918 1/

Treasury Department,
Tax Advisory Staff of the Secretary

1/ Estimated*
Sources

American Petroleum Institute, Petroleum Facts and Figures?
Oil Industry Information Committee, Petroleum Industry
Record, 1918~19H8î Bureau of Mines, Minerals Yearbook, 19 U7 :
Oil and Gas Journal, January 26, 1950.

* 18 -*

Table B.

Year

1926
•1927
1928
I 929
I 93 O

I93I
1932

1933
1934

1935
1936
19 37

1938

Production of crude oil in Pennsylvania and New York
and average price, 1926~ 19 U9

: Production : Average pri?ee •
:(thousands
Jof Pennsylvania î Year
:of barrels) :crude(per bbl.)

10,917

$3 . 5 6

1 1 ,7 6 8
1 2 .5 5 9

3 .0 6

15,197
1 6 , 1*50
1 5 .2 5 5
1 5 .9 2 0

15,805
16,282
20,0U6
21,733

2 *1 ,6 6 7
2 2 , *+71

3.27
3,79
2 .6 1

1.98
1.39
1.67
2 .U3
2 .H3
2.57

1939
19*40

19Ul
19**2
19**3

: Production {Average price
î(thousands Jof Pennsylvania
Jof barrels) {crude (per bbl.

22,U60
22,352
21,935
2 3 ,2 0 0

20,816

$2.03
2.29
2 .5 9

2.99
2.98

1 9 UU
1995
19 U6
19 9 7
19 9 s

17,283

U.0 0 1 /

1999

1 5 ,6 2 1

3 .5 9 1 /

13,815
1 7 ,1 6 3
1 7 ,3 5 9
1 7 .9 5 2

3.29
3.73
3.82

l.gg

Treasury Department,
Tax Advisory Staff of the Secretary

.1/ End of year prices.
Source:

American Petroleum Institute, Petroleum Facts and Figures;
Bureau of Mines, Minerals Yearbook 1947: Oil and ¿as
Journal, January 2 ¿, 1950»

19
Table C. Total number of wells drilled for oil and gas and
average price of crude petroleum at wells, 1917 - 19^9

;
Wells
Year
* drilled

1917

23,^ 07
2 5.687

:
Average
t
price
! (per barrel)
$ 1 .5 6

•t
î Year
t*
1933
193*+
1935

[
Wells
\
drilled
*

:
Average
î
price
: (ner barrel)

12,312
18,197

$ .6 7

21,*+20

.97
1.09
1.18

I9 IS
I9 I9
I92O
I92 I

29,173
33,9H
21,937

3.08
1.73

1936
I937

25,890
33,075

I922

2*1,689

1 .6 1

2*^38
21,888
25,623

1.3*+
1.1*3

193«
1939
I9 UO
IS 1+1
19*42

27, **93
27,717
30,0*41

1;13

1923

32 ,0 53
19,82*4

1.1*4
I.I9

19*43

19 .1*31
25,260
2 6,875

1 .2 0
1 .2 1
1 .2 2
1 .1+1

192*4

1925
1926
I927

1928
1929
1930

1931
1932

1.9 8
2 .1 0

29,319

1,68
1.8 8

2*4,l*+3
22,331

1 .3 0
I .1 7

26,356
21,2*40

1,27
I.I9

12,*02

.65

15,0*40

.87

19*+*+
I9 H5
19 U6

19*17
19**8
I9 U9

29,225
33,173
39.778
39,038

1 .0 0

1 .0 2
1.0 2

1.93

2 .6 1 1 /

Treasury Department,
Tax Advisory Staff of the Secretary

1/

Preliminary.

Sources:

American Petroleum Institute, Petroleum Facts and Figures;
Oil Industry Information Committee, Petroleum Industry
Record, 1918-19*48; Oil and Pas Journal, January 2£,1950.

20

Table b .

«

Exploratory oil and gas wells 1/drilled, 1937-19^9

•

Year

Exploratory
wells
:
drilled

•

Successful
wells .
f
Í.

1937
193s
1939
19 Ho
19H1

2, IP 2
2,HH3
2 ,71*6
2,982
3 .1*09

19H2
191*3
19 HH
19U5
19H6

3 .0 0 1
3 ,29 g
3 ,6 1 8
1+.256
H .518

3“*9
3l*7
557

191*7
191*3
191*9

5 ,1*57

1,135
l,2 l*8
1,282

6,72g
7 ,291*

23?
26 H

258
3 IO
362

675
76 a

!

Percent
successful
wells
11,0

10 .8
9.1*

1 0 ,H
10 ,6
1 1 ,6
1 0 .5
1 5 .1*
15 .9
16.9
20,8
18,6

1 7 .6

Treasury Department,
Tax Advisory Staff of the Secretary

1/

Exploratory oil and gas wells are generally termed '’wildcat"
wells by the industry.

Sources:

Oil Industry Information Committee, Petroleum Industry
Record 1918~19Hg; Oil and Gas Journal, January 2¿, 195°«

Table 1 * Percentage of allowable mineral depletion
Included in survey of «elected corporations. I9H6

(Honey figures in millions)

Industry group j J

Mining and quarrying
Metal mining
Goal
Crude o i l and natural gas
H onsetallic mining
Mining not a llo ca b le

a
#
*
♦«

Allowable
depletion
fo r a l l
corporations 2/

:
i
t
i

Allowable depletion for
selected corporations 2/
:
Percent of
Amowlt
s industry to ta l

.3

$ 35*1
17.6
72« T
12.8
.1

76.0^
3U.U
58.6
BOA
32.0

T otal mining and quarrying

237-3

138 .1

58.2

Manufacturing
Chemicals and a llie d products
Petroleum and coal products
Iron, s te e l and products
Honferrous metals and products
Stone, c la y and g la s s products
Other manufacturing

m A
3 8 8 .0
2l«0
23.5
2 .1
3.3

.
9 -7
350.6
17 .3
Hi.5
.1
0

90.3
S2*3
6l«8
7 *1
0

452*4

392« 2

86.7

55.5

2U.5

UU.2

7 ^ .1

55**«9

7 U.5

T o ta l manufacturing

$ 4b* 1

51.0
124.2»

15.8

Other groups
Total a l l group8

For footnotes, see pages folloving Table 10.

Sources Statistics of Income tor i9**6# F o r t 2 , preliminary, for all corporations;
Bureau of Internal fievenue* Statistical Division, Special Tabulation, for the
selected corporations«

TAbler 2.

Mineral depletion allowances for »elected corporations, "bar industry ¿roups» I9 U6

and 19^7

(Money figures in mill ione)

•-------------------- '------------------------------------------ :

•

Industry groups

1/

•
j
5
Excess oyer
7 :
j
: Allowable* basis depletion M
i
.Number* depletion;*""“-*
: Percent of
;
5
2/ i Am
ount i allowable :

____________________

;

Mining and quarrying
Metal mining

:
bS

Total mining and quarrying
Manufacturing
Chemicals and allied producis
Petroleum and coal produets
Iran» stesi and produets
Tonfarrene metals andproduets
Stona* clay, and glaas produets
Total manufacturing
Other grotta
Total all groups
Ter footnotes«

* 35.1

:

; depletion i

W
E
Z' "

»

* Am
ount . allowable

zf

*

t

* depletion

17
1

$ 6 ^ .0
21.6
110.5
16.0
.1

$ 5 ^ .9
1U.9
100.2
15.8
•

8 5 .9 *
69 .2
90.6
98.8
2J.3

6«
52

8 2 .#
59-9
85.U
98.1
5 .0

to

1

17.6
72.7
12.8
.1

20 $

138.1

113*8

82.H

196

212.2

189.8

87.6

in
bp
ib

7*3
321*9
11.0
5*1
e

75.5
91.8
63.u
3U.8
32.5

iH
1«

5

9 .7
350.6
17.3
1U.5
.2

g
5

u .T
53«.7
25.9
17.5
*2

9.H
509.O
17.2
10.U
.1

8O.3
9U.5
66.7
5?*9
5&.3

B6

392.2

3&5.J

88.0

«7

59^.0

5»t6.1

91.9

60

2 ^.5

20.«

8U.9

£1

32.8

28.0

86.0

352

55^.9

**79.9

86.5

31&

«38.7

759.9

90.6

u
18

S

too pages following Table 10.

* Less than $56*090.
Source* Bureau of Internal Eerenue, Statistical Dirtsion. Special Tabulation.

W » T

Excess over
basis .depletion M
* Percent of

1 « .7
10.5
62.0
12.5
•

Ci m i

Crude oil and natural gas
Honrnetallie mining
Mining not allocable

t

i
T
tAllowable?
depletion!

_

Table 3* Corrrputed. reTenue loas refnxlting írom exceas mineral
.
depleticm deductions, eelected corporaticma, 1>y in&ustry ^protipa* 19U6 and 19^7 *¡/

(la mtlliono)

77“ ------ 77-----; '

ipS

5

Industry ¿roop

retara.)

t

1/

»

Mining «&
&quarrying
Metal mining
Ocal
Cruda ©il and natural gas
Hcnmetallic aindag
Mining not a llo ca d le
Total minlng and quarrytng
Msnuíacturing
,
Chemicals and allled producto
Petroleum and coal producto
Irou, stssl and producto
Honferroue metalo andproducto
Stoae, tía/ and gises producto
Other oannfacturing
Total m
anufacturing
Other groups
Total aU groupe

5 » .9
^ . 0'
23.6
U.8

f 20.9

*♦ 3.3

70*6

2.8
122.3
U.2
1.9

3»b
193.^

e
**

#

131-2

207.5

?-9

10.6

182.H

288.8

m

Treaaury Lepartoeat, Toa: Adriaory Staft oí the Secretar/
Fo t footnotes, se* pagas f© lloví ng Tai)le 10.

a Leas tfaan $50,000*

retaras)

5*1
38.1

6 .0
•

6 .5

3-9

T & lfZ e

*f.

Mineral

d e p l e t i o n and r e l a t e d a l l o w a n c e s f o r

s e l e c t e d c o r p o r a t i o n s . "by p r i n c i p a l m i n e r a l p r o d u c t s . 1 9 H 6

(Money figu res in m illions)
•
•

:
:

Humber
9
;
of
»
* corpo—
:
* rations
J
'
»
9

Principal
mineral products

Metals
Iron
Copper
Lead and sine*
Gold and silver
Other metals
Metals not allocable

20
12

5/

$

2^0.^

68.9
U7.1
37,8
32a

Oil and gas
Sulfur

v

Honmetals
Entitled to percentage
depletion 9/
Hot entitled to percentage
depletion
Total -noTiicetal.s

^

$

56.2
91.2

________?___ __L

$ I 8.9

23.3
10.5

$ 5.6
12.0
2.5
.3

$

6.1

$ .1 •
1.0

3.3

9

.6
5*0
*9
•1

8*5

3.0

*3

9

.2

29UG

16*0
1 * 2

6.1

.3
.1
9

65.0

20.8

12.7

1.8

27.7
W*.5

s.l

—

16.2

5*0
5*0

•

52

209.6
$ 32.8

9

•

&2.&

2H.3

10.0

9-

1.837.6

72.2
90^.2

HH7.1

Hi .9

381.2

161.3

66.2

3^*5

12.3

♦

-

20.7

90.U

20.0.

5*9

2.0

8

*

19
8*

352
x O i .j .u v v j .1 ^

:

200.2

27

Orand total

Bet

761.3

69
163

Total coal

8

Other capital
recovery deductions
0
1 Exploration
•
•
r Development t costs and
costs
: losses on
Allowable : Basis
7/
: abandonment
* 2/
if
#■
*
8/
Depletion

85

m

WWW

335.0

Ik
S
9

Ooal^
Anthracite
Bituminous,

-V *» » w

Gross

2 2

Total metals

r

Income subject
to depletion

J-n u x e

•

•

*x

.56*2

13.^

.2

.2

*3

20.0

1U 6.6

33*3

6.2

2.2

*3

20.2

55H .9

7H .9

39H .2

20^.0

3 .^ . 1
ru »-

Less than $50, OCX)
Source: Bureau of Internal Revenue, Statistical

Division, Special Tabulation.

T a b l e 5,

Mineral

d e p l e t i o n a nd r e l a t e d a l l o w a n c e s f o r

s e l e c t e d c o r p o r a t i o n s , Toy p r i n c i p a l m i n e r a l p r o d u c t s ,

'
■
: Income subject
•0
*» Number i to depletion
•
•• of
»
•
♦■
Het
• corpo- : Gross :
• rat ions *
:
5/
•
e
♦• •
•

19*+7

(Money fig u res in

Prineipal
mineral products

él

Depletion
.
♦0
Allowable i Basis
• Id
¿/
*

Other capital
recovery deductions
Development * Exploration
: costs and
costs
: losses on
: abandonment 8/

u

Metals
Ire»
Oepper
Lead and zinc
Ckid and silver
Other metals
Metals not allocable
Total metals

a
11
23
12
7
12
86

$ 3IÖ.8
432.x
99.4
66*8
¥$.5
54.6
1 *009*2

$ 9O.3
224.3
35.3
24.3
7*5
17.6
399.2

$ 26.7
45.3
l¥.6
9*1
3*0
5*5
10¥.2

% 7.5

23*3

$ 7.2
.9
*¥.6
1.1
.1
.1
14.3

Ocal
Anthracite
Bituminous* lignite* etc.

16
55

m*s

I 8.3
i? .2

7.5
2$.¥

4 .7
6.2

*
•1

Î 05.4

33.0

.1
471.1

199.9

Total coal
Sulfur
Jfanmetals
Entitled to percentage depl etion 9/
Not entitled to percentage
depletion
Total nonmetals
G-rand total
/
ÿor footnotes, see pages
Source:

$ .3
.9
.1
1*6
*
*3
3*2
—
.3
.3

153
8

2.69U5
80.3

1 , 544.9

677.7

10*9
¥.26

43.8

IH.9

*

-

25.8

17

68.7

20*2

8.7

1.8

♦

.2

9
26

102.2
170*9

53*¥
73.6

.3
9.0

.3
2.1

.¥

25. I
25.4

31&

4.775.9

2, 166.9

838.7

78.8

¥86.0

254.5

n

Oil and gas

12.1
3.1
.2
*
*¥

£«lloving Table

10.

Bureau of Internal Bevenue, Statistical Division* Special Tabulation.

Table 6, Alienable and basis depletion related to income, selected
corporations, by principal mineral products, 19^6 and 19^7

Principal mineral product«

ïW
s
1
. .
M l
-a
Perlent o f
:
Percent of
i
#
s
Percent of
Percent of
a
.net incom
e
net incom
e
:
gross incom
e
i
i
gross incom
e
i Allowable! Basis : Allowable? Basts ¡Allowable: Basis : Allowablei Basis
t depletion:depletion!depletionsdepletion:depletionsdepletion:depletion:depletion
I L
l
U
L R• 3 /
■ Ú
i
__
t
i/ J

Metale

32.651
25.5
50.0
3 7 .8
UU.3
35.6

9.95Í
13.1
1 1 .7
1*5
0.3
3 .7

S .5/Í
10. U
1U.6
13.6
6 .6
10.0

2 .7
3 .0
0 .3
•
0 .7

37^
**0.3
31.0

8 .3 *
5.3
3.6
0 .9
o .i
2 .2

Copper
Lead and «Inc
Cold and «liter
Other metal«
Metals not allocable

15-2
12.8
3*6
9 .1»

u tt
H.9
3-5
0 .5
*
0 .9

Total metals

$s

2*7

32 .2

10.3

10.3

2.3

26,0

5*8

3 .3
3*7

2*3
1 .1

29.O
35*5

17.9
11.0

3*5
U .l

2 .2
1 .0

uo .8
23.7

25*6
0 .9

3.7

1.5

33.1

13.6

3*9

1*3

5O.3

10.1

Oil and gas

2*»-3

U9.3

25.1

1*5

U3.8

Sulfur
Hocmetals
Entitled to percentage depletion _ i /
Hot entitled to percentage depletion

18.6

5 .2
a

35.7

a

13.5

*

33*9

2.7
a

6 .5
0.3

2 .2
0 .2

29.7
1.5

10.1
1*2

12.6
0.3

2.6
0 .2

>«3.0

3.9

0.6

oA

Kz

lek

is .u

6 .5

5 .2

1 .2

12.2

2 .«

16.0

2 .1

it»*.»»

6 .0

17.5

i. 6

38.6

3*6

Iro n

Coal
Anthracite
Bituminous, lignite, peat
Total coal

Total non®
etals
Cread total

5M

?or footnote«, see pages following Table 10.
*

lies« than 0 .1 o f 1 percent.

Source:

/

Bureau o f Internal Berenue, S t a t i s t i c a l D ivision , S pecial fabulation*

29.5*
20.1

Ul.T

®able 7* Micggarai depletion and related allowances for
selected corporations, by size of to ta l a ssets,

19^6 and 19^7
(Money figures in millions)

Total asset« classes 10/

4
0*
• Bumber
•
of
* corpo—
* rations
,
10 r

5 Income subject
•
to depletion
#*
•

*
e

•

Gross

S Het

z Allowable

8

5/

*
«
•

:

•

èJ

Other capital
*
•
recovery deductions
•
î Exploration
Basis * Development V costs and
costs
« losses on
U
4
ïabandonment 8/
.
U

Depletion

&

19^0
$ IOC under $ 1,000
l p000 under
5*000
5 »000 under
10 ,0 0 0
10 ,0 0 0 under 150*000
50*000 under 100*000
100*000 and over
Total

2D
105

$ 5 .3

$ 22.7
207*3
135.»

17
m

2*129*3

6 7 .3
U7 .7
1 9 0 .7
88*6
8 6 1.3

36 s

3,W»7.8

1 ,2 61.0

96

00*0
2£3 *x

$ 2.0
18.9
16*9
SUS

$ a

3*8
3.1*

$ .1
9*2
5*3

$ .1
2*0

1 3 .6

6 9 .6

2.3
19.3

8*7

6 5 .6

15*7
313*2

8 .9
1 7 1 .2

553*2

7**.8

39 2,9

203.7

$ 6,7
72,5

$ 2.3

$ .1

*

60*0
3 0 1 .7

$ .1
3.>»
3.1
lkmk

3 5 .9
395*7

Süd
$ 100 under $ 1*000
1*000 under
5*000
5*000 under
10*000
10*000 under
50*000
50*000 under 100,0 00
100*000 and over
Total

20
101

$ 2 5 .8
268.3
160 .I

26*8

k2
97
Ik
68

3.108.7

l,6 o 6 .S

23*5
118.1»
51 .6
61U .3

3^2

*♦*768*6

2 ,1 6 2 .9

836 .8

8 70 ,2
3 3 5 .3

117*2

for footnotes, see page sV o ilowing Table iO.
* Less than $50*000.
Sourcei

Bureau of Internal Revenue* Statistical Division* Special Tabulation*

11*0

$■1 .8

7.^
59.0

3 .6
25.6

1 0 .7

1 6 .5

>17.1

390*8

1 3 .2
209.6

78.8

US*». 8

2 56 .1

Table £5. Allowable and basis depletion related to income, selected
corporations» by size Of total assets» 29**6 and 29**7

%
♦

%
*
e
Basis
:
depletion 3/;

Percent of gross income

Total assets classes io /■£—
(In thousands) fc~~ ^ Allowable
• depletion

2/1

Percent of net income
Allowable
depletion

S J

:
»

Basis
depletion 3/

iM
$ 100
1,000
5*000
10,000

under $ 1,000
under
5*000
under 10,000
under 50,OCX)
50,000 under 100,000
100,000 and over
Total

«.956
9 .1
13.9
12.2
!2oS
18.5

-

i6.o

0.1#
1.8
2.5
2,0
3.0
2.1

39-7
U2.5
Uo„4
1*5*8

7.1
6.9
9 .7
5.2

2.1

l*U.l*

6.0

0.356

3*+.5^
3^,8
39.1
39.2
1*3.8
38.2

1.0$
U.6

38.6

32.256
39 .^

1.756
8.0

M i
$ 100
1,000
5,000
10,000

fo r

9.0g
9*9
IU.6

under $ 1,000
under
5,000
under 10,000
under 50,000
50,000 under 100,000
100,000 and over

19.7

1.2
1.9
1 .5
3 .1
1 .5

Total

17 .5

1*6

13.6
15.3

footnotes* see p a g e A l l o w i n g Table 10»

Source:

Bureau of Internal Revenue, Statistical Division, Special Tabulation,

5 .1
£7
9.1
2-9
3.6

Table 9 •

Income, deductions, and tax l i a b i l i t i e s of ten selected individual

operators, for the five-year period 19^3- 19^-7

o il and gas

(Money figures in millions)

Net income
Individual * 'From oil i From
operator t 'and gas i other
1
31/
1 sources
A
B w
1
*~+

+t
*

$10.5-

$3-8

$lU»3

$2.2

$13*0

5.0

0*8

5*S

3*1

2*1

3*3

.

T*r
X

3*2

0*5

y V:

: Special deductions •
*Income tax liability
♦
^Percentage:Development\ Taxable .
J Percent
.
net
: Total »depletion :
•
# Amount i of total
costs
•
f
, income .
J___ 12/____ : .. 7/
.J net income

i.t

■*

- $0 .9 12 / $0.08

0 .6

-

0.5

3*2 12/ cr.15

o.ese

8.6
3*^

0 .3

5*6

2*7

0

6*9

6.1

63*5

0.8

3*5

1*0

o*34

2*2

nU

*10.0

l.ft

3*1

0.8

1*5

0.8

0 .6

19 .U

0

7*7

- 1 .3

6.*f

3*5

2 .1

0 .8

0 .5

7*S

H

2*1

3 .6

5.7

1.0

0.6

U.l

2 .2

38.6

I

1*7

0 .1

1*8

0*5

1*0

0.3

0 .2

11.1

8.0

- 0*7

7*3

2.9

i*7

2*7

2 .2

3 0 .1

5 2 .6

9*3

61*9

20.9

26*7

13*93

22.5

Total

lU .3

‘

/
For footnotes, see pages foilowing Table 1 0 .
Source*

Bureau of Internal Revenue, Special Tabulation.

Table 10*

Income, deductions, and tax l i a b i l i t i e s of 20 selected mineral corporations, 19^7
(Money figures in millions)

•

Total
net
Corporation '*
• income
--15/

1
2
3
k
■

S

'

$ 2 7.6
75*3
7*1
108*9
2J&

ê
f *
$

> 9
3» .s

-

U.9

li
12
13
14
15.

9*3 «

12*0
1 1 .6
6 .5
4.6

10*5

i
Special
ï Percentage
î deletion
12 /
:

deductions
: development
2
costs
J _____7/ _

$11*3
19*7

$9 .9
5*7

2*1

0 .9
0
0

19*7
1*3
*».?
U.5

2 .2
IO .9
4*8

8*2

,

:
:

2

Taxable
net
income

:

2
•

Income tax liability
2 Percent
2 of total
Amount
2 net income

$ 6 .li
U9-9
4.Ì

$2.4
I9 .O

8.7f
25*2

89*2

1 .5
33*9

1*5

0*6

2 1 .1
3 I.I

4 .3
2*2
0
0

1 0 .3
2 .6

3*9

%Ar

5.7

5*4
3*9

~ 1 .6

1*7

23*6

1 .0
0 .5
8 .7
2 .2
wm

21.4

2 0 .2
10 .8
1 2 .8
2 5 .2
17*1
mm

1*9 '

2*8
0 .7

2*0

SA

3 .0
1*6
2 .0
2 .1
i* 4

0 .5

3 2 .3

53-9
85*0
73*5
69*5

21*4
3 O .7
23 .O
26.4

1 2 .8
19 .I
2 0 .3
1 5 .9
1 5 .8

164*9

Ii85.lt

179*0

19*3

4*7

2*1

16

3*9

l.S

o*7

17
18
19

3 6 .3

22*0
3 6 .0

20

1 1 2 .2
1 5 1 .5
lW i.9
1 6 7 .3

Total

926*6

276.3

30-5 /
U 2 .V'
65*5

29*3

For footnotes, see pages following Table 10.
Sourceî

2

Bureau of Internal Revenue, Special Tabulation.

1 .1
0 .6
o.s

0 .8

9*5

9 .2
1 7 .4
7 .6

Tables X through IQs
tfote:

Footnotes

figu res are rounded and w ill not necessarily add to to ta ls *
of unrounded figures*

Percentages were computed on the basis

1/ The industry classification is the business activity reported on the tax return* When multiple
businesses are reported, the classification is the business activity which accounts for the largest
percentage of total receipts*
Zf Allowable depletion is the deduction permitted for income tax purposes, and is the larger of either
adjusted-basis depletion or percentage depletion*
2/ Basis depletion is' the deduction necessary to recover the unamortized portion of the taxpayer^ depie—
table property over its estimated remaining useful life. The unamortized portion* or adjusted basis,
is reduced each year by the amount of allowable depletion*
k/ Computed at the standard corporation rate of 38 percent*
5/ Gross Income subject to depletion represents the amount for which the taxpayer sells, or could
salt 1 I® the immediate vicinity of the mine or well, the crude mineral output thereof*
6/ Net Income subject to depletion represents the gross income subject to depletion less the allowable
tax deductions attributable to the particular mineral property*
Jj Development costs are expenditures for the preparation of mineral properties for production, which
are deducted as expenses in the year incurred* Consequently, these expenditures are not included
in the tax basis of the property and future cost or adjusted-basis depletion is correspondingly
reduced* The treatment of development costs as a current expense, however, does not diminish
percentage depletion in subsequent years, since the latter is determined on the basis of income in
those years*
Sj Tax deductions for exploration costs represent expenditures which are made in the search for mineral
deposits but which cannot be attributed to the capital costs of particular depletable properties*
Abandonment losses represent tax deductions for recovery of capital invested in particular mineral
properties which are abandoned before 'recovery of adjusted basis* Both exploration costs and abandon­
ment losses represent tax deductions for capital recovery in addition to depletion deductions*

2 J The following nocmetallica are entitled to percentage depletion: fluorcpar, hall and «agger clay«
rock asphalt, potash, flake graphite, vermiculite, beryl, feldspar, mica, tale, lepidolite,
spodumeae, barite, bauxite, china clay, phosphate rock, bentonite, trona, gilsonite end thenardite.

10/ Total mm% classes are based on the net amount of to t a l assets a fte r reserves for depreciation,
depletion, amortisation and bad debts, as o f the close o f the taxable year I 9U6 , Only corporations
tfitb balance sheets are induced« Consequently, the number of corporations d iffe r s s lig h t ly fro©
th at in the tabulations by industry groups and by p rin cip a l mineral products,
jUj/ Income after* deductions for operating expenses, depreciation, adjusted-basis depletion, exploration
costs and losses on abandonment,
l g / Excess o f percentage depletion over adjusted-basis depletion,
13/ fckH« special deduction# s c re than o ffs e t the to ta l net income for the 5 years, some income tax
vas paid because there were d e f ic it s only in some years« A d e f ic it caused by excess percentage
depletion ccanct be carried overagainst net taxable income o f other years,
W

lacludee only k peer#,

^ 5/

income fo r tax purposes plus depletion in excess o f adjusted-basis depletion and development
cost#.

Tatole 5 ,

Mineral depletion and related allowances for selected corporations, by principal mineral products, lÿ*7
(Money figures in mALJLona)

Principal
mineral products

:
:
*
•
:

Number
of
corpo­
rations :
•

Metals
Iron
Copper
Lead and zinc
Gold and silver
Other metals
Metals not allocable
Total metals
Coal
Anthracite
Bituminous, lignite, etc«
“Total coal
Oil and gas

Total nonmetals
Grand total

%]

Allowable

Basis

2/

y

$ 26.7
1*5 .3
l4.6
9.1
3.0
5.5
104.2

$ 7.5
12.1
3.1

$ 310.8
H3 2 .1
99.1*
66.8
1*5.5
ÿ*.6

$ 9 0 .3
22U .3
35.3
2U. 3
7.5
17.6

s6

1 ,009*2

399.2

lb
55

a i* 6

I 8 .3
87.2

7.5
2 5 .1*

10 5 .1*

Other capital
recovery ieductions
î Exploration
Development
: costs and
costs
* losses on
:abandonment 8/

u

.2

$ 7 .2
.9
^*8
1.1

*
.4

.1

23.3

1 U .3

.1

m.

.9
+x
1.6
*
•3
3.2

6 .2

—
•3

33.0

1 0 .9

.1

.3

677.7

4 .2 6

4 7 1 .1

19 9 .9

*

-

25.8

71
153

2 .6 3 1 .5

1 .5W .9

g

80.3

1*3 .8

17

68*7

20.2

8 .7

US

9

102.2

53.4

.3

.3

26

I 7 O .9

7 3 .6

9.0

2.1

.4

3Hh

^*T75.9

2 ,16 6 .9

838.7

78 .S

486.0

l*or footnotes, see page s folloving Tat le

$ O

a

4.7

6 12 .5
82U .1

/

Sources
f
i

•
«

Depleti on

21
11
23
12
7
12

Sulfur
Hocmetals
Entitled to percentage depletion
Hot entitled to percentage
depletion

Income subject
to depletion
•
•
Net
Gross :
:
6/
Si.

iM

10«

Bureau of Internal Revenue, S ta t is t ic a l D ivision, Special Tatulatioru

*

.2

25 .I
25 .1*
2 5^ .5

Tatle 6« ¿ llo v a b le and basis depletion related to income, selected
corporations, by principal mineral products, 19^6 and 19**7

Principal mineral products

t
i W
m
i
_ ~
• 1 gt*?
"
s
reresnt of
:
Percent of
"5
¿erceat cé
*
percent of
t
gross income
:
net income
:
gross Income
1
net income
*Allowable; Sasic" r:Alloyable? basis'*:Allowables Basis"""íAÍlo&abies Basis r*;
:depletion; depletions depletion; depletion; depletion; depletion; depletion; deni at ion

LJ

i-2 L ___ L .J L L ...1.

J /»

5/ .

3/

»

¿7

» 7?

?

Metals

Iron
Copper
Lead and sino
Qolá and silver
Otfaer metala
Metala not allecabl*

5»^
9 ,6
15.2
12.8
8,6
9.*»

1*7*
M
3*5
0*5
c
0 ,9

3 2 .6 *
25-5
50.0
37 .«
W t.3
35.6

9 .9 *
13.1
ll. l
1.5
0.3
3 -7

8 .5 *
1 0 .it
1U.6
13.6
6 .6
10.0

total metala

8 .5

2*7

32 .2

10.3

3 .8
3-7

2*3
1*1

29*0
35*5

3.7

1*5

aM
18,6

Total coal
Oil and gas
Sulfur
M
onm
etale
Entitled to percentage depletion , 9 /
Hot entitled to percentage d e p le tio n
Total nonmetals
Grand total
Por footnotes« see page a

0 .7

29*5*
20.1
U l.J
37*&
Ho.y
31*0

6.3#
9*3
$.6
0 .9
0 .1
2 .2

10.3

2.3

26.0

5*«

17*9
11.0

3*5
k .l

2 .2
1 .0

lto .8
28.7

25.6
6 .9

33*1

13.6

3*9

1*3

30.8

10.1

2 .2
a

L9.3

25*1

1*5
#

Ú3.¿

35*7

U.6
a

33.9

2.7
e

6 .5
0 .3

2*2
0 .2

29*7
1*5

10*1
1*2

12.6
0*3

2.6
0 .2

H j.O
0 .6

8 .9
0Á

U.2

lc*»

18*1»

6*5

5*2

1 .2

1 2 .2

2 .8

6 .0

17*5

* .6

38,¿

3*6

16.0

2*1

folloving Table 10.

* Less than 0,1 of 1 percent,
/
Source; Bureau of Internal Revenue* Statistical División, Special tabulation*

18*5

e

M

Coal
Anthracite
Bituminous, licite, peat

2.1#
2 .7
3*0
0 .3

Table 7» M i t r a l depletion and related allowances for
selected corporations, by size of total assets,
19U6 and I9U7
(Money figures in millions)

Total asset« clasJses 10/
( In th o i u ^ ^ v

m
0
* Humber
5
Of
? corpo—
* rations
*
isr

•
•
0*
•
!
0
«

Income subject
to depletion
a*
Gross 5 Het

5/

8
*
•

6/

Depletion
«
*
•
♦
J Allowable î Easis
:
2/
:
il
«
*
.....

Other capital
recovery deductions
5 Exploration
Development • costs and
costs
* losses on
u
tabandonment 8/

I 9U0
$ 100
1,000
5,000
10, OCX)

under $ 1,000
under
5,ooo
under
10,000
under :50.000
50*000 under 100,000
100,000 and over
Total

17
9t

$ 2 2 ,7
207*3
133*%
6?c.c
c*3.X
2,129.3

jkS

3,**,r M

20
105
m

96

$ 5 .3
kj.3
¡♦7.7
190*7
SB« 6
661,3
X.sftx.o

395.7

$ .X
3.8
3*^
X3.U
«•7
¡45.¡4

$.1
9.2
5-3
¡49.b
15.7
313.2

171.2

553.2

7*4.8

392.9

203*7

$ 2.3

$ .X
3.**
3*1
xu.l*

$ .1

*

$ 2.0
is. 9
16.9
Sl.S

3 5 .9

$.1
2.0
2.3

1 9 .3
8.9

i9*r?
$ 100
1,000
5,000
10,000
50,000

under $ 1,000
under
5,000
under
10,000
under
50,000
under 100,000
100,000 and over
Total

$ 25.8

$ 6*7
72*5

X 60.X

670,2

60,0
301.7

26.8
23.5
XX 8.U

117*2
X, 60*4.6

5X.U
au.3

10,7

66

335*3
3, 108.7

3^2

¡4,768.6

2.X62.9

836.8

20

101
k2

97
lk

268.3

Tor fbotnotes, see page s wfoîlow!rig Table 1Ò.
* Less than $50*000,
Sonrce<

Bureau of Internal Revenue, S t a t is t ic a l D ivision, Special Tabulation,

11.0
7.1*

$-2 .8

>47U

59.0
X 6.5
390.8

25.6
13.2
209.6

78.8

ksKz

25**.l

T a b i* g* Allowable and basis depletion related to incoase, «elected
corporations, by t ir e o f to ta l a sse ts, 19*46 and I 9U7

•<
p

j
,*

Perdent of gross incoa»

T otal assets classes 10/ Í - ,«
(In thousands) '**" * Allowable
depletion 2/2

Basis
i
depiction j [/;

Percent o f net income
Allowable ;
depletion 2/

$
;

Basis
depletion

ewieneiie»
$ 100
1.000
5.000
10.000

under $ 1,000
under
5*000
under 10,000
under 50,000
50.000 under 100,000
100,000 and Over
Total

8 .9 Í

0.
1.

9 .1
13.9

u#
g

38 . 25s

1.756
8 .0
7 .1
6.9
9 .7
5 .2

ia .6

2,0
3*0

18.5

2 .1

39.*i
39.7
»*2.5
Uo„&
U5«8

l6 « 0

2 *1

Î4U.U

6 .0

3**.5#

loO^
M
5*1
^.7
9*1

2.5

12 .2

22Ü
$ 100
1,000
5*000
10.000

under $ 1,000
under
5*000
under 10,000
under 50,000
50.000 under 100,000
100,000 and over
Total

9.0(6
9.9

19 .7

0.3(6
1 .2
1 .9
1.6
3 .1
1 .5

38.2

17*5

1.6

38.6

lU .b

13.6
I 5.3

36,8

39.1
39.2
U3 .8

ïbr footnotes, see pegs s a l l o w i n g Table 10«
Sources

Bureau of Internal Berenue, Statistical Division, Special Tabulation.

2.9
3.6

tfafcle 9#

Income, deductions, and tax liabilities of ten selected individual oil and gas
operators, for the five-year period I9 H3 -I9 U 7
(Money figures in millions)
•

Net income
1 Suecial deductions
Individual * Prom oil : Prom
•
Percentage ¡Development
operator : and gas : other : Total depletion :
costs
:
11 /
: sources •
*
12 / ___ ?
7/
$3.8

$lU*3

$ 2 .2

$1 3 .0

B

5.0

0 .8

5*8

3*1

2 .1

a

3*9

0.5

3*2

U.H

» iy

9*3

0 .3

9*6

2*7

E

2*7

0 .8

3*5

F

1*7

1 .U

a

7*7

H

0 .6#

0 .6

0.5

8 .6

3*2 1 y

0.15

3.U

0

6.9

6 .1

6 3 .5

1 .0

0.3

2 .2

i.U

to.o

3*1

0 .8

1*5

0 .8

0 .6

1 9 .U

- 1 .3

6 .H

3*5

2 .1

0 .8

0 .5

7*2

2*1

3 .6

5*7

1 .0

0 .6

U.l

2 .2

3 8 .6

I

1*7

0 .1

1*8

0.5

1 .0

0.3

0 .2

1 1 .1

J

8 .0

7*3

2*9

1*7

2*7

2 .2

3 0 .1

6 1.9

20.9

2 6 .7

lU .3

13*93

22.5

Total

5 2 .6

1
0
.

- $0 .9 1 y

9*3

For footnotes, see pages.following Table 10.
Source:

Bureau of Internal Revenue, Special Tabulation

-

to

$1 0 .5

0.
0

A

Income tax liability
Taxable .
: Percent
net
. Amount : of total
income .
: net income

Income, deductions, and "tax liabilities of 20 selected mineral corporations, 19^7
(Money figures in millions)

ï

Total

Corporation * . ne^
s income
— __________ !____ 15/

1
2
3
h
5

6
T •
6

$ 2 7.6
75-3
7*1
IO8 .9
2*3

$11.3
19.7

190
9-3
m

1
10

5 U .5
1.2.9

11
12

12*0
1 1 ,6
6*5
4.6

î?
14
15.

1 0 .5

16

3*9

17
IS
19

1 1 2 .2

20

151.5
144*9
1 6 7 .3

Total

926*6

For footnote fl.
Sources

Special
Percentage
depletion
».
12 /

DP A

TflffSo

deductions
: Development
*
i
costs
’
:.
7/

iaX^UlG
net
income

s
:

Income tax liability
:
Percent
Amount
: of total
s net income

2 .1

$9 .9
5-7
0.9

$6.4
U9 .9
4.1

19-7
!•>

0
0

8 9.2

1*5
33*9

2 5.2
2 1 .1
3 1 .1

1*5

0 .6

21.4

4.?
lu5

1 0 .3
2 .6

3*9

2 .2
1 0 .9

4 .3
2 .2
0
0

1*7

2 3.6

0*5
s*7

20.2
10*8
1 2 .8
2 5 .2

4*8

2.4

5-7

2 .2

17*1

8 .2

5.4
3*9

- 1 .6

3 .0
1 .6
2 .0
2 .1

1 .1
0 .6
0*8
0 .8

90
9.2
17.4
7 .6

1.4
53-9
85 .O1
73*5
69*5

0.5
21.4
30.7

12 .8

4*7

2 .1
IO

2 .0
1 .8
3 6 .3
39*5 /
42.X<
6 5 .5
2 7 6 .3

2.8
0 .7
6.4

0 .7
22.0
3 6 .0
29*3
3 2 .3
164*9

us5.11

V.N q in

Bureau of Internal Revenue, Special Tabi lation*

$2.4

1 9 .0

1 .0

8*7$

26.4

19.1
20.3
15*9
15.8

179.0

19*3

2 3.0

Tables 1 through 10s
Hotel

Footnotes

Figures are rounded and will not necessarily add to totals#
of unrounded figures.

Percentages were computed on the basis

Xj The industry classification is the business activity reported on the tax return. When multiple
businesses are reported, the classification is the business activity which accounts for the largest
percentage of total receipts*
Zf Allowable depletion is the deduction permitted for income tax purposes, and is the larger of either
adjusted-basis depletion or percentage depletion#
xj Basis depletion is the deduction necessary to recover the unamortised portion of the taxpayer^ depietable property over its estimated remaining useful life. The unamortized portion# or adjusted basis#
is reduced each year by the amount of allowable depletion.
HJ Confuted at the standard corporation rate of 38 percent*
5/ Gross Income subject to depletion represents the amount for which the taxpayer sells# or could
sell, Itt the immediate vicinity of the mine or well, the crude mineral output thereof.
6/ Het income subject to depletion represents the gross income subject to depletion less the allowable
tax deductions attributable to the particular mineral property.
7j Development costs are expenditures for the preparation of mineral properties for production# which
are deducted as expenses in the year Incurred. Consequently# these expenditures are not included
in the tax basis of the property and future cost or adjusted—basis depletion is correspondingly
reduced. The treatment of development costs as a current expense# however, does not diminish
percentage depletion in subsequent years# since the latter is determined on the basis of Income in
those years*
Sj Tax deductions for exploration costs represent expenditures which are made xn the search for mineral
deposits but which Cannot be attributed to the capital costs of particular depletable properties*
Abandonment losses represent tax deductions for recovery of capital invested in particular mineral
properties which are abandoned before ^recovery of adjusted basis. Both exploration costs and abandon­
ment losses represent tax deductions for capital recovery in addition to depletion deductions*

9/ The following nonmetallics are entitled to percentage depletion; fluorspar, 'ball and sagger clay,
rock asphalt, potash, flake graphite, vermieulite, beryl, feldspar, mica, talc, lepldolite,
spo&umene, barite, bauxite, china clay, phosphate rock, bentonite, trona, gilsonite end thenardite*
10/ Total asset classes are
depletion, amortisation
with balance sheets are
that in the tabulations

based on the net amount of total assets after reserves for depreciation,
and bad debts, as of the close of the taxable year 19^6, Only corporations
included* Consequently, the number of corporations differs slightly from
by industry groups and by principal mineral products.

11/ Income after deductions for operating expenses, depreciation, adjusted-basis depletion, exploration
costs and losses on abandonment*
lg/ Excess of percentage depletion over adjusted-basis depletion*

13J

Vhlls s p e c ia l deductions more than offset the total net income for the 5 years, some income tax
was paid because there were deficits only in some years* A deficit caused by excess percentage
depletion cannot be carried over against net taxable inccaae of other years*

lh/ Includes only ** years*

19h3- 19**6*

15] Het income for tax purposes plus depletion in excess of adjusted-basis depletion and development
costs*

The s t a t u t o r y m e m b e r s

of the C o m m i s s i o n are

J u dge "William K i r k p a t r i c k of the U.S. D i s t r i c t C o u r t for
the E a s t e r n D i s t r i c t of Pe n n s y l v a n i a ,
P r e s t o n Delano,

C o m p t r o l l e r of the Currency, W a s h i n g t o n ;

J o s e p h S. B u f ord,
New York City.

P h i l a delphia;

A s s a y e r of the U.

S. A s s a y Office,

2
f r o m e a c h 1 0 , 0 0 0 silv e r coins m i n t e d is p l a c e d in the pyx
b o x t h r o u g h o u t the year.

A f t e r the count is verified,

sample coins are r e m o v e d a n d weighed.

0J^ier>c;CTinS"-are--- turned:" O v e r to-.th^-oommib'bee on
a

bhe

p.Qpfc&jaj**

Finally,

r

a n u m b e r of coins f r o m e a c h of the

three m i n t s w i l l be m e l t e d t o g e t h e r and the s i l v e r m ass
a s s a y e d .'-A»
/ \ jt . G

Q

4^/U

æ â

^ ,

Q

& * J+ * * â ®

* * * * * * ,

U p o n C o m p l e t i o n of its w o r k a f o r m a l r e p o r t w i l l

be p r e p a r e d b y the Commission.
for t h e i r services, b ut

Members receive no pay

t h e i r e x p e n s e s are defrayed,

and e a c h m e m b e r r e c eives a b r o n z e m e d a l

commemorating

the t r i a l .
Members

of the A n n u a l

P r e s i d e n t T r u m a n are N. K e y Hart,
an d W o r l d Report, W a s h i n g t o n ,

D.

e d i t o r of U.
C.; Mrs.

P h i l i p F. Dodson,

4 0 0 1 M o r r i s o n Street, N o r t h w e s t , W a s h i n g t o n ,
Mrs.

R u t h B. Ha w k i n s ,

Connecticut;
Rhode

Island;

Hanover,

The Plains, Vir g i n i a ;

Jr., D o y l e s t o w n ,

Blow, Y o r k t o w n ,

Vir g i n i a ;

Penns y l v a n i a ;

Rev. A n s e l m Brobu r g ,

G r a c e Church,

P r o f e s s o r H e r b e r t Hill,

N e w Hampshire;

Mrs.

G e orge W.

G e n e r a l J o h n Allard, N e w Milford,

Dr.

D.C.;

27 S o u t h T h i r d Street, H a r r i s b u r g ,
111 F u l t o n Street, N e w Y o r k ,

Providence,

D a r t m o u t h College,

J o h n G. Thompson,

B u r e a u of Standards, W a s h i n g t o n ,

Hyman,

D.C.;

M o u n t Holly, N e w Jersey;

Mrs. W i l l i a m D. Pawley,
W y n n e James,

S. N e w s

National

M iss G e n e v i e v e Blatt

P e n n s y l v a n i a ; W i l l i a m A.
N e w York.

PROPOSED PRESS RELEASE
SUNDAY NEWSPAPERS .
F e b r u a r y 5 , 1950»______

\J

The A n n u a l A s s a y C ommission,

named by President

T r u m a n to c o n d u c t the B u r e a u of* the M i n t 1s 1 5 ^ t h a n n u a l
"t r ial of the c o i n s , ” w i l l m e e t at the P h i l a d e l p h i a M i n t
o n W e d n e s d a y m o r ning,

F e b r u a r y 8,

10 o ’clock,

to c a rry

out a p r o v i s i o n of law first laid d o w n in 1792 &t the
s u g g e s t i o n of A l e x a n d e r Ha m i l t o n ,

first S e c r e t a r y of the

Treasury.
N e l l i e T a y l o e Ross, D i r e c t o r of the Mint,
pleted arrangements

h as

com­

for the m e e t i n g of the C ommission,

w h i c h d u r i n g its t w o - d a y s e s s i o n w i l l d e t e r m i n e w h e t h e r
coins p r o d u c e d b y the three m i n t i n g e s t a b l i s h m e n t s
(Philadelphia, D e n v e r a n d S a n F r a n c i s c o )
c a l e n d a r y e a r w e r e of p r o p e
Mrs. Ross,

‘

d u r i n g the p a s t

td fineness.

w h o s e pre s e n c % A is r e q u i r e d at c o i n trials,

w i l l c o n v e n e the C o m m i s s i o n at its first session.
C o m m i t t e e s w i l l be n a m e d f r o m the m e m b e r s h i p on counting,
w e i g h i n g a nd assayin g,

a nd these w i l l sup e r v i s e

the p r o ­

cedures of the t r i a l .
T he first step in the trial is to o p e n the box,
w h i c h s p e c i m e n coins are
the count of its contents

stored,

in

a nd d e t e r m i n e w h e t h e r

is correct.

One s p e c i m e n

TREASURY DEPARTMENT
Information Service

RELEASE S U N D A Y N E W S PAPERS,
F e b r uar y 5, 1950'._________ ,

W A S H IN G T O N , D . C .

S -2239

The A n n u a l A s s a y Commission, n a m e d by P r e s i d e n t T r u m a n to
conduct the B u r e a u of the M i n t ' s 158 th a n n u a l ’’trial of the
coins,
w i l l m e e t at the P h i l a d e l p h i a M i n t on W e d n e s d a y morning,
F e b r u a r y 8, 10 o ’clock, to carry out a p r o v i s i o n of l aw first
laid d o w n in 1792 at the s u g g e s t i o n of A l e x a n d e r H a m i l t o n , first
S e c r etary of the Treasury.
Nellie' T a y l o e Ross, D i r e c t o r of the Mint, has c o m p l e t e d
a r r a n gements for the m e e t i n g of the Commission, w h i c h d u r i n g its
two-day s e s s i o n wil l d e t e r m i n e w h e t h e r coins p r o d u c e d b y the three
m i n t i n g e s t a b l i s h m e n t s (Philadelphia, D e n v e r a n d Sa n F r a n c i s c o )
during the p a s t c a l e n d a r y e a r w e r e of p r o p e r w e i g h t and fineness
Mrs. Ross, w h o s e p r e s e n c e is r e q u i r e d b y statute at' coin
trials, w i l l convene the C o m m i s s i o n at its first session.
Committees w i l l be n a m e d f r o m the m e m b e r s h i p on counting, w e i g h ­
ing and, assaying, a n d these w i l l p a r t i c i p a t e in the p r o c e d u r e s of
the trial.
The first step in the trial is to o p e n the box, in w h i c h
specimen coins are stored, an d d e t e r m i n e w h e t h e r the count of
its c o n tents is correct.
One s p e c i m e n f r o m e a c h 1 0 , 0 0 0 silver
coins m i n t e d is p l a c e d in the p y x b o x t h r o u g h o u t the year.
After
the count is verified, samp l e coins are r e m o v e d a nd weighed.
F i n a l l y , a n u m b e r of coins f r o m e a c h of the three m i n t s w i l l be
melted t o g e t h e r a n d the s i l v e r m a s s a s s a y e d to see w h e t h e r its
content m e e t s legal r e q u i r e m e n t s .
U p o n c o m p l e t i o n of its w o r k a f o rmal repo r t w i l l be- prepared b y the C o m m ission.
M e m b e r s r e c e i v e no p a y for t h eir services,
ut t h eir e x p e n s e s are defrayed, an d e a c h m e m b e r r e c e i v e s a b r o n z e
medal, c o m m e m o r a t i n g the trial.
M e m b e r s of the A n n u a l A s s a y C o m m i s s i o n for 1950 n a m e d by
President T r u m a n are N. K e y Hart, e d i t o r of U, S. N e w s a nd
World Report, W a s h i n g t o n , D. C , ; Mrs. P h i l i p F. Dodson,
^001 M o r r i s o n Street, Nor t h w e s t , W a s h i n g t o n , D. C.-

-

2

-

Mrs. Ruth B . Hawkins, Mount H o lly , New Je r s e y ; M rs. W illiam D.
Pawley, The P la in s , V i r g i n ia ; Wynne Jam es, J r . , Doylestow n,
Pennsylvania; M rs, George W. Blow, Yorktown, V i r g i n i a ;
General John A lla r d , New M ilfo r d , C o n n e c ticu t; R ev. Anselm Broburg
Grace Church, P roviden ce, Rhode Is la n d ; P ro fe sso r H erbert H i l l ,
Dartmouth C o lle g e , Hanover, New Hampshire; D r. John G . Thompson,
N atio n al Bureau o f Stan d ard s, W ashington, D, C ,; M iss Genevieve
B l a t t , 27 South Third S t r e e t , H a rrisb u rg , P e n n sylva n ia,
W illiam A . Hyman, 1 1 1 P u lto n S t r e e t , New Y o rk , New Y o rk .

v. . The s ta tu to r y members o f the Commission are Judge W illiam
K irk p a trick o f the U .S . D i s t r i c t Court fo r the E a ste rn D i s t r i c t o f
Pennsylvania, P h ila d e lp h ia ; P reston D elano, C om ptroller o f the
Currency W ashington; Joseph S . B u fo rd , A ssayer o f the U .S . Assay
O ffic e , New York C i t y .
*

(R eporters and photographers w i l l be adm itted to the
P h ila d e lp h ia M in t, 1 6 th and Sp rin g Garden S t r e e t s ,
in advance o f the opening m eeting o f the Commission
on February 8 .)

0 O0

=

3

*

purposes of taxation the ambunt of discount at which Treasury bills are originally
sold by the United States shall be considered to be interest*

|2

Under Sections I

117 (a) (1) of the Internal Revenue Code, as amended by Section llf> of the
Revenue Act of 1
9Ul> the amount of discount at which bills issued hereunder are
and

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 betvfeen 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.

8

Treasury.Department Circular No. Ul , as amended, and this notice, prescribe
the terms of the Treasury bills and govern the conditions of their issue.
of the circular may be obtained from any Federal Reserve Bank or Branch.

Copies

-

2

-

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 bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or ail 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

Febr"ary

16« 19E>0 ) in

cash or other immediately avail­

able funds or in a like face amount of Treasury bills maturing
Cash and exchange tenders Trill receive equal treatment.

; February

16, 19f>0;

Cash adjustments will be

made for differences between the par value of ma'turing 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 Interna?!. Revenue Code, or laws amendatory or supplemen­
tary 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

Washington
FOR RELEASE, MORNING NEWSPAPERS,

/

7

Tuesday, February 7» 19$0.________
3pEJ

;>* —

The Secretary of the Treasury, by this public notice, invites uendfers for
$

1,000,000,000 , or

91-day

thereabouts, of

in exchange for Treasury bills maturing

Treasury bills, for cash and

February !&■,
■¿■La«»

19$0

3 "k°

136issued

on

a discount basis under competitive and non-competitive bidding as hereinafter
provided.
will mature

The bills of this series will be dated
ifey

----*
interest.

18, 19------$0

February

16, 19$0

9 an(^

, when the face amount will be payable without

They will be issued in bearer form only, and in denominations of

1000, $$, 000, $ 10,000, $ 100,000, $$ 00,000, 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,

Friday, February

Tenders will not be received at the Treasury Department, Washington,

1 000,

tender must be for an even multiple of $ ,

99.92$.

Each

and in the case of competitive

tenders the price offered must be expressed on the basis of
than .three decimals, e, g*,

10. 1950

100, with

Fractions may not be used.

not more

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
theref o r .
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

2percent ,of the

face

TREASU RY DEPARTM ENT
Information Service

RELEASE MORNING .NEWSPAPER'S,
Tuesday, February 7 / 1 9 5 0 . "
i

i

, .

.. , .

WASHINGTON. D .C

? :v ) '

.
' ¡5-2240

...

T h e -S e cre ta ry o f the T reasu ry, by t h is p u b lic n o t i c e , in v it e s
tenders fo r $ 1 , 0 0 0 , 0 0 0 , 0 0 0 , or th ero ab o u ts, o f 9 d~day Treasury ■
b i l l s , fo r cash and in exchange fo r Treasury b i l l s m aturing '
February 16, ’1950, to be issu ed on a d isco u n t b a s is under "
com petitive and n o n -co m p e titive b id d in g as h e r e in a fte r provided'.
The b i l l s o f t h is s e r ie s w i l l be dated February 1 6 , 1950 and w i l l
mature May 1 8 , 1 9 5 0 ', when the fa c e amount w i l l be payable w ithout
interest.,/ They .w ill be issued' in bearer form on3y, and in
denominations o f .$ T ,0 0 0 ,/$ 5 ,0 0 0 , $10,000, $100,000, $500,000, arid
$1 , 0 0 0 , 0 0 0 (m atu rity v a lu e ) .
*
Tenders w i l l be receiv ed a t F e d era l Reserve Banks and Branches
up to the c lo s in g hour, two o ’ c lo c k p .m ., E a ste rn Standard tim e,
Friday,. February 10, 1950. Tenders w i l l not be re ce iv e d a t the
Treasury Departm ent, W ashington. Each tender .must be' fo r an even
m ultiple o f .$ 1 , 0 0 0 , and in the case o f co m p etitive "tenders the
price coffered must be expressed on the b a s is o f 1 0 0 ,. w ith no.t more
han three d e cim a ls, e . g . , 9 9 . 9 2 5 . F r a c tio n s may not be used. I t
is urged th a t tenders be made, on the p rin te d forms and forwarded in
the s p e c ia l envelopes which w i l l be su p p lied by F e d era l R eserve
canoes or Branches pn a p p lic a t io n th e r e fo r .'
Tenders w i l l be r e c e iv e d w ithout d e p o sit from in corp orated f
tanks apd. .tr u s t companies, and from re sp o n sib le and recogn ized
eaiers...ip .investment s e c u r i t i e s . Tenders from o th ers must be
accompanied .by payment o f 2 .p ercen t o f the fa c e amount o f Treasury
U ls ap p lied f o r , u n less the tenders, are accompanied by an express
ouaranty o f payment by in corp orated bank or t r u s t *company.
h^ n ^ d iately a fo e r the c lo s in g hour, tenders w i l l be opened a t
cne Federal Reserve Banks and B ranches, fo llo w in g which p u b lic
announcement w i l l be made by the S e c r e ta r y o f the Treasury o f the
amount and p r ic e range o f accepted b i d s , Those su b m ittin g tenders
be ad vised o f the acceptance or r e je c t i o n t h e r e o f. The
secretary o f the Treasury e x p r e ssly rese rv es the r ig h t to a cce p t or
®iect
or
te n d e rs, in whole or in p a r t , and h is a c t io n in
- J
re sp e ct s h a ll be f i n a l .
S u b je c t to these r e s e r v a tio n s ,
^ c o m p e t i t i v e tenders fo r $ 2 0 0 , 0 0 0 or le s s w ithout s ta te d p r ic e
om any one bid der w i l l be accepted in f u l l a t the average p r ic e
fw

2
( in three d ecim als) o f accepted co m p etitive b id s . Se ttlem en t fo r
accep ted tenders in accordance w ith the b id s must be made or
completed a t the F e d era l Reserve Bank on February 16 * 1950* in
cash or oth er im m ediately a v a ila b le funds or in a lik e fa c e amount
o f Treasury b i l l s m aturing February 16* 1950. Cash and exchange
tenders w i l l r e c e iv e equal tre a tm e n t. Cash adjustm ents w i l l be
made fo r d iffe r e n c e s between the par valu e o f m a t u r in g -b ills
accep ted in exchange and the is su e p r ic e o f the new b i l l s .
The income derived from Treasury b i l l s * whether in t e r e s t or
ga in from the s a le or oth er d is p o s it io n o f the b ills .* s h a ll not
have any exem ption, as such, and lo s s from the s a le or other
d is p o s it io n o f Treasury b i l l s s h a ll n o t have any s p e c ia l treatment
as su ch , under the In te r n a l Revenue Code* or laws, amendatory or
supplementary t h e r e t o . The b i l l s s h a ll be s u b je c t to e s ta te *
in h e rita n ce ., g i f t or oth er e x c is e ta x e s , whether F e d e ra l or. S t a t e ,
but s h a l l be exempt from a l l ta x a tio n now or h e r e a fte r imposed on
the p r in c ip a l or in t e r e s t th ereo f' by any S t a t e , or any o f the
p o sse ssio n s o f the U nited S t a t e s , or by any lo c a l ta x in g a u th o rity
For purposes o f taxation the amount o f d isco u n t a t which Treasury
b i l l s are o r i g i n a l l y so ld by the U n ited S ta te s s h a ll be considered
to be in t e r e s t . Under S e ctio n s. 42, and 117, (a.X (.1) o f ,the In te rn a l
Revenue Code, as amended by S e c tio n 115 o f the Revenue A c t .of. 19^1
the amount o f d isco u n t a t which - b ills issu ed hereunder. are sold
s h a ll not be considered to accrue u n t i l such b i l l s s h a ll be so ld ,
redeemed or otherw ise disposed o f , and such b i l l s are excluded
fro m ,.co n sid eratio n as c a p i t a l a s s e t s . A cco rd ingly-, the. owner o f .
Treasury b i l l s (o th er , than l i f e insu rance companies.) issu e d here­
under need in clu d e in h is income ta x retu rn only .the d iffe r e n c e
between the price, paid fo r such b i l l s , whether on o r i g in a l issu e
or on subsequent purchase* and the amount a c t u a l l y re c e iv e d eith e r
upon s a le or redemption a t m atu rity du ring the ta x a b le ye ar fo r
which the re tu rn i s made, as ordinary g a in or l o s s .
Treasury Department Circular No. 41.8, 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. .

oOo

RELEASE M
D
R
H
33» NEW
SPAPERS,
Tuesday, February 7, 1950»
Tha Secretary of ths Treasury announced last evening that the tenders for
11,000,000,000, or thereabouts, of 91-day Treasury bills to be dated February 9 and to
mature M
ay 11, 1950, which were offered on February 3, 1950, were opened at the Federal
Reserve Banks on February 5»
The details of this issue are as follows:
Total applied for - $1,637,001,000
Total accepted
- 1,004,360,000 {includes $103,501,000 entered on a
non-competitive basis and accepted In
full at the average price show
nbelow)
Average priee
- 99*717/ Equivalent rate of discount approx* 1.119$ per annum
Rang# of aeeepted competitive bids:
High
Low

- 99*730 Equivalent rate of discount approx* 1*068$ per annum
*' 99.716
*
m m
m
»
1.184$ *
*
(53 percent of the am
ount bid for at the lowprice was accepted)

Federal Reserva
District

Total
Applied for

Total
Accepted

Boston
H
ewYork
Philadelphia
Cleveland
Richm
ond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

# ».ore,ooo
1,249,640,000
42,275,000
81,004,000
9,025,000
12,740,000
124,917,000
13,295,000
5,275,000
19,916,000
25,692,000
87.147.000

$

*1,*37,001,000

$1,004,360,000

TOTAL

28,078,000
703,017,000
27,784,000
20,434,000
8,884,000
18*740,090

«9,578,000
15,148,000
5,181,000
19,816,000
23,248,000
74,457*000

TREASU RY DEPARTM ENT
WASHINGTON. D .C

Information Service

RELEASE MORNING NEWSPAPERS,
Tuesday, February 7 , 1 9 5 0 .

S-2241

The S e c r e ta r y o f the Treasury announced l a s t evening th a t the
tenders fo r $ 1 ,0 0 0 ,0 0 0 ,0 0 0 , or th e re a b o u ts, o f 91-day Treasury b i l l s
to be dated February 9 and to mature May 11, 1 9 5 0 , which were
offered on February 3 , 1 9 5 0 , were opened a t the F e d e ra l Reserve
Banks on February 6 .
The d e t a i ls o f t h is is s u e are as fo llo w s :
T o ta l a p p lie d fo r - $1,637 ,00 1,00 0
T o ta l accepted
- 1 ,004,360,000 (in c lu d e s $103,501,000
entered on a non­
competitive basis and
accepted in full at the
average price shown below)
Average price
- 99*717/ Equivalent rate of discount approx.
1 .119$ per annum
Range o f accepted co m p etitive b id s ;
High

- 99*730 E q u iv a le n t ra te
1 . 068$
- 99*716 E q u iv a le n t r a te
1.124$

Low

o f d isco u n t approx.
per annum
o f d isco u n t approx.
per annum

(53 percent of the amount bid for at the low price was accepted)
Federal Reserve
D i s t r i c t ____

T o ta l
A p p lied fo r

Boston
New York
P h ilad elp h ia
Cleveland
Richmond
A tlan ta
Chicago
S t. Louis
Minneapolis
Kansas C it y
D allas
San F ra n cisco

$

2 6 , 075,000
1,249,640,000
42.275.000
21.004.000
9 , 0 2 5 ,0 0 0
12.740.000
124,917,000
1 3 . 2 9 5 .0 0 0
5,275,000

$

2 6 , 0 7 5 ,0 0 0
703,017,000
27.784.000
20.434.000
8.884.000
12.740.000
6 9 . 5 7 6 .0 0 0
13.148.000
5 . 1 8 1 .0 0 0

.

19,916,000

19 816.000

87.1 47.000
$1 , 6 3 7 , 0 0 1 ,0 0 0

23,248,000
74,457»000
$1,004 ,36 0 ,0 0 0

25.692.000

TOTAL

T o ta l

0 O0

IMMEDIATE RELEASE,
IaJjlaL

February

19£0---------

f
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, 19U l, as modified by the President's proclamation of April 13, 19li2,
for the 12 months commencing May 29, 19h9 , as follows;

Iheat
Country
of
Origin

/

Established s
Imports
Quota
«May 29, 191*9, to
»Jan* 28, 19E>0
(Bushels)
(Bushels)

Canada
China
Hungary
Hong Kong
Japan
United Kingdom
Australia
Germany
Syria

New Zealand
Chile
Netherlands
Argentina
Italy
Cuba
France
Greece
Mexico
Panama
Uruguay
Poland and Danzig
Sweden
Yugoslavia
Norway
Canary Islands
Rumania
Guatemala
Brazil
Union of Soviet
Socialist Republics
Belgium

795,000

795,eoo

-

-

- ■

100
100
* 100
-

—
—
—

-

—

100
2,000
100

n
-

-

—

1,0 0 0

-

-

-

100

—

-

—
-

-■
1,0 0 0
10 0

100

100
100
8uö,üül)

1

—
—
—
795,000

Wheat flour, semolina,
crushed or cracked
wheat, and similar
wheat products
Established :
Imports
Quota
s May 29, 191*9,
•
t to Jan. 28, 1950
(Pounds)
(Pounds)

3 ,815,000
2U ,000
13,0 0 0
1 3,0 0 0
8,000
75,000
1,0 0 0
£,000
£,000
1,0 0 0
1,0 0 0
1,0 0 0
lh , 000
2,000
12,0 00
1,0 0 0
1,0 0 0
1*000
1,0 0 0
1,0 0 0
1,0 0 0
1,0 0 0
1,0 0 0
1,0 0 0
1,0 0 0
—
—

Ii,ooo,o0o

3 ,815,000
2,080
—

8 ,1*00
-

200
- •32

-

- _
-

—
-

32

—
—

3,825,7U*

TREASURY DEPARTMENT
Washington
IMMEDIATE RELEASE,
Wednesday. February 8 . 1950

S-2242

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 Presidents proclamation
of May 28, 1941, as modified by the Presidents proclamation of April 13, 1942,
for the 12 months commencing May 29, 1949, as follows:

Canada
795,000
China
—
Ringary
Hong Kong
Japan
—
United Kingdom
100
Australia
—
Germany
100
Syria
100
—
New Zealand
—
Chile
Netherlands
100
Argentina
2,000
Italy
100
—
Cuba
France
1,000
—
Greece
Mexico
100
Panama
Uruguay
—
—
Poland and Danzig
Sweden
—
—
Yugoslavia
Norway
—
—
Canary Islands
Rumania
1,000
Guatemala
100
Brazil
100
Union of Soviet
Socialist Republics
100
Belgium
100
800,000

795,000
—
—
—
—
—

—
M
—
—
—
—
—
—

M
—
mm
mm
mm

-*
«•»
mm
mm

3,815,000

3,815,000

24,000

2,080

13,000

13,0 0 0
8,000
75,000
1'OOQ

5,000
5,0 00
1,0 0 0
1,0 0 0
1,000
14,000
2,000
12,000
1,0 0 0
1,0 0 0
1,0 0 0
1,000
1,0 0 0
1,0 0 0
1,0 0 0
1,0 0 0
1,0 0 0
1.00 0

O
O

Established :
Imports
Quota
:May 29, 1949, to
îJan. 28. 1950
(Bushels)
(Bushels)

CO

Country
of
Origin

Wheat flour, semolina,
crushed or cracked
wheat, and similar
t
«
wheat products
a
Imports
* Established :
a
Quota
»
2May 29, 1949,
2
:to Jan. 28.195C
(pounds)
(Pounds)

•

Wheat

mm

200
mm

32

mm
mmm
mm
mm
mm
mm
mm
mm
mm
mm

32

mm

**

mm

M»
mm

795,000

4 ,000,000

3,825,744

COTTON WASTES

/v In pounas*)^
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, howfver, 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?

•
Imports
• Established \ Total imports fEstablished!
Country of Origin : TOTAL QUOTA j Sept. 20, 1949, j 33-1/3# of) Sept. 20, 1949,'
i to Jan* 28.
Quotaito Jan. 28, 1950
•
United Kingdom....
Canada...... ......
France.............
British India.....
Netherlands.......
Switzerland.......
Belgium...........
J apan.............
China........... ..
Egypt........... ..
Cuba..............
Germany,— ..........
itaVfTT^rrrk...
j Totals

jf

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

!

8^7,980
206,U53
75,807
69,627
-

-

1,441,152
!
75,807
- i
22,747 |
14,796 j
■
12,853
—
p

j
!

1L—w i'i"—"»'
7.088
'
■
5,482,509 [ 1,206,955

1/ Included in total imports, column 2.

-oOo-

25,443
7,088
1,599,886

8^7,980
—
75,807
**
-

—
“
»

i

—

i

7.088____ |
930,875

j

j

IMMEDIATE RELEASE
- 1J
February %» 1950
.. 1/yTi 1■ *""
<5
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,. 1^9,. as amended, for the period September 20,
194-9? to January 28, 1950,/® e a s l^Llows:
COTTON (other than linters)
(In pounds)

Country of
Origin

Under 1-1/8” other
than rough or harsh
under 3/4”
Established: Imports Sept.
Quota
20, 1949, i°
Jan. 28, 1950

Egypt and the
Anglo-Egyptiah'
Sudani i.*..i...i.
7833 816
'247¿952
Peru.... .
British'India.•i. 2¿003,483
China.......... . 1,370,791
Mexico...........
8,883¿259
Brazil...........
618,723
Union of Soviet
Socialist Republies..... .
475¿124
Argentina...... .
5,203
Haiti..••.».1 • .
237
Ecuador..i.......
9,333
Honduras.;........
752
Paraguay...i.\...
871
Colombia....... *
124
Iraq.............
195
British East’
2,240
Africa.V.....'....
Net herland s ’East’
71,388
Indies......i..i.
Barbados.........
Other British’’
2 1 ,3 2 1
West Indies l/...
Nigeria..... ....
5,377
Other British
West Africa 2/...
16,004
Other French
Africa 3/........
689
Algeria and Tunisia
-

14 ,516,882
1/
2/
3/
4/
$/

1 1 9 ,8 99
116,U18
8,883,259
138,506

-

1-1/8” or more
but less than
1-11/16" U
Imports Sept..
20, 1949, to
Jan. 28, 1950

lit,933,569
1,552,068
i,Uo5
-

-

-

Less than 3/4”
harsh or rough 5/
Imports Sept. 20,
1949, to
Jan. 28, 1950

17,290,302

—
—

—

-

-

—
—
-

-

-

-

-

-

_

-

-

_

—

9 ,258,082

1 6 ,U8 7 ,OU2

17,290,302

Other than Barbados, Bermuda, Jamaica, Trinidad, and Tobago.
Other than Gold Coast and Nigeria.
Other than Algeria, Tunisia, and Madagascar.
Established Quota - I6,ii87,0ii2 lbs. for the interim period Sept. 20, 19U9, to
Established Quota - 70,000,000.
January 31, 1950, inclusive.

TREASURY- DEPARTMENT
Washington
IMMEDIATE RELEASE
Wednesday. February 8, 1950

S-22Z.3

The Bureau of Customs announced today that preliminary data on imports of
cotton and cotton waste chargeable to the quotas established by the Presidents
proclamation of September 5, 1939, as amended, for the period September 20,
19-49, to January 28, 1950, inclusive, are as follows:
COTTON (other than linters)
(In pounds)

Under 1-1/8” other
than rough or harsh
under 3/4”
Established:Iriports Sept®
Quota
:20, 1949, to
:Jan® 28. 1950

Country of
Origin

Egypt and the
Anglo-E gyp tian
Sudan® o o ® o o ® ® o ® o o «
783,816
P6¡Til® 0 ® a ® 0 ® ® 0 ® 0 0 ® ®
247,952
119,899
British India®®,®„ 2,003,483
116,418
China
® n ® ® n ® o ® ® ®
—
1,370,791
Mexicoo o o o o o o o o o o o 8,883,259 8,883,259
BrSZll O O * ' 3 0 0 0 0 0 0 0 0
138,506
618,723
Union of Soviet
Socialist Repub—
liesO O O O O O O O ^ O O O O Q
475,124
—
Argentina o ® ® ® ® ® ® ® ®
5,203
—
Haiti®o o ® o o o ® ® e ® o ®
237
_
Ecuador ® o ® o o ® o ® o ® o
9,333
—
Honduras o ® ® o ® o o 9 o o
752
Paraguayo ®®®®:® ®®®®
871
—
Colombia o o o o o o o o o o
124
_
Iraq® o e o ® o ® o ® n ® ® o ®
195
British East
Africao s o ® o ® o o ® ® ® ®
2,240
Netherlands East
Indieso ® ® ® o o ® ® o ® o ®
71,388
•»
Barbados o e ® m o « o «
Other British
West Indies l/®®®®
21,321
Nigeria® o o o ® o ® ® o ® o
5,377
Other British
West Africa 2/®®®®
16,004
Other French
Africa 3/o o o ® o ® o o
689
Algeria and Tunisia
—
—
14,516,882 9,258,082
0

0

:1-1/8” or more
:but less than
:l-llA6” U
îlraports Sept®
:20, 1949, to
:Jan® 28. 1950

Less than 3/4”
harsh or rough p
‘j
Inports Sept® 20,
1949, to
Jan® 28. 1950

H , 933,569
1,552,068
1,405

««•

17,290,302

9

mm

mm

mm

mm

**

m
m

mm
mm

mm

_

mm
mm

-

mm

W"

mm

mm

mm

mm

mm

9

TT^rrr--- rr--------------------------- —
i

U
3/
U
y

mm

mm

16,487,042

’

17,290,302

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

U Q .X u a - u u o y

iJv ih iU U u ^

u u lllu X

l i JJlX U d iU ^

c L I lu .

lO D a ^ O o

Other than Gold Coast and Nigeria,,
Other than Algeria, Tunisia, and Madagascar®
Established Quota - 16,487,042 lbs® for the interim period Sept® 20, 1949 to
Established Quota - 70,000,000
January 31, 1950, inclusive®

COTTCN WASTES
(in pounds)
COTTCN 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 cember 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, Belgian, Germany, and Italy:
•
• Established
«'Country of Origin : TOTAL QUOTA
•
•
United Kingdom*♦•#*
France»,.... .
British India#....♦
N etherlands........
Switzerland*
Belgium* *•,•.*•••••
Jspan
China* ««*..**
Egypt*.
Cuba*
Germany* ...........
Italy*.**•«.».«••»*
Totals
1/

4,323,457
239,690
227,420
69,627
68,240
44,388
38,559
3 a , 535
17,322
8,135
6,544
76,329
21.263
5,482,509

Total imports :Established:
Imports
Sept* 20, 1949,: 33-1/3$ of:Sept* 20, 1949
to Jan* 28.1950sTotal Quota:to Jan* 28.19$<
847,980
206,453
75,807
69,627
«

1,441,152
75,807
—
22,747
14,796
12,853
mm

—
mm

7.088
1,206,955

Included in total imports, column 2.

-oOo-

25,443
7.088
1,599,886

847,980
75,807
mm

—
—
.7.088
930,875

IMMEDIATE RELEASE

\aIJl February 7, 1950
The Bureau of Customs announced today preliminary figures showing the
imports for consumption of commodities within quota limitations provided for
under the General Agreement on Tariffs and Trade, from the beginning of the
quota periods to January 28, 1950, inclusive, as follows*

Period and Quantity

Commodity

1 ,500,000

Gallon

58

50.000,000
. Nov. 1. 19ii9.
to Mar. 31, 1950, incl.

Pound

U,U82

(1 )
26,235,738

Pound

3,91?,291i

1 5 0 ,000,000
6 0 ,000,000

Pound
Pound

Quota filled
Quota filled

5 ,000,000

Pound

Fish, fresh or frozen,
filleted, etc., cod,
haddock, hake, pollock,
(' c u s ^ and rosefish

Calendar year

White or Irish
Potatoes:
certified seed ......... . 12 months from
other .................. . Sept* l£, 1 9h9
Walnuts ...... ............ . Calendar year

(1)

8m
o

88

o
o#

Gallon

Cream, fresh or sour ...... , Calendar year
.... .

Imports as of
January 28,
1950

o

Whole milk, fresh or
sour «*«*♦**♦****•••••##•«, Calendar year

T3n+.+ior»

Unit
of
Quantity

335,256

The proviso to Item 717(b) limits the imports for
consumption at the quota rate to 6 ,5 5 8 ,935 pounds
during the first 3 months of the calendar year.

Due to a provision of the President’s Proclamation No. 2769 of January 30,
19U8, in which the entry of a specified quantity of Cuban filler tobacco,
unstemmed or stemmed (other than cigarette leaf tobacco) and scrap tobacco,
affects the rate of duty on such tobacco from countries other than Cuba, a
record is maintained of imports from Cuba. 2,26U,773 pounds of such Cuban
tobacco were imported for consumption during the period January 1 to January 25,
195>0 , inclusive.

TREASURY DEPARTMENT
Washington

IMMEDIATE RELEASE
Wednesday» February 8. 1950

S-2244

The Bureau of Customs announced today preliminary figures showing the
imports for consumption of commodities within quota limitations provided for
under the General Agreement on Tariffs and Trade, frcm the beginning of the
quota periods to January 28, 1950, inclusive, as follows:

Unit

Period and Quantity

Commodity

of
Quantity

Imports as of
January 28,
1950

Whole milk, fresh or
Calendar year

3,000,000

Gallon

88

Cream, fresh or sour •«••••« Calendar year

1 , 500,000

Gallon

58

50,000,000
Nov* 1, 1949,
to Mar* 31, 1950, incl.

Butter .........

Fish, fresh or frozen,
filleted, etc., cod,
haddock, hake, pollock,
cusk, and rosefish ..**.*• Calendar year

Pound

(1)
26,235,738

Pound

White or Irish
Potatoes:
certified seed ••••••*••»• .12 months from 150,000,000
other .............4...... Sept* 15, 1949 60,000,000

Pound
Pound

5,000,000

Pound

Walnuts .................... Calendar year

(1)

4,482.

3,917,29^

Quota filled
Quota filled
335,256

The proviso to Item 717(b) limits the imports for
consumption at the quota rate to 6,558,935 pounds
during the first 3 months of the calendar year*

Due to a provision of the President*s Proclamation No. 2769 of January 30,
1948, in which the entry of a specified quantity of Cuban filler tobacco,
unstemmed or stemmed (other than cigarette leaf tobacco) and scrap tobacco,
affects the rate of duty on such tobacco from countries other than Cuba, a
record is maintained of imports from Cuba* 2,264,773 pounds of such Cuban
tobacco were imported for consunption during the period January 1 to January 28,
1950« inclusive®

ÌAMJ^ì

IMMEDIATE RELEASE
February-^, 19S>0

n
&»

The Bureau of Customs announced today preliminary figures showing
the imports for consumption of commodities on which quotas were pre­
scribed by the Philippine Trade Act of 19U6, from January 1, 19£0, to
January 28, 19£0, inclusive, as follows*.

f•
products of the
Philippines

; Established Quota :
î
Quantity
s

Unit of :
Quantity :

Imports as of
Jan. 28, I9f>0

•
•

Buttons ..............

8£0,000

Gross

1*5,853

Cigars ..............

200,000,000

Number

12,910

Coconut O i l ....... .

là8,000,000

Pound

8,797,123

Cordage ......... ... •

6,000,000

it

283,1*96

Rice ................

i,o i* o ,o o o

n

—

1 ,901*,000,000

Sugars

Pound
12,1*75,278

(unrefined ...
Tobacco

6,£00,000

Pound

TREASURE DEPARTMENT
Washington

IMMEDIATE RELEASE
Wednesday« February S> 1950

S-2245

The Bureau of Customs announced today preliminary figures showing
the imports for consumption of commodities on which quotas were pre­
scribed by the Philippine Trade Act of 194-6* frcm January 1* 1950$ to
January 28, 1950, inclusive, as follows:

Products of the
Philippines

*
:
:
:

Buttons ........

:
Established Quota
Quantity
:
i
850,000

*
Unit of :
Quantity :
:

Imports as of
Jan# 28,' 1950;
____

Gross

45,853
12,910

Cigars

200,000,000

Number

Coconut Oil ••#..*•••«

448,000,000

Pound

8,'797*123

Cordage #««•»•••••«#*•

6,000,000

”

283,496

Rice •#••••«*»»•••*••»

1,040,000

”

-

Sugars

(refined •#•••«•••••••*••«•..... .
1,904*000,000
Pound
(unrefined ...........#.*................... *...

Tobacco •**#••••••«•«••

6,500,000

Pound

12,475,278
—

FOR IMMEDIATE RELEASE
February 9» 195>Q_____

The Bureau of Customs announced today that during the quota
year beginning February 1 , 195>0>

18,991>7U6 pounds of cotton having

a staple of 1-1/8 inches or more but less than 1-11/16 inches have
been authorized release as of the close of business on February 8
under the global quota of US,6£6,1*20 pounds prescribed in the
Presidents Proclamation of September £, 19399 as amended.
Of the 18,991,71*6 pounds of such cotton authorized release,
approximately 99 percent is of Egyptian origin and the remainder
is of Peruvian origin.

TREASU RY DEPARTM ENT
Information Service

WASHINGTON, D .C .

IMMEDIATE RELEASE
T h u r s d a y, F e b r u a r y 9,

1950»

S - 22.46

The B u r e a u of C u s t o m s a n n o u n c e d t o d a y that
d u r i n g the q u ota y e a r b e g i n n i n g F e b r u a r y 1,

1950,

1 8 , 9 9 1 , 7 4 5 p o u n d s of c o t t o n h a v i n g a staple of
1 - 1 / 8 inches

or m o r e b ut less t h a n 1 - 1 1 / 1 6

inches

h a v e b e e n a u t h o r i z e d r e l e a s e as of the close of
business

on F e b r u a r y 8 u n d e r the g l o b a l quota of

4 5 , 6 5 6 , 4 2 0 p o u n d s p r e s c r i b e d in the P r e s i d e n t ' s
P r o c l a m a t i o n of S e p t e m b e r 5*
Of the 1 8 , 9 9 1 , 7 ^ 6 p o u n d s
a u t h o r i z e d release,

1 9 3 9 j as amended.
of such c o t t o n

a p p r o x i m a t e l y 99 p e r c e n t

is of

E g y p t i a n o r i g i n and the r e m a i n d e r is of P e r u v i a n
origin.

0 O0

i % ai

/ f RELEASE MOBRING NEWSPAPERS,

Saturday, frtmiy 11. 1950«
The Secretary of the TSiVApf^Wi&ialwI^Set evening that the tender» for
$1,000,000,000, or thereabout», of 91-day Treasury bill» to be dated February 16 and to
nature M
ay 18, 1980, which were offered on February 7, 1950, were opened at the Federal
Reserve Bank» on February 10«
The details of this issue are as follow»:
Total applied for - |1 ,5 5 1,109,000
Tbtal accepted
- 1,003,814,000 (include* $85,106,000 «»tered on a
w
*
non-competitive basis and accepted in
full at the average price show
nbelow)
Average price
- 99.914 Equivalent rate of discount approx. 1,151$ per annum
Range of accepted competitive bids:
• 99.730 Equivalent rate of discount approx. 1.068$ per annus
- 99.715
*
* *
*
"
1-135$ "
w

High

low

(»0 percent of the ament bid for at the lowprice was accepted)
Federal Reserve
District

Total
Applied for

Total
Accepted

Boston
NewYork
Philadelphia
Cleveland
Richm
ond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

|

10,963,000
1,858,703,000
34.960.000
13.740.000
7.877.000
17.887.000
115,790,000
9.885.000
4.170.000
84.677.000
86.030.000
27*687,000

$

$1,551,109,000

$1,003,214,000

TOTAL

9,963,000
787,078,000
17.910.000
13.880.000
7.077.000
17.837.000
64.890.000
9.075.000
4.170.000
84.677.000
80.730.000
27t127.000

RELEASE M O R N I N G N E W S PAPERS,
Saturday, F e b r u a r y 1 1 , 1930»

S-2247

The S e c r e t a r y of the T r e a s u r y a n n o u n c e d last e v e n i n g that the
tenders for $ 1 , 0 0 0 , 0 0 0 , 0 0 0 , or thereabouts, of 9 1 - d a y T r e a s u r y
bills to be d a t e d F e b r u a r y l 6 a n d to m a t u r e -May 18, 1950, w h i c h w e r e
offered o n F e b r u a r y 7 , 1950, wer e o p e n e d at the F e d e r a l R e s e r v e
Banks oh F e b r u a r y 10.
The d e t a i l s

of this issue are as follows:

T o t a l a p p l i e d for - $ 1 , 5 5 1 , 1 0 9 , 0 0 0
Total accepted
1 , 0 0 3 , 2 1 4 , 0 0 0 (includes $ 8 5 , 1 0 6 , 0 0 0
e n t e r e d on à n o n - c o m p e t i t i v e
b a s i s and a c c e p t e d in full
at the a v e r a g e p r i c e s h o w n
below)
Average price
- 99 .714 E q u i v a l e n t rate of d i s c o u n t a p p r o x «
1 .1 3 1 $ p e r a n n u m
R a n g e of a c c e p t e d c o m p e t i t i v e bids:
High

- 99.730 Equivalent

rate of d i s c o u n t approk,

1 .068 $ p e r a n n u m
Low

- 9 9 . 7 1 3 E q u i v a l e n t rat e of d i s c o u n t approx,
1 .1 3 5 $ p e r a n n u m

(9 0 p e r c e n t of the a m o u n t b id for at the l ow p r i c e w as accepted)
Federal R e s e r v e
District •

Total
.led

Boston
New Y o r k
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas C i t y
Dallas
San F r a n c i s c o

$

1 0 ,9 6 3 , 0 0 0
1 ,2 5 8 ,7 0 3 , 0 0 0
3 4 .9 6 0 .0 0 0
13.740.000
7.277.000
17.887.000
115,790,000
9.285.000
4,170,000
24.677.000

$

9 ,9 6 3 , 0 0 0

787 ,078,000
17 ,9 10,000
13 ,280,000

2 7 ,6 2 7 , 0 0 0

7.077.000
17.837.000
64,290^000
9 .0 7 5 . 0 0 0
4,170,000
24.677.000
2 0 .7 3 0 . 0 0 0
2 7 ,1 2 7 f 0 0 0

$1,551,109,000

$1,003,214,000

.

26 030.000
TOTAL

Total
Accepted

0 O0

Mr. Banning (Disb.)
Mr. R. D. Barker
Mr. Barnes (5^1)
Mr. Bartelt
Mr. Batcheider
Mr. Beall
Bookkpg & Warrants (^3^S)
Mr. Brogan (600 Sloane)
Mr. Burdette (l*+53)
Miss Burke (Ul25)
Mr. Cake
Mr. Carlock (2000)
Mr. Church
Miss Cullen
Mr. Cunningham
Mr. Dietrich.......,
rttTT~Dillon (hUl6 ) _y
MissDonovan
Mr. Doolan
Mr. Eddy
Mrs. Farrell (3 ^05 )
Mr. Foley
Mr. Gearhart (^33^)
Mr. Gorardi (%25-)
Mr. Graham
Mr. Haas
Mr. Handy
Mr. Hard
Mr. Hearst
Mr. Keffclf^ngor
Miss Hodol
Mrs. Hodges
Mr. Howard
Mr. Hyland
Mr. Kilby
Mr. Kious
Mrs. Lcgg
Mr. Lynch (3 OOO)
Mrs. Biddle (3 OI3 )

y C jy
2 4

Mr. Martin (3 ^ )
Mr. Maxwell
Mr. McDonald
Mrs. McGuire (3 I 2S)
Mrs. McKenna
Mr. Merritt
Mr. Moore
Mr* Mulvihill (Tempo.V)
Miss Newcomer (1021)
Mr. Nussear (U33 O)
Mr. Parsons
Mr. Perry
Mr. Peterson (3128 )
Mr. Babon
Mrs. Ealf (132 ^)
Mr. Reeves
Mrs. Root
Miss Rousseaux (^321)
Mr s. Scho eneman
Mr. Schwalm (Walker)
Mr. Slindee
Mr. Smith (3128)
Mr. Smith {fo.25)
Mr. Snyder t*&25)
Mr. Sticknoy
Mrs. Sweitzer
Mr. fickton
Mr. Tietjens
Mr. fomkinson (2202)
Mr. Traver (*H25)
Miss Vassar
Mrs. Walker
Mr. Warfield
Mrs. Warneson
Mr. Wober
Mr. Wisocarvor (5^5)
Mr. Woodson
Mr. Ziegonfus

TREASURY DEPARTMENT
F is c a l Service

STATUTORY DEBT LIMITATION

31

W ashington,

AS OF January.. . *...li

J ,eEo-ary./-3^...19

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,COO 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:

¡£275 , 000 , 000,000

Total face amount that may be outstanding at any one time
Outstanding
Obligations issued under Second Liberty Bond Act, as amended
Interest-bearing:
Treasury bills.................. .

«
4

__
1 2 . 3 3 ® *940 »000

Certificates of indebtedness,.....

29» 3 1 4 , 1 9 2 , 0 0 0

Treasury notes.... .

l

6, 1 7 6 , 6 0 2 , 0 0 0

$

5 7 , 2 2 1 , 7 3 ^ ,* ® 0 ®

Bonds Treasury........ . ............ .

10^,757,961,800

Savings (current redeiip,value)...
Depositary............
Armed Forces Leave....... .......

56, 9 5 8 » 2 0 2 , 6 2 2
383,746,000
331,686,525

Investment series. ..... .... .

953,715,000

Special Funds Certificates of indebtedness.

17,629, 5^ 5,000

Treasury notes...........

15.872.470.000

Matured, interest-ceased....
m

p

3 3 »502,0 1 5 »000

254 ,709 ,000,947
3 5 2 ,234,363

Total interest-bearing.

Bearing no interest:
War savings s t a

163,385,311,9^7

s

.

50,325,052
3 ,903,66s

.

Excess profits tax refund bonds....
Special notes of the United States:
I n t e m a t ’l Monetary Fund series.*
Total.... ....................... .

1,008,000,000

*

1,062,228,720
256 ,1 2 3 ,524,030

Guaranteed obligations (not held by Treasury):
Interest-bearing:
Debentures: F.H.A,

1 3 .s43.536

Demand obligations: C.C.C.

10,452,647

Matured, interest-ceased....

24,296,183
2,733,800
27,029,983

256 ,150 ,554,011

Grand total outstanding....... ..................... .

ig,s4q.:4w.1igl

Balance face amount of obligations issuable under above authority.
Reconcilement with Statement of the Public Debt <Daily Statement of the United States Treasury,

January 3 1 » 1950
February 1, 1 9 5 ®

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

256,865,375,517
27.029.983

256,892^405,500
741.851.^7

250.150,554,015

k fi

<r

%

STATUTORY DEBT LIMITATION
As of January 31. 1950

February 13, 1950

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 pur­
poses cf 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.1’
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
Obligations issued under Second Liberty Bond Act, as amended
Intere st-bearin g:
Treasury bills,...... .
f 12,330,940,000
Certificates of indebtedness.
29,314,192,000
Treasury notes..... .........
16.176.602.000 $ $7,821,734,000
Bonds —
Treasury...... ............ 104, 757,961,800
Savings(current redemp.value) 56,958,202,622
Depositary................
383,746,000
Armed Forces leave.......
331,686,525
Investment series.........
953.715.000

163,385,311,947

Special Funds Certificates of indebtedness 17,629,545,000
Treasury notes............
15.872.470.000
Total interest-bearing...... .............
Matured, interest-ceased............. ..........

33.502.015.000
254,709,060,947
352,234,363

Bearing no interest:
War savings stamps.......*...
50,325,052
Excess profits tax refund bonds
3,903,668
Special notes of the United States:
I n t e m a t ’l Monetary Fund
series ............. .........
1.008.000.000
Total..... ..................................

1.062.228.720
256,123,524,030

Guaranteed obligations (not held by Treasury):
Interest-bearing:
Debentures: F.H.A, .........
13,843,536
Demand obligations: C SC.C. „ . ______ 10.452.647
24,296.183
Matured, interest-ceased........
..............2.733',800
27,029,983
Grand total outstanding...........................
256,150.554.01/
Balance face amount of obligations issuable under above authority... 18.849.445.98r/

(more )

- 2 -

Reconcilement with Statement of the Public Debt - January 31, 1950
(Daily Statement of the United States Treasury, February 1, 1950)

Outstanding Total gross public debt...... ................................. $256,065,375,517
Guaranteed obligations not owned by the T r e a s u r y ...... .
27.029.983
Total gross public debt and guaranteed obligations.... .
256,892,405,500
Deduct — other outstanding public debt obligations not subject
to debt limit ati on
....... .........................
741.851 f487
$256.l5Q.554r013

S-2248

11
A r r e s ts fo r bond fo r g e r y to ta le d 164 and there were
1,932 persons a r r e ste d fo r check fo r g e r y in 1949.

There

were l 6 l c o n v ic tio n s o f bond fo r g e r s and 1,754 c o n v ic tio n s
o f check fo r g e r s , in c lu d in g c o n v ic tio n s in cases pending
from p r io r y e a r s .
F in e s in c rim in a l cases to ta le d $ 2 8 , 1 9 6 . 2 8 and
j a i l sentences aggregated about 2,515 y e a r s .

The

S e c r e t S e r v ic e completed 41,244 c rim in a l and 1,727 nonc r im in a l in v e s t ig a tio n s fo r a y e a r ly t o t a l o f 42,973
cases c lo s e d .

10
y

he l e a r n e d his
jJtk
H e p a i d Jtfis b a y r b w p r w i t h a ^ d ' r ^ i l e s s

Unf.o r t u na t e l y ,

c/nnot be ^ i d

t]

J r

lesson.

c h e c k a nd ^hlkegf the h 6nidsm/n into g a s h i n g a n o t h e / ^ n a l l e r
c h e c k "for expjpn^#jr!
a few m o r e
/
arre/ti»u a g a i n .

f
He^eturnea

j
/
M
I
to M e d f o r d a $ & p a s s e d

b e f o r e / t h e E n d i n g / o m n a n y jfad h i m
I
/
i
/
¥
' |
H e is rlc»5i/in Federa|l pHistody a w a i t i n g

prosecution.
F o r g e r i e s of Savings B o n d s a lso keep the S e c r e t
S e r v i c e busy.
1949,

W i t h 4 , 483 f o r g e d b o nds

on h a n d J a n u a r y 1,

6 , 6 4 l b o n d s w ere r e c e i v e d f or i n v e s t i g a t i o n

d u r i n g the year,

a nd agen t s

volving $573*085.22.

completed

7 ,5 3 5

Texas,

h is w a y int o prison.
Derkik,

in­

T h ere w e r e 3*589 f o r g e d b o n d s

a w a i t i n g i n v e s t i g a t i o n as of D e c e m b e r 31*
In Dallas,

cases,

1949»

one b o n d f o r g e r v i r t u a l l y shot
W i l l i a m A.

Sukovitzen,

alias

b o u g h t a r e v o l v e r w h i c h he d e c i d e d to test by

f i r i n g a shot into a p i l l o w i n h is h o t e l room.
e x p l o s i o n was r e p o r t e d to police,
Suko v i t z e n .

The

who questioned

E x a m i n a t i o n of his p e r s o n a l b e l o n g i n g s

t u r n e d up a $ 1 , 0 0 0 savings b o n d i s s u e d to R a l p h A.
B l a n k e n b a k e r of Los An g e l e s ,

C alifornia.

The S e c r e t

S e r v i c e was n o t i f i e d a n d o b t a i n e d a d m i s s i o n s

from

S u k o v i t z e n that he h a d f o rged a n d cashed se v e r a l other
bonds.

H e p l e a d e d g u i l t y a n d was

three y e a r s .

sent to p r i s o n for

-

A t Me & f o r d ,

OregcV,

p r e s s e d for funds
His difficulty\i/s

X

f i rst c h e c k wate V o r

9

A i r Force

a i

sergeant,

w h o was

lecidedf to use checks i n s t e a d or cash.
that hf h a d no b a n k accoi

I

A

£

five ¿dollars a n d h e cashed I t

at

in B e d f o r d .
W h e n the c ^ c k waaf returned,
a super-marl
/
the m a r k e y o w n e r c o m p l a i n e d to the s e r g e a n t yf The
s e r g e a n t / c o n v i n c e d the m e r c h a n t

/

tha/c he n o w / h a d a large

\i

/

i

b a n k a c c o u n t a nd in d u < W d h i m to o &sh a n o t h e r c h e c k for
/
I
/f
¿200. / W h e n the ¿ 2 0 0 cffeck camer/back,

§
the merchant

'//
//
c o m p l a i n e d a g a i n a nd a g r e e d tfc/wait for /fche sergeant,J -

/

r\

/
I
to n h y tiim the m o n e y .f
I
/ T he
/
a notice

i

//

\

/./

JL

f

serge a n t now! r e a d i e d

I

.//

#
' 1
that h e | h a d r e c e i v e d

I / \ /
i
l
l
f r o m ’ the V e t e r a n s W d m i n i s t r a t i o n c o n c e i v i n g his

/
l/
K
n a t i o n a l life ins u r a i / e d i v m e n d .

|

OA

#

1/

|\

I
/ /
Th<§ notice/ W & s p r i n t e d

I

is

a cardboaxi f o r m w i t h p u n c h e d holes! for tai\|lating-

m ^ c h i n e use,

s i m i m r | to thjs hdO.es on jgenuinie p ? e a s u r y

checks.

The ser/ean|; a l t e r e d v h e
r
\
i m p r e s s i v e language, Sand W r o t e m

forfn, i n s e r t e d some
| i
the! amoujntf of ¿592.

¿ e p r e s e n t e d y o t to tl|e m a r k e t owner,
tlhat it was^/a genuine\ check.

jh o

fa| c o n v i n c e d

H e dteductedf hjLs $20 0

a n d p a i d / h e s e r geant % 3 9 f • W h e n this! cwsctk was
/
\ i | |
ileturned the m e r c h a n t f i n a l l y r e p o r t e d \tlJe {sergeant to
\
/
\ \ / a1 /
I
I
\
the a u t h o r i t i e s .
The se r g e a n t was arrested! i h Portland,
7
\
\ J
regwi,

b y the Secr e t S e r v i c e a n d h e l d u ^ L d e r $ 1 , 0 0 0 bail.

8 -

name and address

s t e n c i l e d on the u p p e r plate,

i d e n t i f i c a t i o n is r e q u e s t e d he m e r e l y r e m oves
a nd e x h i b i t s

it to the c l e r k or cashier.

an d w h e n
the p l a t e

It w o r k s e v e r y

time, he declared.
A.new motive

for c h e c k - s t e a l i n g was d i s c l o s e d w i t h

the a r r
D i x i e Jea

Emails

of Goveri^de
/

f r o m 1^+3 ^ o

1
il b o x

w h e n / h e / t o jb
, Mi^o,dri, /an|C s a A ^ i h e
e

reason

11i ^ t ^ h d e d j A o m a k e the

C h e c k f o r g e r y p ut one income tax c o n s u l t a n t a n d
p u b l i c a c c o u n t a n t out of b u s i n e s s
Cali f o r n i a ,

in Los A n g eles,

w h e n Secret Service a g e n t s a r r e s t e d I r v i n g L.

B i r o n for f o r g i n g $ 2 5 , 0 0 0 w o r t h of i n c o m e - t a x - r e f u n d
checks.

B i r o n p r e p a r e d income tax r e turns

to w h o m r e funds w e r e due.
Biron's

care,

for clients

The re f u n d s w e r e i s s u e d in

a nd w e r e ’received,

f o r g e d a n d c a s h e d by

h i m w i t h o u t the k n o w l e d g e of the t a x p a y e r s .
g u i l t y to f o r g e r y a n d was
serve five y e a r s

He pleaded

s e n t e n c e d i n Los A n g e l e s

in a F e d e r a l prison.

*

to

-

7

-

l e a r n e d that t h e i r checks h a d b e e n c a s h e d for a t o t a l of
$2,094.87.

A g e n t s o b t a i n e d p h o t o s t a t i c copies a n d m a d e

a study of m e t h o d s u s e d to issue a nd d i s t r i b u t e the
checks.

T h e y d i s c o v e r e d that at one p o i n t a c l e r k was

r e q u i r e d to staple e a c h c h e c k to the s o l d i e r ’s d i s c h a r g e
c e rtificate,

a nd n o t i c e d that there w e r e no e v i d e n c e s of

s t a p l i n g on a n y of the f o r g e d checks.

A civilian

employee,

job of s t a p l i n g

C l a r e n c e W. Allison, h a d the

the c h e c k s .

I n v e s t i g a t i o n showed that he was o n leave

on e a c h d a t e that the f o rged checks h a d b e e n c a s h e d in
Ph i l a d e l p h i a , N e w Y o r k a n d B a l t i m o r e .
r e s i g n e d a n d e n l i s t e d i n the Army,

a n d h a d gone A W O L

H e wa s a r r e s t e d M a y 31 in

w h e n the h u n t for h i m began.
Seattle, W a s h i n g t o n ,

A llison had

w h e r e he was

s e n t e n c e d to serve

in p r i s o n and p a y a fine of $ 2 ,000 .

two y e a r s

In L i t t l e Rock, Ark a n s a s ,

the trial of a f o r g e r

e s t a b l i s h e d one for m of "positive"

identification used

b y a d i s a b l e d v e t e r a n in the l e g i t i m a t e c a s h i n g of h is
checks.

A f o r g e r w h o a c c o m p a n i e d the v e t e r a n o n

a d r i n k i n g spree stole his m o n e y a nd three Governmentchecks.

The f o r g e r was a r r e s t e d b y the S e c r e t Se r v i c e

a n d s e n t e n c e d to a 5 - y e a r p r i s o n term.

A t the

trial,

the d i s a b l e d v e t e r a n p a y e e t e s t i f i e d that i n c a s h i n g his
Government

checks he always p r o d u c e d h i s false t e e t h as

"positive"

ide n t i f i c a t i o n .

He

showed that he h a d his

6

-

Losses
checks

-

to i n d i v i d u a l s w h o cashed f o r g e d T r e a s u r y

i n 1949 w e r e heavy.

The S e c r e t S e r v i c e r e c e i v e d

32,738 f o r g e d checks for investigation, a n d c l o s e d
30,081 c h e c k cases i n v o l v i n g a total of $ 2 , 0 4 5 , 1 5 5 . 2 3 .
O n D e c e m b e r 31 , however,
checks

there w ere still 1 3 , 2 2 1 f o r g e d

to he investigated,

an d n e w cases are b e i n g

r e c e i v e d at the a p p r o x i m a t e rate of 2 ,9 0 0 e v e r y mont h .
In one case i a ^ O r e g o n a m a i l c a r r i e r was f o r c e d
into crlfcl/by Jrfls/£enc}*W

fjf c

gambling.

H e > € g a n by

a n p f o o t b a l l p o ols .

Aj

J f c c o i u n t # L 6

„
f Jr
jf
M J ■
T r p m the-Mail

a Goveyrnme;
r.

in

ids". H e /¿foie aqlbthe^/^heck,
•
jjp.
'
\. ^
mnal
At

h a w / ¿ C e e J m d e i ^ f iec# as f i .
“/ £
i¥
jT
•J’
/ / yf # /
I
$ . _
a f j t i e i #fele arid fjbrgfd some

le^it

n liM

’f q r ^ T l e s

’k and i|Jp.s e s t i m a t e d
,,000 w o r t h Iff T r e a s u r y

I /

ih/ck^r H e is n o w / w a i t i n g trfs
f ,
oy^L
an n f W
case was solved b y observation,
a stapling machine.

a fh r &

H e Aorge<j/and

M'
was

W

Wi
J ff

and

S i x t e e n d i s c h a r g e d soldiers at

A b e r d e e n P r o v i n g Grounds, A b e r d e e n ,
to r e c e i v e checks for d i s c h a r g e pay.

Maryland,

failed

The S e cret Se r v i c e

- 5 -

T he

counterfeit hills

seized d u r i n g 19^9 i n c l u d e d

$ 2 0 3 , 1 2 8 w h i c h o r i g i n a t e d in f o r e i g n countries.
total,

$ 7 9 , 1 1 5 was

States.

s u c c e s s f u l l y p a s s e d in the U n i t e d

A n e w scheme for

m o n e y h as

passing c o u n t e r f e i t A m e r i c a n

s p r u n g up i n F r a n c e , the r e port r e v e a l e d .

Bla c k market money-changers
d o l l a r s at a d i s c ount.
dealers

Of that

offer to sell francs

for

Once the e x c h a n g e is made,

the

s u d d e n l y change t h eir m i n d s a n d d e m a n d the

r e t u r n of the francs, h a n d i n g the do l l a r s h a c k to the
purchasers.

The d o l lars h a n d e d hack, h o w ever,

the same as those o r i g i n a l l y p resented.
count e r f e i t s ,
Americans

are n ot

T h e y are

c l e v e r l y sw i t c h e d hy the c r o o k e d dealers.

c o n t e m p l a t i n g t r a v e l in E u r o p e are w a r n e d

a g a i n s t h l a c k m a r k e t m o n e y deals an d c a u t i o n e d to he
o n the a l e r t for c o u n t e r f e i t currency, b o t h A m e r i c a n
an d foreign.
The S e cret S e r vice a l s o w a r n e d w a r v e t e r a n s a nd
m o n e y - h a n d l e r s h e r e at h o m e to s a f e g u a r d the v e t e r a n s ’
d i v i d e n d checks n o w b e i n g issued.

Chief B a u g h m a n

cautioned payees

l o cked a n d u r g e d

storekeepers

to k e e p m a i l b o x e s

to i n sist u p o n g o o d i d e n t i f i c a t i o n b e f o r e

c a s h i n g G o v e r n m e n t checks for strangers.
forgers are a c t i v e e v e r y where,"

"Check

the C h i e f said.

"Cashiers

s h o u l d r e m e m b e r that a G o v e r n m e n t c h e c k is w o r t h l e s s
it b e a r s a f o rged endorsement,
a forged Government

if

a n d the last e n d o r s e r of

c h e c k is the loser."

- I -

a l s o t a k e n Into custody.
t o o k agen t s

W a l l admitted his

complicity and

to a l o c a t i o n o u t side S a v a n n a h w h e r e they

r e c o v e r e d a s u i tcase c o n t a i n i n g $ 86,270 in b o g u s $20
bills.

Wall

c ounterfeits,

said Thom a s h a d b o u g h t $ 1 5 0 , 0 0 0 in the
m a k i n g a d o w n p a y m e n t of $ 1 0 , 0 0 0 on the

total p u r c h a s e p r i c e of $18,000.

On the d ate W a l l was

to t e s t i f y b e f o r e the G r a n d Jur y he c o m m i t t e d suicide.
A 1 T h o m a s w as t r ied a n d s e n t e n c e d to serve 10 y e a r s

in

a Federal penitentiary.
In N e w Y o r k City,

a r i n g was b r o k e n up w h i c h h a d

m a n u f a c t u r e d over 6 , 0 0 0 , 0 0 0 c o u n t e r f e i t
stamps.

3^ p o s t a g e

T w o m e n a n d a w o m a n w e r e t a k e n into cu s t o d y

a f t e r s e l l i n g 2 0 , 0 0 0 fake stamps to a n u n d e r c o v ^ ^ ^ ^ ^ e n t ,
a n d 8 5 , 4 0 0 stam p s _ w e r e
arrest^

seiz e d at the time of tfee ig-

A l l t h r e e ' p l e a d e d g u i l t y an d wer e

terms r a n g i n g f r o m 18 m o n t h s

s e n t e n c e d to

to three y e a r s .

Sub-

s e q u e n t l y , agents a r r e s t e d 13 o t h e r prin c i p a l s ,
the p l a t e - m a k e r s a n d printer.

including

A perforating machine

use d in p r e p a r i n g the c o u n t e r f e i t stamp sheets was
r e c o v e r e d b y a W a v y d i v i n g tea m f r o m the o c e a n off
L o n g Beach,

where

it h a d b e e n t h r o w n by the c o u nterfeiters.

T he g a n g was a l s o r e s p o n s i b l e for the p r o d u c t i o n of
$ 4 0 0 , 0 0 0 in c o u n t e r f e i t A m e r i c a n E x p r e s s
a b o u t $ 1 5 0 , 0 0 0 of w h i c h w e r e
before

the a r r e s t s w e r e made.

travelers'

successfully negotiated

checks,

3 copper p la te s fo r p r in t in g $20 n o te s , 205 film n e g a tiv e s ,
and a q u a n tity o f completed c o u n te r fe its which he had
p rin te d from the p l a t e s .
Although Munkner's product was d e ce p tiv e he was
s t i l l aim ing a t p e r fe c tio n and did not t r y to pass any
n otes du rin g h is 9 -y e a r crim in a l v e n tu re .

He even

manufactured h is own
and b lue fib e r s to im ita te genuine currency p ap er.

He

pleaded g u i l t y , was sentenced to f i v e y e a r s ' p ro b atio n
and fin e d $1 ,0 0 0 .

t

A two-man c o u n t e r fe it in g venture in G eorgia ended
in s u ic id e fo r one, a te n -y e a r p r is o n sentence fo r the
o th e r , and a s iz a b le haul fo r the S e c r e t S e r v ic e .
A1 Thomas o f Savannah shipped $56,000 in c o u n t e r fe it
$20 b i l l s to C h a r le sto n , South C a r o lin a , fo r a fr ie n d
who was to use them in buying black-m arket merchandise
in E u rop e.

The package f e l l in to the hands o f the

S e c r e t S e r v ic e , who sent an •undercover agent to retu rn
i t to Thomas in G e o rg ia .

The a g e n t, p o sin g as a merchant

seaman, lo c a te d Thomas and to ld him th a t he had been
asked to d e liv e r the package and had looked a t i t s
c o n te n ts .
bury i t .

Thomas im m ediately sa id they would have to
The package was obtained a t the a g e n t ' s h o te l

and d e liv e r e d to Thomas, who adm itted ownership and was
a r r e s te d .

An a cco m p lice, John W a ll, o f Savannah, was

2
A Fku»t W a y n e ,
of b u s i n e s s N ^ f t (0T

Indiana,

c o u n t e r f e i t i n g p l a n t ^ f e n t out
y'
J?
hirec|/an / m d e r c o v e r
»et Service

-jft,

a g e n t as a p/iiHe/.
F o r t Wayne/
/

E r n e s t /arvis,

iylor gst#eet,
Jry
e m p i e t e ^ l a n d r por fake $ 2 ( V b i m s , / b u t

had Â

HL

S

y

$

#

/
n e e d e d a p r i n t e r bô becij

>roduétion.

agent / posing/ a s / a

* a o é o m p l i c ^ yés

/

a t t L c of Jai

Jr

¥

w

/Thq/Secyi>t ¿Service
t a / e p / t o the

h o m e A n d s h o w Ì N t h e / $ ^ Ò p i a /es/' and

e q u i p m e n t - y / w i e n arrested^

r /

J a rvis m ^ O m p t l y i m p l i c a t e d

E . / Q h a r r y a n d liar old S. Meier,
ttfen i-nto^custody.

wh^were

also

A l l three are a w a i t i n g proSfreution.

p r o d u c e r of h o m e - m a d e $5 b i l l s was able
to p/tfs o n l V ^ r o u r

In S a n F r a n cisco,

California,

a former delicatessen

o w n e r a nd a p p a r e n t l y r e p u t a b l e c i t i z e n t u rned out to be
a p e r f e c t i o n i s t w h o h a d b e e n s t r i v i n g for nine y e a r s
p r o d u c e a p e r f e c t c o u n t e r f e i t bill.

S e cret Se r v i c e

a g e n t s a r r e s t e d W i l l i a m 0. M u n k n e r on A u g u s t

3 &t his

h o m e a nd c a p t u r e d a n e l a b o r a t e p h o t o - e n g r a v i n g p l ant
in w h i c h he h a d p r o d u c e d nine

steel p l a t e s and

seven

to

-

PBOPOSBfifc

3

2

A be<Èi in counterfeiting during 1949 gave the U.
Secret

A
Service its b u s i e s t y e a r since the 1935 peak,

according to a year-end report made today by Chief
U. E. B a u g h m a n to T r e a s u r y S e c r e t a r y J o h n W.

Snyder. .
v+-

The Secret Service in 1935 seized $1,418,46^^of
which $1,037,785* represented losses to victims of
counterfeit-note passers.

Seizures Of1counbcrfelL bills-

in 1949 totaled $1,354,868, of which $651,445, was
actually passed on^storekeepers, cashiers and other
victims.

The ba]jance^of $703,423 was captured before

it could be c^cuiatod^j^eizures in 1948 totaled only—
$513,981 and los,s-ers only $190,133*

There were 478 persons

arrested^fdr counterfeiting offenses in 1949, and 273
jjehvictions. During the year there were 174 new counter­
feit note issues in production, some of which were
eliminated by swift enforcement action.
A
made

s e i zure of a b o u t $ 1 5 0 , 0 0 0 in b o gus $ 2 0 bills was

in June w h e n agents

in W a s h i n g t o n .

three m e n and two wom e n and
plant

frourt iic. ^reaauiffi

C . arrested

a counterfeiting

'Building . Two of

the men, E u g e n e C r e i g h t o n and W a l t e r W. Kidwell,
c o n v i c t e d and s e n t e n c e d to p r i s o n terms.

w ere

T he o t h e r three

w e r e f r eed f o l l o w i n g a d i r e c t e d v e r d i c t of n ot guilty.

TREASU RY DEPARTM ENT
Information Service

RELEASE SUNDAY NEWSPAPERS,
February 19, __1950^_______ _

WASHINGTON. D .C

S-2249

A sharp in cre a se in c o u n t e r fe it in g during 1949 8 ave the
U. S . S e c r e t S e r v ic e i t s b u s ie s t year sin ce the 1935 peak,
acco rd in g to a year-end rep o rt made today by C h ie f U . E . Baughman
to .Treasury S e cr e ta r y John W. Snyder.
The S e c r e t S e rv ic e in 1935 se ize d an unprecedented
4 l8 ,4 6 4 in c o u n t e r fe it s , o f which $1 ,0 3 7 ,7 8 5 , represented lo s s e s
to v ic tim s o f c o u n te r fe it-n o te p a s s e r s . By com parison, s e iz u r e s in
1 9 4 9 t o ta le d $ 1 ,3 5 4 ,8 6 8 , o f which $651,445.. was a c t u a lly passed on
to sto re k e e p e rs, c a sh ie r s and other v ic t im s . The b alance o f
$7 0 3 , 4 2 3 was captured b efore i t could be n e g o tia te d .

$1

In comparison w ith the year 1949> se iz u r e s in 1948 t o ta le d
$513,961 and lo s s e s only $190,133. There were 478 persons
a rre ste d fo r c o u n t e r fe it in g o ffe n s e s in 1949, aad 273 c o n v ic t io n s .
During the ye ar there were 174 new c o u n t e r fe it note is s u e s in
p ro d u ctio n , some o f which were e lim in a te d by s w ift enforcement
a c t io n .
A se izu re o f about $150,000 in bogus $20 b i l l s was made in
June when agents in W ashington, D. C . a rre ste d ^ fo u r men and one
woman, and c o n fis c a te d a c o u n t e r fe it in g p la n t in downtown
W ashington. Two o f the men, Eugene C re ig h to n and W alter W.
K id w e ll, were co n v icte d and sentenced to p r iso n term s. The oth er
three were fre e d fo llo w in g a d ir e c te d v e r d ic t o f not g u i l t y .
In San F r a n c is c o , C a l i f o r n i a , a former d e lic a t e s s e n owner
and ap p arently rep u tab le c i t i z e n turned out to be a p e r f e c t i o n i s t
who had been s t r i v i n g fo r nine years to produce a p e r fe c t coun ter­
fe it b i l l .
S e c r e t S e r v ic e agents a r r e ste d W illiam 0 . Munkner on
August 3 a t h is home and captured an e la b o ra te p h o to -en gravin g
p la n t in which he had produced nine s t e e l p la te s and seven copper
p la te s fo r p r in t in g $ 2 0 n o te s , 2 0 5 film n e g a tiv e s , and a q u a n tity
o f completed c o u n te r fe its which he had p rin te d from the p l a t e s .
A lthough Munkner's product was d e ce p tiv e he was s t i l l aim ing
a t p e r fe c tio n and did not tr y to pass any notes du ring h is 9 -y e a r
crim in a l v e n tu re . He even manufactured h is own paper, im pregnating
i t w ith red and blue fib e r s to im ita te genuine currency paper.
He pleaded g u i l t y and was sentenced.

A two-man c o u n t e r fe it in g venture in G eorgia ended in s u ic id e
fo r one, a te n -y e a r p riso n sentence fo r the o th e r , and a s iz a b le
haul fo r the S e c r e t S e r v ic e . A1 Thomas o f Savannah shipped
$56,000 in c o u n te r fe it $20 b i l l s to C h a r le s to n , South C a r o lin a ,
fo r a fr ie n d who was to use them in buying black-m arket mer­
chandise in E u rop e. The package f e l l in to the hands o f the
Se cre t S e r v ic e , who sent an undercover agent to retu rn i t to
Thomas in G e o r g ia . The a g e n t, p o sing as a merchant seaman,
lo ca te d Thomas and to ld him th a t he had been asked to d e liv e r the
package and had looked a t i t s c o n te n ts . Thomas im m ediately sa id
they would have to bury i t .
The package was obtained a t the
a g e n t’ s h o te l and d e liv e r e d to Thomas, who adm itted ownership and
was a r r e s te d . An acco m p lice, John W a ll, o f Savannah, was a ls o
taken in to cu sto d y . W all adm itted h is c o m p lic ity and took agents
to a lo c a tio n o u tsid e Savannah where they recovered a s u itc a s e
c o n ta in in g $86,270 in bogus $20 b i l l s . W all sa id Thomas had bought
$150,000 in the c o u n t e r fe it s , making a down payment o f $10,000 on
the t o t a l purchase p r ic e o f $18,000. On the date W all was to
t e s t i f y b efo re the Grand Ju r y he committed s u i c i d e . A1 Thomas was
tr ie d and sentenced to serve 10 years in a F e d e ra l p e n it e n t ia r y .
In New York C ity * a r in g was broken up w hich.had m anufactured
over 6 ,0 0 0 ,0 0 0 c o u n te r fe it 3$ postage stam ps. Two men and a
woman were taken in to custody a f t e r s e l l i n g 20,000 fake stamps to
an undercover a g e n t, and 85,400 stamps were se ize d a t the time o f
the a r r e s t o f the c o u n t e r fe it e r s . A l l three pleaded g u i l t y and
were sentenced to terms ranging from 1 8 months to three y e a r s .
Su b seq u ently, agents a rre ste d 13 other p r i n c ip a ls , in c lu d in g the
plate-m akers and p r in t e r . A p e r fo r a tin g machine used in prep arin g
the c o u n t e r fe it stamp sheets was recovered by a Navy d iv in g team
from the ocean o f f Long Beach, where i t had been thrown by the
c o u n t e r fe it e r s . The gang was a ls o r e sp o n sib le fo r the p ro d u ctio n
o f $400,000 in c o u n te r fe it American Express t r a v e l e r s ’ ch eck s,
about $ 1 5 0 , 0 0 0 o f which were s u c c e s s fu lly n e g o tia te d b efo re the
a r r e s ts were made.
The c o u n te r fe it b i l l s se ize d du ring 1949 in clu d ed $203,128
which o r ig in a te d in fo r e ig n c o u n tr ie s . Of th a t t o t a l , $79,115 was
s u c c e s s fu lly passed in the U nited S t a t e s . A new scheme fo r p a ssin g
c o u n te r fe it American money has sprung up in F ra n ce , the rep o rt
r e v e a le d . B la c k market money-changers o f f e r to s e l l fr a n c s fo r
d o lla r s a t a d is c o u n t. Once the exchange i s made, the d e a le rs
suddenly change t h e ir minds and demand the retu rn o f the fr a n c s ,
handing the d o lla r s back to the p u rc h a se r s. The d o lla r s handed
b ack, however, are not the same as those o r i g i n a l l y p re se n te d .
They are c o u n t e r fe it s , c le v e r ly sw itched by the crooked d e a le r s .
Americans contem plating t r a v e l in Europe are warned a g a in s t b la c k
market money d e a ls and cautioned to be on the a l e r t fo r cou n ter­
f e i t cu rre n cy, both American and fo r e ig n .

Tho S e c r e t S e r v i c e a l s o w a r n e d w a r veter a n s a n d m o n e y handlers h e r e at horn© to sa f e g u a r d the v e t e r a n s r d i v i d e n d checks
now b e i n g issued.
C h i e f B a u g h m a n c a u t i o n e d p a y e e s to k e e p m a i l boxes l o c k e d a nd u r g e d s t o r e keepers to insist u p o n g ood identification b e f o r e c a s h i n g G o v e r n m e n t checks for strangers.
"Check
forgers are a c t i v e every w h e r e / ' the C h ief said.
"Cashiers s h ould
remember that a G o v e r n m e n t c h e c k is .worthless if it b e ars a forged
endorsement, and the last e n d o r s e r of a f o rged G o v e r n m e n t c h e c k
is the loser."

L o sse s to in d iv id u a ls who cashed fo rged Treasury checks in
19*9 were heavy. The S e c r e t S e rv ic e re ce iv e d 32,738 fo rge d chocks
n?r * f nnkKt i i c t oSn ’ and c l osed 3 0 , 0 8 1 chock cases in v o lv in g a t o t a l
°l Xli°l5,15%‘2?- On December 3 1 , however, there were s t i l l
1 3 , 2 2 1 fo rged checks to be in v e s t ig a t e d , and new cases are b ein g
received a t the approximate ra te o f 2 , 9 0 0 every month.
&
was solved by o b se rv a tio n , and a s t a p lin g machine *
so ld ;L ? r 3 a t Aberdeen Proving Grounds, Aberdeen,
Maryland, f a i l e d to r e c e iv e checks fo r d isch a rg e p ay. The S e c r e t
?SrY^?eodeari ied
t lle ir checks had been cashed fo r a t o t a l o f
1 2 ,0 9 4 .8 7 , Agents obtained p h o to s ta tic cop ies and made a study o f
methods used to is s u e and d is t r ib u t e the ch e ck s. They d isco ve red
that a t one p o in t a c le r k was required to s ta p le each check to the
s o ld i e r 's d isch a rg e c e r t i f i c a t e , and n o tic e d th a t there wore no
evidences o f s t a p lin g on any o f tho fo rged c h e ck s. A c i v i l i a n
employee, C laren ce W. A l l i s o n , had tho job o f s t a p lin g the chocks
h 0 was on lea ve on each date th a t the
teen cashed in P h ila d e lp h ia , New York and
B a ltim o re. A l l i s o n had resigned and e n lis t e d in the Army, and had
f
t ?ie hunt fo r Mm began. He was a r r e ste d May 31 in
S e a t t l e , W ashington, where he was sentenced to serve two years in
prison and pay a fi n e o f $2 , 0 0 0 .
y
s ln
m , f.I T ,L i 5t ne R? ? k' A rkansas, the t r i a l o f a fo r g e r e s ta b lis h e d
?
?
P° 2 l t l v e .i d e n t i f i c a t i o n used by a d isa b le d v e te ran
t h e ^ v p f p c a s h i n g o f h is ch e ck s. A fo r g e r who accompanied
the ve te ran on a d rin k in g spree s t o le h is money and three
°^ e° k s - r The fo r g e r was a rre ste d by the S e c r e t S e r v ic e
and sentenced to a 5 -ye ar p riso n term . A t the t r i a l , the d isa b le d
veteran payee t e s t i f i e d th a t in cash in g h is Government chocks he
showed ?br ° f r dHhd
1 SJ a l S ° tC e th aS " P °s i t l v e " i d e n t i f i c a t i o n .
He
showed th a t he had h is name and address s t e n c ile d on the upper
a? d wM n i d e n t i f i c a t i o n i s requested he m erely removes the
? £ £

hfdeciared3 “

t0 ^

CleJ*

° r °a S h i e r -

Warks

„ ,,..3 ^
fo r g e r y put one income ta x c o n su lta n t and p u b lic
ccountant out o f b u sin ess in Los A n g e le s, C a l i f o r n i a , when S e c r e t
S e rv ice agents a r r e ste d Ir v in g L . B i?o n tor fo r g in g $25^000 worth

- 4 o f in co m e-tax-refu n d ch eck s. B iro n prepared income ta x retu rn s
fo r c li e n t s to whom refunds were due. The refunds were issu e d in
B ir o n ’ s c a r e , and were r e c e iv e d , fo rged and cashed by him w ithout
the knowledge o f the ta x p a y e rs . He pleaded g u i l t y to fo r g e r y and
was sentenced in Los A ngeles to serve f i v e years in a F e d e ra l
p r is o n .
F o r g e r ie s o f Savin gs Bonds a ls o keep the S e c r e t S e r v ic e b u sy .
With 4,483 forged bonds on hand January 1, 1949, 6 ,6 4 l bonds were
receiv ed fo r in v e s t ig a t io n during the y e a r , and agents completed
7,535 c a s e s , in v o lv in g $5 7 3 ,0 8 5 .2 2 . There were 3,589 fo rged bonds
aw a itin g in v e s t ig a t io n as o f December 31, 19^9«
In D a lla s , T exas, one bond fo r g e r v i r t u a l l y shot h is way in to
p r is o n . W illiam A . S u k c v itze n , a l i a s D erk ik , bought a re v o lv e r
which he decided to t e s t by f i r i n g a shot in to a p illo w in h is
h o te l room. The e x p lo sio n was reported to p o l i c e , who questioned
Su k ovitZ en . Exam ination o f h is p erson al b elo n g in g s turned up
a $1,000 sa vin g s bond issued to Ralph A . Blankenbaker o f Los A n g e le s,
C a l i f o r n i a . The S e c r e t S e rv ic e was n o t i f i e d and obtained adm issions
from Su k o v itzen th a t he had forged and cashed s e v e r a l oth er bonds.
He pleaded g u i l t y and was sent to p r iso n fo r three y e a r s .
A r r e s ts fo r bond fo rg e ry to ta le d 164 and there were 1*932
persons a rre ste d fo r check fo r g e r y in 1949* There were l 6 l
c o n v ic tio n s o f bond fo r g e r s and 1,754 c o n v ic tio n s o f check fo r g e r s ,
in c lu d in g c o n v ic tio n s in cases pending from p r io r y e a r s .
F in e s in crim in a l cases to ta le d $ 2 8 , 1 9 6 . 2 8 and j a i l sentences
aggregated about 2,515 y e a r s . The S e c r e t S e r v ic e completed
4 l,2 4 4 c rim in a l and 1,727 n o n -crim in a l in v e s t ig a tio n s fo r a y e a r ly
t o t a l o f 42,973 cases c lo s e d .

oOo

Mr. ^Banning (Disb.)
Mr. it, D. Barker
Mr. Barnes (5 HH1 )
Mr. Bartelt
Mr. Batchelder
Mr. Beall
Bookkpg & Warrants (H3 O 8 )
Mr. Brogan (600 Sloane)
Mr. Burdette (IH5 3 )
Miss Burke (Hi25)
Mr. Cake
Mr. Carlock (2000)
Mr. Church
Miss Cullen
M r . Cunningham

Mr. Doolan
Mr. Eddy
Mrs. Farrell (3 H0 5 )
Mr. Foley
Mr. Goarhart (H33 O)
Mr. Gorardi (H32 H)
Mr. Graham
Mr. Haas
Mr. Handy
Mr. Hard
Mr. Hcarst
Mr. Hcffolfinger
Miss Hodel
Mrs. Hodges
Mr. Howard
Mr. Hyland
Mr. Kilhy
Mr. Kious
Mrs. Lcgg
Mr. Lynch (3 OOO)
Mrs. Biddle (3 OI3 )

Mr. Martin (3 H3 H)'
•
Mr. Maxwell
Mr. McDonald
Mrs. McGuire (3128)
Mrs. McKenna
Mr. Merritt
Mr. Moore
Mr. Mulvihill (Tempo.V)
Miss Newcomer (1021)
Mr. Hussear (H33 O)
Mr. Parsons
Mr. Perry
Mr. Peterson (3128 )
Mr. Babon
Mrs. Half (I32 H)
Mr. Beeves
Mrs. Boot
Miss Bou sseaux (H3 2l)
Mrs. Schoeneman
Mr. Schwalm (Walker)
Mr. Slindee
Mr* Smith (3 I 2 S)
Mr. Smith (5l25)
Mr. Snyder tHl25)
Mr. Sticknoy
Mfs. Sweitzer
Mr. îickton
Mr. Tietjens
Mr* Tomkinson (2202)
Mr* Traver (Hl25)
Miss Vassar
Mrs. Walkor
Mr* Warfield
Mrs. Warnoson
Mr* Wober
Mr. Wisocarver (5 HH5 )
Mr. Woodson
Mr. Ziegonfus

S t e t Wo « 30
Trotowy

Dlvieion of Investments

JW
Jenkins 2/6/50

*1

Fofcru&ry 0« im®

t

end i m

M

l

mà M r

1
> « 2,S18,000«Q0

j *i«,6n*800*00
d* 8 * 0» Barnes

diiofi of Inverteionte

I

U

February 6* i9 6 0

m m. mmmt
fb*

fo U « ^ a g

HæmmœUm*

w ® re

m*Am in M m m

m m m iU m o f th« a « w » « « t fo r t r m $ w ?
$mim t * » m $ m o f tommy, imot
• » * • * ♦ * * • *

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1»% Soloo * • * • * * • • • • * * • «

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* g*8lS«0öQ*Q0

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Ï» 0* Barnes
Chief Ä B lylotoö o f Esreetaigtiio

gt«t«na*ifc Ho« 36
Îr«&iw7 Ooportaseat
D ivision o f Investments

JVVJenkins 2/ô/SO

TREA SU RY DEPARTM ENT
WASHINGTON, D .C .

Information Service

RELEASE

MORNING HEWSPAPEES

During the month of 4 t e w « w r ,
/f~ro
•*9 * 9 >

market transactions in direct

and guaranteed securities of the
Government for Treasury investment
and oth

‘

purehas

Ited in net
Secretary

Snyder announced today.

0 O0

TREA SU RY DEPARTM ENT
Information Service

Wa

s h in g t o n

REXjEASE m o r n i n g n e w s p a p e r s ,
Wednesday, February 1 5 . 1 9 5 0 .

market transactions in direct

and guaranteed securities of the
Government for Treasury investment
and other accounts resulted in net
sales of $6,577,800, Secretary
announced today.

0O0

d

.c .

S-2250

During the month of January,
1950,

,

Snyder

-

2

-

Still another provision makes- it possible for brokers repre­
senting importers to obtain prompt release of all merchandise
which has been submitted to customs appraisers for examination.
the past

In

such goods sometimes have had to be retained in customs

custody for long periods pending the completion of entry formalities.
Commissioner of Customs Frank Dow expects the new regulations to
eliminate much paper and accounting work for both the public and
the Government, as well as serve the convenience of importers.

In

preliminary discussions and in representations to Customs since
publication of the proposed,changes under the Administrative Procedures
Act, many importers have #expressed strong approval of them.

The Treasury Department announced today that the Bureau of
Customs is instituting a new type of bond for import transactions
and a new bonding procedure which are expected to facilitate greatly
the clearance of imported merchandise through customs#
The new system, adopted after extensive discussion with repre­
sentatives of the importing public, is a step in the program of
simplification of customs procedures upon which the Treasury and
the Bureau have been engaged.

The new procedure is authorized In

/

Treasury Decision

52403,

and becomes effective as soon as new bond

forms can be; printed#
The text of Treasury Decision
Register (February

52403 appears

in today's Federal

14, 1950«)

The new bond announced today covers the payment of any duties
that may be found owing the Government after the merchandise has
been entered and has left customs custody.

The new bond will replace

a cumbersome arrangement of long standing under which, when duties
were to be collected after the goods had been released, the
Government has made a formal demand for return of the merchandise
or, as an alternative, payment of "liquidated damages".
Another improvement is that in the future, when sufficient
duties have not been paid on a shipment, the importer will be billed
for them on a single final statement.

In the past, the importer

sometime,?has received several supplemental billings.

TREASU RY DEPARTM ENT
Information Service

WASHINGTON, D .C .

IMMEDIATE RELEASE',
Tuesday, February 14, 1950.

S-2251

The Treasury Department announced today th a t the Bureau o f
Customs i s i n s t i t u t i n g a new type o f bond fo r import tr a n s a c tio n s
and a new bonding procedure which are expected to f a c i l i t a t e
g r e a tly the cle aran ce o f imported, merchandise through custom s.
The new system , adopted a f t e r e x te n siv e d is c u s s io n w ith
r e p re se n ta tiv e s o f the im porting p u b lic , i s a step in the program
of s i m p lifi c a t i o n o f customs procedures upon which the Treasury
and the Bureau have been engaged. The new procedure i s au th o rized
in Treasury D e c is io n 52408* and becomes e f f e c t i v e as soon as new
bond forms can be p r in te d .
The t e x t o f Treasury D e c is io n 52^03 appears in to d a y 's Fed era l
R e g is te r (February 14, 1 9 5 0 .)
The new bond announced today covers the payment o f any d u tie s
that may be found owing the Government a f t e r the merchandise has
been entered and has l e f t customs cu sto d y . The new bond w i l l
rep lace a cumbersome arrangement o f long stan d in g under w hich, when
d u tie s were to be c o lle c t e d a f t e r the goods had been r e le a s e d , the
Government has made a form al demand fo r retu rn o f the merchandise
or, as an a lt e r n a t i v e , payment o f " liq u id a te d dam ages."
Another improvement i s th a t in the fu tu r e , when s u f f i c i e n t
d u tie s have not been paid on a shipm ent, the im porter w i l l be
b il l e d fo r them on a s in g le f i n a l statem en t. In the p a s t , the
im porter sometimes has receiv ed se v e ra l supplem ental b i l l i n g s .
S t i l l another p r o v isio n makes i t p o s s ib le fo r brokers
rep re sen tin g im porters to o b ta in prompt r e le a se o f a l l merchandise
which has been subm itted to customs a p p ra ise rs fo r exam in ation .
In the p a s t , such goods sometimes have had to be re ta in e d in
customs custody fo r long periods pending the com pletion o f en try
fo r m a l i t i e s .
Commissioner o f Customs Frank Dow exp ects the new r e g u la tio n s
to e lim in a te much paper and acco u n tin g work fo r both the p u b lic
and the Government, as w e ll as serve the convenience o f im p o rte rs.
In p relim in ary d is c u s s io n s and in re p re se n ta tio n s to Customs
sin ce p u b lic a tio n o f the proposed changes under the A d m in istra tiv e
Procedures A c t , many im porters have expressed stro n g approval o f
them.
0O0

w # ( 9ffiirpeesss
Wednesday, February 15, 19ffi*

\hiii»1*4\,
I «

An oil portrait of the late Judge J.F. T. 0 «Connor, who
served as Comptroller of the Currency from 1933 to 1938, was
unveiled this morning at ll^o «clock in Bocrn 3101*, Main Treasury
Building*
The portrait, which is the work of David Cleeland, jras presented
to the Treasury fey Representative Harry R. Sheppard of California,
on behalf of a group of friends of the late jurist*
Comptroller of the Currency Preston Delano accepted the portrait
for the Treasury, and Secretary Snyder paid tribute to Judge 0 «Connor«s
distinguished public career*
Invited to attend the unveiling ceremonies were Chairman
Thomas B* McCabe and other members of the Board of Governors of the
Federal Reserve System; Iyle L* Robertson, Albert G* Towers and
Norris C* Bakke of the Federal Deposit Insurance Corporation;
Herbert E. Gaston, Chairman of the Export-Import Bank and former
Assistant Secretary of the Treasury; Chief Justice of the United
States Fred M* Vinson and Associate Justice of the Supreme Court
Tcm Clark; Judges Brice Clagett and George Barse, of the Municipal
Court for the District of Columbia; Judge T* Alan Goldsborough, of
the United States District Court for the District of Columbia;
Honorable Burnet R. Maybank and Honorable Brent Spence, chairmen of
Senate and House Banking and Currency Committees, respectively; and
F. G. Await of Washington, D* C., who served for several months as
acting Comptroller of the Currency in 1933*

TREASU RY DEPARTM ENT
Information Service

WASHINGTON, D .C .

IMMEDIATE REIEASE,
Wednesday, February 15, 1950»

S-2252

An o i l p o r t r a it o f the la t e Judge J . F . T , O'Connor, who
served as Com ptroller o f the Currency from 1933 to 1938, was
u n veiled t h is morning a t 11:30 o 'c lo c k in Room 3104, Main
Treasury B u ild in g .
The p o r t r a i t , which i s the work o f David C le e la n d , was
presented to the Treasury by R ep re se n ta tiv e Harry R . Sheppard
o f C a l i f o r n i a , on b e h a lf o f a group o f fr ie n d s o f the la t e
ju r is t.
Com ptroller o f the Currency P reston Delano accepted
the p o r t r a it fo r the T reasury, and S e cr e ta r y Snyder paid
tr ib u te to Judge O 'Connor's d is tin g u is h e d p u b lic c a r e e r .
In v ite d to a tten d the u n v e ilin g ceremonies were
Chairman Thomas B . McCabe and other members o f the Board
o f Governors o f the Fed era l Reserve System; L y le L .
R obertson, A lb e r t G . Towers and N o rr is C . Bakke o f the
F e d era l D ep o sit Insurance C o rp o ratio n ; H erbert E . G asto n ,
Chairman o f the E xport-Im port Bank and former A s s is t a n t
S e cr e ta r y o f the Treasury; C h ie f J u s t i c e o f the U n ited
S t a t e s Fred M. Vinson and A s s o c ia te J u s t i c e o f the
Supreme Court Tom C la r k ; Judges B r ic e C la g e t t and
George B a r se , o f the M un icipal Court fo r the D i s t r i c t o f
Colum bia; Judge T . A lan Goldsborough, o f the U nited S ta te s
D i s t r i c t Court fo r the D i s t r i c t o f Colum bia; Honorable Burnet
R . Maybank and Honorable Brent Spence, chairmen o f Senate
and House Banking and Currency Com m ittees, r e s p e c t iv e ly ;
and F . G . Await o f W ashington, D . C . , who served fo r se v e r a l
months as a c t in g Com ptroller o f the Currency in 1933.

oOo

Treasury Department
Washington
For Release
Thursday, February 16, 1950

Press Service
No. S-2253

Secretary of the Treasury Snyder today made public p series of
tabulations which will appear in the report "Supplement to Statistics
of Income for 1945, Part 1," compiled from partnership returns of in­
come* These data are prepared under the direction of Commissioner of
Internal Revenue George J0 Sehoeneman.
Summary data
The total number of partnership returns for 1945 was 628,570,
filed by 627,049 active partnerships and 1,521 inactive ones. Of the
active partnerships 573,880 reported ordinary net income aggregating
$6,935,211,000 while 53,169 reported ordinary net deficit aggregating
$167,496,000. The returns with ordinary net income show total re­
ceipts of $47,063,946,000 while those with ordinary net deficit show
total receipts of $1,369,153,000, making a grand total of
$48,433,099,000. (Table 1.)
About 90 percent of the partnership returns filed for 1945 fall
in the following seven industries: Retail trade 201,854; agriculture
98,471; service 90,466; manufacturing 61,196; real estate 49,055;
wholesale trade 37,037; and construction 24,825. (Table 1.)
Returns with ordinary net income show total deductions of
$40,128,727,000. When ordinary net income is adjusted for additional
income such as capital gains and additional deductions such as capital
losses and charitable contributions, the compiled net profit becomes
$7,010,185,000. For those returns with no ordinary net income, total
deductions amount to $1,536,640,000 while the compiled net deficit i's
$131,913,000. (Table 1.)
The distribution of the returns according to size of gross re­
ceipts from business shows that 405,412, or nearly two-thirds of all
partnerships had gross receipts of less than $50,000; only about
2 l/2 percent had gross receipts of $500,000 or more.
(Table 2.)
Of the 49,918 returns not reporting gross receipts from business,
38,911 were in real estate, 3,876 were in finance, and 1,186 were in
agriculture. The receipts of these partnerships are reported under
rents, interest, dividends, etc. (Table 2.)

Examination of the distributions by size of ordinary net in­
come and by size of ordinary net deficit shows that 303,346 out of
573,880, or 52®9 percent* had net incomes under $5,000, while 46,719
out of 53,16% or 87,9 percent had net deficits of less than $5,000,
Of those wit h ordinary net income 24,472 had ordinary net income
of $50,000 and over, while 439 had ordinary net deficits of $50,000
and over, A more detailed distribution is shown below.
Distribution of partnership returns of income 1945,
by size of ordinary net income or deficit
_
Size of ordinary net income or ordinary net deficit
(thousands of dollars)

%

Number of returns
"* With
1 ordinary
s ordinary
j net income j net deficit

»"with

Under 1
1 under 2
2 under 5
3 under 4
4 under 5
5 under 10
10 under 25
25 under 50
50 under 100
100 under 500
500 under 1,000
1,000 and over

78,474
74,424
59,665
50,329
40,454
116,274
94,727
35,061
16,152
8,013
226
81

30,326
8,406
4,164
2,479
1,344
5,372
2,070
569
288
148

Total

573,880

53,169

3
—

Partnership returns of income are summarized in Table 3 by States
and Territories, classified by ordinary net income and no ordinary net
income, showing number of returns, total receipts, and ordinary net
income or deficit.
Of the
2 partners^
5.6 percent,
sisted of 5

627,049 partnerships 447,683, or 71.4 percent consisted of
96,119, or 15.3 percent* consisted of 3 partners; 35,26% or
consisted of 4 partners, while 47,984, or 7.7 percent, con­
or more partners.

Certain provisions of the Internal Revenue Code
regarding partnerships
The partnership return, Form 1065, is an informational return,
not a tax return; the share of each partner in the net income of the
partnership is carried over as income to his individual income tax
return, and taxed there according to individual income tax provisions.

- 3 The basic data required on Form 1065 for 1945 are detailed sources
of income, various deduction items, capital gains and losses, and the
partners1 shares of income and credits.
A partnership is defined in the Internal Revenue Code as a syndidate, group, pool, joint venture, or other unincorporated organization,
through or by means of which any business, financial operation, or
venture is carried on, and which is not, within the meaning of the
Code, a trust, an estate or a corporation. A partner is a member in
such a syndicate, group, pool, joint venture, or organization — ■ and
may be an individual, a partnership, or a corporation.
Every domestic partnership and every foreign partnership doing
business within the United States, or having an office or place of
business therein, must make an annual report of income on Form 1065.
After excluding gains and losses from sales and exchanges of
capital assets, there is computed an ordinary net income which is the
excess of gross income over deductions, or an ordinary net deficit
which is the excess of deductions over gross income.
In computing the net income of the partnership no deduction is
allowed for charitable contributions, but each partner is allotted
his share of the charitable contributions made by the partnership.
Similarly partially exempt interest, net short-term gains and losses,
and net long-term gains and losses, are distributed to the several
partners the same as ordinary net income or deficit and charitable
contributions.
Wages and salaries, and other payments to partners are not de­
ductible, but must be considered part of the final sharing in the
ordinary net income or deficit of the partnership. In addition net
operating losses are not deductible.
Returns included
The returns tabulated are in general those for calendar year
1945. There are included, however, returns for a fiscal year ending
within the period July 1945 through Jure 1946, as well as part year
returns with a greater number of months in 1945.
The data are derived from all returns with $100,000 or more of
gross receipts from business or profession, or $100,000 or more of
total income; and from a 10 percent bundle sample of all other re­
turns, the sample data being expanded to give estimates of popula­
tion values.

A

Table 1« - Partner«hip return« of income for 1946« by industrial group«« for all return«, and return« with ordinary net incomet
of return«, receipt«, deduotiona, ordinary net income, and oompiled net profit

Number

PART I. - ALL RETURNS

Reoeipts and deduotiona

1 Number of returns
Reoeipts:
Gross reoeipts from business or profession
Net profit from other partnerships« syndicates,
pools« etc#
4
Interest, other than on Government obligations
Interest on Government obligations
(less amortizable bond premium):
Partially tax-exempt
6
Wholly taxable
7
Rents 2/
8
Royalties 2/
9
Net gain tram sales of property other than
capital assets
10
Dividends
11
Other inoome 3/

(Money figure« in thoueand» of dollare)
Industrial groups 1/
in
Mining and quarrying
industrial Total
Other
Crude
Textilegroups
mining
petroleum mining
Tobacco mill
Food and
Total
and
and natu­ and
kindred Beverages manufac­ product«,
manufac­
quarrying ral gas
including
products
tures
quarrying turing
production
ootton
627,049

11,147

7,495

47,465,345
50,409

563.872
1,142

811,338
1,086

64,802

364

810

54

2,045

268

2,801
19,641
418,872
28,039
53,078

7
38
1,100
10,225
1,103

3
18
687
9,365
993

4
20
613
860
lib

161
1,689
10,321
1,139
1,373

27,548
302,563

446
6,427

335
3,449

111
1,978

1,181
54,963

48,433,099

583,727

33,448,872
3,016,005
27,272,948
6,484,458
3,326,539
2,868,131
599,823
320,775
131,755
534,392
12,421
49,352
483,557
13,973
34,912
4,153

Manufacturing
Apparel
and
Leather Rubber
products
product« and
made from produots
fabrics

Lumber
and tim­
ber basic
produots

Furniture
and
finished
lnmber
products

Paper
and
allied
produots

Printing
and pub­
lishing
industries

366

2,101

10,387

1,297

399

5,859

3,021

469

5,679

1

48,179
2

612,131
191

2,593,494
238

307,524
27

49,994
3

511,662
636

401,606
43

118,319
1

297,168
43

2

64

21

82

299

25

3

286

127

46

42

+

36
128
2,236
68
263

5
77
381
7
85

1
2
97

23
469
1,040
90
140

2
71
157
1
18

•
6
44

11
86
1,274
118
240

8
50
492
16
18

3
36
204

“

13
153
478
16
93

8

11
S3
668
134
36

6
6
7
8
9

122
18,132

56
1,675

1
129

85
2,422

83
5,144

44
1,064

•

237

29
3,728

52
2,027

2
476

183
1,338

10
11

327,486

256,241 10,608,660 1,910,447

273,456

48,433

615,661

2,601,021

308,914

50,290

617,970

404,437

119,096

299,537

12

303,856
3,181
24,376
278,628
2,329
39,037
6,901
12,130
2,864
9,073
813
448
32,456
364
25,478
493

159,456
789
6,527
153,013
873
15,600
1,909
4,334
2,349
5,475
444
288
23,257
108
20,306
440

144,400
2,392
17,849
125,615
1,456
23,437
4,992
7,796
506
3.598
369
160
9,199
256
5,172
53

7,593,200 1,528,681
89,605
682,016
4,732,209 1,217,832
324,806
2,984,601
756,625
103,562
389,267
69,748
84,343
9,522
60,001
13,545
3,240
16,783
127,234
10,834
1,910
376
8,480
1,205
94,899
16,930
10,189
664
17
3,935
454
42

166,366
28,409
116,446
50,168
28,657
14,893
1,638
2,106
680
26,590
88
112
4,085
24

36,093
9,258
20,744
15,903
9,812
1,324
256
242
195
2,194
69
8
150

455,171
43,129
302,959
162,654
53,571
14,309
5,221
3,298
812
6,462
23
109
3,902
13

1,937,790
176,997
1,131,937
831,180
202,324
80,996
23,533
5,048
2,550
25,848
124
817
7,336
109
2
97

232,706
23,143
164,801
72,016
27,255
7,301
2,226
791
293
2,739
43
103
1,098
S3
46
4

35,405
2,980
20,403
13,276
3,254
2,497
724
439
61
464
2
77
661
94

358,016
39,533
171,246
186^634
39,397
27,259
2,728
7,220
1,673
6,665
249
735
11,554
105
3,518
29

291,802
29,047
189,480
103,446
30,171
14,972
3,354
2,217
650
3,901
106
284
2,977
262
118
13

80,654
6,654
56,339
24,801
7,140
4,411
1,435
788
217
1,067
4
161
1,035
1
2
2

156,041
12,768
71,021
87,019
14,767
24,664
5,208
1,954
630
3,240
26
768
4,646
37
38
14

13
14
16
16
17
18
19
20
21
22
23
24
25
26
27
28

16,880

518

359

169

4,530

478

114

3

123

474

37

20

202

148

110

13

29

3,146,371

83,816

54,336

29,480

707,820

92,289

22,232

2,786

33,485

158,759

18,541

3,920

39,383

26,356

9,263

33,211

30

41,665,367

518,234

288,661

229,573

9,103,042 1,737,670

238,929

43,323

522,933

2,241,484

265,959

42,356

459,136

347,159

99,149

230,390

31

6,767,715

65,493

38,826

26,667

1,505,610

172,876

34,527

5,109

92,729

359,537

42,954

7,934

58,834

57,276

19,946

69,146

32

26,078
137,103

435
6,380

365
4,804

70
1,576

1,122
13,314

184
1,461

155
493

1
266

43
670

73
996

7
49

2
38

100
5,033

45
407

9
143

31
408

33
34

35
36
37

Ordinary net income less deficit 6/
Income not included above:
Net short-term capital gain
Net long-term capital gain
Deductions not included above:
Net short-term capital loss
Net long-term capital loss
Contributions

7,770
5,876
38,978

45
43
186

38
34
130

7
9
56

232
1,244
13,466

16
65
1,267

24
2
298

.
-

40

8
808
968

17
21
5,607

7
530

1
84

27
108
274

9
7
354

1
154

4
381

36
36
37

38

Compiled net profit less net deficit 7/

6,878,272

72,034

43,793

28,241

1,505,104

173,173

34,851

5,336

91,658

354,961

42,473

7,889

63,558

57,358

19,943

69,200

38

2
S

e

12

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34

Total reoeipts
Deduotiona:
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor« supplies« etc.
Inventory at end of year
Salaries and wages
Rent paid on business property
Repairs
Interest on indebtedness
Taxes paid
Losses by fire, storm, eto«
Bad debts
Depreciation
Amortization
Depletion 4/
Net loss from other partnerships« syndicates«
pools« etc*
Net loss from sales of property other than
capital assets
Other deductions 5/
Total deductions

For footnotes, see p. 23.

3,652

61,196

7,662

252,534 10,533,236 1,888,518
56
684
2,554

1,466
271,092
14'

_

•

.
•

3

1

•

5

•

2

_

1

.

3

Table 1. - Partnership return* of income for 1945, by indu*trial group*, for all return*, and return* with ordinary net income:
of return*, receipts, deduotiona, ordinary net inoome, and oompiled net profit - Continued

Number

PART I. - ALL RETURNS - Continued

Receipts and deductions

Number of return*
Receipts:
Gross receipt* from business or profession
Net profit from other partnerships,
syndicates, pools, eto.
Interest, other than on Government
obligations
Interest on Government obligations
(less amortizable bond premium)t
Partially tax-exempt
Wholly taxable
Rents if
Royalties 2/
Net gain from sales of property other than
oapital asset«
Dividends
Other inoome 3/
Total reoeipts
Deductions t
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor, supplies, etc«
Inventory at end of year
Salaries and iiages
Rent paid on business property
Repairs
Interest on Indebtedness
Taxes paid
Losses by fire, storm, etc•
Bad debts
Depre ciation
Amortisation
Depletion 4/
Net loss from other partnerships,
syndicates, pools, eto.
Net loss from sales of property other than
oapital assets
Other deductions 5/
Total deductions

38

Chemicals Petroleum Stone,
and allied and coal clay,
products and glass
produots
produots

1,702

1,912

2,669

""ìfiTnufaoturing - Continued
Nonferrous Eie otri cal Machinery,
metals and machinery except
and equip- transportstheir
tlon equip­
produots
ment
ment and
electrioal

Automobiles
and equip»
ment, except
electrical

Manufac­
Transporta­ Other
oation
Total '''' Trucking, Other
tion equip- menufao- turing not publie
transpor- and other
alleoable utilities transpor- locali
ment, except turing
publie
tation
and ware­ tation
automobiles
utilities
housing

2,645

666

5,112

270

617

8,892

3,107

12,300

11,488

7,995

3,495

812

697,860
129

65,915
46

256,236
191

483,820
82

463,670
15

600,610
515

577,809
5X5

325,928
50

261,881
266

22,701
1

279,429
147

55,771
12

118,175
27

465,141
43

325,944
81

221,408
*

122

22

45

91

41

28

180

26

36

79

124

198

135

71

64

68

•

1
109
349
107
47

11
65
339
22
14

1
31
773
116
26

6
70
634
179
89

•
S3
32
7
1

*
23
210
2
53

8
90
436
86
48

7
124
351
51
102

77
1,952
54
801

70
1,866
39
647

50
992
22
817

40
874
17
330

**
7
86
15
154

2
30
119
88
27

65
22
63

3
15
172
9
12

102
3,767

12
388

25
590

72
2,592

25
921

36
1,032

34
2,770

46
268

36
1,712

105
1,792

31
2,760

167
3,232

160
3,161

41
1,460

109
1,701

17
71

283,834

56,347

119,071

468,558

327,461

223,449

701,840

66,373

266,497

486,546

467,436

607,313

584,198

328,915

255,283

23,115

182,058
19,176
142,913
42,477
22,515
11,922
2,298
1,936
457
2,116
96
618
2,601
67
1
1

42,486
1,779
31,663
10,838
1,795
1,156
328
806
134
1,775
9
17
1,141
288
114

72,763
7,433
51,972
41,377
8,029
7,098
1,244
2,160
318
1,663
28
141
2,661
14
37
3

313,732
28,685
161,087
156,867
32,797
17,078
3,736
3,561
760
6,086
157
598
6,605
1,691
8
2

224,030
21,760
141,220
88,831
27,781
11,530
2,614
1,680
371
3,440
68
378
2,578
439

159,796
21,393
96,227
59,694
17,518
7,632
1,491
1,003
382
2,560
14
133
1,847
303

434,202
41,968
182,861
252,112
42,739
36,457
5,940
4,706
1,366
8,969
128
1,116
12,265
4,187
31
160

48,603
6,588
33,742
14,630
6,357
2,262
368
252
169
916
1
59
426
95

202,922
9,859
64,773
134,509
6,219
6,469
1,450
1,238
378
2,569
24
191
2,334
977

248,212
3,134
46,250
202,217
8,389
77,261
11,032
18,747
2,069
18,332
420
761
26,298
446
S3
98

241,054
2,902
43,673
197,713
3,234
74,734
10,641
18,285
1,939
17,577
411
693
25,404
446
16
98

120,875
1,599
19,682
101,347
1,763
46,469
7,116
12,092
1,486
11,666
196
465
14,796
156
16
70

7,168
232
2,677
4,504
155
2,627
391
462
130
766
9
58
894
“
17

31

319,086
30,884
181,631
137,885
31,314
18,429
3,951
2,901
911
4,678
222
475
4,763
683
2
24

120,179
1,303
23,991
96,366
1,481
28,265
3,526
6,193
454
5,911
216
228
10,608
291

.

316,814
81,077
200,912
123,488
38,663
18,061
5,178
2,122
661
5,678
63
476
3,405
105
1
8

114

27

82

323

162

167

1,352

21

95

111

364

624

623

325

298

i

33,682

3,401

11,472

33,435

21,666

16,441

55,756

3,697

13,133

41,177

33,836

101,017

97,480

60,414

87,066

3,637

237,863

61,674

99,476

386,764

268,769

191,648

566,632

66,867

281,795

393,838

390,326

505,345

489,406

276,146

213,261

15,939

26,702

92,707

77,109

101,972

94,797

62,774

42,028

7,176

38
1,676

*
46

Ordinary net inoome less deficit €/
Inoome not included aboves
Net short-term oapital gain
Net long-term capital gain
Deductions not included above:
Net short-term capital loss
Net long-term oapital loss
Contributions

46,970

Compiled net profit less net defieit 7/

For footnotes, see p. 23,

119

Iron,
steel.
and
produots

•

4,675

9
176

•
112

13
9
202

2
1
14

45,930

4,768

19,596

81,789

14

58,682

31,800

136,208

9,607

28

62
468

6
202

7
134

60
846

7
23

8
241

303
627

10
353

119
3,288

119
3,243

81
1,667

2
60

14
36
373

12
7
SIS

1
1
427

39
57
710

2
68

24
180

2
9
744

48
70
418

107
118
258

107
118
245

51
22
107

56
96
138

IS

19,703

81,894

58,567

31,512

136,308

9,467

26,747

92,882

76,936

104,896

97,689

54,342

43,347

7,207

1
169

-

•

Table 1. - Partnership return» of incom for 1945, by industrial groups, for all returns, and returns with ordinary net income:
of returns, reoeipts, deductions, ordinary net income, and oompiled net profit - Continued

Total
trade

Keoeipts and deductions

Number of returns
Reoeipts:
Gross receipts from business or profession
Net profit from other partnerships,
syndicates, pools, eto«
Interest, other than on Government
obligations
Interest on Government obligations
(less amortizable bond premium):
Partially tax-exempt
Wholly taxable
Rents R/
Royalties 2/
Net gain from sales of property other than
eapitsl assets
Dividends
Other income 3/
Total receipts
Deductions:
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor, supplies, eto.
Inventory at end of year
Salaries and wages
Rent paid on bueiness property
Repairs
Interest on indebtedness
Taxes paid
Losses by fire, storm, eto.
Bad debts
Depredation
Amortization
Depletion 4/
Net loss from other partnerships,
syndicates, pools, eto.
Net loss from sales of property other than
capital assets
Other deductions 5/
Total deductions
Ordinary net income less defioit 6/
Income not inoluded above:
Net short-term oapital gain
Net long-term oapital gain
Deductions not inoluded above:
Net short-term capital loss
Net long-term oapital loss
Contributions
Compiled net profit less net defioit

7/

248,860

Total
retail

87,037

Department,
general
merchandise,
dry goods

201,854

12,586

26,678,408 11,667,486 12,868,831
6)l09
8,923
16,552

1,195,833
1,463

Food
Package
stores,
including liquor
stores
market
milk
dealers

Furniture
and house
Apparel
Drug
furnish­
stores and
accessories ings

Humber

feuiïdïSgEating
materials,
Automotive Filling
and
stations' hardware fuel, and
drinking dealers
ice
plaoes

Second-hand
Book and
stores,
stationery
exoept
dealers in atores
second-hand
automobilee

7,710

15,745

8,776

44,167

12,303

14,698

8,183

7,106

1,774

995

2,854,865 274,860 665,264
81
96
1,064

1,300,123
167

503,161
295

1,799,929
671

1,192,962
776

441,621
79

484,450
151

512,648
387

75,216
229

62,186

14

40,871

3,338

"

12,735

3,743

8,079

688

373

24

71

623

492

170

1,116

91

423

505

1,898

661
3,469
44,434
2,234
4,457

253
1,493
7,187
458
924

259
1#664
33«424

110
238
4,678
334
156

9
88
6,690
344
592

8
531
14
138

1
11
1,631
107
64

18
196
3,632
95
182

17
137
1,511
58
82

24
28
3,204
71
657

26
162
2,417
60
138

2
4
1,529
47
92

10
80
1,408
45
106

16
60
1,715
59
666

10
242
19
1

3,961
179,925

1,824
72,418

91)455

1,800

292
11,366

203
5,677

8
904

273
2,978

194
17,396

116
7,833

63
8,870

140
10,841

18
1,568

129
6,893

85
3,504

6
665

509

26,946,733 11,764,709 13,016,094

1,215,146

2,869,904 276,581 570,381

1,322,615

513,701

1,813,583

1,208,630

446,049

493,696

519,625

78,186

62,594

872,331 2,295,832 214,613
133,657 29,329
168,749
852)906 2,220,249 218,338
3,622
16,557
81,369
139,443 36,676
164)881
147,681
9,763
84,152
3,395
16,163
80,708
767
3,317
11,292
2,118
244
1,243
16,975
3,686
9) 165
53
792
269
55
1,949
1,694
1,067
16,816
4,942
IS
56
114
.
85
52
31
86
143

397,362
72,353
896,948
7,325
79,264
45,472
11,441
1,995
521
6.59C
104
356
3,004
1^
29
4

841,064
177,966
794,605
24,125
165,632
105,289
43,294
3,569
1,291
9,644
864
2,260
5,483
30
42
329

304,047
65,828
301,107
15,694
78,582
46,677
11,930
2,434
862
4,719
59
2,178
2,802
34
8
16

998.830
70,464
918,902
79,250
69,786
277,167
48,247
18,812
2,006
36,331
1,061
691
19,761
281
61
21

855,678 329,796 368,711
81,847
20,038
103,261
755,269 316,604 359,769
14,765
15,387
108,687
97,670
22,233
111,539
26,124
24,476
86,968
4,883
14,540
7,433
1,526
1,868
6,733
658
488
2,182
3,976
3,845
8,61(^
96
102
244
753
677
2,513
2,536
7,922
3,132
43
76
59
29
4
34
14
62
*

369,789
55,914
334,810
28,986
49,921
36,029
2,995
3,269
799
4,509
116
1,482
3,926
29
56

47,574
10,166
45,027
5,768
11,376
6,516
1,666

34,278
7,686
54,465

10

34

99

341

674

86

46

26

136

2

-

77,742

17,109

20,903

31,093

6,403

3,207

1,063,381

388,965

420,262

454,193

63,997

44,667
7,934
1
10

20,575,700 9,829,825
625,042
1,961,786
20,022,843
283,489
781,751
768,169
2,190,679
1,507,054
287,286
89,208
30,836
210,702
5,621
27,928
115,493
1,311
837
1,132

1)355
3)124

9,063,167
l)l90)î87
8,675)814
446)125
1,249)569
l)004)625
227)630
62)904
14)616
126)403
4)l49
18)012
80)535
89^
469
770
1,837

2,648

55

1,322,433

679,470

51,401

24,178,191

11,285,490

1,045,182

308

21,385

81,191

48,501

129,517

2,621,331 241,388 488,816

1,094,446

418,609

1,532,848

97,779

7,699

•

.

394

207
830
59
160
405
12
1

4
84
7

10

1,443

9 ,515
4,529
1,956
112
74

577

55
86
226
*

"

2,768,531

1,730,595

169,963

248,573

35,193

82,066

228,168

95,092

281,235

145,248

56,084

78,433

65,430

14,189

4,276
23,026

2,141
14)179

82
524

146
2,007

30
881

91
780

101
542

70
888

441
4,142

164
1,029

166
690

60
241

43
685

47
49

1,79C
846
17,066

454
598
7,491

22
68
1,084

226
88
74!

11
8
120

27
241

71
S3
1,774

1
3
587

71
214
640

13
24
565

28
87

7
14
224

4
39
227

5
68

4
29

1,738,372

169,395

249,668

36,965

82,668

226,933

95,469

284,893

145,839

56,822

73,479

65,888

14,213

7,912

2,776,131

842,957

For footnotes, see p. 23.

*• ' “ “

V S ."

üi

Humber

1

Partnership return* of lneome for 1945, by industrial groups, for all returns, and returns *1«» ordinary net income«
of returns, reoeipts, deductions, ordinary net income, and ccsipiled net profit — Continued
PAST I. - ALL RBTORUS - Continued

Retail - Continued
Reoeipts and deduotions

1 Hunter of returns
Reoeipts«
2
Cross reoeipts from business or profession
Het profit from other partnerships,
syndicates, pools, eto.
Interest, other than on Government obligations
4
Interest on Government obligations
(less amortizable bond premium)«
Partially tax-exempt
6
Wholly taxable
6
Rents 2/
7
Royalties 2/
8
9
Net gain from sales of property other than
oapital assets
10
dividends
Other income 5/
11

S

12

15
14
ie
16
17
18
19
20
21
22
25
24
26
26
27
28
29
50

Total reoeipts
Deduotions«
Cost of goods sold
Inventory at beginning of year
Merchandise bought fbr sale
Cost of labor, supplies, eto.
Inventory at end of year
Salaries and mages
Rent paid on business property
Repairs
Interest on indebtedness
Taxes paid
Losses by fire, storm, eto.
Bad debts
Depreciation
Amortization
Depletion 4/
Het loss from other partnerships,
syndicates, pools, eto.
Het loss from sales of property other than
oapital assets
0tiier deduotions 5/

Trade not
Sporting Florists Jewelry Other
alloeable
stores retail
goods
trade 8 /

8,183

2,696

6,006

1,409

11,089

10,702

2,226

951,606 514,926
1,278
1,805

519,816
76

65,163 96,524
90
16

99,692
546

88,796
2

261,772
299

165,025
4

238,840
129

629,804
1,675

176,569
1,542

466

268

72

6

9

99

2

858

6

80

95

44

57
792
36,287
649
1,036

4
570
25,744
167

2
190
1,711
64
64

1
71
8

207
5
61

2
14
441
7
57

1
206
8
16

5
29
6,658
181
86

5
12
86
«

z

see

• "
584
21,109
85
183

2
777
26
22

1
51
8,752
191
440

•
55
2,226
•8
8

888
19,415

169
4,966

60
5,019

27
916

am

122

2
242

90
696

62

166
4,272

24
1,187

8
822

40
6,127

17
2,720

248,675 1,514,501 2,165,950 5,207,785

965,856 341,284

522,946

65,577 95,956 101,221

59,091

272,767

164,246

240,201

641,864

182,015

951,534
54,515
341,506
610,971
65,058
465,788
125,822
34,225
9,096
46,100
1,509
4,101
67,576
685
459
561

542,510 150,954
6,667
21,728
125,882 61,659
215,844 69,466
21,144
6,628
159,082 54,597
49,056 26,116
19,451 10,558
5,776
5,223
9,081
17,924
701
121
1,598
533
24,826 11,600
171
106
294
94
67
85

119,166
2,830
16,050
105,457
2,161
61,687
6,528
6,014
887
6,214
415
554
7,244
26
184
5

24,545 16,156
2,499 1,111
11,088 6,185
15,254 10,960
2,478 1,109
8,850 21,715
5,181 6,604
860
469
109
44
951
789
62
25
28
88
727 1,638
10
1
16
1

86,697
7,542
26,057
10,478
7,260
7,622
2,067
1,559
565
1,621
71
768
5,129
27

16,146
1,589
6,986
8,279
1,608
4,915
2,840
451
46
568
21
47
687
2

151,686
14,524
94,984
86,832
14,464
16,691
8,160
1,615
684
2,760
147
465
5,516
28
8

52,562
864
6,595
48,717
124
16,686
12,246
2*681
672
5,426
62
51
5,156
22

-

101,898
1,975
16,476
82,162
718
11,412
1,776
121
64
629
7
91
420
1
•
5

149,226
4,867
41,060
107,625
4,824
65,958
24,575
7,201
1,496
15,869
470
468
14,628
262

-

156,670
5,167
27,418
108,007
2,012
28,898
4,556
1,866
471
2,230
86
207
4,718
9
47
29

-

-

•65

51

166

7

120

62,207
1

20

4

622

1,046

915

1,487

•

17

6
58
779
6
19

21
681
5,502
119
211

49
512
5,825
421
409

129

1
66

54
2,919

209
9,619

557
16,062

21,088

52,440

15,678
5,222
14,200
490
4,554
1,287
649
61
19
150
2
16
110
«

50,452
1,168
27,525
5,129
1,190
4,255
1,260
459
52
676
IS
64
402

155,694
61,715
140,144
7,122
66,086
21,161
7,514
789
268
6,700
44
1,045
1,121
6
4

•

•

-

"

•

124
-

•

1
*

*
1,158

4,802

244,101 1,296,556 2,142,091 5,159,150
667
7,858
1,620
112

966,568 1,662,710
157,428
147,966
945,148 1,656,678
56,416
52,157
152,654
172,961
78,652
117,455
19,788
16,185
6,647
7,455
1,695
2,569
10,741
16,705
269
541
2,156
2,776
7,882
10,166
126
67
87
129
62
25

4

117

199

1,071

19,858

64,762

116,086

462,762

192,169 1,156,994 1,971,650 2,160,601

16,978

42,274

4,110

10,166

66,406

157,506

um

4

'86

286
187

425
1,454

56
56
57

-

-

1
S

12

1
11
598

25
55
687

58

Compiled net profit less net deficit 7/

4,108

10,240

56,469

158,421

55
54

Total deduotions

For footnotes, see p. 25.

Total Motion
amuse- j picture
theatre»
ment

2,125 10,930

9,969

90,466

20,869
“

-

---- ----Amusenent
Automobile
repair Ser­
vices and
garages

8,699

20,744

1,544

67
a.
4

Business servios
Personal service
career
Hotels
Advertising
Total
Funeral Oilier
Laundries, Photo­ and
Total
and
oleaning, graphie beauty ferviee personal bus ins as
personal other
servios servios
aarviee lodging and dyeing studios ■hopa
plaees
6,916

2,997

618

Ordinary net income less deficit 6 /
Income not included abovet
Het short-term oapital gain
Het long-term capital gain
Deductions not included above«
Het short-term capital loss
Net long-term capital loss
Contributions

51
52

Total
servioe

54,446

96

IS

'

9

1

146

77

SOS

96

151,294

44,480

46,965

8,128 10,995

16,682

4,146

85,678

14,016

18,468

144,098

87,169

732,500 271,665

266,448

46,660 68,970

70,156

28,544

215,245

150,452

186,219

420,197

152,408

16,727 56,966

51,086

10,647

69,610

25,814

55,982

121,166

49,607

194,500 1,046,979

251,565

69,751

66,498

298
1,663

940
12,832

283
4,649

229
3,294

21
957

71

16
178

16
78

2
91

16
845

5
58

42
658

226
4,591

10
1,556

56
46
1,277

158
514
4,018

46
155
1,000

52
56
518

6
40
546

1
44

6
57
54

16
248

2
1
10

4
21
236

1
5
111

11
8
87

25
9
706

1
6
179

194,602 1,066,264

256,288

72,846

67,064

16,755 37,085

30,915

10,627

60,108

25,760

64,556

126,256

50,988

Table 1. - Partnership returns of income for 1945, by industrial groups, for all returns, and returns with ordinary net income!
of returns, receipts, deduotions, ordinary net income, and oompiled net profit — Continued

Humber

PART I. - ALL RETURNS - Continued

Receipts and deductions

(Money figures in thousands of dollars)________
Industrial groups l / - ContinuedService - Continued
'Pro'fe'ssTonal and social services'
Engineer­ Educational Other pro­
Medical and health services
Total pro­ Accountants,
fessional
insti­
ing and
Legal
Total
fessional auditors,
Physicians,
Other
surgeons,
medioal
and social and book­
Dentists medical services architec­ tutions and and social
services
agenoies
tural
and
and
health
services
keeping
servloes
services
oculists
services
service

Other
service
and
repair

finance, insurance, and real estate
Finance
Total fiInvestnance 9 in*
Total
msnt
surance,
and real
finance trusts
and in­
estate
vestment
companle8
7,170

1,887

1,862,929 1,490,386
5,090
11,015

2,074
5S7

21,182

2,646

5,626

2,326

565

2,745

9,342

2,670

638

360

8,092

996,701
3,527

154,412
404

261,305
869

116,002
622

17,662
-

128,641
247

410,699
1,646

141,110
569

20,024
32

9,151
7

180,927
207

479

206

24

9

-

16

230

17

2

-

39

45,907

37,833

4,160

4

26
126
2,178
SIS
41

1
15
56

-

.

99
1
3

23

2

4
24
364
8
7

4

4
24
242
7
-

12
61
917
197
23

9
20
77
95
1

8

1
644
13
-

1
14
198
31
59

1,966
12,813
313,244
12,521
43,091

1,421
8,693
2,913
2,528
31,180

52
227
789
261
132

5
6
7
8
9

493
5,771

62
316

28
508

21
50

2
2

5
466

258
1,156

141
1,433

316

4
42

17
467

19,826
21,447

15,424
10,649

8,688
492

11

1,007,667

155,473

263,140

115,808

17,693

129,639

415,201

143,473

20,610

9,860

181,961

2,344,754 1,606,115

17,415

12

106,394
8,010
15,963
91,474
4,058
197,530
35,662
2,901
1,039
7,460
108
878
7,026
11
97
248

2,412
30
126
2,356
100
68,690
4,524
122
261
1,457
28
96
498

29,906
1,233
7,912
22,593
1,832
84,838
7,806
1,375
270
1,972
34
364
2,883
2
21
149

3,634
201
1,973
2,631
871
14,026
3,772
307
58
578

2,439
48
722
1,706
36
2,308
600
124
23
113
6
12
218

23,633
984
5,217
18,367
925
18,506
5,434
944
189
1,281
28
300
1,624

5,399
10
313
6,087
11
72,533
19,387
634
204
2,135
18
249
2,114
8
76
26

61,689
722
5,762
56,197
992
25,238
2,592
292
156
1,502

1,528
110
426
1,191
199
1,844
563
62
42
69
22
9
107

-

1,163,262 1,107,388
27,361
29,884
1,119,115 1,085,479
45,330
24,016
31,067
29,467
220,127
137,459
10,427
25,280
25,774
1,278
49,070
13,938
10,777
69,055
888
61
4,413
2,631
55,419
1,866
4
255
41
3,285
53
639

IS
14
16
16
17
18
19

54

85,348
7,229
36,999
51,191
9,071
17,649
4,236
1,221
283
1,867
48
477
2,663
107
13
8

895
140
1,028

135
963
1

5,460
905
1,424
4,050
919
4,387
1,000
426
106
825
11
26
460
e>

Humber of returns
Receipts!
Gross receipts from business or profession
Net profit from other partnerships,
S
syndicates, pools, eto.
Interest, other than on Government obligations
4
Interest on Government obligations
(less amortizable bond premium)!
Partially tax-exempt
Wholly taxable
6
7
Rents 2/
Royalties 2/
8
Net gain from sales of property other than
9
capital assets
10
Dividends
Other Income 3/
11

5

12
IS
14
15
16
17
18
19

20
21
22
23
24
25

26
27
28

Total reoeipts
Deductionsi
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor, supplies, eto.
Inventory at end of year
Salaries and wages
Rent paid on business property
Repairs
Interest on indebtedness
Taxes paid
Losses by fire, storm, eto.
Gad debts
Depreciation
Amortization
Depletion 4/
Net loss from other partnerships,
syndicates, pools, eto.
Net loss from sales of property other than
oapital assets
Other deduotions 5/

•

•
•

-

-

52
1,046
2
21
7

•

•
•

'

•

-

142

-

m
5
121
-

-

•

20

64,478

1

1

2

8
276
1,435
128
61
472
460
8
97
182

1

5

1,457,228
4,441

2
S

10

20

21

22

28
24
25
26
27
28

29

108

8

41

41

-

-

6

43

3

12

229

6,696

415

108

114,995

14,899

33,799

11,983

2,477

19,339

42,466

17,890

4,104

1,847

20,239

246,332

110,791

5,359

SO

474,456

82,984

113,460

35,727

8,316

69,417

145,247

110,654

16,309

5,902

134,384

1,870,398 1,397,026

7,199

SI

583,199

80,081

9,376

60,222

269,954

32,919

4,201

3,968

47,677

474,367

209,090

10,216

82

179
472

85
690

1
227

12
131

28
14

6
399

18,659
69,645

14,904
31,581

780
7,042

SS
34

35
S6
37

Ordinary net income less deficit 6/
Income not included above!
Net short-term capital gain
Net long-term capital gain
Deductions not inoluded above!
Net short-term oapital loss
Net long-term capital loss
Contributions

6

4
867

14
15
773

4
41
127

43
19

•
32

65
5
86

5,166
3,040
2,647

4,919
1,419
1,238

625
524
91

85
36
87

88

Compiled net profit less net deficit 7/

9,387

60,512

269,927

32,976

4,282

3,968

47,836

561,808

247,999

16,800

38

29
SO

SI
S2
S3
S4

Total deductions

72,488

149,679

368
1,712

63
121

179
529

40

17

19
118
1,901

1
6
891

13
559

9
196

•

533,241

72,274

149,815

79,916

-

For footnotes, see p. 23.

Table 1. - P a r t n o r a h i p r s t O T M o f
« « ' * ^
trial «roup.. for all return., and return, with ordinary net income,
of returns, reoeipts, deduotions, ordinary net income, and oompiled net profit - Continued

Number

Tabla 1.. - Partnership returns of income for 1945, by industrial groups, for all returns, and returns with ordinary net
of returns, receipts, deductions, ordinary net income, and ooznpiled net profit • Continued
PART I. - A L L RETURNS - Continued

Finanoe , insurance, and
real estate - Continued
Finance,
Insurance
Real
insurance,
agents,
estáte and real
brokers,
estate not
and
servìoes
allooable

Reoeipts and deductions

5,266

Number of returns
Receipts«
Gross receipts from business or profession
Net profit from other partnerships.
syndicates, pools, etc.
Interest, other than on Government obligations
Interest on Government obligations
(less amortisable bond premium)«
Partially tax-exempt
Wholly taxable
Rents 2/
Royalties 2f
Net gain from sales of property other than
capital assets
Dividends
Other inoome 3/
Total reoeipts
Deduotionst
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor, supplies, eto.
Inventory at end of year
Salaries and wages
Rent paid on business property
Repairs
Interest on indebtedness
Taxes paid
Losses by fire, storm, etc.
Bad debts
Depreciation
Amortization
Depletion 4/
Net loss from other partnerships,
syndicates, pools, eto.
Net loss from sales of property other than
capital assets
Other deductions 5/

49,055

2,988

Total oonstruotion

24,826

Cons truoTion
Special
trade conGeneral
oontraotors tractors

7,539

16,122

Construetion not
allocable

1,364

Total
agriculture,
foreetryi
and fishery

Farming

Agri cuiturai
services

business
Fishery

allooable

100,809

96,503

1,968

1,884

12,968

96,100
240

52,933
86

619,406
3,297

150,245
554

159,855
4,070

62,444
1,301

1,689,060
6,457

908,266
5,494

699,824
685

80,980
280

1,878,774
1,238

1,712,737
873

206

5,394

2,475

1,034

790

220

24

496

342

107

10

637

8
36
188
9
30

398
3,684
308,305
9,401
11,306

139
400
1,838
583
575

22
544
5,026
65
709

11
287
3,312
43
695

3
47
1,596
22
95

8
10
117
19

21
143
2,933
579
285

19
104
2,224
465
226

1
88
511
17
51

1
46
8

29
276
3,576
373
223

83
1,257

1,708
8,734

2,611
807

546
9,486

346
6,376

192
2,811

8
299

218
4,491

197
2,182

17
1,754

3
66

315
4,177

152,615

512,854

73,170

1,712,747

925,507

706,493

81,747

1,889,177

1,719,368

98,836

53,156

632,203

12,866
318
6,796
6,761
10
36,180
3,764
272
239
1,014
55
528
762
33
15
-

21,942
2,140
9,101
12,205
1,504
37,864
9,914
23,687
33,343
56,369
769
1,131
52,135
200
3,102
372

21,067
65
18,739
2,349
86
8,624
1,175
537
1,560
895
3
223
667
18
127
114

1,195,482
41,525
346,063
857,253
49,359
90,239
10,566
15,967
3,411
18,537
416
2,024
26,255
373
336
839

690,398
11,872
128,575
563,466
13,515
33,970
4,950
11,087
2,209
9,690
266
614
18,807
236
225
786

450,480
28,646
207,065
249,850
36,071
51,461
5,068
3,758
945
8,012
99
1,194
5,815
110
112
45

54,604
1,007
10,433
43,937
773
4,808
547
1,122
257
935
60
216
1,633
27
8

1,110,223
213,845
408,146
697,540
209,308
34,764
40,706
58,779
16,179
30,024
643
516
68,835
83
253
178

1,006,268
207,665
336,366
666,313
202,966
21,549
39,313
53,886
15,451
28,521
416
216
63,838
66
60
178

75,192
4,442
58,886
16,488
4,624
4,415
768
1,493
392
627
59
229
1,857
10
*

16,954
672
6,380
10,227
325
8,087
417
3,215
228
659
164
40
2,460
4
5

307,403
28,321
232,640
76,167
29,726
44,594
7,888
5,946
1,457
5,335
202
691
6,527
369
297
39

3

5,851

427

282

148

85

49

203

128

16

58

308

35,836

86,256

13,449

115,501

56,842

52,401

6,258

60,017

45,085

6,857

8,019

46,673

90,917

40,311

427,729

.

332,936

48,868

1,480,225

830,114

679,686

70,625

1,421,402

1,274,970

Ordinary net income less deficit 6/
Inoome not included above:
Net short-term oapital gain
Net long-term oapital gain
Deductions not included above:
Net short-term oapital loss
Net long-term capital loss
Contributions

61,047

179,918

24,302

232,523

96,394

125,907

11,222

467,777

444,389

7,920

12,845

104,473

42
222

2,927
19,192

686
18,650

279
4,040

186
3,515

76
413

17
112

161
2,600

79
2,080

12
169

1
247

188
1,978

9
359

152
1,607
748

95
105
202

199
122
903

104
98
528

79
17
352

16
7
23

67
131
178

39
101
149

"
20
21

18
10

16
18
360

Compiled net profit less net deficit 7/

60,943

199,630

43,236

236,618

98,365

125,948

11,305

470,172

446,259

8,060

; 13,061
1

Total deductions

For footnotes, see p. 23

91,568

•

4

106,245

12

Table 1. - partnership returns of Income for 1946, by industrial groups, for all returns, and returns with ordinary net incomei
of returns, reoelpts, deductions, ordinary net income, and oompiled net profit- Continued

Kuaber

PART II. - RETURNS WITH ORDINARY NET INCOME 6/
Industrial groups

in--Receipts and deductions

Number of returns
Receiptsi
Gross receipts from business or profession
2
Net profit from other partnerships,
syndicates, pools, etc.
Interest, other than on Government obligations
4
Interest on Government obligations
(less amortizable bond premium)«
Partially tax-exempt
Wholly taxable
6
Rents i/
7
Royalties 2/
6
Net gain from sales of property other than
9
oapital assets
Dividends
Oilier income 5/
11
1

S

5

10
12
IS
14
16
16
17
18
19

20

21
22
23
24
26
26
27
28
29

50
SI
S2

Total reoelpts
Deductions'«
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor, supplies, etc.
Inventory at end of year
Salaries and mages
Rent paid on business property
Repairs
Interest on indebtedness
Taxes paid
Losses by fire, storm, eto.
Bad debts
Depreciation
Amortization
Depletion 4/
Net loss from other partnerships,
syndicates, pools, etc.
Net loss from sales of property other than
oapital assets
Other deductions 5/
Total deductions

Indus tris.1 tfotal
mining
groups
and
quarrying

678,880
46,148,888
48,870

266,496
894

296

260

2,774
18,992
592,007
24,799
61,008

7
87
966
7,656
898

17
492
6,808
866

24,662
289,508

878
4,577

269
2,801

8

Other
Total
mining
manufac­
and
quarrying turing

2,669
220,988
42

812

1,981

10,058

1,237

845

6,040

2,718

448

6,295

46,628
2

606,647
191

2,683,808
286

505,461
27

47,666

470,587
487

889,961
48

116,156

291.648

2

242

126

46

42

4

7
60
482
16
17

8
86
204

2

11
82
1,286
96
288

8

11
S3
668
188
21

288

26
8,571

52
1,960

2
461

188
1,527

47,941

476,174

592,705

116,896

298,994

1,928,629 280,846 81,642
2,867
22,891
176,646
1,127,868 168,687 19,866
71,241 12,518
826,469
8,104
26,928
201,428
2,256
7,280
80,878
682
2,200
28,825
787
408
4,960
40
290
2,481
488
2,721
25,718
2
17
124
70
102
809
628
7,248
1,082
94
107
58
46
2
1
4
97
6

824,497
55,175
169,606
164,940
86,222
24,656
2,526
6,638
1,256
5,928
217
661
10,064
'76
8,179
6

281,672
27,884
183,916
98,689
28,867
14,400
8,187
2,124
681
8,698
78
266
2,827
262
118
7

79,080
6,522
66,816
24,070
6,878
4,299
1,588
779
210
1,046
4
161
1,020

2
2

162,989
12,825
69,627
86,470
14,881
25,566
6,002
1,899
616
8,194
24
789
4,666
57
88
14

178

97

109

18

24
26
27
6
2
28
29

20
478
848
37

146
1,678
9,959
1,058
1,246

86
127
2,046
66
267

8
77
879
7
86

109
1,776

1,166
50,662

117
16,158

66
1,646

21

1
2
97

1
129

79

299

26

18
163
478
16
92

25
469
1,040
90
188

2
71
187
1
18

86
2,409

88
6,120

44
1,064

268,897

224,828 10,308,652 1,851,469

268,660

45,780

610,062

82,878,219
2,906,792
26,682,849
6,060,093
8,210,016
2,762,662
572,667
298,097
117,247
604,768
9,423
46,684
486,824
12,065
29,121
2,861

286,517
2,006
20,692
214,967
1,848
81,209
6,449
9,892
1,764
7,274
861
406
26;194
275
20,222
SOS

116,439
807
6,689
110,906
SIS
11,721
1,287
5,418
1,366
4,264
216
261
18,869
99
16,208
260

119,878 7,840,647 1,466,757 169,788
25,458
86,667
668,177
1,699
16,158 4,593,079 1,158,668 112,449
48,082
811,588
104,061 2,822,164
26,201
100,866
727,875
1,086
14,246
67,116
872,604
19,488
1,508
9,194
80,666
4,212
2,046
12,908
66,664
6,474
671
2,986
15,159
898
24,967
10,400
8,010
121,998
88
224
1,428
145
109
1,182
7,886
144
3,870
16,085
88,862
7,826
24
662
9,014
176
17
6,019
8,624
42
860
58

88,668
8,949
19,414
14,757
9,462
1,811
282
242
190
2,098
69
8
142

460,279
42,790
298,759
161,514
52,784
18,981
6,128
5,266
792
6,410
28
109
8,816
IS

8,522

849

196

2,955,690

61,548

26,468

24,880

199,608

191,856
82,472

176,389

86
56
87

S8

Compiled net profit 7/

391,558
101,869

69,397

1

1,820

498,226

40,128,727

and pub­
and
lishing
allied
produots industries

261,228
14
64

8

164

Lumber
and tim­ and
ber basic finished
produots lumber
produots

7,046

253

4

Manufacturing
Appare1
Leather Subber
and
products
produots and
mede from products
fabrios

H;258,186 1,812,789
684
2,488

66,546

1,970

86

l/

TextileTobacco mill
Food and
kindred Beverages manufac­ products,
including
tures
produota
cotton

47,063,946

6,985,211

For footnotes, see p. 23,

477,479
956

5,041

6S,006

Ordinary net inoome 6/
Inooms not included above«
Net short-term oapital gain
Net long-term oapital gain
Deductions not inoluded above«
Net short-term oapital loss
Net long-term oapital loss
Contributions

SS
S4

7,700

Crude
petroleum
and natu­
ral gas

77

1

8

128

2,590,802

47$

506,841

84

1

8

6
40

11

1

1

43

5

6
6

7
8
9
10
11

12
IS
14

16
16
17
18
19
20
21
22
2S

8,687

293

678,212

88,856

21,077

2,568

88,026

167,892

18,574

8,686

54,945

26,287

8,864

81,462

SO

8,779,929 1,656,069

228,868

40,512

616,916

2,280,129

265,767

39,797

414,666

884,492

96,900

228,937

SI

85,192

6,267

98,147

360,678

48,075

8,144

61,509

68,210

19,996

70,068

S2

78
979

7
49

2
21

64
4,007

46
866

9
109

81
200

SS
84

37
6
8

1,628,620

1

20,813
104,168

206
4,676

141
8,881

66
1,294

1,077
11,644

180
1,588

165
381

266

42
661

6,480
6,218
88,809

18
57
166

IS
53
118

6
4
65

209
1,178
15,248

14
67
1,269

^ 16
2
294

89

2
808
968

17
21
6,608

7
680

1
84

27
87
262

9
7
862

164

4
874

7,010,186

106,629

72,760

58,769

1,626,611

176,627

56,416

6,496

92,072

866,084

42,692

8,082

65,204

58,248

19,959

69,912

86

88

Table 1. - Partnership returns of Income for 1945, by industrial groups, for all returns, and returns wiih ordinary net inoomei
of returns, reoeipts, deductions, ordinary net inoome, and compiled net profit - Continued
PART IX. - RETURNS WITH ORDINARY NET INCOME

_6_/ - Continued

(Money figures in thousands of dollars)
Industrial groups
Receipts and deductions

1
2
5
4

6
6
7
8
9
10
11

Number of returns
Receipts!
Gross reoeipts from business or profession
Net profit from other partnerships#
syndicates, pools, etc*
Interest, other than on Government
obligations
Interest on Government obligations
(less amortisable bond premium)s
Partially tax-exempt
Wholly taxable
Rents 2/
Royalties 2/
Net gain from sales of property other than
oapital assets
Dividends
Other income 5/

12

15
14
15
16
17
18
19
20
22
25
24
25
26
27
28
29
50

Total reoeipts
Deductions!
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor, supplies, eto.
Inventory at end of year
Salaries and wages
Rent paid on business property
Repairs
Interest on indebtedness
Taxes paid
Losses by fire, storm, eto.
Bad debts
Depreciation
Amortisation
Depletion 4/
Net loss from other partnerships,
syndicates, pools, eto.
Net loss from sales of property other than
capital assets
Other deductions 5/

and allied and coal
products
produots

Stone,
clay,
and glass
products

Iron,
steel,
and
produots

Nonferroua
metals ant
their
produots

Electrics]
machinery
and equip­
ment

Machinery,
except
transporta^
tion equip'
ment and
eleotrioal

1,494

94

1,490

2,563

2,602

674

4,619

271,781
146

63,179
12

110,396
27

446,109
43

316,426
81

212,304

668,410
129

119

22

46

90

41

23

■•

6

Humber

1/

Aut (mobiles
and equip­
ment, except
electrical

64,999
46

- continued

fransporta- other
Manufaoÿotal
I
Transportation
tion equip­ manufac­ turing not public
Total
Truotdng, Other
ment, except turing
allooable utilities transpor localj
transpor­
automobiles
tation
and eare- tation
housing

I

242,572
191

3,575

2,668

10,666

9,906

7,152

2,775

473,247
64

448,186

651,146
516

529,569
516

298,311
60

251,048
265

8
90
415
86
54

6
124
348
49
102

4
76
1,801
59
466

4
69
1,726
59
566

2
30
923
22
267

2
39
805
17
89

167
2,872

160
2,806

41
1,321

109
1,485

17
66

634,940

L.027

255,915

22,126

5,613
L,528
,761
,006
,682
,506
,466
>,546
,208
>,176
148
366
,847
52
16
70

110,499
1,059
22,962
87,712
1,214
26,600
3,014
6,670
566
5,202
162
215
8,577
291

6,497
230
2,398
4,020
161
2,492
587
457
130
684
9
54
874

16

2
14
166
6
12

1
106
536
107
46

11
56
SSS
22
9

1
SO
772
114
25

70
496
176
80

102
5,748

12
575

26
672

72
2,475

25
864

56
967

S4
2,612

46
263

54
1,679

105
1,648

25
2,650

276,104

53,673

111,265

449,381

517,866

214,262

672,192

65,448

244,771

5,774

461,604

176,527
18,556
159,466
40,574
22,088
11,517
2,217
1,827
440
2,044
48
515
2,321
43
1
1

40,295
1,541
50,351
10,162
1,759
958
300
687
115
1,761
9
17
968
288
71

66,662
6,574
50,368
57,178
7,268
6,370
1,098
1,958
261
1,408
20
155
2,115
14
9
5

297,699
26,054
165,125
146,962
50,442
15,956
3,468
3,364
706
4,758
74
489
6,023
1,596
8
-

216,178
21,108
157,580
85,818
27,328
11,210
2,418
1,492
559
3,548
29
347
2,487
517

151,878
18^924
92^894
56,430
16,570
7,028
1,591
963
509
2,415
14
114
1,613
290

411,156
58,964
174,676
236,928
59,599
53,491
6,510
4,365
1,208
8,499
116
971
11,452
5,678

47,825
6,509
55,270
14,516
6,269

191,676
9,180
61,866
126,056
5,426
6,098
1,144
1,043
293
2,256
14
162
2,046
746

r,724
,983
,863
,757
,879
r,292
,836
,025
698
,534
52
450
,215
101

223,609
2,797
44,121
179,738
3,047
71,298
9,867
16,575
“1,695
16,062
519
652
22,098
523

14

-

98

8

305,359
28,976
174,111
130,861
28,609
17,360
5,672
2,767
778
4,487
176
454
4,433
661
2
24

98

217,112
2,667
41,723
176,718
2,896
68,806
9,480
16,916
1,565
15,378
510
678
21,224
525
16
98

97

27

21

507

162

142

894

18

95

99

519

422

421

182

259

1

51,965

5,126

10,279

51,530

21,041

16,177

62,425

5,626

11,902

,706

31,989

85,736

,961

29,775

5,244

,740

189,225

14,845

99,980

,291

44,689

7,282

2,008

62
954

23
1,074

46

78
55
259

44
17
105

54
56
136

15

,123

46,580

7,314

m

51

55
52
7

1

2,202
558
244
161
900

1

67
401
72

25
202

2

35

51

55

Total deductions

229,564

48,621

90,510

366,947

258,402

181,325

555,794

66,863

217,485

,656

572,432

46,541

5,052

20,956

65,434

69,464

52,938

138,398

9,686

27,286

,157

79,171

1
169

61
457

5
195

7
151

67
769

7
23

8
240

505
627

10
522

85
2,055

36
56
57

Ordinary net inoome 6/
Inoome not included above!
Net short-tern capital gain
Net long-term oapital gain
Deductions not inoluded abovei
Net short-term oapital loss
Net long-term capital loss
Contributions

12
24
368

12
7
307

1
1
425

4
179

48
67
417

78

52
548

1
9
742

58

Compiled net profit 7/

85,528

59,336

32,649

138,589

27,551

,515

78,971

f

1

61
22
2

51

For footnotes, see p. 23.

21,787

2
50
112
58
27

32
55
34

Communication
and other
publie
utilities

.

9
172

45

IS
9
201

2
1
14

46,499

5,078

m
2
60
21,065 !
1

35
9,546

63

252

86

m
e

28

.

7
76

•

110

•

17
**

m
-

Table 1. - Partnership returns of incoms for 1946, by industrial groups, for all returns, and returns with ordinary net incane:
of returns, receipts, deductions, ordinary net income, and compiled net profit — Continued
p a st

II. - RETURNS WITH ORDINARY NET INCOME jJ

Humber

- Continued

(Money figures in thousands of dollars)_
Industrial groups 1/ — Continued
Total
trade

Wholesale
Total
retail

Receipts and deductions

1
2
S
4

5
6
7
8
9

10
11
12
IS
14
18
16
17
18
19

20

21
22

2S
24

26
26
27
28
29
SO

SI

Number of returns
Receipts:
Gross receipts from business or profession
Net profit from other partnerships,
syndicates, pools, eto.
Interest, other than on Government
obligations
Interest on Government obligations
(less amortizable bond premium):
Partially tax-exempt
Wholly taxable
Rents 2/
Royalties 2/
Net gain frcm sales of property other than
capital assets
Dividends
Other income 3/
Total receipts
Deductions:
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor, supplies, eto.
Inventory at end of year
Salaries and wages
Rent paid on business property
Repairs
Interest on indebtedness
Taxes paid
Losses by fire, storm, etc.
Bad debts
Depreciation
Amortization
Depletion 4/
Net loss from other partnerships,
syndicates, pools, etc.
Net loss from sales of property other -than
capital assets
Other deductions 5/
Total deductions

Department,
general
merchandise,
dry goods

190,225

12,142

26,186,337 11,439,896 12,639,311
6,072
8,884
16^472

1,181,009
1,436

234,186

34,475

12,686

3,684

7,990

559
5 »429
45^718
2,124
4,366

251
1,469
7,104
418

259
1,663
32,867
1,285
3,076

886

677

110
238
4,693
312
154

Food
Package Drug
stores,
including liquor stores
stores
market
milk
dealers

Furniture
and house
Apparel
furnish­
and
accessories ings

13,128

7,988

40,936

11,413

13,721

7,850

6,641

1,703

912

1

2,810,662 270,499 561,297
96
81
1,064

1,290,346
140

491,634
295

1,740,638
568

1,170,609
776

428,477
79

479,660
151

503,344
387

74,692
229

51,185

2
3

71

623

491

170

91

388

492

1,898

14

4

18
196
3,590
73
J.78

17
137
1,503

26
162
2,387
60
134

•

-

S

4
64
7

82

24
28
3,090
71
648

6
7
8
9

273
2,904

194
16,983

115
7,766

63
8,356

137

10

349

9
87
6,532
340
684

24

8
617
14
138

8

1
11
1,529
107
64

4
1,502
47
87

10
80
1,889
45
105

122

16
60
1,701
59
661

, 242

562

505

10
11

10
1
6

18
1,623

6,537

83
3,312

431,828

488,387

610,095

77,641

51,587

12

318,430 354,143
80,562
19,169
305,845 354,967
14,712
14,883
21,467
96,098
25,613
23,505
4,856
7,132
1,490
1,743
645
441
3,904
5,669
96
93
763
561
2,419
2,994
43
76
29
4

362,393
54,786
328,518
27,817
48,728
34,998
2,880
5,186
766
4,415
70
1,430
5,817
29
56

47,146
9,872
44,776
3,705
11,207
6,273
1,656
384

33,438
7,422
33,674
1,426
9,084
4,260
1,882

13
14
16
16
17
18
19

824
58
71
405

562
55
61

26,449,076 11,636,126 12,783,259

1,200,068

2,825,367 271,930 566,338

1,312,340

502,296

1,763,666

1,186,980

20,163,291 9,626,592
1»912»837
*603^487
19^631,828 9,496,932
753,190
270^859
745^686
2,134^564
376^389
1^468^274
42,130
279^268
17^981
85^424
12,950
29^110
67^414
205]164
4,596
892
26^587
6,708
110^661
23,375
1,240
364
828
233
978
293

8,884,449
1,164,882
8,508^186
430,889
1,219,508
977,636
221,262
60^200
13,899
122,485
3,389
17^179
77,258
831
466
663

859,892
166,026
841,059
14,828
■162,020
83,160
16,987
3,236
1,176
9,018
219
1,853
4,849
56
52
42

2,256,088 211,162 394,046
130,601 28,195 71,730
2,182,814 214,606 394,140
6,914
79,444
3,611
136,771 35,260 78,738
9,227 44,981
145,138
30,171
3,293 11,317
1,973
10,952
520
2,030
239
6,556
3,652
16,661
104
637
53
355
64
1,663
2,970
980
15,414
18
113
29
4
132

833,700
176,036
787,114
23,791
153,241
104,193
42,752
3,483
1,243
9,521
864
2,240
5,410
28
42
329

295,814
64,326
291,423
16,010
74,946
44,119
11,488
2,309
777
4,584
69
2,073
2,695
34
5
15

962,949
67,071
888,070
74,730
66,922
264,180
46,643
17,642
1,876
33,395
609
656
18,324
223
61

887,704
100,768
739,518
105,560
108,127
84,596
14,030
6,561
2,091
8,459
230
2,372
7,654
69
34
62

642

1,426

55

32

87

341

417

72

32

26

74

76,380

16^271

20,429

29,848

6,355

3,140

374,961

414,446

443,942

63,344

43,675

14,297

2,165
1,277,104

609,088

655,653

23,654,650 10,682,937 11,036,690

49,793
1,029,387

627

686

86

185
95,610

10
1
5

7,133

21,117

2,674,866 236,396 484,021

79,614
1,083,404

1,746,661

170,680

250,502

35,534

82,318

3,342
20,689

1,466
6,093

1,615
13,112

82
514

137
1,931

14
880

766

540

936
796
16,939

545
198
8,246

365
552
7,444

13

36
37

1,083

179
65
736

11
8
120

27
241

70
32
1,764

38

Compiled net profit 7/

2,799,878

860,749

1,762,937

170,112

261,690

82,903

227,6t7

For footnotes, see p. 23.

2

279
11,261

1,776
70,768

852,189

35

68

1,112

1,773
88,966

3,876
176^613

203
5,537

3,162

2,794,618

S3
34

Building
Book and
materials, stores,
Automotive Filling
stationery
stations Sardaare fuel, and exoept
dealers
dealers in stores
ice
second-hand
automobiles

7,653

39,317

Ordinary net inoome 6/
Income not included above:
Net short-term oapital gain
Net long-term capital gain
Deductions not included above:
Net short-term capital loss
Net long-term oapital loss
Contributions

32

Eating
and
drinking
plaoes

68

36,289

88

228,985

68

42,016
406,329

21

121,436
1,467,330

10,686

1,089,306

12

200
12
1

96,967

286,226

146,674

56,877

73,941

70

362
3,633

164
972

77
671

50
187

36
671

47
48

3
679

35
213
631

13
16
562

27

14
224

4
50
223

68

96,339

289,242

147,219

67,411

73,933

66,601

86

220
*

"

2

66,152

686
1

110 20
68 21

“

8,011
1

22
23
24
26
26
27
28

29

30
31
52

4

33
34

i
5

4
28

36
36
37

14,320

7,984

38

Table 1* - Partnership returns of income for 1945, by industrial groups, for all returns, and returns with ordinary net inoomet
of returns, reoeipts, deductions, ordinary net inoams, and compiled net profit - Continued
PART II. - RETURNS WITH ORDINARY NET INCOME

Reoeipts and deductions

1 Number of returns
Reoeiptst
Qross reoeipts from business or profession
Net profit from other partnerships.
syndicates, pools, eto.
4
Interest, other than on OoTsrnmsnt obligations
Interest on Qovornusnt obligations
(less amortisable bond premium)«
6
Partially tax-exempt
6
Wholly taxable
7
Rents 2/
8
Royalties 2/
9
Hot gain from sales of property other than
oapital assets
10
Dividends
11
Other inoams 5/
2
8

12

IS
14
16
16
17
18
19
20
21
22
28
24
26
26
27
28
29
SO

Total reoeipts
Deductions«
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor, supplies, eto.
Inventory at end of year
Salaries and wages
Rent paid on business property
Repairs
Interest on indebtedness
Taxes paid
Losses by fire, atom, eto.
Bad debts
Depredation
Amortisation
Depletion 4/
Net loss from other partnerships.
syndicates, pools, eto.
Net loss from sales of property other than
oapital assets
Other deductions 5/

478

1,244

20,481
-

51,104
1

20

4

522

1,044

911

1,426

67
4

124
17

58
779
6
19

21
681
3,258
116
200

49
297
3,747
421
404

129

1
86

54
2,908

207
9,487

826
15,889

20,700

61,887

18,802
8,132
18,896
490
4,216
1,286
618
49
19
127
2
16
102.
•
-

2,926

19,111

9,486

84,563

242,618 1,271,161 2,107,130 3,068,147
667
112
1,616
7,747

82,876

6,314

8,862

2,535

4,878

1,246

10,452

9,228

2,088

62,468 98,666
90
15

38,718
2

256,879
299

161,900
4

231,948
129

604,017
1,801

170,299
1^842

9

99

2

880

8

80

86

44

1
69
•
8

193
8
61

2
14
441
7
57

1
101
8
16

8
29
4,686
119
40

3
12
86

2
2
768
26
22

1
51
5,367
185
298

86
2,172
67
7

•
122

2
242

90
696

62

166
8,906

24
1,116

3
797

88
5,006

17
2,617

10
11

814,112

62,690 94,254 100,886

38,909

266,408

163,102

233,767

614,845

176,690

12

114,208
2,758
14,609
98,920
2,079
59,899
7,984
5,823
842
6,050
258
318
6,936
25
184
8

28,968 16,670
2,431 1,101
11,013 6,146
12,928 10,606
2,404 1,082
8,720 21,002
3,103 6,336
448
790
43
108
777
926
37
28
88
28
694 1,491
1
10
16
1

16,096
1,387
6,981
8,233
1,506
4,871
2,826
395
46
367
21
47
556
2

184,187
8,167
27,881
105,668
2,009
27,584
5,788
1,589
401
1,990
29
207
8,886
9
44
29

101,222
1,973
18,467
81,494
712
11,192
1,728
120
63
621
7
91
410
1

126,665
18,026
91,603
36,480
18,544
17,867
7,895
1,640
687
2,669
188
416
8,286
21
8

139,442
SÏ759
38,949
100,289
8,636
68,366
22,497
6,662
1,347
12,789
410
432
13,181
102

61,466
332
6,228
44^989
93
18,174
ll'7S4
2,603
654
5,220
61
81
4,953
22

18
14
16
16
17
18
19

9

1

28
24
26
26
27
28

40

7

42

83

47

29

414

266

32

6

87
469
88,900
881
841

4
287
22,911
157
888

33
20,403
86
183

2
186
1,704
54
84

873
18,668

167
4,802

39
2,888

26
892

247,076 1,286,738 2,130,691 3,152,928

948,109 332,269

29,617
1,139
26,496
8,087
1,155
4,200
1,245
415
49
666
IS
64
866
1
•

182,897
51,586
189,330
6,613
64,482
21,011
7,275
784
253
6,417
44
1,044
1,118
6

882,222 126,918
21,306
6,379
123,123 69,517
208,479 67,476
20,686
6,454
135,281 33,187
47,673 26,348
18,616
9,727
4,935
3,535
17,364
8,736
476
65
1,570
826
23,682 10,886
166
101
294
94
87
83

-

•

4

93

198

604

211

28

89

1,088

4,621

19,656

62,262

112,363

438,393

126,780

42,303

709,269 261,382

4

16,658

41,068

82

4,147

10,274

56,569

169,467

4

•
86

22
145

398
1,375

271
1,484

36
86
87

Ordinary net income 6/
Income not included above«
Net short-term oapital gain
Net long-term oapital gain
Deductions not included above«
Net short-term oapital loss
Net long-term oapital loss
Contributions

1
6

12

1
11
396

18
30
686

36
46
1,249

88

Compiled net profit 7/

4,145

10,348

56,328

160,496

917,400
61,012
381,018
587,344
61,974
450,134
120,902
32,190
6,451
43,895
1,169
3,742
53,306
416
420
381

190,607 1,127,274 1,934,923 2,071,402
195,768 1,061,521

1
2

8,142
99,266
345

811,066
76

941,828 1,663,250
152,627
144,468
921,940 1,626,710
84,418
61,442
147,067
169,870
76,851
115,849
19,060
15,866
5,300
7,243
1,608
2,261
10,476
15,265
226
815
1,924
2,700
7,606
9,918
124
66
87
129
41
22

Amusement
Automobils
repair ser­ Total
Motion
vices and
amuse­ pioture
garages
ment
theatres

1,922 10,600

912,266 307,102
1,784
1,269

Total deduotiona

For footnotes, see p, 28,

j W _ Continued

(Money figures in thousands of dollars)
Industrial groups l / - Continued
Trade - Continued
Servloe
Retail - Continued
Personal servioe
Busins ss servloe
Trade not Total
Hotels
Barber
Sporting Florists Jewelry Other
Total
laundries, Photo­ and
and
allooable servloe
Panerai Other
Total
goods
stores retail
persona] other
cleaning, graphic beauty servloe personal business Advertising
trade 8 /
servios lodging and dyeing studios shops
servloe servios
places

81

88
84

Humber

16

86,865
7,260
26,868
10,416
•7,161
7,602
2,076
1,333
862
1,609
71
768
3,120
27

m

3

*

2

4.

6

6

7
8
9

20
21
22

63

81

46,879

7,894 10,696

16,606

4,108

52,116

13,683

17,771

131,316

84,670

246,998

48,771 67,065

69,766

28,827

205,792

129,088

178,839

386,627

126,507

81
82

SO

233,860

70,927

67,114

16,919 37,189

31,119

10,682

60,614

24,064

54,918

128,216

60,083

718
11,024

185
4,246

132
3,042

20
845

66

16
178

15
78

2
44

10
888

5
68

42
660

139
3,813

10
1,556

99
245
8,970

44
146
991

32
61
316

6
40
842

1
42

6
87
84

16
247

1
10

4
8
219

1
3
110

11
8
86

19
8
699

1
5
178

86
87

196,192 1,068,949

237,100

73,702

67,589

16,942 87,806

80,944

10,617

60,786

24,011

65,415

131,441

51,465

88

m

m

88
84

86

Table 1. - Partnership returns of Incone for 1946, by industrial groups, for all returns, and returns with ordinary net income:
of returns, reoeipts, deductions, ordinary net income% and oompiled net profit • Continued
PART II. - RETURNS WITH ORDINARY NET INCOME
\MBJUBy

Reoeipts and deductions

Number of returns
Reoeipts:
Gross receipts from business or profession
Net profit from other partnerships,
syndicates, pools, eto.
Interest, other than on Government obligations
Interest on Government obligations
(less amortisable bond premium):
Partially tax-exempt
Wholly taxable
Rents 2/
Royalties 2/
Net gain from sales of property other than
oapital assets
Dividends
Other income 3/
Total receipts
Deductions:
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor, supplies, etc.
'Inventory at end of year
Salaries and wages
Rent paid on business property
Repairs
Interest on. indebtedness
Taxes paid
Losses by fire, storm, eto.
Bad debts
Depreciation
Amortisation
Depletion 4/
Net loss from other partnerships.
syndicates, pools, eto.
Net loss from sales of property other than
oapital assets
Other deductions 5/
Total deductions

AU

6_/ - Continued

uoouun w*

Service - Continued
Professional ana social servio es
Medical
and
health services
Total pro­ Accountants,
Legal
Other
Pl^si dans >
Total
fessional auditors,
Dentists medioal services
surgeons,
medical
and social and book­
services
and health and
keeping
services
oculists
services
service

Engineer­
ing and
architec­
tural
services

9,072

2,194

20,121

2,686

6,396

2,306

665

Number

2,634

Educational
insti­
tutions and
agencies

644

Other pro­ service nance, in­
surance,
fessional and
and social repair and real
estate
services

330

7,614

&noe* insurance « end real estate
Finance
Invest­ Seourity
Other
and
ment
Total
ooamodi ty finanoe
finance trusts
exchange
and in­
vestment brokers
cost»
and
dealers
panics

9/

6,376

1,674

2,192

2,609

1,813, 106 1,456,671
6,085
10, 893

1,913
537

1,423,067
4,436

30,691
112

66,868

988,886
3,627

164,290
404

259 ,293
869

114,992
622

17,662

126,639
247

410, 065
1, 646

137,737
669

18,419
32

9,081
7

174,168
207

477

206

24

9

-

16

230

16

2

-

39

44, 629

37,374

4,084

27,026

6,264

26
126
2,049'
313
39

1
16
66

99
1
3

23

24
242
7

12
61
872
197
23

20
76
96
1

5
38

1
644
is

2

4
24
364
8
7

1
14
184
31
59

1 952
12, 602
291 106
12 131
42, 121

1,416
8^679
2,866
2,628
30,738

48
227
772
257
132

'669
7,066
690
676
30,696

699
1,386
1,493
1,691
11

492
3,723

62
316

28
606

21
60

2
2

6
466

268
1. 148

140
1,431

279

4
41

17
436

17 218
20 704

15,831
10,422

6,860
469

4,904
9,008

1,677
926

999,666

166,351

261,129

116,798

17,698

127,638

414 613

140,092

18 781

9,790

176,156

2. 266 466 1,568,092

15,509

1,608,036

44,747

104,142
2,957
16,664
89,629
3,878
194,106
36,036
2,782
996
7,309
76
844
6,834
11
61
248

2,412
SO
126
2,366
100
68,620
4,602
122
266
1,456
23
95
498

29,749
1,222
7,873
22,464
1,810
33,849
7,702
1,369
263
1,936
9
354
2,837
2
21
149

3,834
201
1,973
2,651
871
14,026
3,764
307
68
676

2,439
48
722
1,706
36
2,808
600
124
23
113
6
12
218

23,476
’973
6,178
18,228
90S
17,616
3,338
928
172
1,246
3
290
1,686

5 392
10
SIS
5 080
11
72 084
19 228
633
202
2 128
18
249
2 ,083

60,636
679
6,439
56,384
867
23,742
2,371
263
160
1,460

4 426
886
1 877
3 054
891
3 ,978
900
369
93
271
11
26
387

732
69
904

1,071,430
26,035
1,050,567

40
26

231
1,420
Ili
61
386
426
8
66
166
1
6

64

27,966
127,036
8,936
518
11,096
9,040
9
414
743
2
14
63

3,892
767
8,472
452
769
6,401
1,099
688
2,081
781
44
1,873
681
1
22

142

1, 126 768 1,076,054
26,861
29 066
1, 086 629 1,054,943
.25,228
629
42
28,965
30 466
134,857
213 ,608
10,148
23 244
1,267
21 ,400
13,663
43 ,628
10,246
61 ,684
61
569
2,343
3 ,804
1,489
,807
47
4
41
3,241
13
53
206
8

84

3

41

41

-

6

19

-

52
1,038
2
21
7

4

"
-

112
930

6

80,742
1,628
6,847
110
34,608
426
47,909
1,191
8,522
199
16,931
1,832
4,069
332
1,161
46
236
42
1,784
69 46
16
273
9
2,438
99

20
3

12

144

1,016

303

12

89

202

227,690

106,671

1,660

97,866

7,266

1,774 ,449 1,367,092

4,923

1,327,238

24,931
19,816

111,889

14,612

82,961

11,961

2,477

18,623

42 ,071

16,686

3,744

1,715

18,621

464,416

82,796

111,223

36,687

8,316

67,220

144 ,169

106,813

14,196

6,716

126,470

Ordinary net income 6/
Income not Included above:
Net short-term oapital gain
Net long-term capital gain
Deductions not ineluded above:
Net short-term oapital loss
Net long-term oapital loss
Contributions

636,239

72,662

149,906

80,111

9,376

60,418

270,344

33,779

4,586

4,074

48,685

492 ,008

211,001

10,886

180,799

339
1,638

63
121

179
626

40

17

179
469

86
690

202

11
90

»

379

14 ,933
47 ,610

12,220
28,402

711
6,478

11,060
19,622

449
2,402

19
76
1,892

1
6
.391

13
669

9
196

6

4
367

14
16
772

41
119

19

32

8!

4 ,894
2,662
2,366

4,664
1,402
1,148

466
524
91

4,169
868
942

60
16
110

Compiled net profit 7/

636,230

72,338

160,038

79,946

9,887

60,706

270,818

33,818

4,667

4,051

48,977

544 ,639

244,414

16,606

205,417

22,492

For footnotes, see p. 26.

Table 1. - Partnership returns of income for 1945 by industrial groups, for all returns, and returns with ordinary net income,
f returns, receipts, deductions, ordinary net income, and compiled net profit - Continued

Table 1 . - Partnership returns of income for 1945, b y industrial groups, for all returns, and returns with ordinary net inoamei
of returns, receipts, deductions, ordinary net income, and compiled net profit ■ Continued

PART II. - RETURNS WITH ORDINARY NET INCOME

Receipts and deductions

1

Number of returns
Receipts:
2
Gross receipts from business or profession
Net profit from other partnerships.
3
syndicates, pools, etc.
Interest, other than on Government obligations
4
Interest on Government obligations
(less amortizable bond premium):
Partially tax-exempt
5
6
Wholly taxable
7
Rents 2/
Royalties 2/
8
9
Net gain from sales of property other than
capital assets
Dividends
10
11
Other income 3/
12

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

Total receipts
Deductions:
Cost of goods sold
Inventory at beginning of year
Merchandise bought for sale
Cost of labor, supplies, etc.
Inventory at end of year
Salaries and wages
Rent paid on business property
Repairs
Interest on indebtedness
Taxes paid
Losses by fire, storm, etc.
Bad debts
Depreciation
Amortization
Depletion
Net loss from other partnerships,
syndicates, pools, etc.
Net loss from sales of property other than
capital assets
Other deductions 5 /

Number

Q J _ Continued

(Money figures in thousands of dollars)
Industrial groups l / - Continuée!
Agriculture, forestry, and fishery
Construction
Finance, insurance, and
Agricul­
Construe- Total
Special
real estate - Continued
tural
agriculture,
trade con- tion not
Total con- General
Finance,
Insurance
service 8 Fishery
Farmi
l
a
g
allooable' forestry,
contractors tractors
insurance, struction
Real
agents.
and
fishery
brokers,
estate and real
and
estate not
allocable
services

Nature of
business
not
allooable

1

5,141

41,617

2,735

23,282

6,625

15,414

1,243

90,674

87,091

1,654

1,547

11,406

148,798
536

148,309
4,005

60,328
1,267

1,565,697
6,415

809,232
4,452

680,807
683

75,658
280

1,746,089
1,238

1,595,109
- 873

86,969
240

48,636
86

502,647
3,170

2

493

4

3

205

5,162

1,888

954

722

208

24

475

330

106

10

8
36
186
9
30

393
3,585
286,300
9,016
10,781

135
302
1,765
583
572

21
310
4,502
54
570

11
267
2,875
32
483

2
43
1,564
22
68

8
10
63
19

21
142
2,653
578
281

19
104
2,065
454
222

1
38
499
17
51

1
*
46
•
8

27
259
3,403
333
319

7
8
9

83
1,137

1,630
8,442

2,174
703

379
8,089

312
5,233

60
2,606

7
250

210
4,143

189
1,933

17
1,673

3
66

287
3,980

10
11

161,027

477,622

69,715

1,585,994

823,610

686,064

76,320

1,755,831

1,601,296

89,611

48,857

514,818

12

12,840
318
5,796
6,736
10
35,905
3,708
266
238
1,009
55
528
756
23
15
-

18,638
1,832
7,892
10,319
1,405
34,640
8,272
19,370
28,523
49,547
440
711
45,002
156
3,058
144

19,226
65
16,898
2,349
86
8,106
1,116
507
1,204
782
3
222
560
18
127
8

1,084,304
39,322
330,626
761,881
47,525
83,601
9,711
14,448
2,835
16,982
375
1,733
22,020
373
317
468

599,374
10,854
118,702
482,430
12,612
29,755
4,317
9,794
1,749
8,366
251
444
15,182
236
205
420

435,266
27,648
201,688
240,085
34,155
49,356
4,911
3,650
847
7,739
98
1,073
5,391
110
112
45

49,664
820
10,236
39,366
758
4,490
483
1,004
239
877
26
216
1,447
27

896,023
185,577
304,156
587,471
179,181
18,282
35,037
47,374
12,876
25,571
271
148
56,264
66
60
29

66,964
4,154
51,721
15,427
4,338
4,015
714
1,314
331
583
36
181
1,550
10

15,489
563
6,343
8,897
314
7,093
384
2,338
168
583
151
40
2,100
4
6

297,161
26,289
227|514
71,478
28,120
41,832
7,344
5,528
1,251
4,950
159
544
5,921
140
283
39

13
14
15
16
17
18

20
21

3

988,832
189,286
367,942
616,702
185,098
30,09236,236
51,188
13,456
26,864
462
401
60,565
83
253
29

3

704

6

211

127

75

9

68

51

6

31

80

29

7,031

41,231

30

34,444

75,370

11,105

105,417

49,890

49,810

5,717

49 >420

36,338

5,224

5
6

19

22
23
24
25
26
27
28

31

Total deductions

89,791

284,575

42,991

1,342,794

720,111

558,482

64,201

1,257,974

1,128,391

80,929

35,420

406,463

31

32

61,236

193,047

26,724

243,201

103,500

127,582

12,119

497,868

472,905

8,683

13,437

108,354

74
355

17
112

94
2,265

76
1,847

12
163

1
196

158
1,603

32
33

35
36
37

Ordinary net income 6/
Income not included above:
Net short-term capital gain
Net long-term capital gain
Deductions not included above:
Net short-term capital loss
Net long-term capital loss
Contributions

38

Compiled net profit 7/

33
34

For footnotes, see p. 23

42
222

2,217
16,658

454
2,228

200
2,800

109
2,333

«
9
359

138
1,146
724

92
105
130

198
112
865

103
94
494

79
11
349

16
7
22

32
119
168

14
89
141

"
20
20

18
10
4

16
16
345

61,132

209,914

29,079

245,026

105,251

127,572

12,203

499,898

474,584

8,818

13,602

109,738

34
35
36
37

Table 2. - Partnership returns of Income for 1945, with gross receipts from business or profession, by industrial groups and by gross receipts from business classes,
for all returns!
Number of returns, gross receipts from business or profession, and ordinary net income or deficit
(dross receipts from business classes and money figures in thousands of dollars)

Industrial groups

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
32
35
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53

All industrial groups
Mining and quarrying
Crude petroleum and natural gas
production
Other mining and quarrying
Manufacturing
Food and kindred products
Beverages
Tobacco manufactures 10/
Textile-mill products, including
cotton
Apparel and products made from fabrics
leather and products
Rubber products 10/
Lumber and timber basic products
Furniture and finished lumber products
Paper and allied products 10/
Printing and publishing industries
Chemicals and allied products
Petroleum and coal products 10/
Stone, clay, and glass products
Iron, steel, and products
Nonferrous metals and their products
Electrical machinery and equipment 10/
Machinery, except transportation
equipment and electrical
Automobiles and equipment, except
electrical 10/
Transportation equipment, except
automobiles 10/
Other manufacturing
Manufacturing not allocable
Public utilities
Transportation
Trucking, local; and warehousing
Other transportation
Communication and other public
utilities 10/
Trade
Wholesale
Retail
Department, general merchandise,
dry goods
Food stores, including market milk
dealers
Package liquor stores
Drug stores
Apparel and accessories
Furniture and house furnishings
Eating and drinking places
Automotive dealers
Filling stations
Hardware
Building materials, fuel, and ice
Second-hand stores, except dealers
in second-hand automobiles
Book and stationery stores 10/
Sporting goods 10/
Florists
Jewelry stores
Other retail trade 8/
Trade not allocable
For footnotes, see p. 23.

Number
of
returns

dross
receipts
from
business
or pro­
fession

627,049 47,465,345
'563^872
11-147
311,338
7,495
5,652
252,534
61;196 10.533.236
7;562 1,888,518
271,092
1,456
48,179
365
2,101
612,131

Number
of
returns

(brass
receipts
from
business
or pro­
fession

6,767,715 105,565
65,493
3,756
38,826
3,035

275,111
7,505
5,832

net in­
come
less
deficit 6/

26,667
1,505,610
172,876
34,527
5,109
92,729

10,387
1,297
399
5,859
3,021
469
5,679
1,702
119
1,912
2,669
2,645
656
5,112

2,593,494
307,524
49,994
511,662
401,606
118,319
297,158
279,429
55,771
118,175
465,141
525,944
221,408
697,850

359,537
42,954
7,934
58,834
57,276
19,946
69,146
45,970
4,673
19,595
81,789
58,682
31,800
136,208

270

65,915

9,507

721
5,896
530
131
70

1,673
14,761
741
424

150
5,214
421
60

2;643
55,794
7;250
1,017

Ordinary
net in­
come
less
deficit

175,636
626
ll/lOl

50,514
470
510

682,997
10,469
6,870

168,047
1^330
1,191

727
15;469
1,635
201

160
2,544
310
70

5,599
57,077
7; 021
1,541

159
14^482
1,471
180

527

70

1,559

146

9

1,479
519

10

71

7,198
1,603

280
140

6,269
3,125

814
855

3,010
653

573
50

8,565
1,125

2,386
367

/55

1,639
2, 351
2,920

519
687
1,342

4,884

1,441

371
5,125
391
100

2,769
37,851
3,023
648

238
10,343
672
48

6

70

510

140

70

796

200

71

5,115
401

1,376
135

380
60

6,601
1,032

1,680
193

7;187
1,790

1,528
95

240
110

4,102
1,921

666
448

2,758
811

379
. 117

980
410

7,010
3, n s

1,980
801

592
141

1,961
197

7,877
2,114

2,490
501

600
no

10,461
1,966

1,572
1,481
1,494

369
490
576

211
120
191

2,605
1,508
2,306

584
721
683

140
90
260

2,480
1,584
4,431

n

457
1,194

70
110
130

2,455

894

351

4,508

1,552

201

3,447

1,057

220

6,725
971

311
241
370

800
644
925

11/54
11/92
“ 227

541

1,287

141

521

2

S
4
5

6

7

11
12

621
170

892
120
220
200
210

520

2,143
254

556
11/9

1

8

930
280

15
14
15

lfi
17
18
19

20
21
22
25
24
25

1,354
1,088
7,129
6,562
4,874
1,688

248,860 26,678,408
37,037 11^667'486
201^854 12^868,831
12,586 1,195,833

2,768,551
'843^636
1,730,595
169,965

18,502
2,015
16,058
601

248,573

1,760

7,934
4,110
10,166
56,406
157,305
194,300

727
13,623
995
369

dross
receipts
from
business
or pro­
fession

96
1,446
10
52

517
247

640
480
2,702
2,482
1,811
671

52,186
20,869
52,207
244,101
1,298,536
2,142,091

5; 080
51,629
5;127
1,421

Ordinary
net in­ Number
of
come
returns
less
deficit

400
4,163
423
110

2,501
563

26,702

995
51G
1,344
2,997
20,744
9,969

672,721
7,860
5,217

653,876
10,994
5,914

350
80

92,707
77,109
101,972
94,797
52,774
42,023
7,175

35,195
82,066
228,168
95,092
281,235
145,248
56,084
73,433
65,450
14,189

38,648
453
303

52,997
891
491

31
-

831
161

189,165
1,291
564

195,133
U/687
l|/925

776
221

256,236

274,860
565,264
1,300,125
503,161
1,799,929
1,192,962
441,621
484,450
512,648
75,216

580,966
10,518
7,749

dross
receipts
from
business
or pro­
fession

dross
receipts
from
business
or pro­
fession

500
60

483,820
463,870
600,510
577,809
325,928
251,881
22,701

3,338
7¡710
13,745
8,776
44,167
12,303
14,698
8,183
7,105
1,774

80,120
1,442
1,071

84,657
11/5.900
11/5,996

Ordinary
net in­ Number
come
of
returns
less
deficit

Ordinary
net in­ Number
cede
of
returns
less
deficit

411
30

517

2,854,865

Dross
receipts
from
business
or pro­
fession

189

3,892
3,107
12,300
11,488
7,995
3,493
812

40,871

Ordinary
net in­ Number
of
come
returns
less
deficit

101
90
991
1,205
4,994
660
1,624
470
670
250

70
180
2,232
431

/137

8,421
3,466

130
90
554
504
413
91

16,224
1,443
14,421
823

283,315
24,404
252,710
14,409

48,299
6,840
40,594
1,912

13,988
1,092
12,606
891

313,184
24,582
282,469

3,807

2,728

47,939

5,548

2,291

566
683
2,271
2,422
9,688
765
2,718
889
1,863
485

170
350
562
460
4,012
781
1,444
SOI
350
141

3,076
6,058
9,732
8,058
69,822
13,644
25,654
8,922
6,038
2,415

551
855
1,574
1,574
n,380
2,266
3,616
1,809
1,035
805

191
370
680
471
3,184
554
1,273
562
514
no

3,136
3,641
28,057
6,201

609
1,220
5,637
665

71
260
1,313
290

81
2,071
1,851
1,565
286

2,140
2,510
16,736
15,259
11,134
4,125

585
417
6,189
5,577
4,360
1,217

342
270
1,322
1,251
971
280

4,186
3,426
16,225
15,414
12,083
3,331

1,464
770
4,357
4,024
3,640
384

160
170
743
693
491
202

2,847
2,946
12,781

51,740
4,706
43,985
1,655

7,829
1,269
6,564
328

19,614
1,781
17,405
601

145,175
13,049
129,025
4,652

26,795
5,716
22,284
1,026

17,666
1,745
15,621
674

220,017
21,614
194,509
8,389

59,354
5,744
52,742
1,214

5,384

805

2,574

19,031

2,229

2,316

29,276

ll/2
51
610
286
2,018
114
746
177
168
275

200
312
910
810
4,945
813
2,442
521
572
211

1,439
2,230
6,803
5,886
36,623
6,147
18,015
3,883
4,158
1,633

115
349
1,558
1,071
6,775
1,003
2,801
577
811
402

180
310
850
892
4,809
602
1,631
390
652
211

2,178
4,016
10,314
10,927
59,105
7,520
20,136
4,983
8,495
2,570

294
354
2,746
3,014
14,965
1,817
4,828
1,318
1,646
856

155
438
6,028
'1,049

2
137
785
11/4

160
130
2,022
430

1,185
944
1S,04S
3,101

141
354
2,876
795

130
201
1,573
300

1,656
2,520
19,780
3,894

2,992
1,995

873
571
3,459
3,065
2,084
981

280
351
2,312
2,112
1,501
611

n

156
781
4,281
868

180
2n
1,593
360

n,887

12,449
11,554
9,421
1,955

915
766
2,610
2,193
2,209
iÌ/16

26
27
28
29
50
51
52
35
54
55

19,8n

51,035
5,528
44,482
2,255

51,420

5,855

37

4,453

15,060
10,574
71,285
12,590
28,666
12,733
7,n 8
2,446

640
1,268
2,732
2,073
n,683
2,146
4,364
2,263
1,263
521

58
59
40
41
42
43
44
45
46
47

1, 561
6,233
28,740
6,333

358
1,522
5,290
1,025

8,395

56

48
49
50
51
52

Table 2« — Partnership returns of Income for 1945, with gross receipts from business or profession, by industrial groups and by gross receipts from business classes,
for all returns: Number o f returns, gross receipts from business or profession, and ordinary net income or deficit - Continued

Industrial groups - Continued

54 Service
55
Personal service
56
Hotels and other lodging places
57
Laundries, cleaning, and dyeing
58
Photographic studios
59
Barber and beauty shops
60
Funeral service
61
Other personal service
62
Business service
63
Advertising
64
Automobile repair services and garages
65
Amusement
66
Motion picture theatres
67
Professional and social services
68
Accountants, auditors, and bookkeeping service
69
Medical and health services
70
Physicians, surgeons, and oculists
71
Dentists 10/
72
Other medical services
73
Legal services
74
Engineering and architectural
services
75
Educational institutions and
agencies 10/
76
Other professional and social
services 10/
77
Other service and repair
78 Finance, insurance, and real estate
79
Finance
80
Investment trusts and investment
companies 10/
81
Security and commodity exchange
brokers and dealers
82
Other finance 9/
83
Insurance agents, brokers, and services
84
Real estate
Finance, insurance, and real estate
85
not allocable
86 Construction
87
General contractors
88
Special trade contractors
89
Construction not allocable
90 Agriculture, forestry, and fishery
Fanning
91
92
Agricultural services
93
Fishery
94 Nature of business not allocable
For footnotes, see p. 23.

(Qross reoeipts from business classes and money figures
-----------T3E2I---- ------Under 5
5 under 10
Qross
Gross
Number reoeipts Ordinary
Ordinary
net in­
of
from
Number receipts net in­ Number receipts
from
come
from
returns business
of
of
business come
or pro- less
returns
less
returns business
deficit
6/
or
pro­
fession
fession deficit
fession
90,466 3,139,150
34,446
931,606
6,916
514,926
8,699
319,816
2,123
63,153
10,930
95,324
3,183
99,592
2,595
38,795
5,005
261,772
1,409
153,023
11,039
238,340
10,702
529,804
2,226
175,559
21,182
996,701
2,646
154,412

1,046,979 21,715 ' 57,832
231,555 9,540
28,030
69,731 1,234
3,299
66,498 1,791
5,355
16,727
622
1,645
36,966 5,012
15,175
31,086
301
950
10,547
580
1,606
59,510 1,340
2,898
23,814
330
695
53,982
2,494
6,608
121,156 2,313
6,084
49,607
91
199
533,199
3,466
7,940
72,488
1,090
413

22,765 16,311
12,792 7,489
845
923
2,170 1,591
402
351
8,411 3,303
311
451
653
870
1,165
771
205
160
2,479 2,081
526 1,784
U/17
220
3/841 2,446
753
351

118,031
53,816
6,618
11,494
2,801
23,309
3,304
6,290
5,550
1,061
14,984
12,945
1,672
18,176
2,530

In thousands of dollars)
Oros receipts from business classes
10 under 15
------- 15 w U r So------ ------ Zff-u5fcrS5------Gross
Gross
Gross
Ordinary
Ordinary
Ordinary
Ordinary
receipts
net in­ Number
net in­ Number receipts net in­ Number receipts net in­
from
from
from
of
come
come
come
of
come
of
business
returns business
less
returns or pro­
returns business
or pro­
or pro­
deficit
deficit
deficit
deficit
fession
fession
fession
50,127 10,721
23,264 3,907
2,155
671
4,337
871
1,231
220
11,733 1,303
1,128
301
2,680
541
2,426
501
473
150
5,451 1,824
3,348 1,045
167
80
10,586
2,472
1,614
'251

131,714
47,749
8,366
10,541
2)729
15,874
3,763
6,476
6,249
1,835
22,426
12,685
994
30,588
3,108

50,391
15,595
1,912
3,193
1,022
6,174
1,094
2,200
2)953
938
6,912
3,016
152
17,555
1,977

7,825
2,905
621
892
191
570
381
250
271
SO
1,052
924
181
2,022
131

136,045
50)014
10^792
15,273
3,333
9,724
6,577
4,315
4,482
533
18,350
16,394
5,260
35,264
2,300

50,763
14,872
2,432
5,133
1,274
2^860
1,899
1)274
2,097
259
4,796
3,955
'753
20,875
1)428

5,552
1,885
460
524
190
240
401
70
290
120
862
661
180
1,402
'221

124,558
42)222
10,411
11)810
4,140
5,207
9,135
1)519
6)574
2)719 *
19,495
14,891
4)055
Si)095
4)918

44,141
11,589
2)519
2)844
1)415
1,729
2,466
'418
2,573
1,047
4)896
5)467
'629
18,307
2)508

54
55
56
57
58
59
60
61
62
63
64
65

66
67

68

5,626
2,326
555
2,745
9,342
2,570

261,305
115,002
17,662
128,641
410,699
141,110

149,679
80,081
9,376
60,222
269,954
32,919

638

20,024

4,201

75

360

9,151

3,958

76

8,092
180,927
64,478 1,862,929
7,170 1,490,385
1,887
2,074

47,577
474,357
209,090
10,216

2,422 1,457,228

179,963

123

154

283

40

510

115

60

736

339

18,911
61,047
179,918
24,302

450
1,621
4,755
483

852
3,862
9,636
1,241

450
2,341
5,034
1,220

262
1,022
2,040
363

2,002
7,515
14,156
2,498

952
4,579
8,010
1,747

152
600
1,043
520

1,816
7,493
12,818
3,829

700
4,078
5,942
2,208

232,523 4,430
95,394
963
125,907
3,187
11,222
280
467,777 55,116
444,389 34,136
7,920
430
12,845
490
104.473
3.944

12,044
2,467
8,838
739
99,597
97,047
1,319
1,013
8.700

5,501 4,125
1,224 1,002
4,032
2,983
245
140
38,586 25,652
37,924 24,951
394
350
201
321
2.775 1.812

30,223
7,469
21,720
1,034
182,734
177,806
2,478
2,258
15.219

12,253 2,968
2,631
'753
9,169 2,025
453
190
67,692 11,886
66,555 11,494
529
141
651
211
5.018 1.205

56,718
9,265
25,199
2,254
145,285
140,471
1,826
2,478
14.602

12,869
2,750
9,509
610
49,577
47,829
575
1,075
4'.426

1,795
562
1,262
'171
6,064
5,753
110
181
904

2,861
5,265
49,055
2,988

31,083
150,245
159,855
62,444

24,825 1,689,060
7,339
908,256
16,122
699,824
80,980
1,364
100,809 1,878,774
96,503 1,712,737
1,968
96,100
1,884
52,933
519.406
'12.968

660
180

1,557
370

618
228

522
161

3,989
1,255

1,961
770

561
180

7,060
2,306

3,530
1,443

490
120

8,755
2,119

4,387
1,547

310
120

6,915
2,654

8,736
3)705

470
1,423
700

1,170
5,077
1,608

381
1,828
580

331
1,101
341

2,547
8,157
2,517

1,059
5,515
1,210

311
1,160
370

3,823
14,385
4,461

1,558
9,413
2,125

240
1,141
140

4,233
19,849
2,395

1,569
13,578
688

150
671
120

3,408
14)822
2)664

1,493
10,031
l)585

2,562
7,504
645

6,272
15,803
1,064

1,962
9,584
989

1,740
3,727
302

12,560
26,479
2,312

5,052
15,403
1,067

972
2,175
212

12,017
26,692
2,552

4,360
13,275
1,047

651
1,406
175

11,541
24)239
3,137

4,190
13)880
l)910

74

1,339

1,141

91
344
544
343

1,639
5,988
9,311
5*803

771
2,986
4)874
4,110

31,766
6)401
22)383
2)982
105)224
99,513
1,868
5,117
15)697

7,745
1*495
5)546
'704
52,135
SO)354
'341
1,171
5)260

1,553
*361
882
90
4,496
4)245
'l41
50
641

452
936
181

10,061
20,542
4)042

10)715

1*771

77
78
79
80

90

2,007

1,016

81

91
250
554
151

2,055
5*520
7*702
3)278

7S5
2,796
4*nfis>
2,066

82
83
84
85

29,927
8¡188
19*744

7,570
1,812
5,151
*427
51,619
30*250

1)995
100)721
95)078
3)171

1*154
14)290

5,509

69
70
71
72
73
74

'519

441
4.745

86
87

88
89
90
91
92
98
94

Trtle 2. - Partnership returns of Income for 1*45, with gross receipts from business or profession, * l a t a M i l groups
*
allreturne,
Number o f returns, gross receipts from business or profession, and ordinary net Income or deficit - Continued
money figures in thousands of dollars)

A

Industrial groups

All Industrial groups
Mining and quarrying
Crude petroleum and natural gaa
production
Other mining and quarrying
Manufacturing
Food and kindred products
Beverages
Tobacco manufactures 10/
Textile-mill products, including
cotton
Apparel and products made from fabrics
Leather and products
Rubber products 10/
Lumber and timber basio products
Furniture end finished lumber products
Paper and allied products 10/
Printing and publishing industries
Chemicals end allied products
Petroleum and coal products 10/
Stone, olay, and glass products
Iron, steel, and products
Nonferrous metals and their products
Eleotrioal machinery and equipment 10/
Machinery, except transportation
equipment and eleotrioal
Automobiles and equipment, except
eleotrioal 10/
Transportation equipment, except
automobiles 10/
Other manufacturing
Manufacturing not allocable
Public utilities
Transportation
Truoklng, local; and warehousing
Other transportation
Communication and other public
utilities 10/
Trade
Wholesale
Retail
Department, general merchandise,
dry goods
Food stores, including market milk
dealers
Package liquor stores
Drug stores
Apparel and accessories
Furniture and house furnishings
Eating and drinking places
Automotive dealers
Filling stations
Hardware
Building materials, fuel, and ice
Second-hand stores, except dealers
in second-band automobiles
Book and stationery stores 10/
Sporting goods 10/
Florists
Jewelry stores
Other retail trade 8 /
Trade not allocable
For foo'tno'bes,

dross
receipts
from
business
or pro­
fession

dross
reoeipts
from
business
or pro­
fession

Ordinary
net la­ Number
sóme
of
returns
lees
deficit

Ordinary
net in- Number
oome
of
returns
less
deficit

dross
receipts
Number
[Tom
of
business
returns or pro-

Ordinary
net in­ Number
come
of
returns
less
deficit

25,715 704,622
7,804
291
5,004
190

166,525 45,498
408
1,405
244
1,261

1,507,147
14,521
8,671

520,404
1,952
1,640

50,557
295
152

1,559,452
15,240
6,152

270,855
2,464
1,468

50,019
669
529

5,064,696
40,818
20,150

572,171
5,824
5,552

28,206
295
105

2,459,664
24,979
8,970

450,755
1,606
1,509

52,579
429
217

996
29,159
2,577
452

540
5,455
798
102

20,668
557,557
49,606
6,659

2,472
66,845
6,505
1,555

190
5.511
555
125

16,009
505,658
46,152
10,762

297
59,506
6,850
2,511

212
5,648
759
149

Ordinary
net la- lumber
oome
of
returns
less
deficit

Ordinary
net in­ Number
come
of
returns
less
deficit

reoeipts
from
business
or pro­
fession

reoeipts
fTon
business
or pro­
fession

reoeipts
iron
business
or pro­
fession
5,969,724
62,000
26,251

'■

Ordinary
net ii^
eons
less
deficit
659,032
9,692
6,472

25,749
5,220
695,858 127,504
11,597
91,028
18,591
2,926

101
2,068
250
40

2,800
57, S U
7.059
1.060

144
12,961
1,595
121

164
4,025
611
121

5,650
140,041
21,579
4,055

292
50,578
5,980
565

165
2,852
570
90

7,088
127,557
16,688
5,870

4,424

1,195

90

4,014

791

522

19,995

4,482

71

6,161

922

5,690

551

151

27,512

1,422

221

50

1,078
111

67,764
7,002

14,542
1,174

695
120

61,525
10,709

11,674
1,898

1,515
121

161,705
16,144

28,974
2,625

521
22

8,810
579

2,511
220

522
60

16,576
2,124

3,858
556

571
50

16,708
2,286

5,954
554

250
70

6,872
1,918

864
567

522
182

11,156
6,545

1,819
1,247

191
240

8,522
11,050

1,472
1,870

444
280

26,502
17,789

5,498
2,151

264
195

22,795
16,447

4,551
2,814

554
275

45,412
55,686

4,974
5,156

285
80

7,870
2,107

2,180
492

552
ISO

16,417
4,430

4,450
1,267

561
70

15,610
5,065

4,586
685

555
142

22,546
8,742

5,690
2,278

155
61

15,458
4,980

4,165
664

245
151

29,775
18,787

6,695
4,075

80
100
80

2,199
2,745
2,128

425
406
562

140
151
211

4,855
4,761
7,552

415
1,205
1,675

101
72
152

4,576
5,168
5,875

842
692
1,806

162
281
191

9,645
17,069
11,610

1,460
4,200
5,158

122
251
65

10,555
20,165
5,541

1,149
4,579
1,454

126
505
251

14,985
57,445
27,970

2,757
8,865
6,290

4,114

1,058

560

12,497

5,467

291

12,886

4,258

542

55,522

9,106

525

28,591

5,448

549

67,990

15,791

150

151
121
585
585
422
141

5,606
5,274
15,906
15,561
11,489
5,872

880
767
5,162
5,107
2,724
585

510
160
787
767
545
222

10,850
5,645
27,257
26,628
18,968
7,660

5,058
1,170
6,077
5,726
4,060
1,666

110
142
651
621
590
251

5,044
6,659
28,775
27,355
17,129
10,226

1,748
1,781
5,755
5,545
2,915
2,650

502
151
717
657
445
212

18,199
8,222
45,481
59,655
27,547
12,488

5,259
2,284
7,495
8,701
4,667
2,054

211
145
477
466
224
242

16,480
12,029
40,958
40,006
19,599
20,609

4,525
5,158
7,135
6,757
5,265
5,492

545
240
499
476
500
176

42,166
29,285
60,480
57,580
56,062
21,528

8,782
6,214
10,957
10,068
5,701
4,567

15,258
1,186
11,692
551

565,850
52,549
521,191
15,161

60,517
7,959
51,214
2,119

24,796
2,074
21,981
1,355

860,805
72,551
762,679
47,079

154,864
18,066
112,708
5,466

18,678
1,548
16,579
1,179

857,544
69,244
745,457
52,849

124,547
15,245
107,188
6,204

52,575
5,550
28,078
2,056

1,988,012
205,921
1,725,408
125,620

287,574
52,480
247,884
17,705

16,151
1,847
15,555
1,095

1,570,106
160,415
1,545,006
95,774

215,105
22,621
185,267
15,551

20,058
5,766
15,155
1,157

2,444,475
464,541
1,859,897
140,454

518,058
69,276
242,856
19,575

65,711

6,624

4,627

160,5S2

17,741

4,091

184,275

19,124

6,999

450,170

41,527

4,516

575,802

55,555

5,645

441,757

56,480

2,514
150
555
750
450
5.149
611
1.150
451
250
151

5,552
8,996
19,908
11,872
86,265
16,887
51,055
12,581
6,541
5,564

675
1,427
5,755
2,785
15,106
2,967
4,594
1,908
878
1,149

542
952
1,164
900
5,551
1,253
1,952
963
650
100

11,616
52,056
40,575
50,729
186,245
42,682
66,471
54,065
22,270
5,580

1,990
5,591
8,045
5,551
51,100
6,020
8,844
5,862
5,056
687

251
782
1,000
461
5,165
885
1,075
855
552
221

11,115
55,857
44,748
20,655
142,167
58,864
48,416
56,740
23,678
10,106

1,588
5,781
9,406
3,642
24-,584
4,848
5,752
5,572
5,272
1,862

572
1,844
2,104
976
5,205
1,547
1,082
1,475
944
150

55,715
115,895
128,699
59,120
516,517
96,551
66,529
90,819
57,992
7,644

5,068
18,172
25,827
11,525
51,425
15,891
8,552
15,589
7,952
1,824

555
955
1,258
751
1,959
984
491
775
519
115

28,592
85,089
106,005
65,665
168,412
86,060
41,755
64,958
45,651
9,544

5,517
12.525
20.525
11,251
27,019
11,475
5,478
10,008
6,095
1,561

425
826
1,459
690
1,795
1,440
520
750
846
70

51,594
99,445
175,510
85,900
216,918
176,155
57,647
88,882
105,516
8,544

6,872
15,279
52,618
18,218
52,585
21,944
8,565
15,659
12,859
1,522

200
260
972
S8C

5,554
7,106
28,953
10,290

1,021
1,797
5,998
1,544

100
181
2,023
741

5,595
6,155
69,459
25,793

554
1,201
10,016
4,09C

100
252
1,706
551

4,45C
11,091
76,155
24,663

1,117
2,41C
11,741
4,116

155
574
2,471
945

9,155
25,461
150,902
58,685

1,666
5,822
22,472
7,01C

92
274
1,509
751

7,602
25,051
128,550
66,689

1,740
6,257
17,528
7,217

60
267
1,571
1,157

7,555
52,908
166,855
140,255

1,564
7,798
19,087
15,906

S6£*&££SSS 3 8823 3388838 2 2 883888388*8338

(dross receipts from business pi«-—

838*888»

« “I

■
‘■»'"’ I

'~1

’

I

•»— I

— I

•

*

'

*

■

•

Table 2* — Partnership returns of Income for 1945, with gross receipts from business or profession, by industrial groups and by gross receipts from business classes,
for all returnst
Number of returns, gross receipts from business or profession, and ordinary net income or deficit - Continued

Industrial groups - Continued

54
55
56
57
58
59
60
61

62

65
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

Service
Personal service
Hotels and other lodging places
laundries, cleaning, and dyeing
Photographic studios
Barber and beauty shops
Funeral service
Other personal service
Business service
Advertising
Automobile repair services and garages
Amusement
Motion picture theatres
Professional and social services
Accountants, auditors, and bookkeeping service
Medical and health services
Physicians, surgeons, and oculists
Dentists 10/
Other medical services
legal services
Engineering and architectural
services
Educational institutions and
agencies 10/
Other professional‘and social
services 10/
Other service and repair
Finance, insurance, and real estate
Finance
Investment trusts and investment
companies 10/
Security and conmodity exchange
brokers and dealers
Other finance 9/
Insurance agents, brokers, and services
Beal estate
Finance, insurance, and real estate
not allocable
Construction
General contractors
Special trade contractors
Construction not allocable
Agriculture, forestry, and fishery
Farming
Agricultural services
Fishery
Nature of business not allocable
For footnotes, see p. 23,

25 under
Gross
receipts
Number
from
of
returns business
or pro­
fession

(Gross receipts from business classes and money figures in thousands of doliate)
Gross receipts from business classes - Continued
30 under 40
40 under 50
50 under 75
75 under 100
1ÔÔ under 15Ô-----uros8
urose
Gross
Groes
Gross
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
receipts
receipts
receipts
receipts
receipts
net in­ Number
net in­ Number
net in­ Number
net in­ Number
net in­ Number
net in­
from
from
fi»om
firaei
from
come
of
come
of
of
come
corna
come
of
of
come
business
business
business
business
business
less
returns
less
returns
less
retorne
lese
returns
leas
less
returns
or pro­
or proor pro­
or pro­
or pro­
deficit
deficit
deficit
deficit
deficit
deficit
fession
fession
fession
fession
fession
30

4,278
1,328
400
363
HO
80
290
80
160
60
604
531
101
1,359
212

117,098
36,132
10,933
9,854
2,975
2,213
8,007
2,150
4,333
1,646
16,506
14,677
2,834
37,156
5,749

45,692
10,369
2,851
2,634
1,073
597
2,629
585
1,651
842
4,306
4,229
526
22,263
3,526

5,649
1,898
443
691
90
212
402
60
380
ISO
761
569
201
1,851
221

202,201
65,760
15,223
24,258
3,167
7,204
15,805
2,105
15,178
4,475
26,413
19,358
7,049
64,146
7,885

74,089
16,913
5,735
5,216
979
1,873
4,630
482
5,400
2,187
5,101
5,016
2,011
38,527
4,645

5,527
928
242
574
62
80
170

149,170
41,789
10,912
16,982
2,764
5,549
7,582

52,156
10,891
2,694
3,612
854
1,086
2,645

101
20
452
545
221
1,091
203

4,601
896
19,329
24,477
10,025
48,784
9,189

541
141

9,441
3,963

5,234
2,606

733
312

25,344
10,842

14,687
8,050

275
125

130
694
90

3,564
18,919
2,486

1,435
12,481
893

281
695
161

9,711
23,869
5,647

4,092
16,425
2,104

150
462
100

-

2,202
562
3,176
4,168
3,015
29,204
5,636

5,027
1,538
466
608
100
60
255
71
203
62
462
561
261
1,862
260

302,867
92,945
27,851
37,104
5,967
3,568
14,408
4,047
12,711
5,918
27,966
34,234
15,717
111,690
15,627

114,621
22,701
7)148
8,189
1,557
849
4,219
759
2,979
728
5,756
9,216
4,639
68,132
7,885

2,659
802
259
285
80
40
HO
50
144
62
166
360
194
1,033
HI

12,202
5,381

7,187
4,062

747
473

44,048
28'245

28,021
19,578

5,951
20,701
4,493

2,605
13,670
2,219

252
704
101

14,627
42,582
6,482

7,872
29,600
1,853

-

228,676
69,551
22,661
24,131
6,940«
5,485
9,486
2,628
12,545
5,348
15,986
53)202
16,678
89,505
9,995

87,769
15,031
4,865
4,099
1)818
'717
5,184
548
4,504
1,923
2,551
8,390
4,419
55,081
4)741

2,628
775
279
SSI
50
17
80
18
180
95
141
505
198
917
133

517,756
92)452
52)796
59,947
5)978
2,057
9,609
2)065
21,883
H,071
16,878
61,869
25,975
H I , 519
16)355

1 H , 146
19,297
7)100
6,746
l)512
'589
3,090
'460
5,718
2,298
2,896
16,662
7)824
65^422
7)962

54
55
56
57
58
59
60
61
62
63
64
65

387
272

55,155
23)236

22,268
17,460

513
155

37,719
18,203

21,932
12,630

H4
452
62

9,816
59,146
5,296

4,777
25,212
2,579

148
351
95

18,031
42,948
H)488

8,723
28)655
5)796

69
70
71
72
73
74

66
67

68

75
76
301
638
151

8,294
17,172
4,118

2,874
10,003
3,664

590
1,028
214

13,346
55,649
7,609

3,132
18,628
5,494

230
628
165

10,190
27,640
7,541

2,515
15,140
4,646

401
782
247

23,321
46,950
14,700

5,857
21,108
7,574

H4
457
159

10,107
58,588
13,686

2,212
16,842
8,084

HO
399
174

13,155
49)041
21,484

3,151
19,788
H ) 271

77
78
79
80

81

2,185

2,574

155

5,489

4,358

133

6,149

4,265

215

13,005

6,848

147

12,616

7,962

141

17,236

9,424

81

70
172
234
81

1,953
4,687
6,126
2,241

1,090
2,224
2,747
1,368

61
572
312
130

2,120
12,964
10,645
4,431

1,136
6,670
4,679
1,785

50
211
224
50

1,592
9,435
9,275
1,389

381
5,372
4,255
867

52
225
248
62

1,695
13,292
15,315
3'623

526
5,975
6,044
1,715

1
135
164
1

100
H,076
13,726
100

55
4,093
4,614
' 51

30
90
108
27

3,923
10)922
13,092
3)543

1,688
3)909
3)549
l)059

82
83
84
85

1,153
321
752
80
2,843
2,663
80
60
581

31,848
8,665
20,974
2,209
77,751
72,790
2,263
l,61g
15.902

7,500
1,808
5,167
525
20,829
19,764
279
629
4.236

1,618
485
1,032
101
4,423
4,013
150
190
566

55,068
16,714
35,012
3,542
152,633
138,163
5,590
6,574
19.174

12,291
3,809
7,931
551
56,303
33,530
388
1,857
5.642

1,060
366
664
SO
2,352
2,121
91
90
514

47,697
16,126
30,183
1,388
105,148
94,727
4,045
4,128
23.083

10,260
4,013
5,901
346
25,358
23,819
495
584
6.014

1,681
414
1,206
61
2,651
2,489
100
51
666

102,411
25,080
75,681
3,650
163,093
153,387
5,948
5,157
59.747

19,266
4,543
14,543
380
40,486
38,807
875
676
9.156

1,057
401
585
71
1,526
1,194
61
70
317

91,009
34,026
50,777
6,206
112,267
100)531
5,326
6,329
27.441

14,827
5,576
8)474
'777
21,680
19,931
547
1,573
6) 213

1,148
487
633
28
1,525
l)091
133
80
445

139,920
60,004
76)506
3)410
158)777
130)435
16)250
9)568
53)439

19,694
7)382
h )898
414
31,979
28)890
'926
1,893

10)414

86
87

88
89
90
91
92
93
94

Table 2. - Partnership returns of income for 1945, with gross receipts from business or profession, by industrial groups and by gross receipts from business classes,
for all returns:
Number of returns, gross receipts from business or profession, and ordinary net income or deficit - Continued

150 under 200

Industrial groups

1

All industrial groups

2 Mining and quarrying
5
4
5

6
7

8
9

10

11
1!
12
14
15
16
17
18
19

20
21
22
25
24
25

26
27
28
29
50
51
52
55
54
55
56
57
58
59
40
41
42
45
44
45
46
47
48
49
50
51
52
55

Crude.petroleum and natural gas
production
Other mining and quarrying
Manufacturing
Food and kindred products
Beverages
Tobacco manufactures 10 /
Textile-dll products Tineluding
cotton
Apparel and products made from fabrics
leather and products
Rubber products 10/
Lumber and timber basic products
Furniture and finished lumber products
Paper and allied products 10/
Printing and publishing industries
Chemicals and allied products
Petroleum and coal products 10/
Stone, clay, and glass products
Iron, steel, and products
Nonferrous metals and their products
Electrical machinery and equipment 10/
Machinery, except transportation
equipment and electrical
Autanobiles and equipment, except
electrical 10 /
Transportation equipment, except
automobiles 10/
Other manufacturing
Manufacturing not allocable
Public utilities
Transportation
Trucking, locals and warehousing
Other transportation
Communication and other public
utilities 12/
Trade
Wholesale
Retail
Department, general merchandise,
dry goods
Food stores, including market milk
dealers
Package liquor storee
Drug stores
Apparel and accessories
Furniture and house furnishings '
Eating and drinking places
Automotive dealers
Filling stations
Hardware
Building materials, fuel, and ioe
Second-hand stares, except dealers
in second-hand automobiles
Book and stationery stores 10/
Sporting goods 10/
Florists
Jewelry stores
Other retail trade 8/
Trade not allocable
For footnotes, see p. 23.

Number
of returns

Dross
receipts
Acorn
business
or pro­
fession

15,726 2,716,080
56,802
212
91
15,711
121
5,473
450
94

21,091
602,540
75,267
16,519

Dross receipts from business olasses - Continued
250 under 500
500 under 1 oOO

200 under 25Ô

Ordinary
come
less
deficit

Number
of returns

Dross
Ordinary Number
receipts
net inof refrom
turns
business
or pro­
fession deficit

416,786
6,269
2,971

9,687 2,160,583
141
51,656
76
16,871

3,298
102,811
8,958
2,534

65
2,457
326
58

14,785
549,398
72,951
12,982

Oross
Ordinary Number
recsipts
net inof refrora
turns
business
or prodeficit
fession

Oross
Ordinary Number
receipts
net in- of refrom
turns
business
or pro­
deficit
fession

Oross
reeeipts
from
business
or pro­
fession

Ordinary Number
of recome
turns
less
deficit

516,761 20,158 6,996,813
104,740
5,339
301
159
55,149
5,558

946,401
14,941
9,152

9,579 6,598,283
148
98,257
74
50,209

755,969
11,345
6,845

5,430 9.827.499
86,288
50
60,976
S3

815,647
14,021
n,437

49,591
142
5,595 1,971,202
264,461
744
38,210
109

5,789
513,042
28,140
6,309

74
48,028
2,981 2,060,071
485
534,470
50
54,520

4,500
272,319
53,061
4,618

25,312
17
1,657 2,898,981
691,448
365
86,963
44

2,584
299,145
46,559
7,445

1,801
90,569
7,875
1,831

Returns not
reporting
gross receipts
from bus Lness or
Oross
Ordinary
professi n 12/
reoeipta
Ordinary
from
oons
Number net inbusiness
less
of
ocne
or pro­
deficit
returns less
fession
deficit

5 000 and over

1.000 under 5.000

555 5,257,151
5,645
1
1
5,645
71
26
5

572,395
194,893
32,270

154, n 7
417
417
48,750
10,794
5,209

49,918 155,907
897 U/6,419
656 Jj/5,768
261
445
(10)
*“

11/853
Jj/728

TUO)
m

-

-

142

24,605

4,598

104

23,051

4,261

296

105,275

19,529

191

152,624

20,452

127

226,558

26,286

5

52,379

8,551

808
96

140,153
16,829

22,910
2,354

618
71

158,500
15,895

21,465
2,508

1,519
185

536,825
65,885

77,979
9,969

880
99

610,626
68,925

76,204
10,032

447
59

754,992
86,436

82,900
9,186

12
2

75,328
n,915

7,750
605

214
156

57,169
27,062

5,951
4,397

168
120

37,214
26,889

3,901
4,065

299
259

103,867
89,854

10,012
15,169

157
117

107,301
81,799

10,847
10,794

44
48

74,896
78,029

6,n 9
8,950

1
*

5,050

1,640

158
104

24,001
18,175

5,506
5,284

65
65

14,099
14,070

3,028
2,654

136
141

47,715
50,678

10,180
8,463

49
89

55,227
60,990

6,909
8,831

18
48

35,253
87,018

5,659
n,738

**

-

**

(10)
(10)

(10)
(10)

57
192
130

9,666
33,576
22,465

2,056
6,894
4,544

29
135
106

6,509
50,173
25,629

1,277
5,953
5,562

60
266
199

20,209
94,467
70,766

3,933
18,989
12,482

26
106
95

17,525
74,593
66,328

2,854
10,811
9,748

7
65
57

8,578
n o , 177
58,281

1,081
15,164
5,501

4
1

29,195
n,923

4,040
2,079

(10)
(10)

(10)
(10)
(10)

526

56,188

11,852

219

49,167

11,045

440

152,067

53,029

168

115,337

18,711

78

157,251

15,405

2

n,878

1,988

(10)

(10)

219
177
223
218
132
86

57,650
50,550
38,597
57,745
22,974
14,769

7,472
5,802
6,562
6,570
3,552
2,818

138
101
153
143
90
53

30,912
22,645
34,197
32,002
20,117
11,885

5,476
4,139
5,051
4,454
2,612
1,842

554
300
263
253
152
121

117,642
105,040
91,376
88,051
45,643
42,388

21,526
20,042
14,457
13,164
5,205
7,959

143
131
96
94
46
48

97,066
88,857
63,241
61,846
50,199
51,647

17,271
12,815
8,960
8,571
2,635
5,936

57
69
53
55
21
32

88,707
n9,819
85,256
85,256
30,676
54,580

15, n 4
13,396
7,n7
7,n7
1,535
5,582

1
1
1
1

19,922
5,687
5,687
5,687

«
2,988
458
458
458

(10)
(10)
164
154

185 1.600.520
157 1,408,918
19
155,915
6
48,260

56,052
59,652
12,609
6,567

m

(10)

131

(10)

41

(10)

(10)

(10)
52
68
(10)
(10)

934
577
527
(10)

4,424
5,027
1,248
(io)

*
9,263 1,597,247
415,682
2,594
6,271 1,078,374
511
88,117

197,156
46,119
159,887
12,650

5,459 1,216,045
1,727
385,948
3,357
742,080
284
63,359

142,565 11,338 Sf920.772
38,046 4,995 1,771,112
96,165 4,722 1,588,557
9,900
175,995
515

406,241
154,731
198,794
26,284

5,318 3,669,464
3,224 2,261,278
926,212
1,391
158,760
206

312,184
161,305
112,005
21,655

5,075 5,596,557
2,318 4.331.798
460
759,574
91
157,491

556,148
224,015
76,102
21,848

1,545

230,906

18,778

. 645

144,055

11,046

830

279,120

20,684

241

161,046

10,496

110

200,876

n,5n

4

29,585

1,051

(10)

(10)

186
269
656
290
637
743
94
270
369
27

51,981
46,002
113,804
49,967
108,963
128,516
16,089
45,927
63,590
4,691

5,772
6,071
21,151
9,551
16,111
15,419
1,614
6,615
7,874
801

88
125
588
155
328
443
32
127
217

2,515
5,770
15,530
6,161
10,228
11,380
689
4,261
5,564
943

138
146
694
225
420
652
39
94
181
20

44,492
47,585
254,605
73,488
142,619
223,908
13,151
30,236
59,520
7,145

5,569
5,907
39,814
15,881
20,098
25,072
999
4,577
6,715
890

25
35
230
47
86
259
17
18
43
5

16,694
22,868
153,390
29,913
56,556
160,196
11,122
12,298
28,920
5,540

2,076
2,071
24,817
5,795
7,451
17,355
1,074
1,606
5,127
546

6
10
75
6
25
57
4
5
16
2

8,918
21,954
125,004
7,393
56,041
83,417
5,014
8,079

682
1,773
14,805
1,136
3,304
8,557
816
680
2,982
240

1
4

5,195
26,766

689
5,021

2

14,614
-

635
-

(10)
1°
(10)
125
(10)
(10)

22

19,558
27,291
86,458
34,021
72,785
98,424
7,134
28,248
48,407
4,899

(10)
(10)
(10)
70
(10)
(10)
do)
(10)

11
144
687
598

1,881
24,662
117,952
105,191

557
5,651
12,454
11,150

8
88
565
595

1,762
19,506
80,889
88,017

551
8
4,422
121
626
8,642
8,354 1,621

2,511
39,615
212,396
561,103

626
8,750
18,621
52,716

1
48
147
705

869
32,068
96,152
481,974

144
6,221
7,589
38,874

2,083
5,413
36,033

2
9

25,sn
2,442

-

-

6
45
297

8,705
65,209
505,385

-

U,495
55,487

646
3,791

(30)
(10)

(10)
(10)

(10)
(10)

Table 2« — Partnership returns of income for 1945, with gross receipts from business or profession, by industrial groups and by gross receipts from business classes
for all returns:
Number of returns, , gross receipts from business or profession, and ordinary net income or deficit — Continued

69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
95
94

Service
Personal, service
Hotels and other lodging places
Tanneries, cleaning, and dyeing
Photographic studiosBarber and beauty shops
Funeral service
Other personal service
Business service
Advertising
Automobile repair services add garages
Amusement
Uotian picture theatres
Professional and social services
Accountants, auditors, and book­
keeping service
Medical and health services
Physicians, surgeons, and oculists
Dentists 10/
Other medical services
Legal services
Engineering and architectural
services
Educational institutions and
agencies 10/
Other professional and social
services 10/
Other service and repair
Finance, insurance, and real estate
Finance
Investment trusts and investment
companies 10/
Security and comnodlty exchange
brokers and dealers
Other finance 9/
Insurance agents^orokers, and service«
Real estate
Finance, insurance, and real estate
not allocable
Construction
General contractors
Special trade contractors
Construction not allocable
Agriculture, forestry, and fishery
Farming,
Agricultural services
Fishery
Nature of business not allocable
For footnotes, see p. 25.

come
less
deficit

of re­
turns

Gross
receipts
from
business
or pro­
fession

Ordinary
of ro­
come
turas
less
deficit'

Gross
receipts
from
business
or pro­
fession

Ordinary
comB
less
deficit

of re­
turns

Gross
receipts
frcm
business
or pro­
fession

Ordinary
eraos
less
deficit

of re­
turns

(brass
receipts
from
business
or pro­
fession

Ordinary
come
less
deficit

of re­
turns

1,054
502
101
140
13
6
32
7
81
44
41
207
92
561
45

181,950
52,346
17,656
24,196
2,747
1,050
5,515
1,182
14,113
7,696
6,962
55,787
16,006
61,881
7,828

58,124
10,387
3,746
4,037
533
148
1,725
198
5,252
1,387
1,181
8,604
4,786
52,064
3,571

544
147
43
76
15
2
9
2
47
18
25
129
53
174
19

120,787
52,683
9,589
16,904
5,254
461
2,013
462
10,413
4,015
5,641
28,826
11,862
58,287
4,258

37,364
6,586
2,081
2,986
750
56
584
129
2,137
589
936
6,843
3,284
19,759
1,888

965
262
115
118
16
2
8
3
102
59
32
222
84
505
31

331,778
90,406
59,509
40,254
5,961
791
2,688
1,203
54,860
20,666
10,435
77,874
29,688
104,298
10,727

97,905
17,458
8,253
6,895
1,130
69
897
214
7,442
3,497
1,781
16,504
8,142
51,122
4,675

390
102
56
30
8
3
4
1
53
38
10
99
30
118
12

260,228
67,905
38,295
19,265
5,522
1,654
2,755
614
35,772
25,444
6,2n
66,707
19,841
77,698
8,520

66,857
n,294
6,616
3,138
630
274
575
61
4,675
2,816
1,103
n ,818
5,335
57,502
5,664

150
50
21
5
2
•
2
26
22
2
42
7
45
8

272,923
52,888
41,023
6,304
3,428

61,280
6,968
5,758
552
548

9
2
1
1
•

•
2,155
58, 9 n
48,304
6,146
69,789
n,723
70,764
13,603

•
no
5,626
3,816
617
15,039
3,046
32,048
5,297

•
1
1
—
6
4

115
44

19,656
7,493

10,964
5,139

42
10

9,126
2,103

4,964
1,543

72
n

24,077
3,334

10,835
1,734

25
5

15,505
1,761

7,906
1,273

2
1

2,794
1,736

748
414

-

68
155
47

11,658
22,997
8,138

5^570
14,691
1,990

30
73
55

6,621
15,948
7,853

5,449
10,703
2,012

57
138
55

19,521
47,348
19,092

8,592
51,230
5,845

21
56
21

13,142
36,753
14,165

6,508
22,616
2,783

1
26
9

1,058
39,199
15,168

334
24,005
1,998

62
190
90

10,861
53,024
IS,731

2,636
12,613
7,064

22
103
56

4,937
23,152
12,655

1,103
7,949
5,547

42
276
177

13,905
96,029
63,189

3,598
33,505
25,704

8
138
no

5,935
97,356
78,352

467
23,828
20,219

5
193
174

14,425
447,551
416,760

169

60,455

22,736

no

78,352

20,219

171

412,674

15
7
8

9,476
4,255
5,253

•
2,502
775
332

5
8
6
5

504
203
79
22
129
n7
6
2
75

209,192
140,682
54,505
14,005
88,537
80,262
4,312
1,140
49.977

19,580
12,062
6,254
1,284
12,918
12,637
128
144
5.978

175
132
36
7
48
42
5

70

12,285

6,151

48

10,825

4,613

20
45
46
11

3,446
7,521
7,897
1,875

933
2,441
2,402
686

7
20
22
5

1,605
4,484
4,818
1,195

651
1,063
1,454
85

7
50
57
12

2,437
16,701
12,525
3,614

752
5,767
3,327
707

615
314
285
16
541
460
54
24
155

106,428
54,246
•49,478
2,704
92,765
78,876
9,274
4,109
26.729

12,917
5,690
6,842
385
15,506
14,271
377
769
4.828

584
211
159
14
526
276
52
16
120

85,683
47,176
55,423
3,084
72,595
61,442
7,110
5,604
27.052

10,546
5,101
4,892
555
13,761
12,640
256
811
5.817

768
438
288
42
425
564
52
8
207

264,935
151,338
98,529
15,068
144,933
124,228
17,653
2,689
71.048

30,969
15,592
13,524
2,055
22,825
21,593
963
482
12.518

mm

13,257
1,352
632
720
«.
m

mm

mm

mm

mm

12,702
12,702
am
57,910
30,751

297
297
«•
•
11,588
10,728

1,482
611
581
(10)
(10)
(10)
354
(10)
(10)
185
(10)
252
(10)

8,547
4,595
4,389
(10)
(10)
(IO)
2,414
(10)
(10)
376
(10)
1,324
(10)

(10)
(10)

(10)
(10)
(10)
(10)

-

-

"

-

•
2

27,159

860

(10)
(10)
121

982
55,105
48,661

67
64

837,062
821,450

29,218
28,552

(10)
43,831
3,876
1,789

(10)
147,781
28,410
9,456

47,041

64

821,450

28,352

5SS

12,528

4,086
13,962
8,558
8,271

1,620
2,926
1,472
2,046

•
1

5,350
10,262

••
790

1,554
(10)
38,911
954

6,446
(10)
116,662
2,174

318,084
248,748
57,738
n,598
76,721
67,983
7,668

25,7 U
18,646
5,467
1,598
7,701
7,266
572

14
10
3
1
•

96,107
71,661
19,133
5,313
-

3,300
1,407
1,774
119
-

54.170

2.705

-

29

85,747
15,135
8,992
6,143

2

mm

•

45.138

7.421

5

78

«

3

197
124
U/147
ns
T lo)
(10)
(10)
(10)
1,186 11/1.180
1,094 W 1 . 4 7 4
(10)
(10)
(10)
(10)
782
S.S06

54
55
56
57
58
59
60
61
62
65

83882

54
55
56
57
58
59
60
61
62
65
64
65
66
67
68

Ordinary

3 3 238338

of re­
turns

Gross
receipts
from
business
or pro­
fession

0 §333

Industrial groups - Continued

Returns not
reporting
gross receipts
from business or
Gross
Ordinary profession 12/
receipts
Ordinary
from
come
Number net in­
business
less
come
of
or pro­
deficit
returns less
fession
deficit

5.000 and over

1.000 under 5.000

8088

(Cross receipts from business classes and money figures in thousands of dollars)
Gross receipts from business classes - Continued
500- under 1
200 under 250
250 under 500

150 under 200

86

87

88
89
90
91
92
93
94

Table 3. - Partnership returns of income for 1945, by States and Territories, for returns with ordinary net income and returns
with no ordinary net income: Number of returns, total receipts, and ordinary net income or deficit

Total number
of returns 14/

States and Territories 13/

1
2
3

4
5

6
7

8
9

10

11
12
15
14
15
16
17
18
19

20
21
22

25
24
25
26
27
28
29
30
51
32
S3
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50

Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New ïprk
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah

Vermont
Virginia
Washington 13/
West Virginia
Wisconsin
Wyoming

s ,

Total

51
For

Ï3

Ctl

(Money figures in thousands of dollars)
Returns with ordinary net income 6/
Ordinary
Total
net income
receipts
Number

Returns with no ordinary net incc>me 6/
Ordinary
Total
receints
net deficit
Number

6,581
2,965
5,900
63,958
7,743
7,243
1,864
3,254
10,064
7,547
1,974
3,923
45,447
14,513
25,608
11,213
8,568
7,700
2,972
7,087
11,841
26,152
17,910
5,304
19,325
4^407
9,218
1,164
1,621
16,371
2,757
76,718
8,247
3,499
26,598
8,631
12,667
34,156
2,379
3,532
4,434
7,505
31,490
2,644
1,466
5,661
13,243
5,506
15, §95
2.405
'

5,960
2,575
5,311
57,088
7,142
6,814
1,688
3,010
8,919
6,908
1,845
3,575
41,616
13,740
23,913
10,041
8,005
6,914
2,756
6,434
10,566
23,996
16,821
4,680
17,991
4,024
8,641
989
1,446
13,119
2,339
70,487
7,568
3,318
24,864
7,802
11,547
30,804
2,197
3,243
4,181
6,821
27,934
2,370
1,174
5,280
12,012
4,579
14,641
2,192

587,509
211,883
412,926
5,382,572
538,434
451,405
123,011
278,068
706,446
707,141
139,112
193,299
3,700,795
876,078
854,649
602,323
479,969
632,537
127,463
505,909
1,122,937
1,807,564
970,995
396,897
1,165,953
136,812
482,513
85,670
82,237
1,198,255
140,288
8,723,845
699,436
146,474
1,650,890
549,335
806,414
3,022,749
217,094
302,928
160,760
806,682
2,391,391
170,521
57,47Q
425,572
885,356
200,850
669,999
74,525

73,887
32,043
54,866
881,833
74,627
69,521
16,044
53,601
108,432
94,974
27,967
29,212
526,645
128,047
134,526
83,822
71,104
94,937
19,203
76,268
143,462
279,808
124,246
46,523
160,751
28,605
64,619
18,768
12,029
182,026
21,472
1,244,599
96,389
27,030
269,032
80,106
124,292
414,249
30, 593
32,573
23,137
88,681
367,860
25,412
6,719
62,807
150,694
34,134
109,141
13,891

611
330
589
6,659
571
399
176
244
1,135
629
129
338
3,640
773
1,655
1,162
563
766
216
652
1,275
2,116
1,028
614
1,294
383
577
165
Ì75
1,162
408
6,069
678
181
1,652
819
1,049
3,342
182
289
253
674
3,415
274
262
371
1,211
897
904
213

15,661
12,604
19,379
212,604
14,983
7,371
7,993
2,767
37,797
65,536
3,498
5,728
80,497
21,790
20,878
24,716
11,367
23,830
3,999
17,266
30,443
40,772
22,541
27,124
36,952
7,628
7,516
3,900
3,433
21,823
5,833
155,292
19,446
3,260
29,332
24,176
29,746
76,103
3,557
8,752
1,674
25,527
102,502
6,533
2,212
10,044
29,123
11,037
9,630
2,978

1,772
1,836
2,004
24,083
2,414
1,442
869
1,018
3,298
3,521
210
740
9,401
1,801
1,850
3,046
1,318
4,119
229
1,471
3,058
5,259
1,455
3,103
3,265
1,935
781
801
257
1,847
1,415
20,651
1,749
259
2,993
4,081
3,061
16,681
315
548
278
2,070
16,013
608
375
995
3,428
1,485
1,174
1,115

628,570

573,880

47,063,946

6,935,211

53,169

1,369,153

167,496

foo'fcno'fces, see p. 23.

c+O
M

so c + H * o

rn

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w

w

C+- o
i i. .*•*

^ f

Ç ? y

p o> atf fu

act d-

o tu h*h d- a h o

1
2

3
4
5
6
7

8
9
10
II

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

- 23 Footnotes

1/ Industrial groups are based
on the standard industrial classi­
fication« The industrial group is
determined on the basis of informa­
tion submitted on the report Form
1065 and on attached schedules, and
is the-business activity from which
all or a greater part of total re­
ceipts was derived«
Zj Entries for rents and royal­
ties represent gross amounts received,
the various costs being shown under
"Deductions •11
¿J "Other income" includes fees
and commissions not includible else­
where, refunds, recoveries, discounts,
and Government payments in the case
of agriculture.
4/ Depletion is allowable as a
deduction in determining the taxable
net income from mines, oil and gas
wells, timber, and similar resources«
Owners of royalty interests, as well
as operating owners, lessors, and
lessees, are each entitled to their
respective shares of the allowance.
¿ / Under "Other deductions" are
costs of such items as transporta­
tion, advertising, public utilities,
engineering and legal services, not
included elsewhere.
§ J Ordinary net income is the
difference between total receipts and
total deductions. If deductions ex­
ceed total receipts the result is
ordinary net deficit. The following
items cannot be deductedg contribu­
tions, losses from sale of capital
assets, net operating losses, salaries
or wages or other remuneration paid
to partners.
H / Compiled net profit is ordi­
nary net income plus capital gains less
capital losses plus contributions.

The difference between compiled net
profit less net deficit and compiled
net profit is compiled net deficit of
those with no ordinary net income«
8 / "Other retail trade" in­
cludes news dealers and newsstands.

9/ "Other finance" includes
investment trusts and investment
brokers.
1 0 / All returns with gross re­
ceipts of $100,000 or more were tabu­
lated, but those with gross receipts
below $100,000 were sampled 10 per­
cent on a bundle basis. In a number
of subclasses this resulted in
samples of 5 or less returns, which
means 50 or less on an estimated
population basis. Since these fre­
quencies are subject to sampling
errors exceeding 100 percent, they
are not shown separately.
The sampled area accounts for
85 percent of the total number of
partnerships, but generally less
than half of the aggregates shown
for other items. Hence, estimates
of money aggregates are subject to
much less sampling error than are
the estimates of the numbers of
partnerships.

11/ Ordinary net deficit.
12/ Returns not reporting gross
receipts from business or profession
include those partnerships whose
major source of receipts was rents,
interest, dividends, etc.
15/ Alaska is included in the
State of Washington since it is a
part of that collection district.
14/ Includes 1,521 inactive part­
nerships that reported neither re­
ceipts nor deductions.

This is the procedure for the “long form” return.

The simpler

forms of return are processed even more easily^r^t
Fifteen such machines m i l hewing tailed on a test basis in

n
New York, Cleveland, Chicago, Detroit and Los Angeles, as auxiliaries
to equipment already being tested in those cities.

Other punch card

equipment is being tested in Philadelphia and Baltimore.
These machines will be used for several mass production jobs,
including the computation of tax on Form 10/+0A returns, the verifica­
tion of the taxpayer's figures on other individual income tax returns,
the preparation of assessment lists, indices, bills, return schedules,
etc.
Other types of mechanization, which have shown potentialities
for speeding up existing procedures, also are being tested in actual
use.

Officials

will decide.which machines are most suitable and

A
economical for Revenue Service work, and whether different types should
be chosen for small and large offices.

Principal tests of other equip­

ment are being made at Boston, Indianapolis, Jacksonville and Dallas.
Another major mechanization program
afcimffc is the installation of microfilm equipment so that bulky records
and files can be eliminated, with a saving of floor space, file cases,
and labor.

—

- 2 -

These tasks must be performed oft
-ffog+

r i^

a

fact t.ittip srherinl P .---A

to dispose of returns for one year before

those for the following year $rrive, to minimize interest and
operating costs, to avoid delays w h ^ M S a * * nilnornrnaflft the collec­
tion of unpaid taxes, to permit the mailing of refund checks without
delay, and to avoid diverting personnel from enforcement tasks.
The need f^TH ^ eedy accounting machines a^oco to tfeo«JStaBaf>u
¿LstJt-*

.

^ T l _ / *******

r j i i r i n - t h e w a r ^ - w h e c t b p m L u a e & £ i n n n ^ p t a x jo t u m r i^ T h r r n n w i

r of individual Income.tax returns was 6,200,000

However, certain machines were not available until after uhe war.
Since they became available, the Bureau’s experts have been selecting
the machines adaptable to Bureau procedures, and working out detailed
plans for utilizing such machines.
Most spectacular of the new machines is the electronic calcula­
tor

which is a smaller adaptation of the imiAfai. millAow^tto^Aag

’’electric brain” devices developed during the war for the use of the
armed services.

In using this machine, an operator copies on a punch

card a few basic figures from a taxpayer's return.

Tfllhen the punch card

is fed into the machine, it automatically subtracts exemptions and
deductions, computes «tentative tax" according to the graduated scale
of statutory rates, conputes and subtracts the "percentage reduction ,
subtracts the taxpayer’s prior payments through withholding and
estimated tax, compares the result with the taxpayer’s own computation,
and registers the difference, if any —- all in less than one second

J

George J. Schoeneman, Commissioner of Internal Revenue, todaydisclosed details of the mechanization program for internal revenue
collectors’ offices which Secretary Snyder described briefly in the
recent Annual Report of the Secretary of the Treasury on the State
of the Finances*
The Commissioner said electronic calculators which need only
a fraction of a second to compute income tax liability from figures
on tax returns are among the business machines being tested*

The

mechanization program is expected to free an increasing percentage
of the Revenue Service’s manpower for enforcement work,

The Bureau and the offices of the Collectors of Internal Revenue
must process returns by the millions, Commissioner Schoeneman pointed
out.
Last year, there vrere about 53,000,000 individual income tax
returns alone*

Adding various corporation, excise, enployment and

other returns, Revenue Service offices must handle approximately
n
£0,000,000 returns a year, not to mention 135,600,000 information
docume^4"0

assessment lists.

Payments and lack of payments must be verified,

tax computations must be made or verified, bills must be prepared
for unpaid taxes, schedules must be prepared for refunds due tax­
payers, and so forth.

TREASU RY DEPARTM ENT
Information Service

IMMEDIATE RELEASE,
Wednesday. February 15. 1950.

WASHINGTON, D .C .

S-2254-

George J. Schoeneman, Commissioner of Internal Revenue, todaydisclosed details of the mechanization program for Internal Revenue
Collector's offices which Secretary Snyder described briefly in the
recent Annual Report of the Secretary of the Treasury on the State of
the Finances.
The Commissioner said electronic calculators which need only a
fraction of a second to compute income tax liability from figures on
tax returns are among the business machines being tested. The mechan­
ization program is expected to free an increasing percentage of the
Revenue Service's manpower for enforcement work.
The Bureau and the offices of the Collectors of Internal Revenue
must process returns by the millions, Commissioner Schoeneman pointed
out.
Last year, there were about 53,000,000 individual income tax
returns alone. Adding various corporation, excise, employment and
other returns, Revenue Service offices must handle approximately
83,000,000 returns a year, not to mention 135,600,000 information
documents .
All of these returns must be entered either in the accounting
records or the assessment lists. Payments and lack of payments must
be verified, tax computations must be made or verified, bills must be
prepared for unpaid taxes, schedules must be prepared for refunds due
taxpayers, and so forth.
These tasks must be performed quickly in order to dispose of re­
turns for one year before those for the following year arrive, to
minimize interest and operating costs, to avoid possible delays in the
collection of unpaid taxes, to permit the mailing of refund checks
without delay, and to avoid diverting personnel from enforcement tasks.
Speedy accounting machines are essential to aid in processing the
greatly increased volume of income tax returns. The number of individ­
ual income tax returns was 6,200,000 for 1938; it has increased to

-

2

-

approximately 53,000,000, However, certain machines were not avail­
able until after the war. Since they became available, the Bureau’s
experts have been selecting the machines adaptable to Bureau proced­
ures, and working out detailed plans for utilizing such machines.
Most spectacular of the new machines is the electronic calcula­
tor, which is a smaller adaptation of the ”electric brain11 devices
developed during the war for the use of the armed services. In using
this machine, an operator copies on a punch card a few basic figures
from a taxpayer’s return. When the punch card is fed into the machine,
it automatically subtracts exemptions and deductions, computes ’’tentative
tax” according to the graduated scale of statutory rates, computes and
subtracts the ’’percentage reduction”, subtracts the taxpayer’s prior
payments through withholding and estimated tax, compares the result
with the taxpayer’s own computation, and registers the difference, if
any — all in less than one second.
This is the procedure for the ”long form” return. The simpler
forms of return are processed even more easily on the same machine,
Fifteen such machines have been installed on a test basis in
New York, Cleveland, Chicago, Detroit and Los Angeles, as auxiliaries
to equipment already being tested in those cities. Other punch card
equipment is being tested in Philadelphia and Baltimore,
These machines will be used for several mass production jobs,
including the computation of tax on Form 104-QA returns, the verifica­
tion of the taxpayer’s figures on other individual income tax returns,
the preparation of assessment lists, indices, bills, return schedules,
etc.
Other types of mechanization, which have shown potentialities for
speeding up existing procedures, also are being tested in actual use.
Officials will decide on the basis of these tests which machines are
most suitable and economical for Revenue Service work, and whether
different types should be chosen for small and large offices, Prin^
cipal tests of other equipment are being made at Boston, Indianapolis,
Jacksonville and Dallas,
Another major mechanization program is the installation of micro­
film equipment so that bulky records and files can be eliminated, with
a saving of floor space, file cases, and labor.

- 0O0-

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 1*2

and 117 (a) (1) of the Internal Revenue Code* as amended by Section

of the

Revenue Act of 19hl, 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 sale or'
redemption at maturity during the taxable year for which the return is made, as
ordinary gain or lpss.
Treasury Department Circular No. I4.I8 , as amended, and this notice, prescribe
the terms of the Treasury bills and govern the conditions of their issue.
of the circular may be obtained from any Federal Reserve Bank or Branch.

Copies

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 bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or ail 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 February

23,

1950

, in cash or other immediately avail-

able funds or in a like face amount of Treasury bills maturing
Cash and exchange tenders will receive equal treatment.

February 23. 1930 »

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 supplemen­
tary 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

•Exhibit dt
ALFHAv"

T im s u K T ^ m p m T m m
Jiashington

s/
FOR RELEASE, MORNING NEWSPAPERS*

_ ^ V

n
^

Friday, February 17, 1050. ,. __
i±$

The Secretary of the Treasury, by this public notice, invites tenders for
$ 1,000,000.000

i

91 -day Treasury bills, for cash and

or thereabouts, of

■

w

in exchange for Treasury bills maturing

February 23, 1950

, to oe issued on

ijsw
a discount basis under competitive and non-competitive bidding as hereinafter
provided.

The bills of this series will be dated

ap y p 3

iq ^ q

, and

fix
will maturdMay 2 5 , 1950
—

interest.

, when the face amount will be payable without
------------------------- --

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, February 20, 1950

Tenders vri.ll 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
theref o r .
Tenders m i l 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

r e l e a s e m o r n in g n e w s p a p e r s ,

F rid a y . February 17 r 1950»

S-2255

The S e c r e ta r y o f the 'Treasury, by t h is p u b lic n o t ic e , in v it e s
tenders fo r $ 1 ,0 0 0 ,0 0 0 ,0 0 0 , or th erea b o u ts, o f 91-day Treasury
b i l l s , fo r cash and in exchange fo r Treasury b i l l s m aturing
February 23, 1950, to be issu ed on a d isco u n t b a s is under
com petitive and n o n -co m p e titive b id d in g as h e r e in a fte r p ro vid ed .
The b i l l s o f t h is s e r ie s w i l l be dated February 23, 1950, and w i l l
mature May 25, 1950, when the fa c e amount w i l l be payable w ithout
in t e r e s t . They w i l l be issu ed in bearer form o n ly , and in
denominations o f $1 ,0 0 0 , $5>000, $10,000, $100,000, $ 5 0 0 , 0 0 0 , and
$1,000,000 (m atu rity v a lu e ) ,
Tenders w i l l be receiv ed a t Fed era l Reserve Banks and Branches
up to the c lo s in g hour, two o ’ c lo c k p .m ,, E a ste rn Standard tim e,
Monday, February 20, 1950. Ttod&rs w i l l not be receiv ed a t the
Treasury Departm ent, W ashington. Each tender must be fo r an even
m ultiple o f $ 1 ,0 0 0 , and in the case o f co m p etitive tenders the'
price o ffe r e d must be expressed on the b a s is o f 100, w ith not more
than three d e cim a ls, e , g . , 99*925* F r a c tio n s may not be u sed. I t
is urged th a t tenders be made on the p rin te d forms and forwarded in
the s p e c ia l envelopes which w i l l be sup plied by Fed era l Reserve
Banks or Branches on a p p lic a t io n th e r e fo r .
Tenders w i l l be receiv ed w ithout d e p o sit from in corp orated
banks and t r u s t companies and from re sp o n sib le and recognized
dealers in Investm ent s e c u r i t i e s . Tenders from others must be
accompanied by payment o f 2 percent o f the fa c e amount o f Treasury
b i l l s ap p lie d f o r , un less the tenders are accompanied by an express
guaranty o f payment by an incorp orated bank or t r u s t company *
Im m ediately a f t e r the c lo s in g hour, tenders w i l l be opened a t
the F e d era l Reserve Banks and Branches, fo llo w in g which p u b lic
announcement w i l l be made by the S e cre ta ry o f the Treasury o f the
amount and p r ic e range o f accepted b i d s . Those su b m ittin g tenders
w ill be ad vised o f the acceptance or r e je c t io n t h e r e o f. The
Se cretary o f the Treasury e x p re ssly rese rv es the r ig h t to a cce p t or
r e je c t any or a l l te n d e rs, in whole or in p a r t , and h is a c tio n in
any such re sp e ct s h a ll be f i n a l .
S u b je c t to these r e s e r v a tio n s ,
n on -com petitive tenders fo r $200,000 or le s s w ithout sta te d p r ic e
from any one bid der w i l l be accepted in f u l l a t the average p r ic e

2
( in three decim als) o f accepted co m p etitive blcUs• Settlem en t fo r
accepted tenders in accordance w ith the "bids must bo made or
completed a t the F e d era l Reserve Bank on February 23, 1950, in cash
or oth er im m ediately a v a ila b le fun&s or in a lik e fa c e amount o f
Treasury b i l l s m aturing February 23* 195$* Cash and exchange
tenders w i l l r e c e iv e equal tre& tm ent. Cash adjustm ents w i l l be
made fo r d iffe r e n c e s between the par valu e o f m aturing b i l l s
accepted in exchange and the is s u e p r ic e o f the new b i l l s .
The income d erived from Treasury b i l l s > whether in t e r e s t or
g a in from the s a le or o th er d is p o s it io n o f the b i l l s , s h a ll not
have any exem ption, as su ch , and lo s s from the s a le or other
d is p o s itio n o f Treasury b i l l s s h a ll not have any s p e c ia l treatm ent,
as su ch , under the In te r n a l Revenue Code, or laws amendatory or
supplementary th e r e t o . The b i l l s s h a ll be s u b je c t to e s t a t e ,
in h e r ita n c e , g i f t or oth er e x c is e t a x e s , whether F e d e ra l or S t a t e ,
but s h a l l be exempt from a l l ta x a tio n now or h e r e a fte r imposed on
the p r in c ip a l or in t e r e s t th e r e o f by any S t a t e , or any o f the
p o sse ssio n s o f the U n ited S t a t e s , or by any l o c a l ta x in g a u th o r ity .
For purposes o f ta x a tio n the amount o f d isco u n t a t which Treasury
b i l l s are o r i g i n a l l y so ld by the U n ited s t a t e s s h a ll be considered
to be i n t e r e s t . Under S e c tlb h s ^-2 and 11? (a) (1) o f the In te r n a l
Revenue Code, as amended by ¿ b e tio n 115 o f the Revenue A ct o f 19^1>
the amount o f d isco u n t a t which b i l l s issu e d hereunder are so ld
s h a ll not be considered to accrue u n t i l such b i l l s s h a ll be s o ld ,
redeemed or otherw ise disposed o f , and such b i l l s are excluded
from c o n sid e r a tio n as c a p ita ,! a s s e t s . A c c o r d in g ly , the oVher o f
Treasury b i l l s (o th er than l i f e insurance companies) issu e d here­
under need in clu d e in h is income ta x retu rn only the d iffe r e n c e
between the p r ic e paid fo r such b i l l s , whether on o r ig in a l issu e
or on subsequent purchase, and the amount a c t u a lly re ce iv e d e ith e r
upon s a le or redemption a t m atu rity during the ta x a b le year fo r
which the re tu rn i s made, as ordinary g a in or l o s s .
Treasury Department C ir c u la r No. 4 l8 , as amended,
t h is
n o tic e p r e s cr ib e the terms o f the Treasury b i l l s and govern the
c o n d itio n s o f t h e ir is s u e . Copies o f the c ir c u la r may be obtained
from any F e d e ra l Reserve Bank or B ranch.

oOo

%*

FOR IMMEDIATE RELEASE
February 17, 195>0

The Bureau of Customs announced today that from the beginning
of the quota year on February 1 to February 17 , 19£0, inclusive,
22,639,31\k pounds of cotton having a staple of 1-1/8 inches or more
but less than 1-11/16 inches have been authorized release under the
global quota of ii5>,656,U2Q pounds prescribed in the President's
Proclamation of September £, 1939, as amended.
Of the 22,639,314+ pounds of such cotton authorized release,
22,£62,726 pounds are of Egyptian origin and 76,618 pounds are of
Peruvian origin.

TREASU RY DEPARTM ENT
Information Service

WASHINGTON, D .C .

IMMEDIATE RELEASE,
Friday^ J?ebruary 17, 1950 »

S-2256

The Bureau of Customs announced today that
from the beginning of the quota year on
February 1 to February 17, 1950, inclusive,
22,639,344 pounds of cotton having a staple of
1-1/8 inches or more but less than 1-11/16
inches have been authorized release under the
global quota of 45,656,420 pounds prescribed
in the President’s Proclamation of September 5,
1939, as amended.
Of the 22,639,344 pounds of such cotton
authorized release, 22,5^2,726 pounds are of
Egyptian origin and 78,618 pounds are of
Peruvian origin.

0 O0

with the assignments on the hoods surrendered.
T.

A S S 1 « M

OF REGISTERED BONDS

X. Treasury Bonds of 19 $0 -$2 in registered fora tendered in paym
ent for
notes offered hereunder should be assigned by the registered payees or
assignees thsreof to *Ths Secretary of the Treasury for exchange for Treasury
Rotes of Series A~19$$ to be delivered to

», in accordance

with the general regulations of the Treasury Departm
ent governing assignments
for transfer or exchange» and thereafter should be presented and surrendered
with the subscription to a Federal Reserve Bank or Branch or to the Treasury
Department, Division of loans and Currency, Washington, D
« C. The bonds m
ust
be delivered at the expense and risk of the holders.
V I,

GENERAL PROVISIONS

1* As fiscal agents of ths United States, Federal Reserve Banks are
authorised and requested to receive subscriptions, to m
ake allotments on the
basis and up to the am
ounts indieated by the Secretary of the Treasury to
the Federal Reserve Banks of the respective Districts» to issue allotment
notices, to receive paym
ent for notes allotted, to m
ake delivery of notes
onfull-paid subscription* allotted, and they m
ay issue interimreceipts
pending delivery of the definitive notes«
2« The Secretary of the Treasury m
ay at any time, or fromtime to time,
prescribe supplemental or am
endatory rules and regulations governing the offer­
ing, which will be com
m
unicated promptly to the Fe<teral Reserve Banks*

JOHNW
* SNIDER,
Secretary of the Treasury.

* 2 -

3*

The not«« will be acceptable to secure deposits of public moneys«

They will not be acceptable in payment of taxes«
b*

Bearer notes will be Issued In denominations of #1,000, #$,000,

#10,000, #100,000 and #1,000,000«

The notes w i n not be issued In registered

fora«
$•

The notes will be subject to the general regulations of the Treasury

Department, now or hereafter prescribed, governing United States notes*
h i * subscription

1«

im A u m w m

Subscriptions will bs received at the federal Reserve Banks and

Branches and at the Treasury Department, Washington«

Banking institutions

generally may submit subscriptions for account of customers, but only the
Federal Reserve Banks and tbs Treasury Department are authorised to act as
official agencies*
2*

The Secretary of the Treasury reserves the right to reject any sub*

scrlption, in whole or in part, to allot less than the amount of notes applied
for, and to d o s s the books as to any or all subscriptions at any time with­
out 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«
17«
1«

PAYMENT

Payment at par for notes allotted hereunder must be made on or before

March 1$, 1950, or on later allotment, and may be made only in Treasury Bonds
of lf$0-$2, called for redemption March 1$, 19$0, which will be accepted at
par, and should accompany the subscription«

final interest due March 1$ on

bonds surrendered will be paid, in the case of coupon bonds, by payment of
March 1$, 19$0 coupons, uhieh should be detached by holders before presentation
of the bonds, and in the case of registered bonds, by checks drawn in accordance

tmiTED STATES OF AMERICA
1-1/2 PERCEMT TREASURT MOTES Of SERIES A-1955
Bated and bearing intereet from March 15# 1950

Due March 15, 1955

Interest payable March 1$ and September 15
treasori depaw msmt,

iPSa
Department Circular Mo* 859
— -—
Fiscal Service
Bureau of the Public Debt

Office of the Secretary,
Washington» February 17» 1950»

I*
1.

QFFERIK0 OF MOTES

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 notes of the united States, designated
1-1/2 percent Treasury Motes of Series A-1955# in exchange for 2 percent
Treasury Bonds of 1950-52, dated October IF, 191*2, due March 1$» 1952, called
for redemption March 15, 1950»
II*
1*

DESCRIPTIGR OF BOTES

The notes d l l be dated March 15» 1950» and will bear Interest from

that date at the rate of 1-1/2 percent per annua, payable semiannually on
September 15» 1950, aid thereafter on March 15 and September 15 i» each year
until the principal amount becomes payable.

They will mature March 15» 1955»

and will not be subject to call for redemption prior to maturity»
2«

The income derived from the notes shall be subject to all taxes now

or hereafter imposed under the Internal Revenue Code, or laws amendatory or
supplementary thereto»

The notes shall be subject to estate, inheritance,

gift or other excise taxes, whether Federal or State, but shall be exempt
from jTi 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.

ba*l« and up to the aaount# indicated by the Secretary of the Treasury to
tba Fédéral Reserve Banks of the respective Districts, te Issus allotasnt
notices » to reçoive payænt for notes allotted, to make dslivery of notes
on full-paid subseriptions allotted, and thagr aay issue intérim reoeipts
pending delivery of the definitive notes*
2#

The Sacretary of the Treasury aay at any tirne, or fro» tins to t iæ

prescribe supplémentai or amend&tory rules and régulations govemlng the
offering, uhich will be comraunicated promptly to the Fédéral Reserve Banks*

JOHH W. Sïïmm,
Sacretary of the Treasury.

it» Beartr notes will be issued in denominations of $1,000, $5,000,
$10,000, $100,000 and $1,000,000.

The notes will not be issued in regis­

tered form.
5»

The notes will be subject to the general regulations of the Treasury

Department, now or hereafter prescribed, governing United States notes*
HI.

1*

SBBSCRIPTIOH ABD ALLOTMEBT

Subscriptions will be received at the Federal Reserve Banks and

Branches and at the Treasury Department, Washington*

Banking institutions

generally may submit subscriptions for account of customers, but only the
Federal Reserve Banks and the Treasury Department are authorised to act aa
official agencies*
2*

The Secretary of the Treasury reserves the right to reject any sub­

scription, in whole or in part, to allot less than the amount of notes
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*
in full*

Subject to these reservations, all subscriptions will be allotted
Allotment notices will be sent out promptly upon allotment*
If*

1«

PAIMERT

Payment at par for notes allotted hereunder must be made on or be­

fore March 1, 1950, or on later allotment, and may be made only in Treasury
Certificates of Indebtedness of Series C-1950, maturing lurch 1, 1950, which
will be accepted at par, and should accompany the subscription*
f»

1«

M

l

PR0TISIGMS

As fiscal agents of the United States, Federal Reserve Banks are

authorised and requested to receive subscriptions, to make allotments on the

UNITED STATES OP AMERICA
1 - l A PERCENT TREASURY NOTES

CP SERIES

Dated and bearing interest from March 1« 1950

1950
Department Circular Ho. 358

B-1951

Due July 1, 1951

TREASURY DEPARTMENT >
Office of the Secretary«
Washington, February 17, 1950.

Fiscal Service
Bureau of the Public Debt
I.
1.

OFFERING OF NOTES

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 notes of the United States, designated
1-l/h percent Treasury Notes of Series B-1951, in exchange for Treasury Cer­
tificates of Indebtedness of Series C-1950, maturing March 1, 1950.
II*
1*

DESCRIPTION OF NOTES

The notes will be dated March 1, 1950« and will bear interest from

that date at the rate of 1 - l A percent per annum, payable on a semiannual
basis on January 1 and July 1, 1951»

they will mature July 1, 1951» and

sill not be subject to call for redemption prior to maturity*
2«

The income derived from the notes shall be subject to all taxes nos

or hereafter imposed under the Internal Revenue Code, or lass amendatory or
supplementary thereto*

The notes shall be subject to estate, inheritance,

gift or other excise taxes, whether Federal or State, but shall be exeapt
from all taxation nos 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*
3*

The notes sill be acceptable to secure deposits of public moneys*

They will not be acceptable in payment of taxes.

EE»® , m an s hssspapers,
Friday, F«bru*nr 17. 1950.

~5

Z - 2---- 0'

^erttary of the treasury Snyder today announced the offering, through
the Federal Reeerve Bank», of 1-1/lt percent Treasury Kote» of aerie» S-1951
open on an exchange basis, par for par, to holder» of 1-1/1* pereeat Treasury
certificate» of Indebtedness of Serie» C-1950, «storing March 1# U § § , in
Lhe amount of 12,921,536,000, and 1-0Jt percent Treasury Motea of Serie«
A-1955# open on an exchange hasle, par for par, in authorised denomination»,
to holder» of 2 percent Treasury Bond« of 1950-52 (dated October 19, m 2 )
in the aaount of 11,962,687,300, called for redemption on larch 15,1950.
Ca»h subscriptions will not be received.
The notes of Serie« B-1951 now offered will be dated March 1, 1950. and
w m bear internet free that date at the rate of 1-1/fe percent per S Ä / J L
able on a twsdannual basi* on January 1 and July 1, 1951# They will nature
July 1, 1951* they will be issued in bearer for» only, with interest coupon»
attached, in denomination» of $1,000, $5,000, $10,000, $100,000 and $1,000,000.
The note» of Series A-1955 now offered will be dated March 15, 1950, and
will beer interest fro® that date at the rate of 1—1/2 percent per annum, pay­
able semiannually on September 15, 1950, and thereafter on March 15 and
September 15 in each year until the principal amount becomes payable# They
will mature March 15, 1955# They will be issued in bearer fora only, with
interest coupons attached, la denominations of $1,000, $5,000, $10,000,
$100,000 and $1,000,000#
*
'
1
* ^ f
*
Pursuant to the provisions of the Public Debt Act of 19hl* a» amended,
interest upon the not#» nos offered shall not have any exception, 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 cir­
culars released today*

Subscriptions for both issues will be received at the federal Reserve
Banks and Branches, and at the Treestay Department, Washington, and should be
accompanied by a like face amount of the securities to be exchanged# Subject
to the usual reservations, all subscription» w i n be allotted in full#
The subecrlption books wlll cióse for the receipt of sil subserlptlons
at the cióse ef buslness Tuesdsy, February 21#
Subseriptions eddressed to a federal Reserve Bank or Branch or to the
Treasury Department, and placed ln the aail before addni^ht february 21, will
be considerad ae having been eatered before the cióse of the subecrlption books.
The Series A-1955 notes wlll be reopened about March 20 for the exchange
of the Series A~1950 notes osturiag April 1, 1950# fíolders of the latter note»
will be allewed full interest to April 1 and wlll be eharged accrued Interest
í r m March 15 to April 1 oa the m m notes*

The texts of the official circulars follow*.^

A ¡ ^

TREA SU RY DEPARTM ENT
information Service

EEISißS, MOOTING NSSPAPEHS,
Friday. February X7. 1950«

WASHINGTON, D .C

S-2257

Secretary of the Treasury Snyder today announced the offering,
through the Federal Reserve Banks, of 1-1/4 percent Treasury Notes
of Series B-1951, open on an exchange basis, par for par, to holders
of 1-1/4 percent Treasury Certificates of Indebtedness of Series
C-1950, maturing March 1, 1950, in the amount of $2,921,536,000, and
1-1/2 percent Treasury Notes of Series A-1955, open on an exchange
basis, par for par, in authorized denominations, to holders of
2 percent Treasury Bonds of 1950—52 (dated October 19, 1942) in the
amount of $1,962,687,300, called for redemption on March 15, 1950.
Cash subscriptions -will not be received.
The notes of Series B-1951 now offered will be dated March 1,
1950, and will bear interest from that date at the rate of 1-1/4
percent per annum, payable on a semiannual basis on January 1 and
July 1, 1951. They will mature July 1, 1951« They vail be issued in
bearer form only, with interest coupons attached, in denominations
of $1,000, $5,000, $10,000, $100,000 and $1,000,000.
The notes of Series A-1955 now offered will be dated March 15,
1950, and will bear interest from that date at the rate of 1-1/2
percent per annum, payable semiannually on September 15, 1950, and
thereafter on March 15 and September 15 in each year until the
principal amount becomes payable. They will mature March 15, 1955»
They will be issued in bearer form only, with interest coupons
attached, 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 1941, as
amended, interest upon the notes now offered shall not have any
exemption, as such, under the Internal Revenue Code, or laws amenda­
tory or supplementary thereto. The full provisions relating to
taxability are set forth in the official circulars released today.
Subscriptions for both issues 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 securities to
be exchanged. Subject to the usual reservations, all subscriptions
m i l be allotted in full.
The subscription books will close for the receipt of all subscrip
tions at the close of business Tuesday, February 21.

2 «*•

Subscriptions addressed to a Federal Reserve Bank or Branch
or to the Treasury Department, and placed in the mail before midnight
February 21, -will be considered as having been entered before the
close of the subscription books*
The Series A-1955 notes will be reopened about March 20 for the
exchange of the Series A-1950 notes maturing April X, 1950* Holders
of the latter notes will be allowed full interest to April 1 and will
be charged accrued interest from March 15 to April 1 on the new notes*
The texts of the official circulars are attached.

Attachments

I

UNITED STATES OF AMERICA
1 - l A PERCENT TREASURY NOTES OF SERIES B-1951
Dated and bearing interest from. March 1, 1950

1950
Department Circular No. 858

Due July 1, 1951

TREASURY DEPARTMENT,
Office of the Secretary,
Washington, February 17, 1950

Fiscal Service
Bureau of the Public Debt
I.

OFFERING OF NOTES

1. 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 notes of the United States, designated
1-1/4 percent Treasury Notes of Series B-1951, in exchange for Treasury
Certificates of Indebtedness of Series C-1950, maturing March 1, 1950.
II.

DESCRIPTION OF NOTES

1 # The notes will be dated March 1, 1950, and will bear interest
from that date at the rate of 1 -1 /4 percent per annum, payable on a
semiannual basis on January 1 and July 1, 1951. They will mature July 1,
1951 , and will not be subject to call for redemption prior to maturity.
2* The income derived from the notes shall be subject to all taxes
now or hereafter imposed under the Internal Revenue Code, or laws amenda­
tory or supplementary thereto» The*notes 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 princi­
pal or interest thereof by any State, or any of the possessions of the
United States, or by any local taxing authority.
3. The notes will be acceptable to secure deposits of public moneys.
They will not be acceptable in payment of taxes.
4. Bearer notes will be issued in denominations of $1,000, $5,000,
$10,000, $100,000 and $1,000,000. The notes will not be issued in regis­
tered form.
5. The notes will be subject to the general regulations of the
Treasury Department, now or hereafter prescribed, governing United States
notes.

III.

SUBSCRIPTION AND ALLOTMENT

1* Subscriptions will be received at the Federal Reserve Banks and
Branches and at the Treasury Department, Washington# Banking institutions
generally may 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 sub­
scription, in whole or in part, to allot less than the amount of notes
applied for, and to close the books as to any or all subscriptions at any
time without notice5 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#
ET#

PAYMENT

1# Payment at par for notes allotted hereunder must be made on $>r
before March 1, 1950, or on later allotment, and may be made only in Treasury
Certificates of Indebtedness of Series C-1950, maturing March 1, 1950, which
will be accepted at par, and should accompany the subscription.
V.

GENERAL PROVISIONS

1# As fiscal agents of the United States, Federal Reserve Banks are
authorized and requested to receive subscriptions, to make allotments on
the basis and up to the amounts indicated by the Secretary of the Treasury
to the Federal Reserve Banks of the respective Districts, to issue allot­
ment notices, to receive payment for notes allotted, to make delivery of
notes on full-paid subscriptions allotted, and they may issue interim receipts
pending delivery of the definitive notes#
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 of the Treasury#

V'

UNITED STATES OF AMERICA
Ir-1/2 PERCENT TREASURY NOTES OF SERIES A-1955
Dated and bearing interest from March 15, 1950

Due March 15, 1955

Interest payable March 15 and September 15
1950
Department Circular No* 859
_____
Fiscal Service
Bureau of the Public Debt

TREASURY DEPARTMENT,
Office of the Secretary,
Washington, February 17, 1950*

I.

OFFERING OF NOTES

1* 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 notes of the United States, designated
1-1/2 percent Treasury Notes of Series A-1955, in exchange for 2 percent
Treasury Bonds of 1950-52, dated October 19, 1942, due March 15, 1952,
called for redemption March 15, 1950*
II.

DESCRIPTION OF NOTES

1. The notes will be dated March 15, 1950, and will bear interest
from that date at the rate of 1-1/2 percent per amum, payable semi­
annually on September 15, 1950, and thereafter on March 15 and September
15 in each year until the principal amount becomes payable. They will
mature March 15, 1955, and will not be subject to call for redemption
prior to maturity*
2* The income derived from the notes shall be subject to all taxes
now or hereafter imposed under the Internal Revenue Code, or laws amenda­
tory or supplement ary thereto* The notes 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 ary State, or any of the possessions
of the United States, or by any local taxing authority.
3*
moneys.

The notes will be acceptable to secure deposits of public
They will not be acceptable in payment of taxes.

4* Bearer notes will be issued in denominations of $1,000,
$5,000, $10,000, $100,000 and $1,000,000* The notes will not be issued
in registered form.
5« The notes will be subject to the general regulations of the
Treasury Department, now or hereafter prescribed, governing United
States notes*
III.

SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve Banks
and Branches and at the Treasury Department, Washington. Banking

institutions generally may 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 light to reject any
subscription, in whole or in part, to allot less than the amount of notes
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.

PARENT

1. Payment at par for notes allotted hereunder must be made on or
before March 15, 1950, or on later allotment, and may be made only in
Treasuiy Bonds of 1950-52, called for redemption March 15, 1950, which
will be accepted at par, and should accompany the subscription. Final
interest due March 15 on bonds surrendered will be paid, in the case of
coupon bonds, by payment of March 15, 1950 coupons, which should be
detached by holders before presentation of the bonds, and in^the case of
registered bonds, by checks drawn in accordance with the assignments on
the bonds surrendered.
V.

ASSIGNMENT OF REGISTERED BCNDS

1. Treasury Bonds of 1950-52 in registered form tendered in payment
for notes offered hereunder should be assigned by the registered payees
or assignees thereof to ,lThe Secretary of the Treasury for exchange for
Treasuiy Notes of Series A—1955 to be delivered to ^
.. in
accordance with the general regulations of the Treasury Department
governing assignments for transfer or exchange, and tnereafter should be
presented and surrendered with the subscription to a Federal Reserve Bank
or Branch or to the Treasury Department, Division of Loans and Currency,
Washington, D. C. The bonds must be delivered at the expense and risk
of the holders.
VI.

GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve Banks
are authorized and requested to receive subscriptions, to make allotments
on the basis and up to the amounts indi cated by the Secretary^ of the
Treasury to the Federal Reserve Banks of the respective Districts, to
issue allotment notices, to receive payment for notes allotted, to make
delivery of notes on full—paid subscriptions allotted, and they may issue
interim receipts pending delivery of the definitive notes.
2. The Secretary of the Treasury may at any time, or frcm 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 of the Treasury

- 3 -

mm
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 1;2

and 117 (a) (1) of the Internal Revenue Code, as amended by Section ll£ of the
Revenue Act of I 9I4I, 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, w'hether 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. UlS, as amended, and this notice, prescribe
the terms of the Treasury bills and govern the conditions of their issue.
of the circular may be obtained from any Federal Reserve Bank or Branch.

Copies

-

2

-

3SX2SA
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 bids.
Those submitting tenders will be advised of the acceptance or rejection thereof.
The Secretary of the Treasury expressly reserves the right to accept or reject
any or all tenders, in whole or in part, and his action in any such respect shall
be final.

Subject to these reservations, 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

March 2, 195>Q ____, in cash or other immediately avail-

able funds or in a like face amount of Treasury bills maturing
Cash and exchange tenders will receive equal treatment.

March

2

, 19$0

&

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 supplemen­
tary thereto.

The bills shall be subject to estate, inheritance, gift or other

excise taxes, whether Federal or State, but shall be exempt from ail 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

&MM.
TREASURY DEPARTMENT
Washington

J

FOR RELEASE, MORNING NEWSPAPERS,

-

Friday, February 21;, 1950.________
SqF""
The Secretary of the Treasury, by this public notice, invites tenders for

$ 1.000,000,000

—

—

, or thereabouts, of

91

~m ~

in exchange for Treasury bills maturing

-day Treasury bills, for cash and

March 2, 1950_____ issued

on

a discount basis under competitive and non-competitive bidding as hereinafter
provided.
will mature
interest.

The bills of this series will be dated

June 1, 1950

March

2 , 1950_______ ___* an(^

, when the face amount will be payable without

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, February

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

27.

1950

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
theref o r .
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

»

TREASURY

departm en t
WASHINGTON, D .C

Information Service

reuease

morning

,
1950»,

newspapers

Friday, F e b r u a r y 2^ ,

S-2258

- T h e S e c r e t a r y of the Treasury, b y this p u b l i c notice, .invites
tenders f o r ¿1 ¿000’,000,000, or thereabouts, of.-91-day Treasury;
bills
for cash a n d i n e x c hange for T r e a s u r y b i lls m a t u r i n g _ _ _
March,2
1950, to b e i s s u e d o n a d i s c o u n t basis u n d e r c o m p e t i t i v e .
and n o n ' c o m p e t itive b i d d i n g as h e r e i n a f t e r provided.
The bills of
this s e r i e s - w i l l be d a t e d M a r c h 2, 1950, a n d w i l l m a t u r e J u n e 1, .
IQ50 when- the face a m o u n t w i l l be p a y a b l e w i t h o u t interest*
They
w i l l * be; i s s u e d i n
b e a r e r f o r m only, and in d e n o m i n a t i o n s _ o
$1,000, $ 5 , 000 . $10,000, $100,000, $ 500 ,000 , a n d $ 1 ,000 >000
(maturity v a l u e ) . % y

;

i

' ■ ' ' V v';,7.

Tenders; w i l l b e r e c e i v e d at F e d e r a l R e s e r v e B a n k s a n d B r a n c h e s
im to the c l o s i n g hour, t w o o ’c l o c k p.m., E a s t e r n S t a n d a r d time,
I t o n f e Y F e b r u a r y S ? , 1950.
T e n d e r s S i l l n o t be r e c e i v e d at the
Treasurv D e p a r t m e n t , W a s h i n g t o n .
E a c h t e n d e r m u s t be f o r a n e v e n
.
multiple of $1 000, a nd i n the case o f comp e t i t i v e tenders the p r ice
o f f e r ^ m u s t be e x p r e s s e d o n the b a sis of 100, w i t h n ot m o r e t han
three d e c i mals, e. g., 9 9 -9 2 5 - F a c t i o n s m a y n o t b e used. J t ^ i s
urged that teriders be m a d e on the p r i n t e d forms and fo r w a r d e d in
the special e n v e l o p e s w h i c h w i l l be su p p l i e d b y F e d e r a l R e s e r v e
Banks o r B r a n c h e s o n a p p l i c a t i o n therefor.
’T e n d e r s w i l l be r e c e i v e d w i t h o u t d e p o s i t fro m i n c o r p o r a t e d b a nks
and trust c o m p a n i e s a n d . f r o m r e s p o n s i b l e a n d r e c o g n i z e d d e a l e r s in
investment s e c u r i t i e s . T e n d e r s f r o m others m u s t bo a c c o m p a n i e d by
pavmeht o f 2 p e r c e n t of the face a m o u n t of T r e a s u r y b i l l s a p p l i e d
for, unless the tenders are a c c o m p a n i e d b y a n e x p ress g u a r a n t y o
payment b y a n i n c o r p o r a t e d b a n k or trust company.
I m m e d i a t e l y a f t e r the c l o s i n g hour, tenders w i l l be opened at
the F e d e r a l R e s e r v e B a n k s an d B r a nches, f o l l o w i n g w h i c h „ ^ o f the
announcement w i l l b e m a d e b y the S e c r e t a r y of ^he
y tenders
amount and p r i c e range of a c c e p t e d bids.
Thos
IL
will be a d v i s e d of the a c c e p t a n c e or r e j e c t i o n t h e r e o f .
.
Secretary of the T r e a s u r y e x p r e s s l y re s e r v e s the
reieet a n v or a ll tenders, in w h ole o r in part, a nd h is a c t i o n i n
any such r e s p e c t shall be final.
S u b j e c t to ^ e s e r e s e r v a
on ,
n o n - c o mpetitive t e n ders for $ 2 0 0 , 0 0 0 or less w i t h o u t stated p r i c e
from a n y one b i d d e r w i l l be a c c e p t e d in full at
g P

2
(j_;n three d e c i m a l s ) of a c c e p t e d c o m p e t i t i v e bids.
S e t t l e m e n t fop
a c c e p t e d t e n ders in a c c o r d a n c e w i t h the bids m u s t be m a d e or
c o m p l e t e d at the F e d e r a l R e s e r v e B a n k o n M a r c h 2, 1950* in cash or
o t h e r i m m e d i a t e l y a v a i l a b l e funds or irf a like face a m o u n t of
T r e a s u r y b i lls m a t u r i n g M a r c h 2* 1950♦
C a s h a n d e x c h a n g e tenders
w i l l r e c e i v e e q u a l treatment.
C a s h a d j u s t m e n t s w i l l be m a d e for
d i f f e r e n c e s b e t w e e n the p a r v a l u e of m a t u r i n g b i l l s a c c e p t e d in
e x c h a n g e a nd the issue p r i c e of the n e w b i lls.
T he income d e r i v e d f r o m T r e a s u r y b i l l s * w h e t h e r i n t e r e s t or
g a i n fro m the sale or o t h e r d i s p o s i t i o n o f the bills, shall not have
a ny e xemption, as such, a n d loss f r o m the sale or o t h e r disposition
of T r e a s u r y b i l l s s h all no t h a v e a n y s p e c i a l treatment, as such,
u n d e r the I n t e r n a l R e v e n u e C o d e , or laws a m e n d a t o r y or s u p p l e m e n ­
tary thereto.
The b i l l s s h all be s u b ject to estate, inheritance,
gift or o t h e r e x c i s e taxes, w h e t h e r F e d e r a l or State, b u t shall be
e x e m p t from a ll t a x a t i o n n o w or h e r e a f t e r i m p o s e d o n .the principal
or i n t erest t h e r e o f b y a n y S t a t e , o r a n y of the p o s s e s s i o n s of the
U n i t e d States, or b y any local t a x i n g a u t h o r i t y .
F o r p u r p o s e s of
t a x a t i o n the a m o u n t of d i s c o u n t a t w h i c h T r e a s u r y b i l l s are
o r i g i n a l l y sold by the U n i t e d S t a t e s s h a l l be c o n s i d e r e d to be
interest.
U n d e r Se c t i o n s
I l f (a). (1) of the I n t e r n a l
R e v e n u e Code, as a m e n d e d b y S e c t i o n 115 of the R e v e n u e A c t of 19^1»
the a m o u n t of d i s c o u n t at v h i e k b i l l s i s s u e d h e r e u n d e r are sold
shall n o t be c o n s i d e r e d to a c crue u n t i l s uch b i l l s s h all be sold,
r e d e e m e d or o t h e r w i s e d i s p o s e d of, and suc h b i lls a re e x c l u d e d
f r o m c o n s i d e r a t i o n as ca p i t a l assets.
A c c o r d i n g l y , the o w n e r of
T r e a s u r y b i l l s (other t h a n life Ins u r a n c e c o m p anies) i s s u e d h e r e ­
u n d e r n e e d i n c lude in h is i n come tax r e t u r n onl y the d i f f e r e n c e
b e t w e e n the p r i c e p a i d for suc h b i lls, w h e t h e r on o r i g i n a l issue
or o n s u b s e q u e n t purchase, a n d the a m o u n t a c t u a l l y r e c e i v e d either
u p o n sale or r e d e m p t i o n at m a t u r i t y d u r i n g the t a x able y e a r for
w h i c h the r e t u r n is made, as o r d i n a r y g a i n or loss.
T r e a s u r y D e p a r t m e n t C i r c u l a r No. 4l8, as amended, and this
notice, p r e s c r i b e the terms of the T r e a s u r y b i l l s and g o v e r n the
c o n d i t i o n s of t h e i r issue.
C o p i e s of the c i r c u l a r m a y be obtained
f r o m a n y F e d e r a l R e s e r v e B a n k or B r a n c h .

oOo

IMMEDIATE RELEASE,
Friday, February 2k, 195>0

The Bureau of Customs announced today that from the beginning
of the quota year on February 1 to February 2k, 19i>0, inclusive,
26,29k,£1*1 pounds of cotton having a staple of 1-1/8 inches or
more but less than 1-11/16 inches have been authorized release
under the global quota of k5,6$6,k20 pounds prescribed in the
Presidents Proclamation of September 5, 1939, as amended.

treasury

departm ent
WASHINGTON, D .C .

Information Service

IM M E D I A T E R E I E A S E ,
F r i d a y , F e b r u a r y 24,

S-2259

1950•

The B u r e a u of Cu s t o m s a n n o u n c e d t o d a y
that

fro m the b e g i n n i n g of the

o n F e b r u a r y 1 to F e b r u a r y 24,
inclusive,

26,294,5^1 pounds

having a

staple of 1-1/8

but

than

less

1 - 11/16

authorized release

quota year
1950,

of cott o n

inches

or m o r e

inches have been

u n d e r the

global quota

of 4 5 , 6 5 6 , 4 2 0 p o u n d s p r e s c r i b e d

i n the

P r e s i d e n t ’s P r o c l a m a t i o n o f S e p t e m b e r 5*

1939 ,

as

amended •

0O0

TREASURY DEPARTMENT
Washington

The following address by William McChesney Martin, Jr.,
Assistant Secretary of the Treasury, at a luncheon of
the Chicago World Trade Conference, at the Hotel Sherman,
Chicago, Illinois, is scheduled for delivery at about
1:00 p*m., C.S.T., Monday, February 27, 1950, and is for
release on delivery.

U. S. FOREIGN TRADE LOOKS AHEAD

Four years ago it was my privilege to address a meeting sponsored by
this same group on the prospects for resumption of normal peacetime foreign
trade. Today as we stand on the threshold of the last fifty years of the
20th Century, I have taken as my topic, "U. S. Foreign Trade Looks Ahead."
Four years ago we were all hopeful. The war had ended and we were
proceeding rapidly to reconvert our industry from war to peacetime activi­
ties. The cardinal principles of U. S. foreign economic, financial, and
commercial policy were then, and they remain today, the achievement as
rapidly as possible of a multilateral trading system based on non-discrim­
ination, freer trade, and general convertibility of currencies.
These objectives resulted from the general recognition that bilateralism,
discriminatory tactics, quotas and preferences were all types of economic
nationalism which laid the groundwork for the horrible conflict through
which we had just passed. There was for the first time almost unanimous
recognition of this at Bretton Woods. Our whole postwar economic thinking
was focused around the conviction that high levels of employment and rising
standards of living could be achieved on a permanent basis only through
moving in this direction. When lend-lease was terminated, the UNRRA program,
the expanded lending authority of the Export-Import Bank, subscriptions to
the International Monetary Fund and the International Bank for Reconstruction
and Development, the Anglo-American Financial Agreement, Interim Aid grants
to France, Italy and Austria, and finally the European Recovery Program and
other programs have totaled a commitment by the American pec pie of over
thirty billion dollars, as a direct earnest of their devotion to these
basic principles.
All of these expenditures were a part of cur hope for a "brave new
world." As we look back, I think you will all agree we have been far from
realizing this "brave new world." Our thinking was in terms of international
cooperation and goodwill. We expected that the high ideals of the war
period would be reflected in political agreements and policies and attitudes
which would make possible the realization of the four freedoms*

S-2260

-

2

-

I need net emphasize the extent tc which our hopes of political
cooperation have failed. Certainly the world of 1950 is far from attaining
freedom from fear. In the atmosphere of the atomic bomb* there has
naturally been a tendency to preserve many of the types of restrictions
which are part of a war economy or a world economy dominated by the fear of
future wars. The adoption of the principles of ncn-discrimination and^
convertibility of currency as a means of realizing freedom of international
commerce involves risks. A certain amount of dislocation of production and
employment is inevitable. If a country today imports what it formerly pro­
duced for itself or what it did without and if it experts goods which it
formerly consumed at home or which it did not produce, there is necessarily
a shifting of labor and.of capital from one employment to another. The
change is worthwhile, however, if we can believe that in the long-run we will
be better off; that the dislocations incident tc change are transitional;
and that after a time a certain quilibrium will be reached at which the
situation will be markedly improved. The adoption of policies, therefore,
conducive tc long-run benefit represents a hazard in faith in the future
and to a considerable degree the world has not yet been willing to assume
that risk.
If we look purely to the economic aspect of the situation, apart from
problems of international politics, we can see that the problems of postwar
reconstruction have been far greater than we had anticipated. Our economic
forecasts were over-optimistic. We did not realize the extent to which
the economies of the world had been impaired by the destruction of capital
in the form of factories, transportation equipment, or the wearing out of
industrial plant and even the exhaustion of soil resulting from the scarcity
of fertilizers. We did not adequately appreciate the extent to which it
would be difficult to restore trade within countries and trade between
countries. The extent cf the postwar inflations has upset many calculations
and postponed the attainment of financial stability. It has net been easy
to collect taxes in many of the war-torn countries. The level cf public
administration deteriorated, particularly in countries occupied by the
enemy, where it was patriotic to sabotage the administrative process. The
economic and political disorganization of Europe contributed a good part to
what has been commonly referred to as the dollar problem, i.e., the inability
cf foreign countries to secure the amount of American goods they desired by
paying for them from their current earnings of dollars, by the export of
goods and services to this country or to other countries, which might have
a surplus in their international accounts with the United States.
The people and the government of the United States have been aware of
these problems and we have tried tc make our contribution toward their
solution. During the war we devoted enormous economic resources to the
allied countries. By our assistance it was possible to sustain the economic
life of the countries who were joined with us in battle.-' With the close of
hostilities we made settlements of the obligations arising^from this war
which would not unduly burden trade in the future. In addition, our first
postwar programs involved the extension of large credits to foreign countries
,When it became clear that the mere extension of credits in the amounts which
could ultimately be repaid was not adequate to deal with the problems, the

- 3 Congress of the United States voted billions of dollars of economic
assistance without expectations of repayment, without expectaction of any
special economic advantages to the United States beyond those which would
accrue from the reestablishment of a stable economic world in which there
would be a rational pattern of international trade.
The details of the agreements implementing these programs varied from
time to time, but their dominant note was that all we expected from foreign
countries was that they would help to restore balance in world trade at a
high level and to move as rapidly as possible toward non-discriminatory
international trade and exchange policies. We also recognized that these
objectives could not be realized at once*
It is practically impossible to have non-discriminatory trade and
exchange regulations unless currencies are convertible. Full convertibility
of currencies was scarcely possible at a time when many countries could not
by their own efforts, earn the dollars they needed and when monetary
reserves were exhausted. We recognized that the transitional period would
take some years. The transitional period should be really transitional and
the steps taken by the various nations in this intervening period would tend
to bring about the desired end, rather than to be of such nature as to
postpone its realization to the indefinite future.
It is obvious that there is no easy solution to these problems. Vie
can not expect the countries of the world immediately to abolish their
quantitative restrictions on trade, reduce their tariffs or to permit the
free purchase of foreign currencies. If this action were to take place at
one stroke of the pen the dislocation would be too great. Vie could not
expect that as long as present conditions prevail that countries could
successfully assume the burden of freely converting their currencies into
gold or dollars. Yet it is clear that multilateral trade will continue to
be severely hampered until we have a greater degree of currency converti­
bility. Obviously, the greater the restriction on the use of currencies
to obtain foreign currencies, the farther we are away from non—discriminatory
multilateral trade. Moreover, it does not matter whether this restriction
is brought about through exchange regulations or through direct controls of
trade. It is immaterial except as a matter of administration whether an
importer can not obtain goods from abroad because of his inability to buy
the requisite exchange or because he can not get the import license.
Consequently, in developing trade and exchange policies for the future it
is important to realize that an obligation of one sort can be circumvented
by a restriction of another sort. To attain the ideal of multilateral trade
we must move ahead on the trade front as well as the exchange front*
What we should expect for the immediate future is that the countries
of the world will not adopt policies which will make the eventual resumption
of convertibility more difficult and that to the extent that they are able
they should move in the direction of producing the conditions which will
make convertibility possible at the appropriate time. As long as the present
imbalance in the international accounts of the world continues, full con­
vertibility is scarcely possible. It is possible, however, for the countries

—4 —
to move in the direction of convertibility by stages and it should be
possible to devise ways of avoiding discriminatory features in these
programs*
There is always the danger that in a program of restricted con­
vertibility that vested interests will grow up and production and trade
will be directed in terms of the discriminatory arrangements set up* The
essence of discrimination is, after all, that a higher price is paid for
goods obtained from one country than would be necessary to obtain the same
goods from another country* Put concretely, there is discrimination against
dollar goods when a country pays more in terms of its own currency than it
would have to pay for the goods if it used its currency for dollars at the
official rates of exchange* The ultimate aim of non-discrimination and con­
vertibility is the direction of a countryTs resources into those channels
which yield the greatest returns and so make the largest contribution to the
standard cf living of a people* If this test of price comparability is used
most of the dangers of discriminatory trade practices are eliminated even
though it is possible to make payment only in inconvertible currencies*
Another step forward could be taken if countries would settle part of
their international balances in gold or dollars* This would assure the
regular application cf the test of price comparability. If country A settles
part of its balances with country B in gold or dollars, it will not be
willing to pay a higher price for country B rs goods than it would for
American goods* Partial payments in gold or dollars could thus be a helpful
device for reenforcing the principle of non-discrimination.
The larger the
portion of the balances settled in this way, or the more frequent the settle­
ments, the closer is the approach to the ultimate ideal of convertibility.
I throw this suggestion cut as merely one way in which the countries of the
world can move toward convertibility* At the same time there will be need
of relaxation of direct trade controls since it is obvious that a periodic
or partial settlement in gold or dollars could be negated by trade restric­
tions which might in fact enforce a greater degree of bilateralism than
now prevails*
A great part of the problem of imbalance in the postwar period has
arisen from internal conditions* Where there is a continuing inflation
there is always a greater incentive to import and a greater deterrent to
export. Part of the so-called ’’dollar gap” represents merely the existence
of inflation in some foreign countries. A second factor which may be
significant is the level of exchange rates.
Though the adjustments cf last
September were large, it is as yet too soon to say whether they have been
fully successful. In those countries which are locking forward to an
investment of American capital there is also a problem of establishing con­
ditions which will attract American capital. We have had a program of
treaties of friendship and commerce with other countries which include pro­
visions for equitable treatment of foreign capital. But American economy
is an economy of private enterprise. W
e expect that capital will move
abroad in the form of private investments and, obviously, the private
investors must have satisfactory conditions.
On the other hand, the United States must realize its position in the
present-day world economy. Our imports and cur exports form a very large

- 5percentage of the world total. Much of the international investment in the
nekt few years will have to come from this country.
The countries of
Europe which formerly supplied the bulk of foreign investments are not in
position to make new investments abroad. In fact they have become capital
importers. American business must look to expansion in foreign countries
and American investors must look more favorably on foreign investment, I
am sure that under appropriate conditions they will do so.
The United States has now become the largest creditor on long-term
account.
The United States has traditionally had an export surplus. It
would be Utopian to believe that the flow of capital investment from private
channels will be sufficient to cover the large export surpluses that we
have had in recent years.
These surpluses have been made possible by a
policy of gifts and grants and governmental credits to foreign countries.
These payments were made primarily in view of the necessities cf foreign
countries and what we have believed was the long-run interest of the world
economy.
The Government should not continue to subsidize exports in­
definitely.
As United States extraordinary assistance decreases, we must frankly
face the fact that we will have a larger volume of imports or a reduced
volume of exports, or both. There will have to be adjustments in our own
economy as well as in foreign countries. The patterns of U, S. foreign
trade and the trading practices of the world will depend upon the way in
which these adjustments are brought about.
The world can drift in the
direction of a lower volume of trade or we can try to move in the direction
of a higher volume. Foreign countries may continue along the lines of
discriminatory trading practices and inconvertible currencies, or they may,
on the other hand, take the alternative of moving toward convertibility and
non-discrimination. We can, if we wish, encourage a larger volume of
imports, and in the long-run, in my judgment, this will be beneficial to our
whole economy and ultimately produce an increase in our exports also.
We can not avoid the problem.
The solution will depend as much upon
decisions by other countries as by ourselves. Their policies will affect
our decisions quite as much as our policies will affect them. It is
important that we decide consciously what our role should be rather than
drift with the tide of events.

TREASURY DEPARTMENT
Information Service

POR RELEASE
AFTERNOON NEWSPAPERS
FRIDAY, FEBRUARY 24, 1950
(NOT TO BE USED BEPOHE THAT TIME)

WASHINGTON, D .C .

S-2261

The 1950 U, So Savings Bonds campaign, to be known as the
Independence Drive, will get under way May 15 and run through
July A, Secretary Snyder announced today. The Liberty Bell is
the campaign symbol, and "Save for Your Independence, "
emphasizing the traditional American faith in thrift, is the
campaign slogan0
"It is singularly appropriate that this campaign should be
known as the Independence Drive, because the spirit of personal
independence has motivated our financial as well as our political
thinking since our nation*s earliest days," Secretary Snyder

said,
"As for the Liberty Bell, it symbolizes not only our polit­
ical independence but also all those characteristics of
Americanism vvrhich serve to sustain our independence«, Of these
characteristics, thrift, of course, is one of the most out­
standing«, Thus in the Independence Drive, the Liberty Bell will
be an especially suitable reminder of the importance of savings
and Savings Bonds to our economic life and to the financial
independence of the individuals"
Ever since the inception of the Savings Bonds Program,
Secretary Snyder added, it has been recognized as a strong force
for the preservation and development of our free enterprise
system«.
The staff of the Treasury’s Savings Bonds Division will meet
with volunteer committees representing banking, industry, labor,
agriculture, motion pictures, advertising, newspapers, radio, and
numerous national organizations to organize the Independence
Driveo The Treasury again will depend upon the help of several
million volunteers to assure the success of the drive«,

RELEASE MÔBÎISMO N
EW
SPAPERS,
Tuesday. February 21« 1950«

The Secretary of the Treasury announced last evening that the tenders for
$1,000,OCX),000, or thereabouts, of 91-day Treasury bills to be dated February 23
and to mature May 25, 1950, which were offered on February 17, were opened at the
Federal Reserve Banks on February 20«
The details of this issue are as follows:
Total applied for ~ 11,554,884,000
Total accepted
- 1,000,930,000 (includes $99,193,000 entered on a non­
competitive basis and accepted in full
at the average price shown below)
Average price
- 99*714 Equivalent rate of discount approx. 1.132$ per annua
Range of accepted competitive bids:
High
low

( 1

- 99*722 Equivalent rate of discount approx. 1.100$ per annum
- 99*712
n
n
n
n
n
1.139$ *
"

percent of the amount bid for at the low {»rice was accepted)

Federal Reserve
District_______

Total
Applied for

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

I
19,730,000
1 , 159, 690,000
32.574.000

#

19,235,000

14, 368,000

,
20 ,356,000
6 , 865,000
14 ,368,000

1 65 , 6 6 6 ,0 0 0

115, 316,000

10, 639,000

10, 639,000

20. 6 5 5 .0 0 0
6 , 8 65 ,0 0 0

Total

Total
Accepted

689 600,000

22 ,6 24 ,0 00

,

6 , 140,000

6 140,000

17, 127,000
29.175.000
72.255.000

17, 127,000

$1,554,884,000

$1 ,0 0 0 ,9 3 0 ,0 0 0

24, 2 2 5 ,0 0 0

54.435 .000

release, morning newspapers,

Tuesday. February 21 r 1950«

S-2262

The Secretary of the Treasury announced last evening that the tenders for
¿1 000,000,000, or thereabouts, of 91-day Treasury bills to be dated February 23
and to mature May 2$, 1950, which were offered on February 17, were opened at
the Federal Reserve Banks on February 20#
The details of this issue are as follows:
Total applied for - $1,554,884,000
Total accepted
— 1,000,930,000 (includes $99,193,000 entered on a non­
competitive basis and accepted in full
at the average price shorn below)
Average price
— 99*714 Equivalent rate of discount approx# 1*132^
per annum
Range of accepted competitive bids:
High

- 99#722 Equivalent rate of discount approx. 1.100$
per annum
- 99.712 Equivalent rate of discount approx# 1.139#
per annum

Low

(1 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

19,730,000
1,159,690,000
32.574.000

20. 655.000
6, 865,000

14, 368,000
165,666,000

,

10, 639,000
6 140,000

19,235,000

689,
22
20
6
14
115
10
6

6 0 0 ,0 0 0

, 624,000
, 356,000
, 865,000
, 368,000
, 316,000
, 639,000
, 140,000

.

17.127.000

17.127.000
29.175.000
72.255.000

24 225.000

$1,554,884,0 0 0

$ 1, 000, 9 30 ,00 0

oOo

54.435.000

2

Members of the Circulation Managers Association present,in
addition to Mr. Stodghill who is chairman of the Treasury Newspaperboy
Comm it tee^ were its president, J.B. Lee, of the Atlanta Constitution;
Jack E. Calvin, Houston Post; Jere C. Healy, Herald Hews, Passaic, N.J.j
L.W. McFetridge, World-Tribune, Tulsa, Oklahoma; P.F. Fincher, AmericanStatesman, Austin, Texas; James J. Morrisey, Journal-Herald, Dayton, Ohio;
J . W . Kenney, Hearst Hews papers, New York; Shiel Dunsker, The Post, Cincinnalj
Ohio; C.D0 O'Rourke, The Cleveland Press; Thomas Farrelly, the Providence
Journal-Bullet in; Walter Aronoff, the Detroit Times; W.G-. Carrington, the
Herald-Sun, Durham, No. Carolina; Roy B. Haan, Detroit News; W.E. Halley, Jr
Philadelphia Bulletin; A.D. Wallace, New York World-Telegram; John Galloway j
Columbus State Journal; Matt G. Sullivan, Rochester Democrat-Chronicle; Tom
Meegan, Hudson Dispatch, Union City, N.J.; C.À. Corcoran, Washington Times-|
Herald; Harry Gladstein, Washington Post; Raymond F. Mack, Washington Daily]
News, and Elmer J. De Yore, Washington Star.

-r
¡WS RBÌdSASE F;
■FM NEW3PAPHSS
MONDAY, FEBRUARY 27. / f sT^

<r~ <¿*2 ,6

Representatives of the Internati
met with Secretary of the Treasury Johr.

TO

-m m

promised him that through their Associ«!
Savings Bonds literature during the for
Drive, May 15 to July l\*
The circulation managers informi
thousand newspaperboys w ill distribute
Edson, Chairman of the National Cartool
Treasury.
"The Independence Drive is we111
group.

"The spirit of personal indepet:

well as our p o litica l thinking since cr$
wi l l be of invaluable aid in bringing I
^^1

mastfgs

to the nation.”
Newspaperboys have participated*

Office of Charles P. Shaeffer

and last year distributed ten million leaflets during the Opportunity campaign.
■#

Leon J. Markham, National Sales Director of the Savings Bonds Division

of the Treasury, and members of his staff gave highlights of the program for
the spring drive.
Howard W. Stodghill of the Philadelphia Evening Bulletin presided over
the meeting attended by twenty-three circulation managers representing news­
papers in all parts of the country.

more

jf-

c¿ « 2 •<* "ò

Representatives of the International Circulation Managers Association
met with Secretary of the Treasury John W* Snyder in Washington today, and
promised him that through their Association fifteen million homes would receive
Savings Bonds literature during the forthcoming Independence Savings Bonds
Drive, May 15 to July A*
The circulation managers informed the Secretary that two hundred ,
thousand newspaperboys will distribute a four-page leaflet designed by Gus
Edson, Chairman of the National Cartoonists* Advisory Committee to the
Treasury*
»»The Independence Drive is well named,” Secretary Snyder told the
group.

”The spirit of personal independence has motivated our financial as

well as our political thinking since our nation began*

The newspaperboys

will be of invaluable aid in bringing the message »Save for your Independence»
to the nation*”
Newspaperboys have participated in bond drives since the war years
and last year distributed ten million leaflets during the Opportunity campaign*
Leon J* Markham, National Sales Director of the Savings Bonds Division
of the Treasury, and members of his staff gave highlights of the program for
the spring drive*
Howard W* Stodghill of the Philadelphia Evening Bulletin presided over
the meeting attended by twenty-three circulation managers representing news­
papers in all parts of the country*

more

TREASURY DEPARTMENT
Information Service
RELEASE AFTERNOON NEWSPAPERS,
Monday, February 27, 1950 « ___

W

a s h in g t o n

,

d

.c .

S-2263

R e p re se n ta tiv e s o f the In te r n a tio n a l C ir c u la t io n Managers
A s s o c ia tio n met w ith S e cre ta ry o f the Treasury John W. Snyder in
W ashington to d a y , and promised him th a t through t h e ir A s s o c ia tio n
f i f t e e n m illio n homes would r e c e iv e Savin gs Bonds l i t e r a t u r e dur­
in g the forthcom ing Independence Savin gs Bonds D r iv e , May 15 to
J u ly 4 .
The c ir c u la t io n managers informed the S e c r e ta r y th a t two
hundred thousand newspaperboys w i l l d is t r ib u t e a fo u r-p a ge l e a f l e t
designed by Gus Edson, Chairman o f the N a tio n a l C a r to o n is t s '
A d visory Committee to the T reasu ry.
"The Independence D rive i s w e ll named," S e c r e ta r y Snyder
to ld the group.
"The s p i r i t o f p erson al independence has
m otivated our fi n a n c i a l as w e ll as our p o l i t i c a l th in k in g sin ce
our n a tio n began. The newspaperboys w i l l be o f in v a lu a b le aid
in b r in g in g the message »Save fo r your Independence* to the
n a t i o n ."
Newspaperboys have p a r tic ip a te d in bond d r iv e s sin c e the
war years and l a s t year d is tr ib u te d ten m illio n l e a f l e t s during
the O pportunity campaign.
Leon J . Markham, N a tio n a l S a le s D ir e c to r o f the Sa vin gs Bonds
D iv is io n o f the T reasu ry, and members o f h is s t a f f gave h ig h lig h t s
o f the Q^ogram fo r the sp rin g d r i v e .
Howard W. S t o d g h ill o f the P h ila d e lp h ia Evening B u l l e t i n
presided over the m eeting attended by tw e n ty -th ree c ir c u la t io n
managers re p re se n tin g newspapers in a l l p a r ts o f the co u n try .
Members o f the C ir c u la t io n Managers A s s o c ia tio n p r e s e n t, in
a d d itio n to Mr. S t o d g h ill who is chairman o f the Treasury
Newspaperboy Committee, were i t s p r e s id e n t,J.B . L e e , o f the A tla n ta
C o n s t it u t io n ; Ja c k E . C a lv in , Houston P o s t;
Je r e C . H e a ly , H eraldNews, P a s s a ic , New Je r s e y ; L.W, M cF e trid g e , W orld-T ribune, T u l s a , Oklahoma; P , F . F in c h e r , Am erican-Statesm an, A u s tin , Texas; James J .
M o rrise y , Jou rnal-H erald ", Dayton, Ohio; J . W. Kenney, H earst
Newspapers, New Y ork; S h ie l Dunsker, The P o s t , C in c in n a t i, Ohio;
0 ,D . O'Rourke, The C leve lan d Press; Thomas F a r r e l l y ,

2

the Providence Jo u r n a l-B u lle t in ; W alter A r o n o ff, the D e tr o it
Times; W.G. C a r r in g to n , the H e ra ld -Su n , Durham, North C a r o lin a ;
Roy B.^H aan, D e tr o it News; W.B. H a lle y , J r . , P h ila d e lp h ia
B u l l e t i n ; A . D . W a lla ce , New York W orld-Telegram ; John G allow ay,
Columbus S ta te Jo u r n a l; Matt G . S u lliv a n , R och ester DemocratC h r o n ic le ; Tom Meegan, Hudson D is p a tc h , Union C i t y , New Je r s e y ;
C . A , Corcoran , Washington T im es-H erald; Harry G la d s te in ,
Washington Po s t ; Raymond F . Mack, W ashington D a ily News, and
Elmer J . De V o re, W ashington S t a r .

0 O0

Q

—

2

.

C

f

RELEASE W ffiS S b m ^ P A P S B S ,
Tuesday, February 28, I960.
The Secretary of the Treasury announced last evening that the tenders for
#1,000,000,000, or thereabouts, of 91-day Treasury hills to he dated March 2 and to
nature June 1, 1950, which were offered on February 24, 1950, were opened at the Federal
Reserve Banks on February 27*
The details of this issue are as follows}
Total applied for - fa,564,590,000
Total accepted
- 1,000,243,000 (includes #87,794,000 entered on a
non-competitive basis end accepted in
full at the average price shorn below)
Average price
- 99.713 Equivalent rate of discount approx. 1.137$ per annum
Range of accepted competitive bids:
High
Low

- 99.720 Equivalent rate of discount approx. 1.108$ per annum
»
it a
*
*
1.143$ » *
- 99.711

Federal Reserve
District

Total
Applied for

Total
Accepted

Boston
H
ewFork
Philadelphia
Cleveland
Richm
ond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Balias
San Francisco

♦

#

TOTAL

15,435,000
1,330,471,000
32,950,000
24,301,000
5,460,000
11,643,000
137,051,000
6,348,000
4,404,000
23,702,000
28,905,000
39,206,000

♦ 1,664,590,000

12,345,000
774,885,000
18,900,000
21,290,000
3,430,000
10,043,000
72,787,000
7,717,000
4,604,000
23,702,000
19,675,000
23.793,000

#1,000,243,000

y

WM&& mxmm

J

Tmêâmy, Fabruary 88, 1900,

M

y

Tfco .Soerot&iy of tha Tra&aury aaaouûôod l&st oToalag th&t tha toador» for
#1,000,000,000, or thoroaboata, of 91~day Troaaury bill* to b« datod {ferola S «ad to
* * * * * * 3 *** 1* 1Ì50, w
hiofc «or* offOrod oo Fabruary 84, 1900, «oro opoaod at tha Fodortl

Booorta Baaieo oa Fabruary 8F.
fho dotali« of thio la«u« oro ao follo««:
total appliod for - f l ,$$4,590,000
total acooptod
1,000,843,000 {iaoludoo #37,794,000 «atorod os a
aos-eonpotltlTo boula «ad aoooptod la
fall at tho avara«« pris« aho«a bolo«}
Arorago pria«
- 99.713 Jlquivalont rato of discount «pprex. 1,137# por aarnat
Haago of aoooptod ooæpotltlto bIda:
Hl#b
lo«

« 99,780 BqalTaloat rat« of dioooaat ajrprox. 1.1034 por «am
ai
- 99.711
*
* *
*
*
1.142# » «
( j* * + * -À

0 j^ -

^j

ï «o
.***.
<«»o
_o
_ -o
----Fod
ra%
lB
rro(f
Di«triât______

total

Bootoa
H
owYork
PhUadolphia
Olofolaad
Biobraood
Atlanta
Chicago
St. Louis
Miasoapolla
Eaaoao Oitr
Lolla«
San Froaolooo

# 16,488,000
1,330,471,000
38,900,000
84,301,000
0,430,000
11,343,000
137,001,000
8,368,000
6,606,000
83,708,000
£8,608,000
39.803.000

#

11,664,690,000

$1,000,£48,000

tomi

*

—. total
Âoooptad
13,340,000
774,888,000
13,900,000
81,890,000
3,430,000
10,043,000
72,787,000
7,717,000
4,604,000
83,708,000
19,470,000
83.798.000

TREA SU RY DEPARTM EN T
WASHINGTON, D .C .

Information Service
RELEASE MORNING NEWSPAPERS,
Tuesday , Februa ry 28, 1950.

S-22b4

The S e c r e ta r y o f the Treasury announced l a s t evening th a t the
tenders fo r $1 ,0 0 0 ,0 0 0 ,0 0 0 , or th e re a b o u ts, o f 91-*^ay Treasury b i l l s
to be dated March 2 and to mature June 1 , 1950, which were o ffe r e d
on February 2k, 1950, wer© opened a t the F e d e ra l Reserve Banks on
February 27.
The d e t a i ls o f t h is issu e are as fo llo w s :

Average p r ic e

1 *0 0 0 *2 ? 8 ’ 000 (in c lu d e s $8 7 , 7 9 ^ /0 0 0
entered on a non­
c o m p e titiv e b a s is and
accep ted in f u l l a t the
average p r ic e shown below)
9 9 «713 f ^ u i m l e n t r a te o f d isco u n t approx.
1.137$ Per annum

Range o f accep ted com p etitive b id s :
- 99*720 E q u iv a le n t r a te
1 . 108$
- 99.711 E q u iv a le n t r a te
1.143$

High
Low

o f d isco u n t approx.
per annum
o f d isco u n t approx.
per annum

(5 9 p ercen t o f the amount b id fo r a t the low p r ic e was accep ted )

Boston
New York
P h ila d e lp h ia
C levelan d
Richmond
A tla n ta
_
Chicago
S t . L o u is
M inneapolis
Kansas C it y
D a lla s
San F r a n c isc o
TOTAL

T o ta l
Accepted

T o ta l
A p p lied foi*

F e d era l Reserve
D is tr ic t
$

1 5 ,^ 8 5 , 0 0 0

1,330,671,000

$

1 2 , 3 6 5 ,0 0 0

774,885,000

3 2 . 9 5 0 .0 0 0
24.301.000
5.480.000
11 8 63.000
137 051,000
8 . 3 6 8 .0 0 0
6 , 6 0 6 ,0 0 0
2 3 , 7 0 2 ,0 0 0
28.905.000
3 9 . 2 0 8 .0 0 0

1 8 , 9 0 0 ,0 0 0
2 1 , 2 9 0 ,0 0 0
3.480.000
10.043.000
7 2 . 7 8 7 .0 0 0
7 .7 1 7 .0 0 0
6 . 6 0 6 .0 0 0
2 3 . 7 0 2 .0 0 0
19.675.000

$1,664 ,5 9 0 ,0 0 0

$1 ,0 0 0 ,2 4 8 ,0 0 0

.
,

0 O0

28 . 798.000

m m m s release,
Tuesday, February 28» 1950*

_

<

^

^

The Secretary of the Treasury today announced the subscription and allotaent figures with respect to the current offering (1) of l-tyl* percent Treasury
Hotes of Series B~15#l, to be dated March 1, 1950, open to the holders of 1-1/U percent Treasury Certificates of Indebtedness of Series C-19S0, maturing
March 1, 1950, and (2) of 1-1/2 percent Treasury Motes of Series 4-1955, to be
dated March 15, 1950, open to the holders of 2 percent Treasury Bonds of 1950-52
(dated October 19, 19&2), called for redemption on March 15, 1950*
Subscriptions and allotmsnts were divided among the several Federal Reserve
Districts and the Treasury as follows)
Federal Reserve
District

Series B-1951 Motes
fetal Subscriptions
Received k Allotted

Boston
Mew fork
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St* Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury

$

51 ,1*88,000
1 ,610 ,227,000
52.376.000
86,1*75,000

1*3,1*1*8,000
76.919.000
301»,71*6,000
90.578.000
81 892.000
87,251*,000
66.380.000
171,71*6,000
17.790.000

.

TOTAL

12,71*1,319,000

Series 4-195$ Motes

Total Subscriptions
Received k Allotted
I

58,788,000

1,076,975,000
66,081,000
62 ,216,000
1*2,61*8,000
27.087.000
231,81*1*, 000
là,582,000
Sit,735,000

1*1,265,000
28 .837.000
116,923,000
8,185.000

$1,860,166,000

TREA SU RY DEPARTM ENT
WASHINGTON, D .C .

Information Service

IMMEDIATE RELEASE,
Tuesday , February 28, 1950•

S -2265

The S e c r e ta r y o f the Treasury today announced the
s u b s c r ip tio n and a llo tm e n t fig u r e s w ith r e s p e c t to the cu rren t
o ffe r in g ( l ) o f 1-1/4 p ercen t Treasury R otes o f S e r ie s B-1951, to
be dated March 1, 1950, open to the h o ld ers o f 1-1/4 p ercen t
Treasury C e r t i f i c a t e s o f Indebtedness o f S e r ie s C-1950, m aturing
March 1, 1950, and (2) o f 1-1/2 p ercen t Treasury Notes o f S e r ie s
A - 1955, to be dated March 15, 1950. open to the h o ld ers o f 2
p ercen t Treasury Bonds o f 1950-52 (dated October 19, 1942),
c a lle d fo r redemption on March 15, 1950.
S u b s c r ip tio n s and a llo tm e n ts were d iv id e d among the s e v e r a l
F e d e ra l Reserve D i s t r i c t s and the Treasury as fo llo w s :
F e d e ra l Reserve
D is tr ic t

S e r ie s B - 1951 Notes
T o ta l S u b s c r ip tio n s
R eceived & A l l o t t e d
$

Boston
New York
P h ila d e lp h ia
C leve lan d
Richmond
A tlan ta,
Chicago
S t . Louis
M inn eapolis
Kansas C it y
D a lla s
San F r a n c isc o
Treasury

51,488,000
1 ,6 1 0 ,2 2 7 , 0 0 0
5 2 .3 7 6 . 0 0 0

86.475.000
43.448.000
7 6 .9 1 9 . 0 0 0

304.746.000
90.578.000
8 1 .8 9 2 .0 0 0

87.254.000

6 6 .3 8 0 .0 0 0

171.746.000 .
1 7 ,7 9 0 ,0 0 0
TOTAL

$2,741 ,31 9,00 0

0O0

Series A-1955 Notes
Total Subscriptions
Received & Allotted
$

5 8 ,7 8 8 , 0 0 0

1 ,0 7 6 ,9 7 5 ,0 0 0
6 6 081,000
6 2 216 ,0 0 0
42.648.000

,
,

27.087.000

231.844.000
44.582.000
54.735.000
41.265.000
2 8 .8 3 7 . 0 0 0
1 1 6 .9 2 3 . 0 0 0

8 ,1 8 5 ,0 00
$ 1 ,8 6 0 ,1 6 6 , 0 0 0

..

«ve cannot,

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

of course,

predict

the p r e c i s e course of our f u t u r e
development.

But

i f we c on ti nue to

e x e r c i s e broad v i s i o n and
judgment - -

so well

exemplified

in

the p r o g r e s s i v e work of the
Institute

— we s h a l I

have the

courage to aoopt new p r i n c i p l e s
and p o l i c i e s to f i t
ana t h e i r

the new times

opportunities,

ana to

has from the beginning been a
fundamental

p a r t of

t h i s system under

which America has grown and prospered,
and unaer which we s h a l l

continue to

I
1i

Mr

advance to new h e i g h t s .
■'

The problems w i l l

I

not be easy.

On both the domestic and the f o r e i g n
fronts,

we may be sure t h a t they w i l l

seldom take the ex act form of problems
which we nave met b e f o r e ,

To meet

these c h a l l e n g e s , we s h a i I

have to

keep a l e r t to the changing needs and
c o n d i t i o n s of our e n t i r e economy.

|

Also,

business g e n e r a l l y has

been "ousti ng o f f "
old product - -

and improving an

salesmanship.

Competition has long been an
essential

i n g r e d i e n t of our American

f r e e e n t e r p r i s e system.
spurs business,
its return.

Competition

and we should welcome

i t wi l l

provi de a

h e a l t h y c l i m a t e f o r our f u r t h e r
economic expansion

in the days ahead.

The record of our system o f
individual

enterprise

is one of

m a g n i f i c e n t achievement.

Banking

R M pnppipB spnpil

- 30 -

■ •

4'

have so l a r g e l y been r e s p o n s i b l e
our ever-improved stanoards o f
Moreover,

business is a l e r t

o p p o r t u n i 1 1 es.
for

li

to these

Business ex pendi tures
ana eGuipment

in recent

years have been on a s c a l e unequaled
in our h i s t o r y .

They r e f l e c t the

a e t e r m i n a t i o n of

i

of

to make use

d i s c o v e r i e s and improved

•+

I cIency;

turn out new

s u p e r i o r products;
the I r markefsw •

and
IfllB

9

t h e i r production
.............

tecnni ques to b e t t e r

Such i n f l u e n c e s as these w i l l
provide continued s tr ong support
to our economy in the days ahead.
We a l s o f ace an era

in which a

c o n t i n u i n g progression of new products
wi l l

gi ve success i ve support to

business a c t i v i t y .

Never b e f o r e has

our s c i e n t i f i c r es ear ch been so
progressiveIy carried
fronts.

It

forward on a l l

pr esent s u n l i m i t e d

opportuni ti es f o r

the development

of new and improved products which

27
the beginning of the war
addition,

in 1939.

In

t h e r e has been a n o t a b l e

s n i f t of p o p u l a t i o n d ur i ng and si nce
the war.

These have g r e a t l y

added

to

the need f o r new housing, and f o r new
schools,

churches,

hospitals,

and

o t h er community f a c i l i t i e s .
There is al so an urgent demand
f o r the r e p a i r as wel l

as b u i l d i n g

of new roads and highways.

In a

r e c e n t survey made by the J o i n t
CongressionaI Committee on the

-

Last

3»n

th e

* 8 S

aw ards
fo r
%

made

in

January

of

c o n s tru c tio n

r

sta n ce

c o n s tru c t

r c r

th is

sho»

s

year
50
3M

w

have some
to

go

in

u c tio n

m e e tin g
th a t

t t

o e o o le

has

ac

y ©ft p s

in
m illion

Cor

increase over

Ä

commun

re co rd

is c o n t i n u i n g .

fu tu re

lor

N a tio n ,

tim e

a t

t rend

—

year,

%g

W

c o
6

to

p

our

uste
0

a v « add
c o p u la ti

since

I

developments - -

such as an over

expansion of c r e d i t or excessive
specuI a t i on.
Moreover,

s t a r t i n g wit h a

b a s i c a l l y sound pr es ent s i t u a t i o n we
face the f u t u r e wi t h many demands
which i n du st r y - has thus f a r been
unable to meet,

Outstand

among

these are the continued
r equi rements f o r new c o n s t r u c t i o n ,
l a r l y of new houses and
community f a c i l i t i e s .

m

These
direct

bearing

outlook.
reason

considerati

There

for

factors

on
is

contributing
will

during

second

the

than

continue

they
to

be

are

guard

have

business

no

expecting

confidence

19 5U

the

ons

foreseeable
that
to

any
half

the

national
less

strong

of

today,
against

if

we

unhealthy

The
people

continued

to

buy

is

w illingness

equally

of

encoura
i

Its

effectiveness

as

a

business

factor

'

is

well

demonstrated
volume

of

by

sales

that

is

s till

be i ns

s

11

dent

that

e

are

willing
have
is

c oorn f i d e n c e

g e n ej rr a I

today,
better

in

the

future.

appreciation

that

1
than

ever

incomes

#
%filI/*^
yU
i ass e ts

t
Government

he f o r m

cash.

securities
.

record

of

figure

of

stand

at
bill!

a

over
any
of

the

past

six

expansion
normal

of

months

inventories

needs.

On

j
,\

the

has

the

reflected
in

excess

contrary,

•

cur r e n t

volume

of

in dustrial
I

production
solid

and

levels

volume

of

The

retail

based

on

consumer
basic

determ ines

our

of

is

course,

trade
the

actual

I

demand.

influence
business
not

represents!

only

I

which
prosperity,

the

ability

but

the

willingness

of

consumers

buy

the

full

of

industry.

output

to

20

-

to

serve

it

has

Its

ever

been

my

of

year

its

the

the

for

history.

upon

N ation's
the

of

the

economy.

year

both

than

future,

largely

opinion,

bood

generally

in

for

hinge

progress

a

people

prospects

course,

In

the

1950

business

will

be

and

bank ing.
Business
healthy
are

generally

condition.

strong.

cautious

There

no

is

in

Business

Inventory

remained

is

and

evidence

a
finances

policies

have

c o n s e r v a t i ve.
that

the

upturn

I9
come
the

to

to

Iems

t m ancia

our

on,
s

o f

are

of

the

Banking

active
ich

to

confront
exa

con t r i b u t i o n .

In stitu te
most

on

which

outstanding

of

the

advise

after
Today,

have

workers
enabled

successfully
maintain

American
been

a

in
us

not

only

finance

sound
the

close

the

of

banking
♦

is

in

a

stronger

and

better

«

*

t » on

“■*3*8*

staunch

oters

of

Savings

programs both d u rin g

and s i n c e

p

T h i s has been wi thou t p r o f i t

’A a r .
_

and s t

the

e x p e n s e o f co

a b l e

me and p e r s o n a I e f f e
In the
c o o p e r a t i on

t

0 f

t h e ban« i n f

has he Ined e p
o r ob 1erri?

tha

Vo 1 u n t a r y c r
in

f

1a t i o n e r y

co n tin u in g

ß

y ear s

POS

t

ä

*jhjpt

pt

t i ve

n r o f e cc

t h e r econ v e r s i o n

50

« e,

eri i

8r

t

r>p%r

ha y A
CO

ntro t

i od S,

vo lu n ta ry

the r e p r e s e n t s t i

to

fifi

m p p i# *

in

and t h e
coopera t

3n k or s

a ho

I

¡on

1

17

momentous decerle
I of
its

us

h

greatest

N ation.
reaped

It
its

ur

so c l o s e
t

b s fiK I h r

contribution

has.

i

-n,

fs

ernment

But n e v e r

our

deserve
gains,

f i n a n e ia I

in tim e o f

in our h i s t

c o n trib u tio n
ss

to

made

hanKs have a I .»ays been
ir

tar.

has

g r e a te s t personal

ari
a. I cl t o

to

in r e c e n t v e e r s

been so g r e a t

But

in

neî t h e r

s

i z© o f o d ©r § t i o n s

o u t w a r d a o p e s r a n c e do t h e y
y o u r o r es en t
Few o f
s ta

nar

r»sembl

modem s h o p p i n g c e n t ®r

t h e 27 k i nefs o f ma n u f a c t

Jf

i8g

î shments o f * h ich L a n c a s te r
in

r e c o g n i ?e t h e m s e l v e s a t
■ i d- c i

f

f

anu f a c t u r o n s

l

S

f

'

thîs

K

oroduce

A

la n

DOS 0 f L inés s
orooucts

mk
L

ira

S

k no

m u s t a c h e s and c e l l u l o i d
banning

collars,

has come t h r o u g h momentous

decades t o

its

p re s e n t high

standards o f s e rv ic e .
Over no p e r i o d

o f y e a r s has t h e

d e v e l o p m e n t o f L a n c a s t e r C o u n t y been
more r a p i d ,

n o r has h e r a p p e a r a n c e

more c h a n g e d by m a n u f a c t u r i ng and
commerce9 th a n
years

o f our

the s t o r e s
already

during

ow n

til

first

century.

you p a t r o n i z e

h o u se h o ld words

50

Many o f
t o d a y wer e

in

1900.

■e r«

on

$v © I

average

between

y e a r s 8go

t h e modern be

y y
i s to
sginning,

in a small

compensation
ith fu l

a

A

T O

I t f ,

to

o f §.*
e.??

or unusual

service.

Early

■

inutes of

fl

ft the

s u n a n i m o u s l y r e so.
icers

of

I ank

r

amer s u i t

Ck
n
\ j r lU*

its
n

as

pf

com oensa.t î on

c.e r v i c e s

four

of
|0 I p

wetKS p a s s e d

i n g t h e g r e a t c r o w d o f b u s îne €* £0
* * '%/ if® r“5-

Whi If? s a l a r i e s

to

fl

-

10 -

Some i n t e r e s t i n g and amusing
s i d e l i g h t s on bank a d m i n i s t r a t i o n
those f a r - o f f

in

times a r e to be found

in the e a r l y r ec or ds of t h i s

bank.

The c a s h i e r ' s s a l a r y was f i x e d at
X

$1, 200 and the c l e r k ' s a t $800,
the P r e s i d e n t drew down the
p r i n c e l y sum of $300 a year.

whi l e

e s t a b l i s h e d not only

in the- town

but throughout the county.
Your

l eadi ng c i t i z e n s of

the da

r ecogni zed the u r ge n t need in such
a we I I - d e v e l ope d community f o r money

and banking f aci I i t i e s to serve
t r a d e ana exchange.

bank
Lancaster.

Early

in 1810,

to having e s t a b l i s h e d one of the
earliest
count r y.

" i n t e r i o r ” banks in our
When t he f i r s t

e s t a b l i s h e d here in 1810,
I||||§J \

§

bank was
Lancast er

j

had a popul a t i on of s l i g h t l y over
o , 000.

I t was the second

largest

town in Pennsyl vani a and the

largest

i nl and town in the Uni t ed S t a t e s .
Around the borough lay one of the
r i c h e s t f ar mi ng r e g i o n s ,

wi th a

f ar mi ng popu l a t i o n of 5 3 , 0 0 0 .
support t h i s t h r i f t y

To

f ar mi ng

community, many i n d u s t r i e s had been

T
Pennsylvania *as,

o f course,

nia

s î N o r t h Amer ica
as tne f i r s t p e rm ane nt I y
in the U n i t e d S t a t e s ,
ie t i r s i wn i en nss ri
re la tio n

t oaid

the f i r s t

s a l a r y due fP
«

it

ins

•S

Ç
w 1

f!

firs t

â

ern m e n t.

to

and

session
Lancaster

£
u

C C

Or

6

o ur C o n s t i t u t i o n .
can

serve t h e i r commun i t i e s and the
coun t r y .
I t seems to me to be p a r t i c u l a r l y
a p p r o p r i a t e to be obser vi ng t h i s
i
banking mi l e s t o n e wi t h a chapt er
so long a c t i v e

in I n s t i t u t e a f f a i r s ,

arid in a St at e and County so
aistinguished

in American banking

annal s.

Lancast er County,

famous

f o r over

two c e n t u r i e s f o r

its

agricultural
rich

richness,

i s al so

in banking e x pe r i e nc e .

5
banning e du c a t i on .
classrooms,

Through

its

corresoondence courses,

and seminars i t

has brought

u p - t o - d a t e Knowledge o f the e n t i r e
banning f i e l d
practically
c ou nt r y .

w i t h i n the reach of

every bann emoloyee in the

Through

i t s enr i ched t r a i n i n g

program of educat i on couoled wi t h
e x per i ence ,

the

i t possible for

I n s t i t u t e has made
i t s members to develop

t h e i r own e x e c u t i v e c a p a c i t i e s .
in t u r n ,

They,

have become b e t t e r abl e to

|

4M»

of

its rapidly

|||

pi

i n c r e a s i n g membership.

As business t r a n s a c t i o n s
expanded and became more compl i cat ed
in tne a c c e l e r a t e d pace o f the
t w e n t i e t h c e n t u r y , bankers have had
to become s p e c i a l i s t s

in the who le

broad f i e l d of business a n a l y s i s and
customers* needs.

They have had to

i n t e r p r e t business and economic
t r ends n o t only

in t n e i r communities

but in the Nat i on as a whole.
The I n s t i t u t e
great

laboratory

has served as a

for progressive

/

- 3 F i f t y years ago t her e
were few c o l l e g e s wi t h business
courses.

Organ i zed a d u l t educat i on

was p r a c t i c a l l y unKnown.
Institute
field,
limited.

When the

ent ered the educat i onal

i t s courses were necessari ly
But through the ye ar s,

has been c o n s t a n t l y e n l a r g i n g

it

its

c u r r i c u l u m to meet the changing needs

2
a g r e a t c o n t r i b u t i o n to the
advancement of our ban«ing
p r o f e s s i o n and,

in t u r n ,

American economy i t

to the

ser ves.

Its

accomplishments are an i n s o i r i n g
chapt er

in the s t o r y of the

progress of America

in t h i s

f i r s t h a l f of the t w e n t i e t h
century.

As you know.
privilege
part

l a s t September to take

in the formal

American

was my

opening of the

I n s t i t u t e of Banki ng’ s

Golden A n n i v e r s a r y .

1 am happy to

be abl e to j o i n wi t h you members
and f r i e n d s of the Lancast er
Chapter t o n i g h t and again have a
part

in the commémorâtion of t h i s

very

i mportant mi l e s t one

in our

bank ing hi s t o r y .
Duri ng
American

its

lifetime,

the

I n s t i t u t e of Banking has

BF KIRS TBE
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_IT.

TREASURY DEPARTMENT
Washington
The following address by Secretary Snyder before
the Lancaster Chapter of the American Institute
of Banking, at the Hotel Brunswick, Laneaster,
Pennsylvania is scheduled for delivery about
7t00 p.m. « EST » Thursday» March 2, 1950« and jg
for release on delivery.

As you know, it was my privilege last September to take part in the
formal opening of the American Institute of Banking's Golden Anniversary.
I am happy to be able to join with you members and friends of the
Lancaster Chapter tonight and again have a part in the commemoration of
this very important milestone in our banking history.
During its lifetime, the American Institute of Banking has made
a great contribution to the advancement of our banking profession and,
in turn, to the Ameriean economy it serves. Its accomplishments are an
inspiring chapter in the story of the progress of America in this first
half of the twentieth century.
Fifty years ago there were few colleges with business courses.
Organized adult education was practically unknown. When the Institute
entered the educational field, its courses were necessarily limited. But
through the years, it has been constantly enlarging its curriculum to
meet the changing needs of its rapidly increasing membership.
As business transactions expanded and became more complicated in the
accelerated pace of the twentieth century, bankers have had to become
specialists in the whole broad field of business analysis and customers'
needs.
They have# had to interpret business and economic trends not only
in their communities but in the Nation as a whole.
The Institute has served as a great laboratory for progressive
banking education. Through its classrooms, correspondence courses, and
seminars it has brought up-to-date knowledge of the entire banking field
within the reach of practically every bank employee in the country.
Through its enriched training program of education coupled with experience,
the Institute has made it possible for its members to develop their own
executive capacities.
They, in turn, have become better able to serve
their communities and the country.
It seems to me to be particularly appropriate to be observing this
banking milestone with a chapter so long active in Institute affairs,
and in a State and County so distinguished in American banking annals.
Lancaster County, famous for over two centuries for its agricultural
richness, is also rich in banking experience.
S-2266-

- 2 -

Pennsylvania was* of course , the birth place of American banking.
The Bank of North America at Philadelphia was the first permanently
organized bank 'in the United States, and was also the first which had
any direct relation to the Government. It was the money received from
this bank that paid the first instalment on the salary due President
Washington and the members of Congress during the first session under
our Constitution.
Lancaster itself can lay claim to having established one of the
earliest »interior” banks in our country. When the first bank was
established here in 1810, Lancaster had a population of slightly over
5,000. It was the second largest town in Pennsylvania and the largest
inland town in the United States. Around the borough lay one of the
richest farming regions, with a farming population of 53*000. To support
this thrifty farming community, many industries had been established not
only in the town but throughout the county.
Your leading citizens of the day recognized the urgent need in such
a well-developed community for money and banking facilities to serve trade
and exchange. Early in 1810, they banded together and launched your
first local bank — the Farmers Bank of Lancaster.
Some interesting and amusing sidelights on bank administration in
those far-off times are to be found in the early records of this bank.
The cashier's salary was fixed at $1,200 and the clerk's at $800, while
the President drew down the princely sum of $300 a year.
A watchman and a runner were selected, the former receiving $12
a month and "the use of a great coat to be furnished at the expense of
the bank." A year later, in 1811, the watchman's salary was raised to
$16 "provided he gives his constant attendance at the bank, saws, splits
and piles the wood, keeps the pavement and yard clean, and does all things
reasonably required of him by the cashier."
Here also is to be found the beginning, in a small way, of extra
compensation to bank employees for faithful or unusual service. Early
minutes of the bank record — "It was unanimously resolved that the
Officers of the Bank be each complimented with a Summer suit of clothes
as a compensation for their extra services for four weeks passed during
the great crowd of business."
While salaries to bank officials and employees in those early days
seem meager, they in fact were on a level with the average compensation
of the day.
Just as striking contrasts might be made between the bank itself of
50 years ago and the modern bank of today. For it is in this half
century that banking, as well as our entire economy, has made its greatest
strides. From an era of ponderous ledgers, walrus mustaches and celluloid
collars, banking has come through momentous decades to its present high
standards of service.

- 3 Over no period of years has the development of Lancaster County
been more rapid, nor has her appearance been more changed by manufacturing
and commerce, than during the first 50 years of our own century. Many
of the stores you patronize today "were already household words in 1900.
But in neither size of operations nor outward appearance do they resemble
your present modern shopping centers. Few of the 27 kinds of manufacturing
establishments of which Lancaster County boasted in 1900 would recognize
themselves at this mid-century mark.
Today over 500 manufacturers
produce more than 70 types of Lancaster County-made products — products
which are known all over the world.
Your banking institutions reflect the growth of Lancaster's thriving
agriculture and industry. For in fifty years the total resources of
Lancaster County banks have risen from $19 million to $216 million.
Banking is, of course, essentially a service industry. Its success
and progress depend upon the measure of the contribution it makes to
the economic advancement of our country. It is in the past momentous
decade — so close to all of us — that banking has made its greatest
contribution to our Nation. It has, in turn, deservedly reaped its greatest
personal gains.
Our banks have always been prompt to lend their financial aid to our
Government in time of war. But never in our history has the contribution
been so great as in recent years. Bankers throughout our country have
been staunch promoters of Savings Bond programs both during and since the
war.
This has been without profit and at the expense of considerable time
and personal effort.
In the postwar years the active cooperation of the banking profession
has helped ease the reconversion problems that we have had to meet.
Voluntary credit control in inflationary periods, and the continuing
voluntary cooperation of the representative bankers who come to Washington
to advise on the financial problems which confront our Nation, are
outstanding examples of this contribution.
Members of the American Institute of Banking have been among the
most active workers in these programs which enabled us not only to
successfully finance the war, but to maintain sound management of the
debt after the close of the war.
Today, the banking industry is in a stronger and better position to
serve the people generally than it has ever been in its history. Its
prospects for the future, of course, hinge largely upon the progress of
the Nation's economy. In my opinion, the year 1950 will be a good year
for both business and banking.
Business generally is in a healthy condition. Business finances
are strong. Inventory policies have remained cautious and conservative.
There is no evidence that the upturn over the past six months has reflected
any expansion of inventories in excess of normal needs. On the contrary,
the current volume of industrial production and retail trade represents
solid levels based on the actual volume of consumer demand.

- 4 The basic influence which determines our business prosperity,
of course, is not only the ability but the willingness of consumers to
buy the full output of industry. Their present ability to buy is
evidenced by the continued high level of personal income, which last
year averaged almost the same as in the record year of 1948. Consumer
ability to buy is also reinforced by an unprecedented volume of personal
savings. The liquid assets of individuals, in the form of cash,
Government securities, bank deposits, and savings accounts, stand at a
record figure of over $200 billion.
The continued willingness of people to buy is equally encouraging.
Its effectiveness as a business factor is well demonstrated by the high and
steady volume,of sales that is still being maintained.
It is evident that people are willing to buy freely because they have
confidence in the future.
There is general appreciation that incomes
today, throughout the Nation, are better protected than ever before.
These considerations have a direct bearing on the business outlook.
There is no foreseeable reason for expecting that the factors contributing
to national confidence will be any less strong during the second half of
1950 than they are today, if we continue to guard against unhealthy
developments — such as an over expansion of credit or excessive
speculation.
Moreover, starting with a basically sound present situation we face
the future with many demands which industry has thus far been unable to
meet. Outstanding among these are the continued urgent requirements for
new construction, particularly of new houses and community facilities.
Last year, in your own community as ^throughout the Nation, construction
was at an all-time record.
This trend is continuing. Contract awards
made in January of this year for future construction show a 50 percent
increase over January 1949* Moreover, we still have some distance to go in
meeting the demand for construction that has accumulated over the past
twenty years or more.
For one thing,, we have added 20 million people to our population since
the beginning of the war in 1939. In addition, there has been a notable
shift of population during and since the war. These have greatly added to
the need for new housing, and for new schools, churches, hospitals, and
other community facilities.
There is also an urgent demand for the repair as well as building
of new roads and highways.
In a recent survey made by the Joint
Congressional Committee on the Economic Report, our states have advised
that correcting the deficiencies of our present state highways alone will
require $23 billion. An additional $10 billion will be needed to bring
county and local rural roads up to present-day requirements.
City and
village streets, if adequate to meet the needs of our modern national
economy, would require an additional $8 billion.

- 5 Such influences as these will provide continued strong support
to our economy in the days ahead*
We also face an era in which a continuing progression of new products
will give successive support to business activity. Never before has
our scientific research been so progressively carried forward on all
fronts. It presents unlimited opportunities for the development of new
and improved products which have so largely been responsible for our
ever-improved standards of living. Moreover, business is alert to these
opportunities.
Business expenditures for n m plant and equipment in
recent years have been on a scale unequaled in our history. They reflect
the determination of industry to make use of new discoveries and improved
techniques to better their production efficiency; to turn out new and
superior products; and to broaden their markets.
Also, business generally has been "dusting off” and improving an
old product — salesmanship.
Competition has long been an essential
ingredient of our American free enterprise system.
Competition spurs
business, and we should welcome its return. It will provide a healthy
climate for our further economic expansion in the days ahead.
The record of our system of individual enterprise is one of
magnificent achievement.
Banking has from the beginning been a fundamental
part of this system under which America has grown and prospered, and
under which we shall continue to advance to new heights.
The problems will not be easy.
On both the domestic and the foreign
fronts, we may be sure that they will seldom take the exact form of
problems which we have met before.
To meet these challenges, we shall
have to keep alert to the changing needs and conditions of our entire
economy.
We cannot, of course, predict the precise course of our future
development.
But if we continue to exercise broad vision and judgment —
so well exemplified in the progressive work of the Institute — we shall
have the courage to adopt new principles and policies to fit the new times
and their opportunities, and to hurdle new obstacles as they appear.

Sm uggling combatted by Customs was n ot a l l connected w ith
incom ing m erchandise. The B u reau 's agents continued to en fo rce
exp ort c o n tr o l law s, and made numerous se iz u r e s in con n ection
w ith i l l e g a l attem pts to exp ort m erchandise r e q u ir in g a l i c e n s e .
One o f the most im portant o f these cases in v o lv ed $150,000
worth o f carbon b la c k se ize d a t Houston, T e xas, in co o p era tio n
w ith in v e s t ig a to r s o f the O f f i c e o f In te r n a tio n a l Trade,
Department o f Commerce.
.period

A n o vel method o f sm uggling go ld out o f th^/eountry w ithout
lic e n s e came to l i g h t in a case in which a i5 tai»»g^.concealed bars
o f the y e llo w m etal in the door o f a refrigerator*gii«*piifri#i*T*
S e iz u re o f the go ld was e ffe c t e d by the Hong Kong Department o f
Commerce and In d u s tr y , on a r r i v a l there^,through evidence su p p lied
by Custom s.
/
r t P * S t' rSi* 5
Customs o f f i c e r s made numerous in v e s t ig a t io n s in v o lv in g
i r r e g u l a r i t i e s in co n n ectio n w ith commercial m erchandise shipments
and e f fe c t e d se iz u r e s or p e n a lty assessm ents running in to many
thousands o f d o lla r s in in d iv id u a l c a s e s , These v io la t io n s in ­
vo lved such d e v ice s as u n d e rvalu atio n o f m erchandise in rep­
r e s e n ta tio n s to Custom s, and f a l s e and fra u d u le n t d e c la r a t io n s .
In a number o f cases the f a l s i f i c a t i o n s appeared designed
p r im a r ily to d e fe a t export c o n t r o l, currency or o th er r e s t r i c t i o n s
o f the country o f o r i g in , alth o u gh in most such cases frau d
a g a in s t U n ited S ta te s revenues a ls o was in v o lv e d .
The law enforcement work o f Customs a g a in was fe a tu re d by
sdrto^piiyjdieavy se iz u r e s o f n a r c o tic s and m arihuana.

Proposed Annual Customs Press ie le a s e

Customs Commissioner Frank Dow, r e p o r tin g to S e c r e ta r y
Snyder on Cuproms enforcem ent a c t i v i t i e s du rin g 1949, today to ld
how a [Torp or oo
turned a b la c k market o p e ra tio n in post-w ar
Germany in to a sm uggling ra c k e t in v o lv in g gems worth many
thousands o f d o l l a r s , b efo re b ein g c o n v icte d on evidence o btain ed
by Bureau a g e n t s .
/

The case was one o f a number o f Customs in v e s t ig a t io n s in ­
v o lv in g fo r e ig n b la c k m arket-sm uggling t ie u p s . ThegaHHBttr
concocted h is am bitious scheme w h ile se rv in g in
/— a" c i v i l i a n c a p a c ity abroad a f t e r the war, was fin e d in F e d e ra l
( | Court a f t e r p le a d in g g u i l t y and co o p e ra tin g w ith in v e s t ig a t o r s ,
SvHytywho e f fe c t e d se iz u r e o f jew els worth $1 4 ,0 0 0 .
The o ffe n d e r operated w ith the a id o f a s s o c ia te s in t h is
co u n try , who su p p lied him w ith c a sh , c i g a r e t t e s , c o f f e e , and
o th er m erchandise fo r tr a d in g p u rp o ses. The gems were smuggled
In to the U n ited S ta te s by such c o u r ie r s as a war b r id e , whose
co a t shoulder pads provided a h id in g p la c e ; by a former n u rse ,
whose to o th p a ste tube was '’ lo a d e d ;” and by a former s o ld i e r ,
whose shaving cream c o n ta in e r was found convenient fo r the purpose.
I n v e s t ig a t io n of* the case i s c o n tin u in g .
j >c&'hoto't ©y

Commissioner Dow reported th a t such item s as je w e lr y , p recio u s
gems, and gold a g a in fig u r e d prom inently in s e iz u r e s made by
Customs o f f i c e r s , w ith a ir p la n e passengers fi g u r in g more fr e q u e n tly
fiSSB
in i n v e s t ig a t i o n s t jjHgrrr^ijiB PcrSfi
m
om
entniffi
One such s e iz u r e , o f r a th e r unusual c h a r a c te r , in v o lv e d a
m a il package c o n ta in in g a b i l l i a r d cue shipped from Ja p a n ,
A hollow space where the ebony handle screwed onto the s t a f f
y ie ld e d an expensive diamond r in g when an a l e r t Customs man gave
the cue a c lo s e in s p e c tio n .
L a te in the year Customs o f f i c e r s a t San Ju a n , Puerto R ic o ,
se iz e d $3*500 worth o f sem i-p recio u s stones from a plane
passen ger a r r iv in g from B r a z i l , who had the undeclared stones in
a c lo t h c a r r y in g b e lt under h is c lo t h in g . A s im ila r d e v ice was
employed by a plane passenger a r r iv in g by a i r a t Miami from B r a z i l ,
w ith 10,000 c a r a ts o f cu t am ethysts c o n ce a le d .

/

TREA SU RY DEPARTM ENT
Information Service

REUSASE MORNING NEWSPAPERS,
Thu rsda y , March 2 , 1950.

WASHINGTON, D .C .

S-2 2 6 7

Customs Commissioner Frank Dow, r e p o r tin g to S e c r e ta r y
Snyder on Customs enforcem ent a c t i v i t i e s du rin g 1949, today to ld
how a man turned a b la c k market o p era tio n in p o st-w ar Germany
in to a sm uggling ra ck e t in v o lv in g gems worth many thousands o f
d o l l a r s , b efo re b ein g co n v icte d on evidence obtained by Bureau
a g e n ts,
The case was one o f a number o f Customs in v e s t ig a t io n s
in v o lv in g fo r e ig n b la c k m arket-sm uggling t ie u p s . The sm uggler,
who concocted h is am bitious scheme w h ile se rv in g in a c i v i l i a n
c a p a c ity abroad a f t e r the war, was fin e d in F e d e ra l Court a f t e r
p le a d in g g u i l t y and co o p era tin g w ith in v e s t ig a t o r s , who e ffe c t e d
se iz u r e o f jew els worth $1 4 ,0 0 0 .
The o ffe n d e r operated w ith the a id o f a s s o c ia te s in t h is
co u n try , who su p p lied him w ith c a sh , c i g a r e t t e s , c o f f e e , and
o th er m erchandise fo r tr a d in g p u rp o ses. The gems were smuggled
in to the U n ited S t a t e s by such c o u r ie r s as a war b r id e , whose
co a t shoulder pads provided a h id in g p la c e ] by a former n u rse ,
whose to o th p a ste tube was "lo a d e d ;" and by a former s o ld i e r ,
whose sh aving cream c o n ta in e r was found convenient fo r the
purpose. In v e s t ig a t io n o f the r a m ific a t io n o f the case i s
c o n tin u in g .
Commissioner Dow reported th a t such item s as je w e lr y ,
p re cio u s gems, and go ld a g a in fig u r e d prom inently in s e iz u r e s
made by Customs o f f i c e r s , w ith a ir p la n e passengers f ig u r in g
more fr e q u e n tly in in v e s t ig a t i o n s .
One such s e iz u r e , o f r a th e r unusual c h a r a c te r , in v o lv e d
a m ail package c o n ta in in g a b i l l i a r d cue shipped from Ja p a n .
A hollow space where the ebony handle screwed onto the s t a f f
y ie ld e d an expensive diamond r in g when an a l e r t Customs man
gave the cue a c lo s e in s p e c tio n .
L a te in the year Customs o f f i c e r s a t San Ju a n , Puerto R ic o ,
se iz e d $ 3 , 5 0 0 worth o f sem i-p recio u s stones from a plane
passenger a r r iv in g from B r a z i l , who had the undeclared stones
in a c lo t h c a r r y in g b e lt under h is c lo t h in g . A s im ila r d e v ice
was employed by a plane passenger a r r iv in g by a i r a t Miami from
B r a z i l , w ith 10,000 c a r a ts o f cut am ethysts co n ce a le d .

2
S n u g g lin g combatted by Customs was not a l l connected w ith
incom ing m erchandise. The B u reau 's age n ts continued to en force
export c o n tr o l law s, and made numerous se iz u r e s in con n ection
w ith i l l e g a l attem pts to export m erchandise r e q u ir in g a li c e n s e .
One o f the most im portant o f th ese cases in v o lv e d $150,000
worth o f carbon b la c k se ize d a t H ouston, T exas, in co o p era tio n
w ith in v e s t ig a to r s o f the O f f i c e o f In te r n a tio n a l Trade,
Department o f Commerce.
A n o v el method o f sm uggling gold out o f the country w ithout
lic e n s e came to l i g h t in a case in which a person concealed bars
o f the y e llo w m etal in the door o f a r e f r i g e r a t o r . S e izu re o f
the g o ld was e ffe c t e d by the Hong Kong Department o f Commerce
and In d u s tr y , on a r r i v a l there o f the r e f r i g e r a t o r , through
evidence su p p lied by Custom s.
Customs o f f i c e r s made numerous in v e s t ig a t io n s in v o lv in g
i r r e g u l a r i t i e s in con n ection w ith commercial m erchandise s h ip ­
m ents, and e ffe c t e d se iz u r e s or p e n a lty assessm ents running
in to many thousands o f d o lla r s in in d iv id u a l c a s e s . These
v io la t io n s in v o lv ed such d e v ice s as u n d e rvalu atio n o f
m erchandise in r e p r e se n ta tio n s to Custom s, and f a l s e and fra u d ­
u le n t d e c la r a t io n s . In a number o f cases the f a l s i f i c a t i o n s
appeared designed p r im a r ily to d e fe a t export c o n t r o l, currency
or oth er r e s t r i c t i o n s o f the country o f o r i g in , alth o u g h in
most such cases frau d a g a in s t U n ited S ta te s revenues a ls o was
in v o lv e d ,
The^law enforcement work o f Customs a g a in was fe a tu re d by
heavy s e iz u r e s o f n a r c o tic s and m arihuana.

- 3 m a x

purpose§ of taxation the amount of discount at v/hioh Treasury bills are originally
sold by the United States shall be. considered to be interest,

Under Sections 1+2

and 117 (3 ) (1) of the Internal Revenue Oode^ as amended by Section ll£ of the
Revenue Act of 191+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 sale or
redemption at maturity during the taxable year for which the return is made* as
ordinary gain or loss.
Treasury Department Circular No, 1+18* as amended* and this notice* prescribe
the terms of the Treasury bills and govern the conditions of their issue.
.of the circular may be obtained from any Federal Reserve Bank or Branch.

Copies

-

2

-

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 m i l be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made b y
the Secretary of the Treasury of the amount and price range of accepted bids.
Those submitting tender

1 1

be advised of the acceptance or rejection thereof

The Secretary of the Treasury expressly reserves the right to accept or reject

be final.

Subject to these reservations, non-competitive tenders for $200,000 or

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

March °

19^0

, in cash or other immediately avail-

able funds or in a like face amount of Treasury bills maturing
Cash and exchange tenders will receive equal treatment.

M^rch 9

1oc'0,

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 lav/s amendatory or supplemen­
tary 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.

Fo:

M&bCJ&DGC

nmm
TREASURY DEPARTMENT
Washington

FOR RELEASE, MORNING NEWSPAPERS*

J.

(f

Friday, Marchm3, ---------------1950.

The Secretary of the Treasury, by this public notice, invites tenders for
$ 1,000,000,000

, or thereabouts, of

91

In exchange for Treasury bills maturing

-day Treasury bills, for cash and

March 9> 1950______ , to be issued on

a discount basis under competitive and non-competitive bidding as hereinafter
provided.

The bills of this series will be dated

March 9, 1950

, and

---------------------will mature

June 8, 191?0______ * when the face amount will be payable without

TO
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, March
6, 1950
---------------m

, i

ilfiJIllAi

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

TREA SU RY DEPARTM ENT
Information Service
RELEASE, MORNING NEWSPAPERS,
Friday. March 3r 1950»
'

Wa s h i n g t o n , d . c .

S-2268

The Secretary of the Tr«asury, by tfois public notice, invites tenders
for $1,000;000,000, or thereabouts, of 91-day Treasury bills, for cash and
in exchange for Treasury bills maturing March 9* 1950, to be issued on
a discount basis under competitive and non-competitive bidding as herein­
after provided. The bills of this series will be dated March 9, 1950,
and will mature June 8, 1950, 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,
March 6, 1950. 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 vrill 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 bids* Those submitting tenders will be advised of the
acceptance or rejection thereof* The Secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in whole or in
part, and his action in any such respect shall be final. Subject to these
reservations, 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 March 9, 1950, in cash or other immediately
available funds or in a like face amount of Treasury bills maturing
March 9, 1950. Cash and exchange tenders will receive equal treatment*
Cash adjustments will be made for differences between the par value of
maturing bills accepted in exchange and the issue price of the new bills*

-

2

-

The income derived from Treastuy 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
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 ary 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 115 of
the Revenue Act of 1941* 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 sale or redemption at maturity during the taxable year
for which the return is made, as ordinary gain or loss*
Treasury Department Circular No* 418, 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*

oOo

ARRESTS REPORTED
DISTRICTS
Ä-ÄfcäiS

1

1948

1949_
ftf*iGitstr
District
l
s
1

#1.

1
I

1

1
1

i

s

1
;

75

Marihuana
"“

“38*--- “

255

1,268

716

212

928

84

61

145

35

31

66

125

53

178

64

48

112

97

34

131

140

18

158

Louisville.

694

140

834

540

63

603

S.

Detroit

284

136

420

224

185

409

9.

Chicago

343

114

457

165

79

244

10. Houston

147

364

511

162

294

456

11. Kansas City

102

94

196

84

51

135

12. Minneapolis

59

48

107

60

25

85

13. Denver

99

60

159

58

49

107

14. San Francisco

405

157

562

15. Seattle

140

35

175

7

5

12

New York

3>

Philadelphia

5.

Baltimore

6*

Atlanta

16. Honolulu

.

1

1*
|
1

Total

3,674

1,599

5,273

# Includes Kentucky and Louisiana addict law arrests

Attachment A

154

148 .

302

100

61

161

9

17

1,297

3,895

8
,- 3 ___

!

Total

A

1,013

2•

*7*

1

Boston

Ma rihuana
Total
ViftlsTCAMfcfc
118
43

.

...... -----

2,598

-........

11
■born.

He subsequently served time in Maryland, Pennsylvania

District of Columbia and West Virginia prisons for
pocket-picking, robbery

and house-breaking.

In 1928 he

was sentenced to a four-year term in Leavenworth Federal
Penitentiary for violation of the narcotic laws.

In

1932 he was sentenced to 2% years in Leavenworth for
narcotic offenses; in 1935 to six years, and in 19^0
to five years.
At one time Greqnberg was a person of such major

was known to have been active in the underworld
ircles of New York, Pittsburgh, Philadelphia, Baltimore,
Washington, Chicago and Kansas City.

Lu

10
One of the principal sources of Illicit narcotics
in the New England. States was helieved to have been
broken up in July of 1949, with the arrest by Narcotic
agents of Angelo Isabella, Dominic Isabella and
Angelo Ciccolo in Malden, Massachusetts. A quarter of
a kilogram of almost pure heroin was seized at the time
of the arrests.

Angelo Ciccolo was convicted in

November, 1949.

The cases against the other two

defendants are pending.
HABITUAL OFFENDER CONVICTED IN NORTH CAROLINA
An investigation by Narcotics agents which developed
from the seizure of ]*300 morphine tablets In a Concord,
North Carolina, hotel room, ended in a Federal courtroom
at Salisbury, North Carolina, in October,

1949, when

Thomas Greenberg of New York was connected with the
ownership of the illicit drugs and sentenced to four
years in prison.

North Carplina State Bureau of

Investigation officers and the Baltimore police assisted
Treasury agents in the investigation leading to the
arrest of Greenberg.
Greenberg, who has used various aliases during his
career of crime, was first arrested in 1907 on a charge
of robbery

from thn per £i£i in Baltimore, where he was

9
NARCOTIC DISTRIBUTOR CONVICTED IN NEW ORLEANS
"Prom Doghouse to Bighouse” is a title which might
fittingly be allied to a case closed in New Orleans dur­
ing the year.

This case involved the activities of

Harold Normandale, persistent violator of Narcotic laws,
whose record of police arrests number more than a hundred
since he was first taken into custody in 1917.
Narcotic agents, who had received information that
Normandale was again engaged in the sale of narcotics
to other dealers in New Orleans, began watching his
movements.

They noticed that he had an unusual interest

in a doghouse on the premises of his sister.

An

examination of the doghouse disclosed a large supply
of heroin and raw opium concealed in a space beneath
the roof of the small structure.

Normandale was taken

into custody, and in October, 1949, was sentenced to
seven years in the United States Penitentiary at Atlanta,
Georgia.
Normandale, i t was p o in ted o u t, i s not a stra n g e r
to A t la n t a , h avin g served previo u s sentences in th a t
p r is o n fo r n a r c o tic o ffe n s e s , fo r robbery o f a m ail
tr u c k , and fo r co n sp iracy to s t e a l U . S . m a il.

Other

o ffe n s e s fo r which Normandale has served p r iso n terms
in c lu d e b u r g la r y , b o o tle g g in g and a s s a u lt .

-

8

-

indictments will be returned against Balarezo and other
members of this smuggling and distributing group.
In November, 1948, an agent of the Bureau of
Narcotics succeeded in establishing an undercover status
within a group of narcotic dealers operating on New York
City's lower east side.

Aided by New York City police,

this investigation extended through May, 1949.

During

his six months under cover, the Treasury operative made
direct purchases off evjrdenee from a number of important
wholesale narcotic dealers.

Joseph Basile, one of the

leaders of the ring, was arrested following the seizure
in his residence of 101 ounces of heroin and 24 ounces
of cocaine.
The following sentences were imposed on the
principal defendants arrested in connection with this
investigation, all of whom pleaded guilty:
Joseph Basile, 7 years in Federal prison, to be
followed by an indefinite term in the New York City
penitentiary; Salvatore Furnari, 2 to 3 years in prison;
Max Krapnosky, 5 to 5 i years; Joseph Spivak, 5 to 51years; Henry Halitzer, 4 to 8 years; Solomon Padwe, 2|- to
5 years; Danny Lewis, 2 to 4 years.
Salvatore Fischera, whose sentence of 10 to 20
years in prison was suspended upon condition that he be
immediately deported, was turned over to Immigration
authorities and sent back to Italy.

COCAINE AND HEROIN SYNDICATES SMASHED IK NEW YORK
Narcotic agents and New York City police, who had
information that John Figueroa headed an important
cocaine syndicate on Manhattan, conducted a lengthy
investigation which resulted in the arrest on March 19,
19^9i of Figuero, his brother, Ralph, and George Correa,
and the seizure of 115 ounces of cocaine. After arraign­
ment of the trio, an add-itional 175 ounces of cocaine were
found in quarters maintained by the defendants in
Queens County. They admitted.that the cocaine had been
smuggled into the country from Peru.

The Figueroa

brothers and Correa were convicted in the Court of
Special Sessions, New York City, on January 5,1950.
On October 21, 19^9.» Eduardo Balarezo, the’principal
of a large ring responsible for the distribution of
tremendous quantities of cocaine clandestinely manu­
factured in Peru and subsequently smuggled into the
United States, was convicted in the Federal Court,
Southern District of New York, and sentenced to a term
of five years in prison.

Eleven other members of the

ring have been convicted or have pleaded guilty to
narcotic violations.

This investigation, conducted by

agents of the Bureau of Narcotics and the Customs
Service, with the cooperation of the New York City Police,
is still in progress, and it is expected that additional

6
Treasury, working with Chicago police, were Salvatore
Pisano, George Ginnone, Mike Fillichio, Frank Tovar and
Max Hoffman, charged with being major distributors and
the source of supply for many of the city’s smaller
peddlers.
Pisano and Ginnone, c lo s e a s s o c ia t e s , were a r r e ste d
on the South S id e , December 16, a f t e r s a le s o f h e ro in
had been made to Treasury a g e n t s .

A lso a r r e ste d a t

the time were James B . Bowman, Maurice Koen, W illia m
Henry Jones and W illiam McNary.

Large q u a n titie s o f

h e ro in , m ixing equipm ent, and two la te -m o d e l autom obiles
were s e iz e d .
Filishio and Tovar, who were under investigation
by agents of the Narcotics Bureau and from whom two
substantial purchases of heroin had been made, were
arrested by Secret Service operatives on a counterfeiting
charge November 23, and their automobile seized.
had been released on bond, pending trial.

They

On December 17,

19^9 , they were again arrested for violations of the
Federal Narcotic laws.

- 5 drug became available in Peru to illicit traffickers,
was believed to have been checked by Treasury enforce­
ment agencies, working in cooperation with the
Peruvian Government,
Heroin was found to be increasingly available
through illicit channels.

A total of 1,044 ounces was

seized by Treasury agents in 19^9 as compared with 994
ounces accounted for in the previous year.
The principal external sources for illicit narcotics
entering the United States during the year were Iran,
Turkey, India, Mexico, China and Peru.

Peru was the

largest source for cocaine; Mexico the largest for
marihuana.
Robberies, burglaries and other thefts from medicinal
stocks of narcotic drugs continued during 19A9 at a
slightly reduced but substantial rate, the report showed.
y S

NINETY-TWO ARRESTS FOLLOW CHICAGO INVESTIGATION
An undercover investigation by agents of the Bureau

of Narcotics, which began in Chicago in July, 19^9 ,.
following an.upswing in the narcotic traffic with a
consequent spread of addiction, culminated in largescale arrests during December and January.

Among the

ninety-two offenders taken into custody by agents of the

4
A large increase in the number of arrests made by
Treasury agents in connection with the illicit traffic
in narcotics and marihuana was indicated in the report.
During 194-9, 3;64-7 persons were taken into custody by
agents of the Bureau of Narcotics for narcotic offenses,
and 1,599 were arrested in marihuana cases.

This total

of 5,273 arrests for all offenses during 1949 compares
with 3,895 arrests made in the calendar year 1948.
Since there was no increase in the field forces of
the Bureau of Narcotics, these figures represent a sub­
stantially larger number of offenders arrested per
officer employed.

(Arrests reported by districts are

contained in attachment A.)
COCAINE REAPPEARS IN ILLICIT TRADE
Following a trend noted during 1948, cocaine, which
for many years had been a negligible factor in the
illicit narcotic traffic, made its reappearance during
1949 in substantial quantities.

Seizures in the

internal traffic for the year amounted to 453 ounces,
and an additional 28 ounces were taken at ports and
borders.

During 1948, the total seizures amounted to

210 ounces.

A serious upsurge in the cocaine traffic,

which began two years ago when large quantities of the

- 3 MARIHUANA SEIZURES INCREASE
Marihuana seizures on an increased scale were made
during the past year, the report shows.

A total of

5^,342 ounces were taken in 1949, as compared with
52,036 ounces accounted for in 1948.

In the internal

traffic, Narcotics Bureau operatives took 13,217 ounces
of the weed, a decline from the 15,492 ounces taken in
1948.

A large Increase was noted in the amounts of

marihuana seized during the year by Customs agents.
Their total captures in 1949 amounted to 41,215 ounces,
as compared with 36,514 ounces seized during 1948.
Customs reported several individual seizures of one
hundred pounds or more on the Mexican border.
Prepared forms of marihuana peculiar to Turkey,
Syria, India and Africa were taken by Customs in con­
siderable quantity at Atlantic and Gulf ports. These
included !,takrouri,M "Bhang," "dagga," and "hashish."
Raw opium seizures made by Customs men were
heaviest during 1949 at Atlantic ports, and consisted
for the most part of drugs originating in India and
Iran.

Substantial lots, however, of both raw and

prepared opium were taken at Mexican border points and
on the Pacific Coast.

2
.b e c a u s e

of

their close resemblance to 'drug-store

stock," these packages, which were reaching addicts
through former black-marketeers in the East, commanded
premium prices in the. illicit narcotic traffic.
This case and numerous others were cited in a
calendar year 19*1-9 report submitted today to Secretary
Snyder by the Bureau of Narcotics and the United States
Customs Service, agencies of the Treasury charged with
enforcement of narcot/ic and marihuana laws.
The report shows that the gross amount of narcotic
drugs seized during 19*1-9 was only slightly larger than
1948 } but that marihuana was taken in greatly
increased volume.

Seizures of narcotic drugs, includ­

ing opium in its varied forms, morphine, heroin, codeine,
ethylmorphine, cocains, demerol and amidone, totaled
4,955 ounces in 1949, as compared with 4,905 ounces in
1948.
In its law enforcement activities at ports and
borders, the Customs Service accounted for 2,782 ounces
of the total amount of narcotic drugs taken during the
calendar year.
figure,

This represented a decline from the 1948

which was 3*718 ounces.

Seizures by agents

of the Bureau of Narcotics in the internal traffic
increased, however, from 1,187 ounces in 1948 to
2,173 ounces in 1949.

*

Thousands of vials of adulterated heroin, packaged
as medicinal morphine and hearing counterfeit manu­
facturers' lakeIs and Internal Revenue strip stamps,
were seized by Treasury agents in breaking up an
important illicit narcotic ring that operated along
the Atlantic seaboard ^during 1949 • The investigation
of this syndicate, which covered a period of months
and led from New York to the Carolinas, culminated in
December with the arrest of sixteen traffickers in
North and South Carolina, and important distributors
in New York and Philadelphia.
At his quarters in New”York City, Peter Loeascio,
believed to be one of the primary instigators of the
illicit enterprise, was arrested by agents of the
Bureau of Narcotics and police narcotic squad
detectives .

In a cleverly concealed cache in the

kitchen of the house, officers found approximately five
and a half pounds of high-grade heroin, and 3*048- vials
of 'morphine," each containing five grains, and bearing
counterfeit labels and Internal Revenue stamps.

STANDARD f o r m NO. 64

Office Memorandum
TO

: Miss Kelly

from

: James J. S

• UNITED STATES GOVERNMENT
date:

February 28, 1950

SUBJECT:

The attached proposed press releases on Customs and on Narcotics
are for the Secretary*s clearance.
If at all possible, we would like to get these back this after­
noon in order to cut the stencils. Both are^or^tomorrow*s'^ress'""'*^
conference.

RELEASE SIN DAI NEWSPAPERS
March 5* 1950____________

S-2269

Thousands of vials of adulterated heroin, packaged as medicinal
morphine and bearing counterfeit manufacturers* labels and Internal
Revenue strip stamps, -were seized by* Treasury agents in breaking up an
important illicit narcotic ring that operated along the Atlantic
seabord during 194-9• The investigation of this syndicate, -which
covered a period of months and led from New Xork to the Carolinas,
culminated in December with the arrest of sixteen traffickers in
North and South Carolina, and important distributors in New fork and
Philadelphia*
At his quarters in New York City, Peter Locascio, believed to be
one of the primary instigators of the illicit enterprise, was arrested
by agents of the Bureau of Narcotics and police narcotic squad detec­
tives* In a cleverly concealed cache in the kitchen of the house,
officers found approximately five and a half pounds of high-grade
heroin, and 3,04B vials of "morphine,” each containing five grains,
and bearing counterfeit labels and Internal Revenue stamps*
Because of their close resemblance to "drug-store stock," these
packages, which were reaching addicts through former black-marketeers
in the East, canmanded premium prices in the illicit narcotic traffic*
This case and numerous others were cited in a calendar year 1949
report submitted today to Secretary Snyder by the Bureau of N arcotics
and the United States Customs Service, agencies of the Treasury
charged with enforcement of narcotic and marihuana laws.
The report shows that the gross amount of narcotic drugs
seized during 194-9 was only slightly larger than in 194-8, but that
marihuana was taken in greatly increased volume. Seizures of
narcotic drugs, including opium in its varied foims, morphine, heroin,
codeine, ethylmorphine, cocains, damerol and amidone, totaled
4,955 ounces in 1949, as compared with 4,905 ounces in 194-8#
In its law enforcement activities at ports and borders, the Customs
Service accounted for 2,782 ounces of the total amount of narcotic
drugs taken during the calendar year* This represented a decline from
the 1948 figure, which was 3,718 ounces* Seizures by agents of the
Bureau of Narcotics in the internal traffic increased, however, from
1,187 ounces in 1948 to 2,173 ounces in 1949*

Marihuana Seizures Increase
Marihuana seizures on an increased scale were made during the
past year, the report shows# A total of 54,342 ounces were taken
in 1949, as compared with 52,036 ounces accounted for in 1948# In
the internal traffic, Narcotics Bureau operatives took 13,217 ounces
of the weed, a decline from the 15,492 ounces taken in 1948# A^
large increase was nqted in the amounts of marihuana seized during
the year by Customs agents# Their total captures in 1949 amounted
to 41,215 ounces, as compared with 36,514 ounces seised during 1948#
Customs reported several individual seizures of one hundred pounds
or more on the Mexican border*
Prepared forms of marihuana peculiar to Turkey, Syria, India and
Africa were taken by Customs in considerable quantity at Atlantic
and Gulf ports# These included "takrouri," "bhang,»1 "dagga," and
"hashish#"
Raw opium seizures made by Customs men were heaviest during 1949
at Atlantic ports, and consisted for the most part of drugs originating
in India and Iran# Substantial lots, however, of both raw and pre­
pared opium were taken at Mexican border points and on the Pacific
Coast#
A large increase in the number of arrests made by Treasury
agents in connection with the illicit traffic in narcotics and
marihuana was indicated in the report. During 1949, 3,647 persons
were taken into custody by agents of the Bureau of Narcotics for
narcotic offenses, and 1,599 were arrested in marihuana cases. This
total of 5,273 arrests for all offenses during 1949 compares with
3,895 arrests made in the calendar year 1948*
Since there was no increase in the field forces of the Bureau of
Narcotics, these figures represent a substantially larger number of
offenders arrested per officer employed# (Arrests reported fcy
districts are contained in attachment A#)

Cocaine Reappears in Illicit Trade
Following a trend,noted during X948, -cocaine, which for many
years had been a negligible factor in the illicit narcotic traffic,
made its reappearance during 1949 in substantial quantities# Seizures
in the internal traffic for the year amounted to 453 ounces, and an
additional 28 ounces were taken at ports and borders. During 1948,
the total seizures amounted to 2X0 ounces# A serious upsurge in the
cocaine traffic, which began two years ago when large quantities of
the drug became available in Peru to illicit traffickers, was
believed to have been checked by Treasury enforcement'agencies,
working in cooperation with the Peruvian Government*

Heroin was found to be increasingly available through illicit
channels« A total of 1,044 ounces was seized by Treasury agents in 1949
as compared with 994 ounces accounted fo* in the previous year«
The principal external sources for illicit narcotics entering the
United States during the year were Iran, Turkey, India, Mexico, China
and Peru* Peru was the largest source for cocaine; Mexico the largest
for marihuana*
Robberies, burglaries and other thefts from medicinal stocks of
narcotic drugs continued during 1949 at a slightly reduced but substantial
rate, the report showed*
Ninety-two Arrests follow Chicago Investigation
An undercover investigation by agents of the Bureau of Narcotics,
which began in Chicago in July, 1949, following an upswing in the
narcotic traffic with a consequent spread of addiction, culminated in
large-scale arrests during December and January* Among the ninety-two
offenders taken into custody by agents of the Treasury, working wi h
Chicago police, were Salvatore Pisano, George Ginnone, Mike Fillicnio,
Frank Tovar and Max Hoffman, charged with being major distributors and
the source of supply for many of the city's smaller peddlers*
Pisano and Ginnone, close associates, were arrested on the South Side
December 16, after sales of heroin had been made to Treasury agents.
Also arrested at the time were James B* Bowman, Maurice Koen, William
Henry Jones and William McNary* Large quantities^ of heroin, mixing
equipment, and two late-model automobiles were seized*
Filishio and Tovar, who were under investigation by agents of the
Narcotics Bureau and from whom two substantial purchases of heroin had
been made, were arrested by Secret Service operatives on a counterfeiting
charge November 23, and their automobile seized. They had been released
on bond, pending trial* On December 17, 1949, they were again arrested
for violations of the Federal Narcotic laws.
Cocaine and Heroin Syndicates Smashed in New York
Narcotic agents and New York City police, who had information that
John Figueroa headed an important cocaine syndicate on Manhattan, con­
ducted a lengthy investigation which resulted in the arrest on March 19,
1949, of Figueroa his brother, Ralph, and George Correa, and the seizure
of 115 ounces of cocaine* After arraignment of the trio, an additional
175 ounces of cocaine were found in quarters maintained by the defendants
in Queens County* They admitted that the cocaine had been smuggled into
the country from Peru* The Figueroa brothers and Correa were convicted
in the Court of Special Sessions, New York City, on January 5, 19pU.

- 4 -

On October 21, 1949, Eduardo Balarezo, the principal of a large
ring responsible for the distribution of tremendous quantities of cocaine
clandestinely manufactured in Peru and subsequently smuggled into the
United States, was convicted in the Federal Court, Southern District
of New York, and sentenced to a term of five years in prison* Eleven
other members of the ring have been convicted or have pleaded guilty to
narcotic violations. This investigation, conducted by agents of the
Bureau of Narcotics and the Customs Service, with the cooperation of the
New York City Police, is still in progress, and it is expected that
additional indictments will be returned against Balarezo and other
members of this smuggling and distributing group*
In November, 1948, an agent of the Bureau of Narcotics succeeded
in establishing an undercover status within a group of narcotic dealers
operating on New York City’s lower east side* Aided by New York City
police, this investigation extended through May, 1949* During his six
months under cover, the Treasury operative made direct purchases from
a number of important wholesale narcotic dealers* Joseph Basile, one of
the leaders of the ring, was arrested following the seizure in his
residence of 101 ounces of heroin and 24 ounces of cocaine*
The following sentences were imposed on the principal defendants
arrested in connection with this investigation, all of whom pleaded
guilty:
Joseph Basile, 7 years in Federal prison, to be followed by an
indefinite term in the New York City penitentiary) Salvatore Furnari,
2 to 3 years in prison) Max Krapnosky, 5 to 5i years ; Joseph Spivak,
5 to 5i years; Henry Halitzer, 4 to 8 years; Solomon Padwe, 2g to 5
years; Danny Lewis, 2 to 4 years*
Salvatore Fischera, whose sentence of 10 to 20 years in prison was
suspended upon condition that he be immediately deported, was turned over
to Immigration authorities and sent back to Italy*
Narcotic Distributor Convicted in New Orleans
’’From Doghouse to Bighouse” is a title which might fittingly be
applied to a case closed in New Orleans during the year. This case
involved the activities of Harold Normandale, persistent violator of
Narcotic laws, whose record of police arrests number more than a hundred
since he was first taken into custody in 1917*
Narcotic agents, who had received information that Normandale was
again engaged in the sale of narcotics to other dealers in New Orleans,
began watching his movements* They noticed that he had an unusual interest
in a doghouse on the premises of his sister* An examination of the
doghouse disclosed a large supply of heroin and raw opium concealed in a
space beneath the roof of the small structure# Normandale was taken into
custody, and in October, 1949, was sentenced to seven years in the United
States Penitentiary at Atlanta, Georgia*

Normandale, it was pointed out, is not a stranger to Atlanta,
having served previous sentences in that prison for narcotic offenses,
for robbery of a mail truck, and for cons piracy to steal U.S# mail«
Other offenses for which Normandale has served prison terms include
burglary, bootlegging and assault#
One of the principal sources of illicit narcotics in the New
England States was believed to have been broken up in July of 1949,
with the arrest by Narcotic agents of Angelo Isabella, Dominic Isabella
and Angelo Ciccolo in Malden, Massachusetts. A quarter of a kilogram
of almost pure heroin was seized at the time of the arrests. Angelo
Ciccolo was convicted in November, 1949* The cases against the other
two defendants are pending.
Habitual Offender Convicted in North Carolina
An investigation by Narcotics agents which developed from the
seizure of 1,300 morphine tablets in a Concord, North Carolina, hotel
room, ended in a Federal courtroom at Salisbury, North Carolina, in
October, 1949, when Thomas Greenberg of New York was connected with the
ownership of the illicit drugs and sentenced to four years in prison.
North Carolina State Bureau of Investigation officers and the Baltimore
police assisted Treasury agents in the investigation leading to the
arrest of Greenberg#
Greenberg, who has used various aliases during his career of crime
was first arrested in 1907 on a charge of robbery in Baltimore, where
he was b o m . He subsequently served time in Maryland, Pennsylvania,
District of Columbia and West Virginia prisons for pocket-picking,
robbery and house-breaking. In 1928 he was sentenced to a four-year^
term in Leavenworth Federal Penitentiary for voilation of the narcotic
laws. In 1932 he was sentenced to 2| years in Leavenworth for narcotic
offenses; in 1935 to six years, and in 1940 to five years.
At one time Greenberg was a person of such major stature in the
illicit narcotic traffic that rival gangs of suppliers would compete
to reestablish business connections with him following his release
from prison. During the past twenty-five years Greenberg was knowito
have been active in the underworld circles of New York, Pittsburgh,
Philadelphia, Baltimore, Washington, Chicago and Kansas City.

Attachment A
ARRESTS REPORTED BY NARCOTIC DISTRICTS

Calendar Years
1948

1949
Narcotic
Violations

Marihuana
Violations

Total

88

24

112

1,268

716

212

928

61

145

35

31

66

125

53

178

64

48

112

97

34

131

140

18

158

Louisville

694

140

834

540

63

603

8#

Detroit

284

136

420

224

185

409

9.

Chicago

343

114

457

165

79

244

10# Houston

147

364

511

162

294

456

11# Kansas City

102

94

196

84

51

135

12# Minneapolis

59

48

107

60

25

85

13# Denver

99

60

159

58

49

107

14# San Francisco

405

157

562

154

148

302

15« Seattle

140

35

175

100

61

161

7

5

12

8

9

17

3,674

1,599

5,273

2,598

1,297

3,895

District
#1.

Boston

2*

New York

3.

Philadelphia

5«

Baltimore

6*

Atlanta

#7«

16# Honolulu

Total

Narcotic
Violations

Marihuana
Violations

Total

75

43

118

1,013

255

84

!

* Includes Kentucky and Louisiana addict law arrests

FOR IMMEDIATE RELEASE
March 3. 1950________

The Bureau of Customs announced today that from the beginning
of the quota year on February 1 to March 3, 1950, inclusive,
32 784,315 pounds of cotton having a staple of 1-1/8 inches or more
but less than 1-11/16 inches have been authorized release under the
global quota of 45,656,420 pounds prescribed in the President’s
Proclamation of September 5, 1939, as amended.
Of the 32,784,315 pounds of such cotton authorized release,
approximately 99 percent is of Egyptian origin.

TREA SU RY DEPARTM ENT
Information Service

Wa s h i n g t o n , d . c .

IMMEDIATE RELEASE,
F r id a y , March 3 . 1950.

S-2270

The Bureau o f Customs announced
today th a t from the b egin n in g o f the
quota year on February 1 to March 3,
1 9 5 0 ,
in c lu s i v e , 32,784,315 pounds o f
c o tto n h avin g a s ta p le o f 1-1/8 in ches
or more but le s s than 1 - 1 1 / 1 6 inches
have been a u th o rize d r e le a s e under the
g lo b a l quota o f 45,656,420 pounds p re­
scrib e d in the P r e s id e n t’ s Proclam ation
o f September 5 , 1939, as amended.

Of the 3 2 ,7 8 4 ,3 1 5 pounds of such
cotton authorized release, approximately
percent is of Egyptian origin.

9 9

0O0

7/

RELEASE » H I» NEW
SPAPERS,
Tuesday, March 7, 1950.

The Secretary of the Treasury announced last evening that the tenders for
$1,000,000,000, or thereabouts, of 91-day Treasury hills to he dated March 9 and to
nature June 8, 1950, which were offered March 3, 1950, were opened at the Federal Re­
serve Banks on March 3«
The details of this issue are as follows:
Total applied for - $1,525,461,000
Total accepted
- 1,001,102,000 (includes $90,919,000 entered on a
non-competitive basis and accepted in
full at the average price show
n below)
Average price
- 99.712/ Equivalent rate of discount approx. 1.139$ per annua
Range of accepted competitive bids:
High
Low

- 99.720 Equivalent rate of discount approx. 1.108$ per annum
- 99.710
»
* »
*
«
1.147$ »
*
(9 percent of the am
ount bid for at the lowprice w
as accepted)

Federal Reserve
District

Total
Applied for

Total
Accepted

Boston
NewYork
Philadelphia
Cleveland
Richm
ond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

$ 13,945,000
1,178,851,000
36,660,000
28,889,000
7,580,000
9,962,000
125,278,000
13,040,000
5,915,000
18,315,000
29,205,000
57.821,000

$

$1,525,461,000

$ 1 , 001 , 102,000

TOTAL

13,445,000
734,941,000
25,930,000
28,598,000
7,580,000
9,962,000
66,628,000
12,858,000
5,915,000
18,315,000
19,564,000
57.366,000

TREA SU RY DEPARTM ENT
WASHINGTON, D.

Information Service
RELEASE MORNING NEWSPAPERS,
T ue_s day, Mar ch _ J 1950. lo;i

S - 22 71

The S e c r e ta r y o f the Treasury announced l a s t evening th a t the
tenders fo r $ 1 ,0 0 0 ,0 0 0 ,0 0 0 , or th e re a b o u ts, o f 9 1 -day Treasury
b i l l s to be dated March 9 and to mature June 8 , 1950, which were
o ffe r e d March 3, 1950, were opened a t the F e d era l Reserve Banks on
March 6 .
The d e t a ils o f t h is is su e are as fo llo w s :
T o ta l a p p lie d fo r
T o ta l accepted

Average p r ic e

$1, 525^ 61,000

(in c lu d e s $ 9 0 , 9 1 9 , 0 0 0
entered on a non­
co m p etitive b a s is and
accepted in f u l l a t the
average p r ic e shown below)
99.712/ E q u iv a le n t r a te o f d isco u n t approx
1 . 1 3 9 $ per annum
1

, 0 0 1 , 10 2 ,0 0 0

Range o f accepted co m p etitive b id s :
High
&
Tnw
(9

- 9 9 . 7 2 0 E q u iv a le n t r a te
1 . 108$
- 99.710 E q u iv a le n t r a te
1.147$

o f d isco u n t approx.
per annum
o f d isco u n t approx.
per annum

p ercen t o f the amount b id fo r a t the low p r ic e was accep ted )

$

Boston
New York
P h ila d e lp h ia
C leve lan d
Richmond
A tla n ta
Chicago
S t . Louis
M inneapolis
Kansas C it y
D a lla s
San F ra n c isc o
TOTAL

T o ta l
Accepted

T o ta l
A p plied fo r

F e d era l Reserve
D is tr ic t

18,945,000
1 , 1 7 8 , 8 5 1,0 0 0
3 6 , 6 6 0 ,0 0 0
2 8 , 8 8 9 ,0 0 0
7 , 5 8 0 ,0 0 0
9 , 9 6 2,000
1 2 5 , 2 78 ,0 0 0
13,040,000
5,915,000
18,315,000
2 9 ,20 5,00 0
5 7 ,8 2 1,0 0 0

$1,525 ,46 1,00 0
0O0

$

13, ^ 5,000
73^, 9^1,000

25.930.000
2 8 . 59 8 .00 0
7 ,580,000
9 . 9 6 2 .00 0
6 6 , 62 8 ,00 0
12,858,000
5.915.000
18.315.000
19.564.000
_____ 5 7 , 3 6 6 , 0 0 0
$1,001,102,000

scope
the

of

available

capacities

countries
Let
is

a

to

help

own

free

efforts,
and

in

this

to

fact

program,

physical
other

their

th eir

in d u strially

to

it

intended

w ell-being.

resources

undertaking.

that

through

advance

countries

technological

u n d e r d e v e I oped

the

peoples,

invited

deve loped

and

advance.

cooperative

have

the

me s t r e s s

economic
$e

to

of

resources,

pool
w ith

th eir
us

extend

S

>r m e i D i e

t

fr

estât

field.

recomiïi

the

ek

tax

structure

i a i factor
stment of pr

in

p r e c l u d e d f rom t a k i n g f u l l
of

the t a x

cre d it

lim itations
in th e
equity.

because o f

contained

interest

in our

th is

we have f o u n d some a r e a s
tax c r e d i t

can be l i b e r a I i ?ed
elim inate

double

affectin g

adversely

of the

line

tax
problem

in which

provisions

i n order

taxation

i ncome t a x ,

along t h i s

l aws

of a ll- a r o u n d

In c o n s i d e r i n g

the f o r e i g n

advantage

to

without

the fa ir n e s s
and some p r o p o s a l s

have been p l a c e d

recommended
experts
the

be

the

period
abroad*

present

law

-

earnings

exempted

entire

residence

that

32

from

of

tax

th eir

This

which

of

these
d u r i n g W:

bona

fide

lib eralizes

grants

exemption

-

rem itted
*

to

31

-

t he U n i t e d

to encouraging r e in v e s tm e n t

e a rn in .s, this

would minimi

s which
foreign

1

f

t h e a U 1 i1 i t y

pay

*2$

countries

i mpose f o r e i g n

e x c ha nge c o n t r o l s
th

t h0 i r U,

which
of

i 3.

technical
this

experts

program.

encourage

tnis

interfere

U.
tax

Se r v i C 0 a e r e >ad by

in

in

*

addition

f?

ss.

Cm*

‘u ner i can

can fer e a t l y
In o r d e r

to

assistance,

it

assi

has

m anner

some support to t he Poi nt
Under p r e s e n t

law,

IV program.

a foreign

s u b s i d i a r y o f a domestic c o r p o r a t i o n ,
even where whol l y owned in the
Uni t ed S t a t e s ,
its

is t a x a b l e onl y when

income is brought home in the form

of d i v i d e n d s .

This

p r o v i s i o n enables

f o r e i g n s u b s i d i a r i e s to accumulate thei
ear ni ngs abroad and r e i n v e s t them
there

i n d e f i n i t e l y wi t hout

i n c u r r i n g U. S.
contrast,

tax

liability.

In

where American business

is

28
¡t « i l i

then be t i m e l y to r eque st

Congress to a l l o t
to enabl e

funus to t he bank

i t to expand

i t s guarant ee

act i v i t i es.

I
I
I

The Uovernment

is al so p r o p o s i n g !

|o encourage the ext ensi on of

I

financial

I

ano t e c n n i c a l

assistance

to unoerdeveI oped r egi ons of the

I

world by c e r t a i n recommended tax

I

revisions.

I

Changes in the tax

*

t r e a t me n t of

income der i ve d from

i nvestments ano personal

I

services

I

in f o r e i g n c o u n t r i e s can pr ovi de

I

.

/

mÈÉmtmmm m *x mtmmmmMmmrn

mm

i m

m

I

27

guarant y
which

is an exper i ment al

device

i t seems wise to t e s t out

cautiously.

The pending

c a l l s f o r no a d d i t i o n a l

legislation
allocation

of funds to the E x p o r t - I mp o r t Ban«.
The Ban« w i l l ,

f o r t he time being,

be a u t h o r i z e d to extend guarantees
only w i t h i n the

l i m i t s of

its

p r e s e n t l y a v a i l a b l e r esour ces.
the guarantee pl an worKs wel l
justifies

If
and

i t s e l f as a means of

promoting p r i v a t e

investment abroad,

concern ing

i nv e s t me n t .

Any count ry wishing to come w i t h i n
the scope of the guarant ee should

treaty.

Many persons b e l i e v e

that

such a t r e a t y should be a p r e r e q u i s i

Po i nt

IV Program

cont empl at es t h a t the
c o u n t r I es

25 de r i v e d from the

investment

i nt o

Uni t ed S t a t e s d o l l a r s .
The guar ant ees would be
extended onl y to p r o d u c t i v e

investment

which c o n t r i b u t e to the economic
development of the c a p i t a I - r e c e i v i n g
countries.
guar a nt e e,

Before

i t extended a

the E x p o r t - I m p o r t Bank

would need to be s a t i s f i e d t h a t a
particular

investment met t h i s

st andar d.

The Bank would al so

c on s ul t the count ry

i nvol ved

24

E x p o r t - Import Bank to enabl e

it

to

guarant ee American c a p i t a l (aga inst)
c e r t a i n r i s k s pe c u li a r to foreign
i n ve

me
r i SK

or f a i l u r e ,
are
II

r

i

ô

Q

h

w

the B i l l

no

to which

S

Et

s u b j e c t than
r i s k s covere

are expropr i a t i on of the

i n v e s t o r s ’ pr ope r t y wi t hout
adequate compensât Î on, and
inability

to conver t

l ocal

cur r ency

di sappear as r e p a i r of the wa r ' s
economic damage is accomplished and
s i c s o l u t i o n s f o r c o n v e r t i bi I i t y
ms are found.

Our

and t r a d e programs a r e c o n t r i b u t i n g
to the a t t a i n m e n t of
objective.

The work of

onaI Monetary Fund is al so
l a r g e l y d i r e c t e d to the
One of the
Congress f o r

Ms r
implement

would extend the powers of the

i nt i 1

-

extent.

22

-

This s i t u a t i o n r e f l e c t s

in

l arge p a r t the worl dwi de d i s r u p t i o n
of pr oduc t i on and commerce r e s u l t i n g
from the war, and is c l o s e l y t i e d
wi t h t he s o - c a l l e d d o l l a r

in

short age.

Co u n t r i e s which are s ho r t of d o l l a r s
feel

i mpel l ed to r e s t r i c t s h a r p l y

the s a l e of d o l l a r exchange.
A l l e v i a t i o n or removal

of these

r e s t r i c t i ons is of pri me

importance

to the fl ow of p r i v a t e c a p i t a l
abroad.

The r e s t r i c t i o n s w i l l

evidence t h a t
c o u n t r i e s do want our n r i v a t e
and t h a t

hampered i n t h e c o n d u c t o f o r d i n a r y
s

i

ness

a c t i v i t es

I he remedy f o r t h i s
I es

si

In

o f t he

c o u n t r ies c o n c e r n e d .

Pr i v a t e

i t a I must have a s s u r a n c e s
equitable

treatment.

Such

a s s u r a n c e s our gove
endeavor

Is
In

o

i a t ion o f bi I e t e r a I i
aties.

T h i s gover nment p l a c e s

t s t r e s s on t h e s e t r e a t i e s

as

Kin..,

-

capital

19 -

is no rm a lly

l ed abr oad by

the p ros p ec t of a b e t t e r r e t u r n than
i t can s e c u r e a t home.

B u t , even

where t h e r e may seem t o be such
a prospect,

potential

i n v e s t o r s ar e

not w i l l i n g

t o t a x e t he r i s x

of

having t h e i r

property expropriated

without

comnensation,

fair

d i s c r i mi n a t e d a g a i n s t
l aws,

o f being

under

local

o f b e i ng o b l i g e d t o a c c o r d a

m a jo r ity stocx
citizens,

in t e r e s t to

local

r o f being unduly

is

seriously

hand?

it i o n s .

ft ft

-

17 -

d e f a u lt s of

abrupt I y with
p

n

rter6

extent.

resumed t o any «
i va t e

di

rect

p

t

1 and

resumed
A

p

ew investmf
«ted

e h e av i

i n Venezue I a , Ca finds

Near East

and
pp

y

i t

of t h e i r

i mmedi at e p r o s p e c t

hr

is

i n o ne
p

n

iftp

o e t r è Ieum
er l ean p r i v a t e

gpi

i

$

16

I

owned e n t e r p r îses were,
i nst ances,

in some

expropriated without

adequate or prompt compensât ion.

Since Hor I d

find’ the i n t e r n a t i ona !
Re c ons t r uc t i on and De
For ei gn bond f l o t a t î o

-

developmental
useful

13 -

projects,

local

and a l s o

m aterials.

necessary mechanical

equi

many o t h e r i
supp I Ì es,

But f o r

essen 11a

must,

f o r some time,

on

Ì ta I

r p r oau ct ion

i n vestment!
they w i l l

g r a d u a l l y be a b l e to c r e a t e a
vo
resources

t h e i r own
it

is

i

us to

them a t

to mob i I i ze o ut si de
I y and e f f e c t i ve I y
poss i b le.
1 ^ 8 « v- / . « H T i

rei

m

to

I earn our techni ques.
The present

contemplates a c o n s i d e r a b l e expansioni
of

the scal e and scope of t e c h n i c a l

a s s i s t a n c e and the estabI i snment of
central

r esponsibî I i t y

for

its

a d m i n i s t r a t ion.
In a d d i t i o n
■I '

tance,

to t e c h n i c a l

the underdeveI oped

c o u n t r i e s need ou t si d e help
form of c a p i t a l

investment.

can f u r n i s h the

labor

in

- I I and use of modern e x p l o r a t i o n

/

techn iques.
The proposed t e c h n i c a l assistance
program is not new.

On a smaI 1er

scal e American t e c h n i c i a n s ,

frequently

r e p r e s e n t i n g p r i v a t e business,

have

f o r many years provided t e c h n i c a l
advice and t r a i n i n g
countries,

particularly

L a t i n America;

to

and f o r e i g n c o u n t r i e s ,

on a l i m i t e d s c a l e ,
sent t h e i r

to f o r e i g n

have f o r many year

ex pe rt s to t h i s country

along two l i n e s .

First,

he urged

us to make a v a i l a b l e much needed
technical assistance.
he s t r e s s e d the

Secondly,

importance of

fostering

the c a p i t a l

essential

f or development.

know, b i l l s

investment
As you

prov i d ing f o r both are

now be f or e Congress.
The t e c h n i c a l
of P o i n t
the

a s s i s t a n c e aspect

IV is designed to increase

internal

development of the

unaerdeveI oped c o u n t r i e s

in some of the

1
\

President

Truman

c h a l l e n g i n g concept known as P o i n t IV.
Li ke the

Recovery

P o i n t IV is al so
expression of

basic premise

our

.

I » e.,

promotion of common gain
c o u n t r i e s of the

or Id through

r e l a t i o n s based on mutual a i d
mutual r e s p e c t ,

and mutual

under standi ng.

In announcing P o i n t

the P r e s i d e n t recommended act i on

IV,

d i i f e r e n t one in o r i g i n ,
scope.

Necessarily,

n a t u r e , and

the approach

to a s o l u t i o n roust also be d i f f e r e n t .
In essence, the problem is to
a s s i s t the underdeveI oped c o u n t r i e s
to a t t a i n

higher standards of

living

and thereby to promote peace,
freedom and expanding economic
progress and t r a d e .
In approaching a s o l u t i o n .

6

-

H

and a g r i c u l t u r a l

p r o du c t i o n .

By

promoting economic r ecover y in
Western Europe we were a l s o he Ip i
to

increase th

f a i t h and

idence

countrles

x of the Western

in

the f u t u r e .
in

in

economica11 y

large p a r t s of C e n t r a l

South America,
Far East - -

Africa
is a b a s i c a l l y

»

The Européen Recovery Program
is a t a n g i b l e expression of t h i s
or inc in l e .

i # support t h a t program

because a primary need f o r the
r e s t o r a t i o n of t sound world economy
is balanced world p r o d u c t i o n .

The

p a r t i c Î o a t i n g c o u n t r i e s were abl e to
«saxe a r a p i d c o n t r i b u t i o n to t h i s
goal

because they are

in the main

in d u s tria Iized countries,

possessing

the technioues o f modern i n d u s t r i a l

its eventful

history,

i t s scenic

a t t r a c t i ons, i t s c o l o r f u l
But whatever your
your common aim,
promote mutual

customs.

individual
1 am sur e,

interest,
is to

gain to our two

c o u n t r i e s through r e l a t i o n s based on
mutual
This,

aid,

r e s p e c t and understanding.

indeed,

is the basic premise

of our e n t i r e f ore i gn poI icy.
t h i s premise we seek to b u i l d
enduring peace and a prosperous
expanding world economy.

in the e f f o r t s of the Mexican
Government and the Mexican people
to develop the resources of t h e i r
country and to r a i s e
On both s i des of

l i v i n g standards.

the border t h e r e

a keen d e s i r e to see the
of t ra de expand.

is

inter-flow

Many of you no

doubt have close a s s o c i a t i o n s wit h
Mexico as i n v e s t o r s or businessmen.
Some of you may be i n t e r e s t e d

in

Mexico p r i m a r i l y f o r o t h e r reasons,
such as i t s

individuality

in the a r t s .

Date.

Mr. Bartelt
M r • Baughman
Mr. Bray
Mrs. Clark
Mr. Clark
Mr. Ecker-Racz
Mr. Delano
Mr. Foley
Mrs. Forbush
Mr. Graham

har es w i t h

Mr. Haas
Mr•Ellby
Mr. Kirhy
Mr. Lynch
Mr. Martin
Mr. McDonald
Mr. Parsons
Mrs. Ross
M r . Saxon

l i e s of
y e a r s* »
as w e i l

»*

»

u n d e r s t a n d i n gSmtf,

and good w i I i

have

gu i d e d our r e l a t i o n s and s t e a d î I y
st re n g t h e n e d the t i e s o f f r i e n d s h i p
between us.
i am happy t o a d d r e s s t he
Mexi co P i l g r i m s

because

it

i s an

o r g a n i z a t i o n c o m mi t t e d t o t he
f u r t n e r a n c e of

cordial

relations

The U n i t e d S t a t e s s h a r e s w i t h
Mexi co more t han

1,000 m i l e s o f
p

■

common f r o n t i e r .

fpSHH

For many y e a r s ,

have been good nei ghbor s as w e l l
close neighbors.

we
as

Tolerance,

u n d e r s t a n d i n g , and good wi i I

have

g u i d e d our r e l a t i o n s and s t e a d i l y
s tre n gt he n ed the t i e s

of frie n d s h ip

between us.
I am happy t o a d d r e s s the
Mexi co P i l g r i m s because

it

i s an

o r g a n i z a t i o n c o m mi t t e d t o t he
f u r t h e r a n c e of c o r d i a l

relations

/

ADXS&Sa SI ara^TART W

mrmphm*
1

j

MILICO FÍIXmiMS

\
\ 1

Ti-CfcBEr* 1BT&Ï.

ss M èm
1

\

March 7, 1^0

\

t

' TREASIMT DEPARTxv'EiC

ri/ashington.

The 'following address by Secretary Snyder before
*
/
a dinner meeting'of the'Mexico Pilgrims, at the
Ritz-Carlton hotel, New‘'York City, is-scheduled for
delivery about 8:30 p. M., EST, Tuesday, March’ ‘¿,~~T950,
and i s ior release- on delivery'.

<

TREASURY DEPARTMENT
Washington

The following address by Secretary Snyder before
a dinner meeting of the Mexico Pilgrims, at the
Ritz-Carlton Hotel, New York City, is scheduled
for delivery about 8:30 p»m», EST. Tuesday.
March 7* 1950* and is for release on delivery.

The Waited States shares with Mexico more
common frontier. For many years, we have been
as plose neighbors. Tolerance, understanding,
guided our relations and steadily strengthened
between us*

than 1,000 miles of
good neighbors as well
and good will have
the ties of friendship

I am happy to address the Mexico Pilgrims because it is an or­
ganization committed to the furtherance of cordial relations between
the people of Mexico and ourselves.
It is significant that the Mexico Pilgrims are not content merely
to talk or write about better international relations. In your support
of American-sponsored schools and hospitals in Mexico, you add deed to
word.
This country has a deep interest in the efforts of the Mexican
Government and the Mexican people to develop the resources of their
country and to raise living standards* On both sides of the border
there is a keen desire to see the inter-flow of trade expand. Many of
you no doubt have close associations with Mexico as investors or
businessmen* Some of you may be interested in Mexico primarily for
other reasons, such as its individuality in the arts, its eve»tful
history, its scenic attractions, its colorful customs. But wnatever
your individual interest, your common aim, I am sure, is to promote
mutual gain to> our two countries through relations based on mutual aid,
respect and understanding. This, indeed, is the basic premise of our
entire foreign policy* Cta this premise we'seek to build enduring peace
and a prosperous and expanding world economy.
The European Recovery Program is a tangible expression of this
principle. We support that program because a primary need for the
restoration of a sound world economy is balanced world production. The
participating countries were able to make a rapid contribution to this
goal because they are in the main industrialized countries, possessing
the techniques of modern industrial and agricultural production. By
promoting economic recovery in Western Europe, we were also helping to
increase the faith and confidence of the Western European countries in
the future.

S-2272

- 2 -

The problem in the economically underdeveloped areas of the
world — - in large parts of Central and South America, Africa, and
the Near and Far East — - is a basically different one in origin,
nature, and scope? Necessarily, the approach to a solution must
also be different*
In essence, the problem is to assist the underdeveloped countries
to attain higher standards of living and thereby to promote peace,
freedom and expanding economic progress and trade*
In approaching a solution, President Truman offered the challenging
concept known as Point IV* like the European Recovery Program, Point IV
is also a tangible expression of the basic premise of our foreign policy,
i* e*, the promotion of common gain among the countries of the world
through relations based on mutual aid, mutual respect, and mutual under­
standing * In announcing Point IV, the President recommended action
along two lines* First, he urged us to make available much needed
technical assistance* Secondly, he stressed the importance of fostering
the capital investment essential for development* As you know, bills
providing for both are now before Congress*
The technical assistance aspect ©f Point IV is designed to increase
the internal development of the underdeveloped countries in some of
the major areas of activity, such as in agriculture, through knowledge
and use of crop rotation, fertilizers, and control of plant diseases; in
housing and sanitation, through knowledge and use of m o d e m housing and
sanitation techniques; in transportation and communication, through
knowledge and use of present-day organization and equipment of trans­
portation and communication systems; in mining, through knowledge and
use of modern exploration techniques*
The proposed technical assistance program is not new* On a smaller
scale American technicians, frequently representing private business,
have for many years provided technical advice and training to foreign
countries, particularly to latin America; and foreign countries, on a
limited scale, have for many years sent their experts to this country
to learn our techniques*
The present program contemplates a considerable expansion of the
scale and scope of technical assistance and the establishment ef cen­
tral responsibility for its administration*
In addition to technical assistance, the underdeveloped countries
need outside help in the form of capital investment* They can furnish
the labor needed for developmental projects, and also many useful local
materials* But for the necessary mechanical equipment, and for many

- 3-

other imported essential supplies, they must, for some time, rely chiefly
on inflowing capital investment* As their production expands, they will
gradually be able to create a greater volume of capital from their own
resources* It is important, therefore, for us to help them at this
initial stage to mobilise outside capital as fully and effectively as
possible*
As you know, capital imports in the past have played an important
part in the progress of economically underdeveloped areas* Our own canal
and railway development prior to the Civil War was materially assisted
ty imports of capital from Great Britain and other European countries*
After the turn of the century the United States itself became a
capital investor on a growing scale* American industry established
branches abroad and promoted a variety of new enterprises in foreign
countries* Between the two World Wars the United States was the only
country making foreign investments in any appreciable volume* In this
period, United States investors absorbed huge amounts of foreign bonds*
However, as you all know, our experience with foreign investment has
not been entirely happy* American owned enterprises viere, in some
instances, expropriated without adequate or prompt compensation*
Holders of foreign bonds suffered defaults on an unprecedented scale,
many of which still continue*
Since World War II, foreign lending has been chiefly confined to
loans made by the U* S* Government and the International Bank for
Reconstruction and Development* ibreign bond flotations ceased abruptly
with the defaults of the thirties and there is little immediate prospect
of their being resumed to any appreciable extent* Private direct invest­
ment was resumed after World War II and rose in 194-7 and 194$ to record
heights* But the new investments were heavily concentrated in Venezuela,
Canada and the Near East and, to a great degree, in one industry - petroleum
Very little new American private capital has moved abroad into other areas
and industries and the total outflow in 194-9 was appreciably smaller than
in 194-8*
The investment of outside private capital in underdeveloped countries
is seriously handicapped under present conditions* A primary obstacle is
the existence, in mary of the underdeveloped countries themselves, of an
inhospitable climate to foreign capital*' Private capital is normally led
abroad by the prospect of a better return than it can secure at home* But,
even where there may seem to be such a prospect, potential investors are
not willing to take the risk of having their property expropriated with­
out fair compensation, of being discriminated against under local laws,
of being obliged to accord a majority stock interest to local citizens,
or of being unduly hampered in the conduct of ordinaiy business activities*

The remedy for this situation lies largely in the hands of the
countries concerned«, Private capital must have assurances of equitable
treatment* Such assurances our government is endeavoring to obtain
through the negotiation of bilateral investment treaties* This govern­
ment places great stress on these treaties as concrete evidence that
foreign countries do want our private capital and that they are pre­
pared to afford it a fair opportunity to be put to effective use®
Private investment abroad may suffer not only from unfair and
discriminatory treatment, but from the working of exchange controls*
Profits, though earned, may not be transferable into dollars, or may
be transferable only to a very limited extent® This situation reflects
in large part the worldwide disruption of production and commerce
resulting from the war, and is closely tied in with the so-called dollar
shortage* Countries which are short of dollars feel impelled to restrict
sharply the sale of dollar exchange* Alleviation or removal of these
restrictions is of prime importance to the flow of private capital
abroad* The restrictions will disappear as repair of the war’s economic
damage is accomplished and basic solutions for convertibility problems
are found* Our recovery and trade programs are contributing to the
attainment of this general objective* The work of the International
Monetary Rind is also largely directed to the same end*
One of the two bills now before the Congress for implementing
Point IV would extend the powers of the Export-Import Bank to enable
it to guarantee American capital against certain risks peculiar to foreign
investment* These do not include the risk of ordinary business loss or
failure, to which investments at home are no less subject than those made
abroad* The risks covered by the Bill are expropriation of the investors’
property without prompt and adequate compensation, and inability to
convert local currency derived from the investment into United States
dollars*
The guarantees would be extended only to productive investments
which contribute to the economic development of the capital-receiving
countries* Before it extended a guarantee, the Export-Import Bank would
need to be satisfied that a particular investment met this standard*
The Bank would also consult the country involved concerning the proposed
investment. Any country wishing to come within the scope of the guarantee
should be willing to conclude an investment treaty* Many persons believe
that such a treaty should be a prerequisite for ary guarantees*
The Point IV Program contemplates that the capital which the under­
developed countries need will be supplied mainly by private investors*
The proposed investment guaranty is an experimental device which it
seems wise to test out cautiously* The pending legislation calls for
no additional allocation of funds to the Export-Import Bank© The Bank
will, for the time being, be authorized to extend guarantees only within

~ 5 -

the limits of its presently available resources* If the guarantee
plan works well and justifies itself as a means of promoting private
investment abroad, it will then be timely to request Congress to
allot funds to the Bank to enable it to expand its guarantee
activities•
The Government is also proposing to encourage the extension of
financial and technical assistance to underdeveloped regions of the
world by certain recommended tax revisions. Changes in the tax treat­
ment of income derived from investments and personal services in
foreign countries can provide some support to the Point IV program.
Under present law, a foreign subsidiary of a domestic corporation,
even where wholly owned in the United States, is taxable only when its
income is brought home in the form of dividends. This provision
enables foreign subsidiaries to accumulate their earnings abroad and
reinvest them there indefinitely without incurring U, S, tax liability.
In contrast, where American business is conducted abroad through a
branch of a U, S, firm, the income is currently taxable whether
retained abroad or remitted to the United States, To encourage foreign
operations, the President’s program would treat the income of foreign
branches in substantially the same manner as the income of foreign
subsidiaries is treated. In other words, foreign branches would be'
taxable on their income only after it has been remitted to the United
States, In addition to encouraging reinvestment of earning^, this
would minimize tax problems which now arise when foreign countries
impose foreign exchange controls which interfere with the ability of
U# S, concerns to pay their U, S, tax.
Service abroad by American technical experts can greatly assist
in this program. In order to encourage this assistance, it has been
recommended that earnings of these experts be exempted from tax during
the entire period of their bona fide residence abroad. This liberalizes
the present law which grants exemption only after bona fide residence
has been established for a full year,
A basic feature of our system of taxing foreign income is the credit
we allow for income taxes paid to a foreign country. In some instances,
however, taxpayers are precluded from taking full advantage of the tax
credit because of limitations contained in our laws in the interest of
all-around tax equity. In considering this problem we have found some
areas in which the foreign tax credit provisions can be liberalized in
order to eliminate double taxation without affecting adversely the
fairness of the income tax, and some proposals along this line have been
placed before the Ways and Means Committee, In addition, the Administration
has proposed to extend this foreign tax credit principle to the Federal
estate tax field.

These recommended changes in the tax structure should, be a material
factor in fostering the investment of private capital abroad under the
Point IV program*
The Point Four Program has been carefully planned within the scope
of available resources, and the capacities of the underdeveloped coun­
tries to advance*
Let me stress the fact that it is a cooperative program, intended
to help free peoples, through their own efforts., to advance their
economic and physical well-being* We have invited other industrially
developed countries to pool their technological resources with us in
this undertaking.
As the President repeatedly has emphasized the Point Four Program
must be a worldwide effort for the achievement of peace and freedom.