Lapas attēli
PDF
ePub
[merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small]

657 NET INCOME (LESS DEFICIT)

656 PLUS CONSTRUCTIVE TXBL INC FROM REL FORGH CORPS 228 TAX-EXEMPT INTEREST (COLA)

658 DEFICIT

659 AET INCOPE. TOTAL

[blocks in formation]

622 COMPUTED TOTAL STATUTORY SPECIAL DEO 175 NET OPERATING LOSS ULDUCTION (NOLD) 621 COMPUTED DIVIDENDS RECEIVED DEDUCTIO 624 COMPUTED INCOME SUBJECT TO TAX TOTAL

[blocks in formation]

619 COMPUTED NET LOT GAIN TAXED AT ALTERNAT RATES

21.

193.

374669.

705.

[blocks in formation]

224 TAX FROM RECOMPUTING PRIOR YEAR INVEST CREDIT 229 MINIMUM TAX OR FORM 4626 LINE 12

[ocr errors][ocr errors][ocr errors][ocr errors][ocr errors][ocr errors][merged small]
[merged small][ocr errors][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][merged small][merged small][merged small][ocr errors][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][ocr errors][merged small][ocr errors][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small]

Chairman PICKLE. Thank you very much, Mr. Pearlman. We have a panel that follows. The first person to testify-I am going to ask all three individuals to come forward. Mr. Robert Stanger, chairman of the Investment Partnership Association, if he will come forward. Mr. John Chapoton, resident partner representing Enserch Corp., who represents Vinson & Elkins here and who has been with us on many occasions. We are going to, I am sure, find his testimony interesting this morning. Then we will have Mr. Robert McIntyre, director of Federal tax policy.

We will ask each of you gentlemen to summarize. Your entire statement will be presented. We specifically wanted to offer you the opportunity to testify because you may not agree with some of the statements that have been made this morning, or you may have an explanation of some of the statements or analysis made, and you are entitled to have that put on the record. We are going to recognize first Mr. Robert Stanger. Mr. Stanger, if you will proceed-do we have your testimony?

STATEMENT OF ROBERT A. STANGER, CHAIRMAN, INVESTMENT PARTNERSHIP ASSOCIATION

Mr. STANGER. Yes. I submitted written testimony.

Chairman PICKLE. Your entire statement will be submitted in the record.

Mr. STANGER. Thank you. I am executive director of the Partnership Association. We represent the approximately 5 million investors in limited partnerships acquired through broker dealers. These individuals are resident in every State in the Union and every congressional district in America.

I would like to comment briefly on our three areas of concern about the Treasury submission, and I must acknowledge that I am working on the old one and not the new one, the letter they sent you previously, sir, not the written testimony they provided, because I haven't had a chance to look at it yet.

Chairman PICKLE. You have reference to the July 31 testimony and not the September 17?

Mr. STANGER. Yes, sir.

Chairman PICKLE. We will be pleased to receive additional comments on the latest report if you wish.

Mr. STANGER. We would be happy to submit them in writing. Finally, I would like to make some brief comments about what we believe are some misconceptions about the limited partnership, investment partnership business. First, on the Treasury proposal, with respect to the-with respect to income measurement. Since the 1976 Reform Act, the Treasury has used one of four different income measurements. It has now defined yet a fifth. The testimony previously indicated one of the main concerns was that it did not include schedule C losses, farm losses, rental properly losses, et cetera, subchapter S losses in the calculation, which is a serious flaw. No. 2, it does not include expenses of producing income; and, No. 3, it includes an item that you had decided to exempt from taxation, IRA and Keogh contributions.

I would submit TPI violates the Treasury definition of income measurement, which is, "For analyzing the impact of taxes, the

ideal measure of income is the amount the individual or family has consumed over that period plus the change in its net worth." It is one they have used for a long time. As there has been adequate testimony here, we believe the figures presented overemphasize the problem, individual statistics for income in 1982. On an expanded income basis, which is the one previously used by the Treasury, 299 individuals with expanded income over $200,000 paid no taxes, which is six one-thousands of 1 percent of all taxpayers, and fully half of those paid no U.S. tax because of tax payments to foreign governments.

As a group, the expended income of taxpayers over $200,000 comprised two-tenths of 1 percent of all taxpayers, but paid 9.4 percent of all taxes. The only way the figures are generated on an adjusted gross income basis, this group paid-excuse me-had 4 percent of all taxable income and paid 2.5 times that percentage of the tax burden. The same thing is true if you look at expended income, adjusted gross income figures for individuals over $70,000 as well.

The last comment with respect to the Treasury proposal, there is an underlying current that partnerships are the problem. Let me say I think the syllogism is faulty. The syllogism goes as follows: Treasury states business losses offset 70 percent of TPI for highincome taxpayers with low tax liability. They also point out limited partnerships have grown-there is an assertion that limited partnership losses aren't economic losses. Therefore, limited partnerships are bad.

I think there are significant problems with Treasury's logic. In the first place, business losses are much larger than partnership losses, as I pointed out earlier.

In the second place, total business losses sheltered 18 percent of TPI, which is approximately one-third less than the capital gains exclusion, just to put it in order of magnitude.

Third, according to the IRS's statistics, if you net out partnership income and partnership loss for all people in the category of TPI that they had in their study, you find $6.5 billion of aggregate losses and $6.25 billion of aggregate income. So, indeed, there is no net tax loss of significance, even in that income category when you take both the positive and the negative.

Limited partnerships are-excuse me. Let me start with a definition. Investment partnerships, which is what we are concerned about, we define as partnerships sold through broker dealers, as opposed to business joint ventures which can be formed by any individuals or combination of individuals, corporations, and institutions. Partnerships, investment partnerships, have limited life. They acquire assets, eventually sell the assets and disband the partnership business.

So while there may have been many of them formed over the years, many of them have also disbanded. It is our guess there are only approximately 14,000 investment partnerships that exist out of a total count of 1.5 million partnerships and as also compared to approximately 225,000 limited partnerships in the Treasury statistics. There is no evidence presented to support that these investment partnerships produce an aggregate tax loss, even though limited partnerships as a whole do.

I would also say that investment limited partnerships have only 10 percent of assets in total partnerships by our estimate. One final thing, which perhaps is philosophical, but when you have a partnership loss that is represented by an economic loss, it is of course a revenue-neutral item. By that I mean if I, for instance, own a building and pay the janitor and the cleaning service to wash the windows and the building operates at a loss, those amounts represented by those payments are income to the recipient. So, from the standpoint of the U.S. Treasury, my taxable loss is offset by someone else's taxable income. The partnership loss is represented by economic or business losses and is revenue neutral.

Legislation against partnerships as a form of business organization I think we need to consider carefully. I don't know where the Senator got his figures, but Senator Bradley was in my office, and he reported 86 percent of economic activity in the United States is conducted by subchapter S corporations, sole proprietorships and partnerships, as opposed to corporations. If we change the rules with respect to them, there are significant signal consequences that may flow from it.

Let me speak briefly of some misconceptions about limited partnerships.

The first I have heard articulated often is tax shelter partnerships are responsible for overbuilding of office space in the United States. For instance, there is a fair amount of office overbuilding in your home State-Texas. The cause of overbuilding is lending and not tax shelter partnerships. Let me give you a specific example. We found 38 buildings in Houston, of over 200,000 square feet in size that are 25 percent vacant or more. That is one overbuilding crisis to which everyone refers. According to the county records, not one of those buildings is owned by a limited partnership syndication. There are insurance company owners, pension trust owners, corporation owners, and individual developers who assert they own 100 percent of those properties. Not one of those properties is owned by a limited partnership.

The second misconception is with respect to the proliferation of partnerships. If you look at them over a long period of time, they have not increased in numbers at any significant rate above the growth of gross national product, No. 1. No. 2, all growth in publicly registered partnerships since 1981 is in what we describe as the income partnership category. These are partnerships that do not use mortgage debt or leverage and partnerships that make mortgage loans. The partnerships do not create tax loss in the year of formation; instead, they create taxable income.

If you look at partnerships in relation to other forms of packaged investment products, they are indeed growing more slowly. For instance, real estate partnership increased from 1.6 billion in 1981 to a little over 5 billion in 1984. During the same period of time, mutual funds increased from $7.5 billion-I am not talking money market funds, but stock and bond funds-increased from $7.5 billion to $45 billion in 1984. They have a common characteristic with partnerships. They are income oriented investment vehicles which are packaged investment products.

There are many forms of packaged investment products that have grown two to six times faster than partnerships during the same period of time.

Let me point out a couple things about partnerships termed abusive. Even the American Bar Association, which had a committee on abusive shelters, decided to phase it out this year because its job has by and large been done.

I also haven't heard much lately from the IRS on the tax shelter backlog; therefore, I am assuming it is flat or down over the last year. All I am trying to say by this is that legislation passed since 1976 has had an extremely potent and direct effect on reducing abusive shelters, which is in all of our interests.

Another misconception that I hear often is tax shelter partnerships are responsible for farm losses, which are indeed fairly significant in terms of IRS statistics. We have for over a year been keeping track of form D's filed with the SEC, which is the public record of interstate partnerships formed and sold as private placements. According to those records, and our own recordkeeping on the public market, in 1984, there was approximately $210 million raised for agricultural and livestock limited partnerships sold through broker dealers.

I respectfully submit that it is totally unlikely that that kind of capital investment could generate anything resembling $19 billion of farm losses claimed on tax returns. So, once again, it is not the investment partnership market-partnerships sold through broker dealers that creates the problem, but rather business losses.

And, finally, I think the timing is poor to move against partnerships from the standpoint of capital formation. We have an economy that is 35 months into a business cycle, which is about the average for postwar recoveries in the last 40 years. At this point in the cycle, investment should be encouraged, not discouraged.

Finally on poor timing, one area of capital formation that supplies equity capital to bail out bad real estate is the partnership business. I think it will come as no surprise there is a real estate crisis brewing which effects the commercial banking industry and the savings and loan industry in this country. They will end up through foreclosure owning significant amounts of properties, instead of lending on properties, which will impair their capital structures. Just as individual entrepreneurs and investors bailed out the banks in 1974 through 1976 during the last such real estate credit crisis, so it is my judgment that this source of capital will be there to effect that bailout again in the next couple of years when it will almost surely be necessary unless you dramatically change the rules.

Thank you.

[The prepared statement follows:]

« iepriekšējāTurpināt »