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Statement of Continued


White, Thomas J., representing the Commission of Public Docks of

Portland, Oreg., the Port of Astoria, Oreg., the Oregon State Public

Port Authorities Association, and the Port of New York Authority-- 1471

Prepared statement-


Williamson, John C., National Association of Real Estate Boards. 1338

Prepared statement.


Winslow, Robert L., Jr., T. H. Mastin & Co., Kansas City, Mo.-


Prepared statement-




Additional information:

Cumulative advantages and disadvantages of 200 percent and 150 per-

cent declining balance method of depreciation versus straight line
depreciation, chart---


Letter from

Barlow, E. R., assistant professor of Business Administration

(also signed by Ira T. Wender, assistant director, International

Program in Taxation) Law School of Harvard University, to

chairman, April 21, 1954. and enclosures..


Bergerman, Melbourne, vice president and general counsel, C. I. T.

Financial Corp., New York, N. Y., to chairman, April 15, 1954.-- 1364
Bowen, Harry A., counsel for the American Society of Travel
Agents, Inc., to chairman, April 16, 1954.-

Boyd, Robert Lee, vice president, the Block Bros. Tobacco Co.,
Wheeling, W. Va., to chairman, April 12, 1954--

Breen, John A., Chicago, Ill., to chairman, April 15, 1954_.

Brightwell, Mamie, legislation chairman, Cuyama Parent-Teach-
ers Association, to Hon. Thomas H. Kuchel, April 6, 1954.-

Bronk, Detlev, President, National Academy of Sciences, Wash-
ington, D. C., to chairman, April 16, 1954..


Butler, Hon. John, mayor, San Diego, Calif., to Hon. Thomas H.

Kuchel, April 8, 1954.


Cardinale, Joseph S., Momsen & Freeman, New York, N. Y., April
9, 1954, and enclosure-

Condon, Arthur D., law offices, Davies, Richberg, Tydings, Beebe &
Landa, Washington, D. C., to committee, April 20, 1954...


Cooney, Russell J., city manager, Merced, Calif., to Hon. Thomas

H. Kuchel, April 12, 1954.--


Courts, Malon C., Courts & Co., Atlanta, Ga., to Hon. Walter F.
George, April 17, 1954, and enclosure.--

Delehanty, James A., New York, N. Y., to chairman, April 16, 1954,
and enclosure --


Derr, R. A., industrial agent, Hayward, Calif., to Hon. Thomas H.

Kuchel, April 9, 1954.-


DeWind, Adrian W., of Paul Weiss, Rifkind, Wharton & Garrison,

to chairman, April 8 and 14, 1954, and enclosures --- 1388, 1389
Duer, Strong & Whitehead, New York, N. Y., to chairman, April
20, 1954.


Ellis, Otis H., general counsel, National Oil Jobbers Council, Wash-

ington, D. C., to chairman, April 20, 1954_


Ellison, C. D., Oklahoma City, Okla., to committee, April 15, 1954.- 1359
Erickson, Enar, general manager, Peninsula Plywood Corp., Port

Angeles, Wash., to Hon. Warren G. Magnuson, April 6, 1954... 1596

Farrington, J. D., president, Chicago, Rock Island & Pacific Rail-

road Co., Chicago, Ill., to chairman, April 14, 1954.


Ficklin, Lohn R., city manager, to Hon. Thomas H. Kuchel, April
6, 1954.

Folsom, Hon. M. B., Under Secretary of the Treasury, to Chair-
man, April 23, 1954..

Funk, Carl W., Drinker, Biddle & Reath, to chairman, April 14,

George, Edward C., chairman, National Association of Securities
Dealers, Inc., Chicago, Ill., to chairman, April 14, 1954.---

Gillet, James M., assistant to the president, Victor Chemical
Works, to chairman, April 12, 1954, transmitting brief..

Goldman, Herbert M., president, United Cerebral Palsy Associa-

tion of Connecticut, Inc., Bridgeport, Conn., to Hon. Prescott
Bush, April 12, 1954_-


Additional information-Continued
Letter from-Continued

Green, Thomas J., New York, N. Y., to committee, April 19, 1954.. 1349
Halligan, C. W., chairman, tax committee, Rubber Manufacturers

Association, New York, N. Y., to chairman, April 14, 1954-- 1362 Harrison, H. S., the Cleveland-Cliffs Iron Co., Cleveland, Ohio, to chairman, April 16, 1954----

1600 Higgins, Hon. Clarence mayor, Pacific rove, Calif., to Hon. Thomas H. Kuchel, April 8, 1954.

1490 Hole, Wm. Edward, president, American Aggregates Corp., Greenville, Ohio, to chairman, April 13, 1954..

1354 Hopkins, C. J., manager, timber department (also signed by Enar

Erickson, general manager), Peninsula Plywood Corp., Port

Angeles, Wash., to Hon. Warren G. Magnuson, April 6, 1954_--- 1596
Johnson, Russell S., Johnson Machine Works, Inc., Chariton,
Iowa, to Hon. Guy M. Gillette, April 13, 1954--

1593 Kozak, Henry, secretary-treasurer, the Cleveland Patent Law Association, to chairman, April 14, 1954..

1360 Krabbe, Johan A., administrative officer, La Verne, Calif., to Hon. Thomas H. Kuchel, April 12, 1954..

1490 Lang, John J., John J. Lang Co., St. Louis, Mo., to chairman, April 20, 1954, and enclosures

1506 Lavine, Morris, Los Angeles, Calif., to Hon. William L. Langer, April 5, 1954.-

1592 Liste, J. G., trust officer, First Merchants National Bank & Trust

Co., Lafayette, Ind., to Mrs. Elizabeth Springer, chief clerk,
April 13, 1954.

1357 Mallory, G. Barron, of Chadbourne, Hunt, Jaeckel & Brown, New

York, N. Y., to Mrs. Elizabeth B. Springer, chief clerk, April 21,
1954, and enclosure_-

Maloney, Vincent H., New York, N. Y., to committee, April 19,

1349 Martin, M. B., clerk, Perris, Calif., to Hon. Thomas H. Kuchel, April 8, 1954.

1490 Maytag, Fred, chairman, committee on taxation, National Associa

tion of Manufacturers, to chairman, April 23, 1954, and en-

McClelland, Harry, president, Capital Co., San Francisco, Calif.,
to chairman, April 7, 1954_

1360 Miller, Gyle, chairman, national affairs committee, Merced City

Chamber of Commerce, Inc., Merced, Calif., to Hon. Thomas H.
Kuchel, April 9, 1954_-

Miltenberger, Paul L., Lancaster, Pa., to chairman, April 19, 1954,
and enclosure_.

1351 Newquist, R. R., president, Roots-Connersville Blower, Connersville, Ind., to chairman, April 15, 1954_

1591 O'Brien, W. Brice, assistant counsel, National Coal Association, to chairman, April 22, 1954, and enclosure_--

1415 O'Dowd, J. B., Tucson Title Insurance Co., Tucson, Ariz., to Hon. Carl Hayden, April 14, 1954, and enclosure..

1596 O'Malley, James C., secretary and sales manager, the O'Malley

Lumber Co., Phoenix, Ariz., to chairman, April 17, 1954, trans-
mitting statement--

Parks, William A., executive secretary, Boston Bar Association,
Boston, Mass., to chairman, April 16, 1954.-

1601, 1602 Peeler, Joseph D., Musick, Peeler & Garrett, Los Angeles, Calif., to

Colin F. Stam, chief of staff, Joint Committee on Internal
Revenue Taxation, April 7, 1954, and enclosure---

1597 Perkins, C. E., city manager, Glendale, Calif., to Hon. Thomas H. Kuchel, Glendale, Calif

1488 Preston, Glen H., manager, Culver City, Calif., to Hon. Thomas H. Kuchel, April 8, 1954_

1491 Rathert, W. H., general manager, J. Neils Lumber Co., Klickitat, Wash., to Hon. Warren G. Magnuson, April 12, 1954_.

1595 Rawlinson, J. E., for Serene, Koster & Barbour, Los Angeles, Calif., to chairman, April 16, 1954---


Additional information-Continued

Letter from—Continued


Reynolds, L. E., vice president and general treasurer, the Con-

necticut Light & Power Co., to chairman, April 23, 1954_--- 1333

Roddewig, C. M., president, Chicago & Eastern Illinois Railroad,
Chicago, Ill., to chairman, April 15, 1954_-


Roth, Jack, president, Merced City Chamber of Commerce, Inc.,

Merced, Calif., to Hon. Thomas H. Kuchel, April 9, 1954_- 1489

Russell, W. C., Peerless Cement Corp., Detroit, Mich., to Hon.

Charles E. Potter, April 20, 1954.---


Schiller, W. E., treasurer, Hershey Chocolate Corp., Hershey, Pa.,

to chairman, April 20, 1954---


Smith, Wilber, city manager, San Rafael, Calif., to Hon. Thomas

H. Kuchel, April 7, 1954_-


Stanley, Willard F., president, Corporate Services, Inc., New York,

N. Y., to committee, April 20, 1954-


Stevens, George W., city manager, Torrance, Calif., to Hon.

Thomas H. Kuchel, April 7, 1954..


Swartz, Paul Edgar, Satterlee, Warfield & Stephens, New York,

N. Y., April 7, 8, 1954.---

1386, 1387

Tannenwald, Theodore, Jr., Weil, Gotshal & Manges, to Hon.

Walter F. George, April 12, 1954..


Tellefson, M., city attorney, Culver City, Calif., to Hon. Thomas

H. Kuchel, April 1, 1954.-


Toombs, Frank C., Springfield, Ill., to chairman, April 13, 1954.. 1356

Walter, Julian D., chartered life underwriter, district agent, the

Northwestern Mutual Life Insurance Co., Milwaukee, Wis.,

to chairman, April 15, 1954---


Ward, Thomas R., member, Ward, Rea & Shaw, Meridian, Miss.,

to Hon. John C. Stennis, April 6, 1954.


Wardenburg, Harry A., Pacific Palisades, Calif., to committee,

April 14, 1954_-


Wender, Ira T., assistant director, international program in taxa-

tion, Law School of Harvard University, Cambridge, Mass., to
chairman, April 21, 1954, and enclosure_


Resolution of the city of San Leandro, Calif..


Tables :

Comparison of the individual income-tax liabilities under the law

in effect prior to the enactment of the Revenue Act of 1951,

under the Revenue Act of 1951, and under the present law

for 1954..


Estimated distribution of the individual income-tax returns ad-

justed gross income and tax liability under the Revenue Act

of 1951 and after the Januray 1, 1954, termination date--- 1253

$10 billion increase in capital expenditures, stimulated by incen-

tive depreciation, affects taxable corporate income----


Telegram from

Knight, Hon. Goodwin J., Governor of California, to Hon. Thomas

H. Kuchel, April 13, 1954_-


Questa, E. J., president, First National Bank of Nevada, Reno,

Nev., to Hon. George W. Malone, April 10, 1954_.



FRIDAY, APRIL 16, 1954


Washington, D.C. The committee met, pursuant to recess, in room 312, Senate Office Building, at 10:10 a. m., Senator Eugene D. Millikin (chairman) presiding.

Present: Senator Millikin, Flanders, Carlson, Frear, and Long.

The CHAIRMAN. Mr. Herrmann, will you identify yourself for the record, please?



Mr. HERRMANN. Mr. Chairman, Senators of the committee, my name is David W. Herrmann. I am vice president of the Melville Shoe Corp. of New York, which operates 194 stores throughout the United States and 12 factories in New Hampshire and Massachusetts.

The CHAIRMAN. How many stores ?
Mr. HERRMANN. 794.
The CHAIRMAN. You make your shoes where?

Mr. HERRMANN. Primarily in factories located in New Hampshire and Massachusetts. New England.

I am president of the National Association of Shoe Chain Stores, and am appearing in behalf of that association, and the American Retail Federation, representing their position on section 359 and related sections of the Internal Revenue Code of 1954, designated as H. R. 8300.

Descriptions of both of the aforementioned retail groups and their memberships are appended to this statement.

Those responsible for H. R. 8300 are to be complimented on the magnitude of the task they assumed, and the general results of this gigantic effort, in effecting a major revision of the existing code.

H. R. 8300 is to be more commended than criticized, but it is inevitable that in drafting volumes of tax legislation, a number of flagrant inequities will appear.

Although sections 351 to 373, under the title of "Corporation Organizations, Acquisitions, and Separations,” contain a number of clarifications helpful to taxpayers, our opposition is directed to the provisions of section 359 and related sections, dealing with mergers, consolidations, and corporate acquisitions. I will hereafter use these terms interchangeably.


As a result of these provisions, relatively large corporations can no longer acquire the assets, or the stock, of relatively smaller corporations in a tax-free statutory merger or consolidation. Two publicly held corporations may merge or consolidate in a tax-free transaction. However, even in this instance, many corporations whose securities are traded on the major stock exchanges would not fall within the definition of a “publicly held corporation,” which states:

A corporation will be deemed to be publicly held unless 10 or fewer shareholders own more than 50 percent either of the total combined voting power or of the total value of all classes of stock of the corporation.

A publicly held corporation could not consolidate tax-free with a closely held corporation unless the stockholders of the transferor corporation received at least 20 percent of the participating stock-after consolidation of the acquiring corporation.

This imposes an almost impossible, if not purely academic, requirement which virtually outlaws consolidations or mergers between publicly held corporations and closely held corporations.

The CHAIRMAN. Give me some idea of the stock structure of your association. Who owns your stock?

Mr. HERRMANN. The association is made up primarily of chainstore organizations, operating in the shoe business.

The CHAIRMAN. Is it a true association, or do you have stock?
Mr. HERRMANN. It is a true trade association.
The CHAIRMAN. Very well, go ahead.

Mr. HERRMANN. It is incorporated and tax-exempt under the code, sir.

I am not an attorney, but as a businessman, will address myself primarily to the equities and economics involved in those provisions of section 359 relating to consolidations and mergers.

Most statutory consolidations or mergers take the form of acquisition by a corporation of the stock, or assets, of another in exchange for part of its voting stock.

Under the provisions of section 359, few mergers, involving closely held or privately owned corporations, would ever have been effected. In only exceptional and isolated instances would the greatest portion of these mergers have qualified for tax-free status. The tax impact would have precluded most of them.

In a majority of instances, a closely held corporation is consolidated or merged with a publicly held corporation. It is this typical transaction most adversely affected by the restrictions imposed in section 359.

Consolidations or mergers are undertaken for a number of reasons recognized by law, and recognized as sound, economically. Considerations accruing to the advantage of the stockholders of a closely held corporation include the following:

1. Additional financial resources.
2. Acquiring capital for business needs and expansion.

3. Increased efficiency through an exchange of personnel, methods, and research, which a small corporation might not be able to afford.

4. Acquisition of more readily marketable stock.

5. Continuity of the business in the event one or more key executives die, and heirs are incompetent to run the business.

6. Insuring the ability to meet estate taxes, without sacrificing the business through forced sale.


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