dollars in reforestation, and thereby avoid the tax on it. If it were not a completely open-end proposition, I would be interested in supporting that. Mr. MYERS. There is a tremendous amount of capital that needs to be interested, and this is one possible way to do it. He might avoid taxes for a short time, but when that timber was cut, there would be a substantial amount of newly developed taxable income-it is similar to an oil exploration situation, where you want to develop areas which are not bringing in any return, now. As a matter of fact, a lot of these areas are, or have been until recently, tax-delinquent lands. They are not only not producing anything, they are actually a drain on the State. The State is often not collecting anything from them. Seventy-five million acres-well, that is roughly the size of the entire States of Mississippi and Louisiana. So you can see how large the problem is. The CHAIRMAN. Thank you very much for coming, and have a good talk with Mr. Stam. Mr. MYERS. Thank you, sir. (The prepared statement of Mr. Myers follows:) STATEMENT OF J. WALTER MYERS, JR., EXECUTIVE SECRETARY, FOREST FARMERS ASSOCIATION, Atlanta, Ga. My name is J. Walter Myers, Jr. I am executive secretary of the Forest Farmers Association of Atlanta, Ga. The Forest Farmers Association is an organization of timberland owners in 15 Southern States. Our 1,300 members own approximately 20 million acres of forest land in this area. Hence, our considerable interest in certain proposed changes to the Internal Revenue Code as embodied in H. R. 8300 and the possible effect of these revisions when applied to timberlands owned by our members and similar properties, not only in the South but over the Nation. The forests of the United States represent one of our most important natural resources. These forests supply the basic raw material to the lumber, naval stores, plup and paper, and other wood-using industries which constitute a large part of our economy. The products of our forests are vital to the economy and security of our Nation. The future growth of our forests will depend upon the manner in which the forest farmers improve their methods of producing and reproducing trees and protecting them from forest fires, insects, and disease. Timber owners and public agencies are spending substantial sums of money in the Southeastern States to promote and increase the growth of this natural resource. In cooperation with the Federal and State Governments, experimental tree farms and research stations have been established to utilize scientific knowledge and develop factual data in the growing and utilization of wood. The owners are building firebreaks and other fire-control facilities to reduce damage to their timber from fires. They have fostered educational programs to stimulate interest in protecting our forests and in the opportunities of timber production. If our timberland owners are encouraged to continue their development work by a favorable tax program, it has been estimated that over a reasonably short period of years, the annual growth of our timber might well be doubled. Past increase in the use of forest products and authoritative predictions of future needs indicate that this will be required. The provisions of our tax laws, particularly those relating to the treatment of forest expense, will encourage or discourage such improvements in forest management development and protection. The importance of this development job is emphasized by the fact that there are still some 10 to 15 million acres of cutover forest land in the South, alone, which must be planted before they can go back into full production. Much is being done to foster the rebuilding of these forest areas, but even if we continue at our present rate it will take an estimated 35 years to complete the program, so tremendous is the job. Therefore, it becomes clearly apparent that every encouragement to the rebuilding of these forests is of vital necessity and will continue to be for quite a number of years to come. At the present time, some advantages are accorded for the development of natural resources, of which timber is one of the more important. It has been found that such treatment is in the public interest because the exploration, discovery, development, and growth of our natural resources are thus encouraged and enhance the national wealth. Building up and maintaining our forest resources at a high level requires substantial and continuing financial investments. Even so, a considerable interval of time must elapse between the investment and the return on that investment. Meanwhile, the forest is subject to the hazards of fire, insects, disease, and storms, which may completely wipe out the owner's investment and operating costs at any time prior to the realization of any income. Equitable tax treatment to the forest owner is therefore essential to continued good forest management. Under the present income-tax law, expenses incurred relating to the cutting and disposal of timber are deductible against ordinary income. Under H. R. 8300 (secs. 272 and 631) the deduction of these expenses may only be applied against capital-gain income. For the reasons previously stated, the owners of forest properties who make expenditures primarily for forest protection, conservation, or improvement, or for reforestation, urgently need as much tax incentive as possible. Accordingly, it is suggested that the proposed Internal Revenue Code be amended by adding a new section 617 to subchapter I, part 1, to follow exploration and development expenditures, which are shown as sections 615 and 616, respectively. We suggest this new section read as follows: "EXPENDITURES FOR FOREST DEVELOPMENT AND PROTECTION.-A taxpayer, owning, leasing, subleasing, or operating forest tracts which are properly managed for sustained wood production, and who makes expenditures primarily for forest protection, conservation, or improvement, or for forestation or reforestation, at his option, may treat any such expenditures paid or accrued in the taxable year, either (1) as a capital charge to be recovered through depreciation or depletion, as the case may be, or (2) as a deductible expense in such year. Proper forest management is the application of suitable and economically sound forestry principles relating to protection, utilization, and reproduction of forest tracts. This subparagraph shall be effective for taxable years commencing after December 31, 1953." Furthermore, section 272 of H. R. 8300, in our opinion, should be changed to restrict the expenses to be applied against capital gains to such expenses directly attributable to the quantity measurement and to the making of contracts for the disposition of the timber. The CHAIRMAN. Mr. Schillin. STATEMENT OF JAMES G. SCHILLIN, CANAL BANK & TRUST CO., NEW ORLEANS, LA. Mr. SCHILLIN. My name is James G. Schillin. I am an attorney, of New Orleans, La., and I am here on behalf of the Canal Bank & Trust Co., in liquidation, which is one of the old State banks which went into statutory liquidation at the time of the bank holiday back in 1933. We are concerned about the possible effect of the effective date that the House bill has fixed as to corporate liquidations and reorganizations. The House bill provides that distributions made pursuant to a plan of complete or partial liquidation, adopted after March 1, 1954, shall be covered by the new bill. Now our situation is a peculiar one in this respect. We were in no sense a voluntary liquidation. In other words, we didn't go into liquidation for the purpose of taking advantage of any of the liquidation provisions of the law. As I have said, we were forced into liquidation in 1933. From 1933 until 1948, over a period of 15 years, the State bank commissioner liquidated our bank and we were able to pay off all of the depositors in full. Besides we paid a substantial amount of interest on these deferred payments on deposits. In 1948 when we had accomplished what we thought was this very satisfactory result, the State bank commissioner delivered, under our local statute, the assets of our bank to the shareholders, and from there on, the shareholders took charge of the liquidation. The Supreme Court of Louisiana, in 1949, appointed three receivers to complete the liquidation. These receivers over a period of 2 or 3 years commencing in 1951, were up here negotiating with the Internal Revenue Bureau, looking to the obtention of a ruling which would permit us to liquidate as far as we could and then to enter into a plan of reorganization. We were negotiating, as I have said, for probably 2 or 3 years. Finally, in November 1953, we filed with the Bureau, our final application. The Bureau, on January 6, 1954, approved our application and issued this ruling. We immediately went into the local receivership court-I say "immediately." We got our ruling down in New Orleans on January 8, or January 9, and on January 11, 1954, we were in the receivership court with our plan of liquidation and reorganization. Under the local practice in Louisiana, the court issued its notice of publication and gave all of the shareholders until February 15, which was approximately 30 days-the court fixed that period as the period during which any shareholder might object to this plan. Not a single shareholder, or any other party interested in it, objected. On February 15, 1954, we had a hearing before the court, the matter was submitted to the judge. Unfortunately, the judge did not enter his decree approving and ratifying our plan, which was not approved by the Government, by the Treasury, until March 5, 1954, which as you will see, Mr. Chairman, was 5 days after the effective date of this bill, which is March 1, 1954. Now, I have discussed this matter with members of the staff and I believe they are in sympathy with our position. The CHAIRMAN. Have there been many complaints along that general line? Mr. SCHILLIN. Yes, Mr. Chairman. The CHAIRMAN. As I understand, the staff is giving considerable attention to that. Mr. SCHILLIN. The statement of Congressman Reed is to the effect that it was not intended that the new bill would prevent the consummation of plans which had been adopted by the shareholders prior to March 9, 1954. Now, if the bill as finally adopted provides an effective date of March 9, 1954, then we are taken care of. But, of course, the bill must literally make that change, itself, it would seem to us, Mr. Chairman. If the bill doesn't do that, then we have proposed an amendment to the effective-date provision of the new bill which provides that if in any receivership or liquidation or similar proceeding a plan has been submitted to the court prior to March 1, that it will be considered as having been adopted prior to March 1, although it may not have been actually signed by the judge until after March 1. We don't think that Congress or the Treasury intended to affect adversely, certainly not our particular plan which we have been working on over a period of years, and which we finally got through on January 6, and unfortunately the judge omitted-of course, none of us knew until March 9 what the new bill provided. The CHAIRMAN. You have no control over that. You cannot tell a judge when he must put in his decree. Mr. SCHILLIN. That is correct, sir. The CHAIRMAN. I might say right off the bat, and without complete committal, and until I hear what the staff has to say, it seems to me you have a good case. Mr. SCHILLIN. Thank you, sir. Senator LONG. As I understand it you have around 3,000 stockholders, don't you? Mr. SCHILLIN. I am glad Senator Long mentioned that. We have around 3,000 shareholders and all the shareholders have been acting on reliance of the fact that this plan was going into effect. As a matter of fact, in the over-the-counter market down in New Orleans, the stock in the new corporation is actively being traded in, in reliance on what we thought would be our plan. Senator LONG. You have been working for 3 years on this reorganization, and now this bill comes out which will change the whole picture. Mr. SCHILLIN. It will change the whole picture. Senator LONG. And there will be a very injurious effect to your people. Mr. SCHILLIN. We have gone to a great deal of time and effort and expense to have this plan evolved; it is the result of many years of effort on the part of the receivers and their attorneys, Mr. Chairman, and we don't think you intend to penalize us by saying that because the judge didn't sign his decree 5 days after March 1, that we don't come under the present law. The CHAIRMAN. As I say, there have been a number of complaints on variations of your situation and we are very well acquainted with them. I believe there is a general sympathetic feeling toward doing something about it, although I cannot say what the committee will finally decide. You have submitted your case to the staff, have you? Mr. SCHILLIN. We have seen the staff several times. The CHAIRMAN. I think you have done everything you can do. Senator LONG. I want to compliment you for your diligence in this matter, Mr. Schillin. As one who practiced law, myself, I think there would be an inclination on the part of a lot of attorneys to check the law and if the law was favorable to think that they were safe, but you were very diligent to see that retroactively it might affect all your shareholders and you have explained it to Congress. Mr. SCHILLIN. Mr. Chairman, we got this ruling on January 9 and we worked feverishly to get it in court on January 11, and we did everything we could humanly do to get our plan into effect. I would like to ask permission to file in the record a petition which has been sworn to by the receivers, and a brief appendix, giving a synopsis of the things that we did. The CHAIRMAN. It will be put in the record. (The document referred to follows:) CANAL BANK & TRUST CO., IN LIQUIDATION, To the chairman and members of the Senate Committee on Finance: Canal Bank & Trust Co., in liquidation, New Orleans, La., has proposed an amendment to section 391 of the revenue revision bill (H. R. 8300), in order to make certain that Canal Bank's plan of partial liquidation and reorganization, which was approved by the Internal Revenue Bureau on January 6, 1954, in a favorable tax ruling, and which was submitted to the local court on January 11, 1954-long before March 1, 1954, the effective date of the new revenue bill, although the judgment of the court was not renderéd and signed March 5, 1954. At the outset we emphasize that Canal Bank receivership has never, in any sense, been a voluntary liquidation or receivership. The bank, along with many others, was placed in liquidation in 1933 and has been under court supervision ever since. It has over 2,900 stockholders, most of whom are located in and around Louisiana. The bank was ultimately able to pay off its creditors in full, and, for the past several years, the receivers have been working actively toward liquidating and winding up the bank's affairs. After detailed study of the many difficult problems involved, and innumerable conferences with the Internal Revenue Service and others, the receivers determined that the bank's affairs could be best terminated by a plan involving a partial liquidation and reorganization. On November 26, 1953,1 this plan in its final form was submitted to the Commissioner of Internal Revenue for an advance ruling. On January 6, 1954, a ruling favorable in all respects was issued by the Internal Revenue Service. On January 11, 1954, the receivers filed a petition in the local court with respect to said course of procedure, and the necessary notices were thereupon published in the New Orleans newspapers. On February 15, 1954, the court held open hearing at which no objections of any kind were interposed by any shareholder or other person. On March 5, 1954, the court's final order was signed, approving and accepting in every respect the receiver's petition insofar as the tax ruling was concerned. The proposed revenue bill, if enacted in its present form, would apply to distributions under a plan of complete or partial liquidation unless the plan was adopted prior to March 1, 1954 (sec. 391 (a) (1)), and might adversely affect the tax consequences of the bank's plan which, as indicated, the Internal Revenue Service has already approved under presently existing law. Although Canal Bank's plan was adopted, in the real sense of the word, long before March 1, 1954, and in fact possibly as early as May 30, 1950, the technical objection might be raised that the plan was not adopted within the meaning of the new law until the signing of the court's order on March 5, 1954. We understand that March 1 was inserted in the revenue bill as the cutoff date because committee press releases were issued on that date, and we take it that neither the Treasury nor the Congress intend, or want, to disturb the tax consequences, under presently existing law, of plans of liquidation adopted prior to the time that a taxpayer could have had public knowledge of the provisions of the proposed revenue bill. The undersigned had no knowledge of the contents of the revenue revision bill of 1954 until March 9, 1954. It is apparent from section 336 (c), page 81, of the new bill that a plan under that section is to be considered adopted when a resolution is adopted by the shareholders or a board of directors. We feel that some language should be used to make it certain that under section 391 (a) (2) a plan should be considered as adopted when receivers, liquidators, or other representatives of a corporation or its shareholders have made application to the Internal Revenue Bureau, and obtained a favorable ruling long before March 1, 1954, although the court may not have approved the plan, as in our case, until March 5, 1954. The plan approved by the local court on March 5, 1954, is the result of many years of study and effort on the part of the receivers and its attorneys, and was accomplished at considerable expense, and the receivers are under court order to complete the program described above. Long before March 1, 1954, the shareholders had full knowledge through newspaper and other publicity of the plan and have acted in reliance upon its consummation. 1 The form of the proposed amendment and synopsis of the bank's activities in formulating and presenting its plan is contained in annexed appendix. |