It likewise has financed the sale regularly, over that same period of time, of all types of appliances, automobiles, and the like, and also the movement in international trade of commodities. In other words, it is a typical legitimate banking institution. On the other hand, it is true of this institution, and I feel probably true of many others, that there are relatively few Americans, compared to the number of people in this country, who are sufficiently interested and familiar with investing money abroad, who are willing to take the risks of exchange and of the particular problems involved in foreign countries.

I know in this one, for example, since this company has been founded, the Mexican peso has been devalued twice, once only 3 days ago. So, for a person interested only temporarily in investing in a foreign country, that would not be a worthwhile investment. It has to be for those who are interested in the long pull. In this case, one of the members of my family, my younger brother, has since moved to Mexico and is one of the functionaries and interested parties in this institution. He is a typical American who wishes to do something abroad. He is a loyal citizen, nevertheless, having been a veteran of World War II, and is as vitally interested in the United States of America as any of us here, I am sure.

Those people are interested in the long pull. There are many investors in this country, or prospective investors, who are not. For this reason, this company is presented with a situation which is probably typical of that facing a good many people who would be interested in banking or financial institutions in foreign countries-that is, that there are only a handful who know enough about any one proposition to be interested in it. As it happens in this case, some of the American investors in this company would like to expand and invest more money in this particular institution, which has been relatively successful and has established a respected and recognized position in financial circles of Mexico. They are unable to do so because of the provisions of the foreign holding company taxes, which penalize an American investor, if a group of United States investors is such as to qualify under the personal holding company laws.

And I think that, although in many respects the foreign personal holding company tax is not tremendously more onerous than the ordinary taxes, there is a certain stigma attached even to the words "personal holding company," which makes prospective investors feel, "Is this a bank or a holding company?" They don't realize it could be two. And the net effect is that American investors in foreign countries would shrink away from that type of investment which is legitimate and which the law, I don't think, is intended to work against.

For that reason, I have submitted to the joint committee a proposal. I am afraid that it got in too late for their serious consideration before the bill went to the House. I believe Mr. Stam will correct me, but up to the present time it hasn't been rejected by them. They had not had the opportunity to give it thorough consideration. So, at the suggestion of them and other people, I have taken the opportunity of presenting it to the Senate Finance Committee. I am deeply honored for the opportunity to be here, and I thank you very much for your time.

The CHAIRMAN. We are very glad to have you. Thank you.
Is Mr. Splane here?

Mr. Winslow, sit down and be comfortable and identify yourself for the reporter.

STATEMENT OF ROBERT I. WINSLOW, JR., KANSAS CITY, MO.

I am Robert L. Winslow, Jr., Kansas City, Mo. The purpose of my appearance here is to urge that section 736 of H. R. 8300 be clarified. I am not a lawyer. I am sure that you have on your technical staff experts who are fully qualified to deal with the legal aspects of this matter. I am here for the purpose of telling the committee how section 736 will affect me as a businessman.

The CHAIRMAN. You have a lawyer right beside you.
Mr. WINSLOW. Yes, sir.

I am a member of a partnership known as T. H. Mastin & Co., which operates and manages a casualty insurance carrier. The partnership agreement under which we operate was originated in 1913— long before income taxes were of any significance. Therefore, our partnership agreement cannot be considered in any sense a tax-avoidance device. A provision in this partnership agreement provides that in the event of retirement or death of a partner, a portion of his interest in future, contingent profits of the firm is to be paid monthly to him of his designees in the event of death, for a period of 21 years. These amounts paid are not unrealized receivables at date of death or retirement. Rather, they are speculative, contingent, future profits payable only if and when earned. This partnership is a personal service partnership operating without assets or capital. All equipment, furniture, fixtures, premiums in course of collection, cash and investments are the property of the insurance carrier. The very desks and pencils, and so forth, which we use are all the property of the insurance carrier.

The CHAIRMAN. Where do you operate?

Mr. WINSLOW. We operate in about 38 to 40 States.
The CHAIRMAN. Where is your headquarters?

Mr. WINSLOW. Kansas City, Mo.

The partnership of T. M. Mastin & Co. at this time consists of 4 active partners, age 82, 67, 41, and 37, respectively. It will be noted that these partners fall in two age groups. My partner, Henry Burr, is 41. I am 37. Of our senior partners, the youngest is 67. Payments to several designees of 3 deceased partners and to 2 retired partners are being made at the present time under the provisions of our partnership contract.

The CHAIRMAN. That goes back to 1913?
Mr. WINSLOW. Yes, sir.

The CHAIRMAN. It hasn't been changed?

Mr. WINSLOW. Just the addition of new partners being added, that's all.

It is my understanding, and I am informed by our counsel, that section 736 as it is now written provides that in the case of certain types of partnerships, any payments to retired partners or designees of deceased partners, made within 5 years after date of retirement or death, are in effect to be treated as a distribution of profits and the income tax would be paid by the recipient in each case at ordinary rates. Any payments made to the retired partners or designees of a deceased partner after 5 years would not be treated as a distribution

of profits and the active partners would pay income tax at ordinary rates on the entire profits of the partnership.

It may be seen in the case of T. H. Mastin & Co. that in the normal course of events the two youngest partners, of which I am one, will be the only surviving active partners of the firm. Due to the present respective interests of the partners, approximately 65 percent of the profits will, by contract, be distributed to retired partners and designees of the deceased partners after the death or retirement of the 2 oldest partners. This situation, of course, would be an impossible one for the two remaining active partners if section 736 in its present form were to become law. When the 5 years had elapsed after the death or retirement of the present oldest active partners, the 2 youngest partners would be in a position of paying income tax on 100 percent of the profits and making distribution to the retired partners and designees of deceased partners, according to contract, from what remained after taxes.

Based upon our recent experience, assuming the 2 youngest partners to be the surviving active partners, after paying taxes on 100 percent of the profits and making distributions to various retired partners and designees of deceased partners, according to contract, not only would we have nothing remaining for our services, but it would be necessary to go into debt to meet the contractual obligations to designees and others.

The CHAIRMAN. Mr. Stam, was that considered?

Mr. STAM. It is under consideration now, Senator. It is somewhat the same problem as the other witness presented, and it is being worked on, and we will do something about it.

Mr. WINSLOW. Shall I continue, sir?

The CHAIRMAN. Please do.

Mr. WINSLOW. If we were receiving something in return-inventory, machinery and equipment, valuable assets of any kind, there would at least be the justification of paying taxes on a capital investment. However, there is nothing which we can buy or nothing the retired or deceased partners can sell us. So, it might be seen that the present provision of section 736 means a hardship to the degree that it would put us out of business.

The CHAIRMAN. Supposing the old fellows outlive you younger fellows. Then what happens? Would they have to carry this burden?

Mr. WINSLOW. Yes, sir. If I should die, my designees are to receive a certain percentage for 21 years.

Even under present conditions, the situation would be next to impossible: 33 percent of the profits of the firm are being paid to retired partners and deceased partners' designees. If the present active partners were to pay income tax on 100 percent of the profits and make distributions according to contract, there would be little remaining for our services. It is impossible to change these existing agreements. There are a number of designees, many of whom I do not know. Naturally, neither they, nor the retired partners, would be willing to forego the money that they know legally belongs to them. It is my understanding that there are many other personal service partnerships in a similar position-those comprising lawyers, accountants, consulting engineers, and others of a like nature. Many of these organizations must be worried about this provision as it would undoubtedly

ruin them financially. If they are not worried they do not understand what may happen to them.

I wish to make this perfectly clear: I am not suggesting for a minute that the payment on account of deceased or retired partners should not be subject to a tax at ordinary rates. What I am suggesting is that the tax be paid by the person who gets the money, and not by the succeeding partners who make it and pay it to the designees and retired partners.

As the law is written, it apparently imposes a tax on one taxpayer with respect to income of another. It is evident from the report of the Ways and Means Committee that the House Committee did not intend section 736 to apply to a personal service partnership having no capital and owning no assets. Nobody is shooting at a partnership like ours, yet we are being hit. Our position is that income taxes should be paid, not by the remaining partners on moneys which, under the partnership contract, they do not own and never have owned, but should be paid by the people who get this money.

We respectfully request this committee to clarify section 736 to the end that in the case of personal service partnerships, with no capital and no assets, payments of future, unearned, contingent profits to retired partners and designees of deceased partners will be taxed at ordinary rates to the recipients as has been the case for many years. Otherwise, it would be impossible for our firm, which was organized in 1907, to continue business.

In order to clarify section 736, I suggest that after subsection (a) (2) there be added a new subsection numbered (a) (3). I will not take the time to read it. It is shown in my written statement. I also ask the privilege of submitting a substantiating statement for the record.

The CHAIRMAN. It will be done.

Mr. WINSLOW. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

(The statements referred to follow :)

STATEMENT OF ROBERT L. WINSLOW, JR. IN SUPPORT OF PROPOSED AMENDMENT TO SECTION 736 of H. R. 8300

I am Robert L. Winslow, Jr., Kansas City, Mo. The purpose of my appearance here is to urge that section 736 of H. R. 8300 be clarified. I am not a lawyer. I am sure you have on your technical staff, experts who are fully qualified to deal with the legal aspects of this matter. I am here for the purpose of telling the committee how section 736 will affect me as a businessman.

I am a member of a partnership known as T. H. Mastin & Co., which operates and manages a casualty insurance carrier. The partnership agreement under which we operate was originated in 1913-long before income taxes were of any significance. Therefore, our partnership agreement cannot be considered in any sense a tax avoidance device. A provision in this partnership agreement provides that in the event of retirement or death of a partner, a portion of his interest in future, continguent profits of the firm is to be paid monthly to him or his designees in the event of death, for a period of 21 years. These amounts paid are not unrealized receivables at date of death or retirement. Rather, they are speculative, contingent, future profits payable only if and when earned. This partnership is a personal service partnership operating without assets or capital. All equipment, furniture, fixtures, premiums in course of collection, cash, and investments are the property of the insurance carrier. The very desks and pencils, etc., which we use are all the property of the insurance carrier.

The partnership of T. H. Mastin & Co. at this time, consists of four active partners, age 82, 67, 41, and 37, respectively. It will be noted that these partners fall in two age groups. My partner Henry Burr is 41. I am 37. Of our senior

partners, the youngest is 67. Payments to several designees of 3 deceased partners and to two retired partners are being made at the present time under the provisions of our partnership contract. It is my understanding, and I am informed by our counsel, that section 736 as it is now written provides that in the case of certain types of partnerships, any payments to retired partners or designees of deceased partners, made within 5 years after date of retirement or death are in effect to be treated as a distribution of profits and the income tax would be paid by the recipient in each case at ordinary rates. Any payments made to the retired partners or designees of a deceased partner after 5 years would not be treated as a distribution of profits and the active partners would pay income tax at ordinary rates on the entire profits of the partnership.

It may be seen in the case of T. H. Mastin & Co. that in the normal course of events the two youngest partners, of which I am one, will be the only surviving active partners of the firm. Due to the present repective interests of the partners, approximately 65 percent of the profits will, by contract, be distributed to retired partners and designees of the deceased partners after the death or retirement of the two oldest partners. This situation, of course, would be an impossible one for the two remaining active partners if section 736 in its present form were to become law. When the 5 years had elapsed after the death or retirement of the present oldest active partners, the two youngest partners would be in a position of paying income tax on 100 percent of the profits and making distribution to the retired partners and designees of deceased partners, according to contract, from what remained after taxes. Based upon our recent experience, assuming the two youngest partners to be the surviving active partners, after paying taxes on 100 percent of the profits and making distributions to various retired partners and designees of deceased partners, according to contract, not only would we have nothing remaining for our services, but it would be necessary to go into debt to meet the contractual obligations to designees and others. If we were receiving something in return-inventory, machinery, and equipment, valuable assets of any kind, there would at least be the justification of paying taxes on a capital investment. However, there is nothing which we can buy or nothing the retired or deceased partners can sell So, it might be seen that the present provision of section 736 means a hardship to the degree that it would put us out of business. Even under present conditions, the situation would be next to impossible. Thirty-three percent of the profits of the firm are being paid to retired partners and deceased partners' designees. If the present active partners were to pay income tax on 100 percent of the profits and make distributions according to contract, there would be little remaining for our services. It is impossible to change these existing agreements. There are a number of designees, many of whom I do not know. Naturally, neither they, nor the retired partners would be willing to forego the money that they know legally belongs to them. It is my understanding that there are many other personal service partnerships in a similar position—those comprising lawyers, accountants, consulting engineers and others of a like nature. Many of these organizations must be worried about this provision as it would undoubtedly ruin them financially. If they are not worried they do not understand what may happen to them.

us.

I wish to make this perfectly clear: I am not suggesting for a minute that the payment on account of deceased or retired partners should not be subject to a tax at ordinary rates. What I am suggesting is that the tax be paid by the person who gets the money, and not by the succeeding partners who make it and pay it to the designees and retired partners. As the law is written, it apparently imposes a tax on one taxpayer with respect to income of another. It is evident from the report of the Ways and Means Committee that the House committee did not intend section 736 to apply to a personal service partnership having no capital and owning no assets. Nobody is shooting at a partnership like ours, yet we are being hit. Our position is that income taxes should be paid, not by the remaining partners on moneys which, under the partnership contract, they do not own and never have owned, but should be paid by the people who get this money.

We respectfully request this committee to clarify section 736 to the end that in the case of personal service partnerships, with no capital and no assets, payments of future, unearned, contingent profits to retired partners and designees of deceased partners will be taxed at ordinary rates to the recipients as has been the case for many years. Otherwise, it would be impossible for our firm, which was organized in 1907, to continue business.