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timber is considered to be a sale or exchange of such timber under section 631 (a), no deduction shall be allowed on account of certain expenses of the taxpayer incurred in connection with the holding and quantity measurement of the timber cut * * * It is intended that only that portion of such expenses allocable to the timber cut will be disallowed as a deduction."

The effect of the foregoing is to reduce the capital gain arising under section 631 (a) from the cutting of timber and to increase the amount taxable as ordinary income by the amount of the disallowed expenses.

We believe that this is undesirable for the following reasons :

(1) Capital gain from the cutting of timber was first enacted as a relief measure under section 117 (k) (1). The proposals under new sections 631 (a) and 272 would drastically reduce the amount of such relief at a time when the industry is hard put to keep afloat in a period of declining prices and still increasing costs, and

(2) The enactment of these provisions will create complicated burdensome problems expense allocation and materially widen the area of possible disagreement as between Treasury Department officials and taxpayers, thereby resulting in further unnecessary litigation.

We thank you for the privilege of writing you in this manner and ask only your consideration of this proposed change in the law. Yours very truly,

W. H. RATHERT, General Manager.

PENINSULA PLYWOOD CORP.,

Port Angeles, Wash., April 6, 1954. Hon. WARREN A. MAGNUSON, United States Senate,

Washington, D. O. MY DEAR SENATOR : We have made a concentrated study of certain features of H. R. 8300, as recently passed by the House of Representatives and now being considered by the Senate Finance Committee. We are particularly concerned as to the manner in which this bill might cause revision of section 117 (k) of the Internal Revenue Code.

We believe that section 117 (k) of the present code was intended to relieve forest owners of discriminatory and inequitable taxation and to serve as an incentive for conserving, protecting, and assuring future timber resources; that acting in good faith upon its representations to Congress in 1943, and in reliance upon the benefits of section 117 (k), as now provided, private forestry has made great progress; and that the language of sections 631 and 272 of H. R. 8300 would create new discriminations and inequities that would impede or retard the progress that has been made under section 117 (k).

We respectfully request that you make careful study of this proposed legislation with particular consideration as to its effect on the timber industry in the West.

We trust that you will use your fullest influence to urge the Senate Committee on Finance to amend section 631 of H. R. 8300, as passed by the House, by restoring the language of section 117 (k) of the present code insofar as timber is concerned, and to strike out the references to timber in section 272. This may necessitate dividing subsection (b) of section 631 into two subparagraphs which would treat timber and coal separately. Sincerely yours,

C. J. HOPKINS, Manager, Timber Department.

ENAR ERICKSON,

General Manager.

TUCSON TITLE INSURANCE Co.,

Tucson, Ariz., April 14, 1954. Re H. R. 8300. Senator CARL HAYDEN, Senate Office Building,

Washington, D. O. DEAR SENATOR HAYDEN: I am enclosing herewith a copy of correspondence and opinion written by Mr. Joseph D. Peeler on behalf of the California Land Title Association. This trade association represents 15 California title insurance companies as well as 3 Arizona title insurance companies, namely, Phoenix Title & Trust Co., Phoenix; Arizona Title Guarantee & Trust Co., Phoenix; and Tucson Title Insurance Co., Tucson.

The opinion enclosed clearly states our position relative to certain phases of H. R. 8300.

We sincerely feel that including title insurance companies along with other insurance companies is unsound, illogical, and discriminating.

It appears to me, after having studied the opinion and the law that is attempted to be made, that there was clearly an oversight on the part of the proponents based upon their failure to recognize the type of business that title insurance is.

As usual, we feel that we can count upon you for a correction of this erroneous inclusion. With kindest personal regards, I am, Yours very truly,

J. B. O'DOWD.

MUSICK, PEELER & GARRETT,

Los Angeles, April 7, 1954. Re H. R. 8300. Mr. COLIN F. STAM, Chief of Staff, Joint Committee on Internal Revenue Taxation,

1011 House Office Building, Washington, D. C. DEAR MR. STAM: Enclosed herewith for your consideration and for presentation to the Senate Finance Committee is a memorandum suggesting amendments to sections 34 (c) (1) and 246 (a) (1) of the proposed Internal Revenue Code of 1954, together with a statement of the reasons why such amendments should be made. It is believed that the sections now proposed are defective from a technical standpoint and cover corporations not intended to be covered.

This presentation is made on behalf of the California Land Title Association, a trade association representing 15 California title insurance companies. Respectfully,

JOSEPH D. PEELER.

MEMORANDUM RE PROPOSED AMENDMENTS TO SECTIONS 34 (c) (1) AND 246 (A)

(1), H. R. 8300, RELATIVE TO DIVIDENDS PAID ON STOCK OF CALIFORNIA TITLE INSURANCE COMPANIES

I. PROPOSED AMENDMENTS

It is submitted that the following provisions should be substituted for the provisions proposed under H. R. 8300 for the following subsections : "SECTION 34. DIVIDENDS RECEIVED BY INDIVIDUALS.

"(c) No CREDIT ALLOWED FOR DIVIDENDS FROM CERTAIN CORPORATIONS. Subsection (a) shall not apply to any dividend from

“(1) an insurance company subject to a tax imposed by subchapter L (sec. 801 and following), unless (a) its tax is computed as provided in section 11, and (6) its net income as computed under subchapter L is not substantially different from its net income as computed without reference to subchapter L." "SECTION 246. RULES APPLYING TO DEDUCTIONS FOR DIVIDENDS

RECEIVED. “(a) DEDUCTION NOT ALLOWED FOR DIVIDENDS FROM CERTAIN CORPORATIONS. The deductions allowed by sections 243, 244, and 245 shall not apply to any dividend from

"(1) an insurance company subject to a tax imposed by subchapter L (sec. 801 and following), unless (a) its tax is computed as provided in section 11, and (6) its net income as computed under subchapter L is not substantially different from its net income as computed without reference to subchapter L."

II. REASONS FOR THE PROPOSED AMENDMENTS

(a) Purpose of provisions

As explained in the House committee report the general purpose of section 34 is to afford some relief from the double taxation of corporatio ndividends. The

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purpose of subsection (a) of section 34 is explained on page 6 of the report as follows:

“The relief offered by the dividend-received credit is limited to situations in which double taxation actually occurs. Accordingly, the dividend-received credit is not allowed with respect to dividends paid by foreign corporations or taxexempt domestic corporations. Thus, it does not apply to dividends of exempt farm cooperatives or to distributions which have been allowed as a deduction (in effect treated as interest) to mutual savings bank, cooperative, bank, or building and loan association. Moreover, the dividend-received credit is not available to nonresident alien individuals not subject to the regular individual income tax."

Section 34 contains provisions not in the present law, allowing to individual stockholders a dividends-received credit for part of the dividends received from corporations subject to the regular tax rates. Sections 243, 244, and 245 contain provisions, similar to those in section 26 (b) of the present law, allowing to corporate stockholders deductions for a portion of the dividends on stock received from corporations subject to the regular tax rates.

Undoubtedly, it was for the purpose stated in the above quotation that the Hɔuse committee inserted in section 34 (c) (1) and in section 246 (a) (1) the limitation regarding "an insurance company subject to a tax imposed by subchapter L (sec. 801 and following) ;"

As will be shown clearly below, however, the language used is too broad in its operation and will include insurance companies which are subject to the incometax and surtax rates applicable to corporations in general and whose dividends presently are subject to double taxation. (6) Taxation of insurance companies

Subchapter L of chapter 1 contains the provisions for taxation of insurance companies, under four separate parts, as follows:

Part I covers life insurance companies and in general continues for 1 year the present provisions of the law.

Part II covers mutual insurance companies (other than life or marine or fire insurance companies issuing perpetual policies) and in general continues the present provisions of the law.

Part III covers other insurance companies and in general continues the present provisions of the law.

Part IV covers provisions of general application and in general continues the present provisions of the law.

Under the present law and under the House bill, insurance companies which are covered by parts I and II, in general life insurance and mutual companies, are not subject to the regular corporation income-tax rates. On the other hand, section 831 of the House bill provides as to "other companies” covered by part III as follows:

“(a) IMPOSITION OF Tax. Taxes computed as provided in section 11 shall be imposed for each taxable year on the taxable income of every insurance company (other than a life or mutual insurance company), every mutual marine insurance company, and every mutual fire insurance company exclusively issuing either perpetual policies or policies for which the sole premium charged is a single deposit which (except for such deduction or underwriting costs as may be provided) is refundable on cancellation or expiration of the policy."

Section 11 covers the tax imposed on “corporations in general." Accordingly, insurance companies covered by part III pay the regular corporation tax rates. (c) Title insurance companies

These companies are covered by part III and pay the regular corporation tax rates. Section 832 provides, as does the present law, that the gross income of such companies shall include (A) the gross amount earned during the year from investment income and from underwriting income, (B) gain during the year from the sale or other disposition of property, and (C) all other items constituting gross income under subchapter B. Deductions are allowed for losses incurred, expenses incurred, and other deductions comparable to the deductions allowed to ordinary corporations.

By reason of the nature of their business, title insurance companies in the State of California operate in the same manner as corporations in general. They maintain extensive title records and before a title policy is issued a careful search of the record is made. A single premium is charged for the policy and the entire amount immediately constitutes taxable income. A title policy is not renewable at stated intervals, like most insurance policies, but continues in

force indefinitely. Accordingly, there is no problem of “unearned premiums."

Because of the extensive research in connection with each title policy, the largest item of expense is labor, in common with corporations in general. As a result of this and efficient title practices, losses rarely exceed 2 percent of annual premiums and thus do not present any unusual accounting problems. California title insurance companies do not use reserves in determining loss deductions for the purpose of computing net income. A loss deduction is determined on each separate situation in the light of the particular facts, and is taken only when the amount is definitely ascertained.

Accordingly, the net income of a California title insurance company, as computed under section 832 of the House bill (which is substantially the same as section 204 of the present Internal Revenue Code), would be the same if its income were determined under other provisions of the law applicable to corporations in general.

California title insurance companies do not receive any special tax benefits or favored treatment; their income tax burden is fully as heavy as that of corporations in general. They do not receive any special benefits such as, for example, percentage depletion deductions afforded to natural resource companies.

Any fair-minded survey of the facts will disclose clearly that title insurance companies in the State of California bear their full share of the Federal income tax burden. They definitely present a situation “in which double taxation actually occurs" and there is no sound basis in logic or equity for discriminating against them, as the House bill does. (D) Title insurance & trust co.

The California Land Title Association, on whose behalf this memorandum is filed, is a trade association with membership including 15 California title insurance companies. To illustrate the impact of this legislation on the title industry in California, it will be helpful to examine in some detail its effect on one company, the Title Insurance & Trust Co. of Los Angeles. This company is the largest title insurer in California, but it differs from the other companies chiefly in its size, and it may be regarded as representative. Title Insurance & Trust Co. is a California corporation, located at 433 South Spring Street, Los Angeles 13, Calif. Its activities include a title insurance business in southern California, a trust and escrow business, and the ownership and operation of a large office building in Los Angeles. The principal source of revenue is derived from its title insurance business. In addition, it owns stock of other corporations, some of which are engaged solely in the title insurance business and from which it receives substantial dividends. Accordingly, it is vitally concerned with the provisions of the House bill here considered, both as a corporate stockholder of title insurance companies and on behalf of its many stockholders to whom it pays regular dividends.

A review of this company's Federal income tax returns for recent years discloses clearly that its income tax burden would have been substantially the same if its taxable net income had been determined under the provisions of the law relating to "corporations in general” instead of the provisions of section 204 of the present code relating to other insurance.companies. Since, as stated on on page A240 of the committee report, the provisions of section 832 of the House bill "correspond without change of substance" to the present provisions of the law, there is every reason to assume that in the future its tax burden under the proposed new law would not be reduced by treatment as an insurance company.

Accordingly, if no change is made in the provisions here in question, this company will continue to be subject to double taxation in the same manner as corporations in general, without any relief whatever to its stockholders. We respectfully submit that this treatment would be grossly inequitable and discriminatory and, we believe, would be contrary to the real intention of the legislators.

In this connection, it should be noted that under the present law this company is allowed a dividends-received deduction for dividends received from its title insurance subsidiaries while under the proposed House bill it would be allowed no deduction. Accordingly, the House bill not only would deny the new dividends-received credit to its shareholders, but would add a very great tax burden on the company itself which is not imposed by the present law.

This is not a situation in which a taxpayer is afforded tax relief by electing to be taxed as an insurance company. Under the House bill, as well as under the present law, it has no choice but must compute its net income under subchapter L as an insurance company, even though it obtains no tax benefit from such treatment.

As an alternative, in the event that the provisions here in question are not changed so as to remove this discrimination, title insurance companies, including this company, should be permitted to elect whether to be taxed under the provisions of subchapter L (with the corresponding burdens relative to dividends received from other title insurance companies and relative to dividends paid to its shareholders) or whether to be taxed under the general provisions relating to corporations in general. Without the right to make such an election, a title insurance company is forced to file its returns in a manner which affords it no tax benefits or relief, while at the same time subjecting it and its stockholders to tax burdens which do not apply to corporations in general.

CONCLUSION

It is respectfully submitted that the provisions of sections 34 (c) (1) and 246 (a) (1) of House bill 8300 would result in unjust discrimination as to California title insurance companies and should be amended. It is believed that their inclusion in the exceptions was due to a misunderstanding or to an oversight. Respectfully,

JOSEPH D. PEELER.

FIRST NATIONAL BANK OF NEVADA,

Reno, Nev., April 10, 1954. Hon. GEORGE W. MALONE,

United States Senate, Washington, D. C. DEAR SENATOR MALONE: There is now being considered by the Senate Finance Committee tax legislation (H. R. 8300), pertaining to employees' pension plans. This legislation will restrict all investments to not more than 5 percent of the total assets held under a pension trust.

You can readily appreciate that many pension trust plans are now being administered by smaller institutions, and some of these will not exceed $100,000 in total value. We feel that such legislation will impose an unreasonable restraint on the trust, inasmuch as no piece of real estate or mortgage loan, for example, on a $100,000 trust, could be acquired in excess of $5,000, in view of the proposed limitations under the pending legislation. This, we feel, is undesirable, as it may be possible to secure attractive, well-secured loans or real estate that would be a desirable investment under the present proposed legislation.

Unless you feel the pending legislation desirable, your support in the modification of the act to provide that smaller pension funds may make larger real estate investments or mortgage loans would be appreciated. Kind regards. Sincerely,

E. J. QUESTA, President.

RENO, NEV. GEORGE W. MALONE,

United States Senate, Washington, D.O.: Have been requested by Mr. Frank Belgrano, president Transamerican Corp. Call your attention certain provisions in tax bill H. R. 8300 now under consideration in Senate Finance Committee which changes existing law. If enacted would result in serious financial loss to corporation. These changes relate (1) to the taxability of dividends received by corporate stockholders from insurance companies; and, (2) to the gain or loss and basis provisions in the case of corporate liquidations. Both of the above would, if enacted in their present form, cause considerable loss to Transamerica Corp., and believe other corporations as well. I would appreciate anything you may do.

E. J. QUESTA, President, First National Bank of Nevada.

THE CLEVELAND-CLIFFS IRON Co.,

Cleveland, Ohio, April 16, 1954. Senator EUGENE D. MILLIKIN, Senate Finance Committee, United States Senate,

Washington 25, D. C. DEAR SIR: We wish to call to your attention an extreme, and we believe, highly inequitable, penalty which would be imposed upon the Cleveland-Cliffs Iron Co.

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