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if section 309 of the Internal Revenue Code of 1954 were enacted in the form in which it is set forth in H. R. 8300. That seetion would require our company to pay an 85 percent tax on sinking fund purchases and redemptions in the normal operation of our business with respect to our $41,600,000 of preferred stock, which has been outstanding since 1929.

Our company is a publicly held company with 2,266,838 shares of common stock listed on the Midwest Stock Exchange and owned by some 8,100 shareholders, and $41,600,000 of preferred stock which is actively traded over the counter and is held by some 2,500 shareholders.

In 1929 the Cleveland-Cliffs Iron Co., operating one of the largest iron ore mining businesses in the United States, issued 500,000 shares of preferred stock (redeemable at $102.50 per sbare) as a distribution to its stockholders, who then numbered about 300. This was a preliminary step in the setting up of the Cliffs Corp. which was being organized by a group of Cleveland industrialists to acquire stock in a number of steel and iron-ore companies. After the issuance by the Cleveland-Cliffs Iron Co. of the preferred stock, the common stock was transferred to the Cliffs Corp. for part of its common stock, and control of the company passed to the Cliffs Corp.

In 1947 the Cleveland-Cliffs Iron Co. and the Cliffs Corp. were consolidated into the present corporation, under the name of the Cleveland-Cliffs Iron Co. The holders of 455,237 shares then remaining outstanding of the preferred stock received $45,523,700 par amount of new preferred stock together with 455,237 shares of common stock, and the holders of common stock of the Cliffs Corp. received 1,811,601 shares of common stock. Since that date the outstanding preferred stock has been reduced as a result of purchases by the company to $41,684,000.

Only about $10,500,000 of the preferred stock distributed in 1929 is still held by the holders, who received it, or their families. Less than one-fourth of the total preferred stock now outstanding is held by holders in any way related to the original holders. The balance is held by some 2,000 stockholders, most of whom own little or no common stock.

In the normal operation of our business our company would expect to purchase from time to time some of this preferred stock for retirement and the sinking fund provisions of the stock, effective beginning in the year 1956, require us to do so. As we understand the provisions of H. R. 8300, section 309 would require us to pay a tax of 85 percent upon all amounts used for such purposes (except in those cases, if there should be any, where the holder of the purchased preferred stock owned 1 percent or more of our common stock). This would be true even where we had to make the purchases in order to avoid default under the legal requirements of the preferred stock.

We believe the application of this penalty tax with respect to our normal business transactions relating to this stock which has been outstanding for 25 years could hardly have been intended, and we urge the appropriate changes be made in H. R. 8300 to avoid that inequitable result. Respectfully yours,

H. S. HARRISON, Vice President.

BOSTON BAR ASSOCIATION,

Boston, April 16, 1954. Hon. EUGENE D. MILLIKIN, Chairman, Senate Finance Committee,

Senate Office Building, Washington, D. C. DEAR SENATOR MILLIKIN: At a meeting of the committee on Federal taxation of the Boston Bar Association held on April 13, 1954, the attention of the committee was directed to a recommendation submitted by George B. Lourie, Esq., relative to amendment of the provisions presently contained in section 461 (c) (2) of H. R. 8300 which is presently being considered by the Senate Finance Committee.

Section 461 provides for a change in the method of taking deductions for Federal income-tax purposes on account of local real-estate taxes. It provides that in the future, such taxes shall be deducted ratably over the period for which they are assessed, instead of being deducted in their entirety upon the assessment date. Section 461 (c) (2) as presently written provides that in the period of changeover from the old to the new system, no such real-estate taxes may be deducted if they had been deducted on a previous return. It was pointed out that this rule will work a substantial practical hardship upon all fiscal year taxpayers owning real estate in Massachusetts and in other States similarly situated in relation to the date of local tax assessment.

To prevent this substantial practical hardship, Mr. Lourie recommends that instead of denying a property tax deduction in the changeover period to the ex. tent that the tax was allowable as a deduction for a prior year under the 1939 code, the deduction should be allowed in full, but the basis of the property against which the taxes are assessed should be reduced to the extent of what would otherwise constitute a double deduction.

After a full consideration of this recommendation, the committee unanimously voted to endorse the same and to communicate such endorsement to the chief of staff of the Joint Committee on Internal Revenue Taxation, to the chairman of the Senate Finance Committee, which is presently considering H. R. 8300 and to the Senators from Massachusetts who will consider the bill after it is reported by the committee.

This communication is forwarded to you in accordance with the abovedescribed vote of the Committee on Federal taxation. Very truly yours,

WILLIAM A. PARKA.

BOSTON BAR ASSOCIATION,

Boston 8, Mass., April 16, 1954. Hon. EUGENE D. MILLIKIN, Chairman, Senate Finance Committee,

Senate Office Building, Washintgon, D. C. DEAR SENATOR MILLIKIN: The Committee on Federal Taxation of the Boston Bar Association does herewith submit a proposed amendment to the provisions now contained in section 212 (3) of H. R. 8300 which is presently being considered by the Senate Finance Committee.

Section 212 (3) provides for the deduction by an individual of all ordinary and necessary expenses paid or incurred “in connection with the determination, collection, or refund of any tax.” The report of the House committee accompanying H. R. 8300 discloses that the provisions of this section, although in some aspects broader than the present law, may be construed to be limited to cases of contested tax liability. This would in some instances deprive taxpayers of rights to deductions available under existing law. The committee believes that this provision should be broadened so as to include expenses incurred in connection with estate planning and similar situations where advice is given and service is rendered with regard to uncontested or future tax liabilities. To bring about this change, the committee believes that a provision substantially similar to the following should be substituted for the present section 212 (3):

“(3) In connection with the ascertainment or determination by such individual of future or current liability for any tax, or in connection with the determination, collection, or refund of any tax.”

After full consideration, the committee unanimously voted to endorse the above amendment and to communicate such endorsement to the chief of staff of the Joint Committee on Internal Revenue Taxation, to the chairman of the Senate Finance Committee, which is presently considering H. R. 8300, and to other interested parties.

This communication is forwarded to you in connection with the above described vote of the Committee on Federal Taxation. Very truly yours,

WILLIAM A. PARKS.

SERENE, KOSTER & BARBOUR,
CERTIFIED PUBLIC ACCOUNTANTS,

Los Angeles, April 16, 1954.
Hon. EUGENE D. MILLIKIN,
Senate Office Building,

Washington, D. O. Dear Senator MILLIKIN: We have a number of clients who are confronted with unnecessary litigation and fear of litigation because of a difference of opinion between the Internal Revenue Service and the courts with regard to the interpretation of the phrasing in connection with alimony and separate maintenance payments “under a written instrument incident to such divorce or separation.”

In the recent decision of the tax court Raoul Walsh v. Commissioner Docket 32317, March 31, 1954, 21 Tax Court, No. 120 Opinion by Judge Black, the Tax Court has definitely stated its opinion that contracts made subsequent to divorce are contracts which are "incident to such divorce or separation." The Internal Revenue Service in the past has refused to accept this interpretation and probably will continue to refuse to follow the Tax Court decision. It is believed that a simple clarification in the code would solve this problem without unnecessary further litigation.

We received a letter from one of our clients who is concerned with this problem which we feel gives a very good picture of the problem and we are, therefore, passing it on to you with the hope that something can be done about it in the proposed Revenue Code of 1954.

The following is a copy of this letter:

"Has it ever occurred to you that there are many divorced women in this country today trying to eke out an existence based on alimony payments established prior to inflation or during the depression, which payments are now entirely inadequate? That in many of these cases ex-husands recognize the depreciated buying power of today's dollar, and would in fairness increase the amount of the original alimony commensurate with today's prices. This realistic approach, however, is prevented and deterred for the reason that such increases his alimony would not be deductible unless the entire divorce proceedings be rehashed in court, which most people refrain from doing.

“My suggestion is simply this; that existing contracts providing for alimony payments be subject to amendment without the requirement of court action. Section 71 (a) (1) of the proposed tax bill may provide for this but clarification is necessary. I suggest that the words “and subsequent amendments” be added.

“It is an obvious injustice to make it impossible for divorced wives to keep pace with the present day cost-of-living, and for fair-minded husbands to be prevented from doing the so-called right thing by this oversight in the law. It is unthinkable that the law should provide as the only alternative an open court procedure with all of the attendant publicity, bringing to light skeletons long since closeted and reopening wounds long since healed. When children are involved, the justice is compounded.”

We sincerely trust that you will be able to correct this legislation to take care of this problem. Very truly yours,

SERENE, KOSTER & BARBOUR.

By J. E. RAWLINSON. (Whereupon, at 1:10 p. m., the committee recessed, to reconvene at 10 a. m., Wednesday, April 21, 1954.)

THE INTERNAL REVENUE CODE OF 1954

WEDNESDAY, APRIL 21, 1954

UNITED STATES SENATE,
COMMITTEE ON FINANCE,

Washington, D. C. The committee met, pursuant to recess, in room 312, Senate Office Building, at 10:05 a. m., Senator Frank Carlson presiding.

Present: Senators Millikin, Martin, Flanders, Carlson and Byrd. Senator CARLSON. The committee will please come to order.

I have a letter this morning addressed to Senator George, stating that we have with us this morning the director of training of the international program in taxation at the Harvard Law School, Mr. Herrick K. Lidstone. And I understand that he has some tax people here with him this morning.

Mr. Lidstone, are you in the audience? We are very happy to have you here, and I would be happy if you would just introduce some of the folks that are with you here this morning for the record.

Mr. LIDSTONE. I would like to introduce Abdel Moneim Abd Rabbo, Inspector of Taxes, Department of Taxation, Egypt; Massud Azam Zanghenah, Commissioner of Taxation of Iran; Mr. Miguel Amat, Chief Auditor, Tax Section of Panama; Alban Lataste, Economic Adviser to the Minister of Finance, Chile; and Sylvain Plasschaert, of Belgium.

The international program is designed to do two things: We went to do a little investigation of the problems in taxation, both United States taxation in foreign business, and foreign taxation, and to conduct a training program for tax revision.

These gentlemen are here as a result of our first year's work.

Senator CARLSON. Mr. Lidstone and gentlemen, we appreciate your presence at the committee this morning, and I assume they have tax problems in other countries besides the United States.

The first witness this morning is Mr. Henry P. Isham of the Clearing Industrial District, Inc.

While Mr. Isham is coming up, for the record I would like to submit to Mr. Stam a proposed change in section 172, in regard to the carryover of losses to reflect the carryback date from the date that is in the present bill, December 31, 1953, to October 31, 1953. I am submitting to Mr. Stam a statement on that.

Mr. İsham, we are very happy to have you present this morning, and you may proceed in any way you care to.

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