proportion which the net income for the short period bears to the net income for the 12-month period). Let us assume that the individual taxpayer described above continues as a partner and has no other income than that derived from the partnership. His income will, therefore, remain at $15,000 for the 12-month period January 1, 1957 to December 31, 1957, since the next partnership distribution date will be January 31, 1958. At the end of 1958, he may then compute his tax on the basis of $15,000, which will amount to $3,620, and obtain a refund of $6,150. The difficulty with the relief provisions of section 442 (b) (2) is that one needs to have the cash to finance the change of taxable year. It seems strange indeed that the practical availability of a provision of this kind should be dependent upon the financial condition of the taxpayer. I do not believe that such a situation fits into the basic philosophy upon which our tax laws are predicated. The argument may be made that the individual in the situation described had a year free of tax when he was originally made a partner. The fact is, however, that he merely postponed his liability to tax; he was not relieved of a year's taxes. Eventually these taxes have to be paid, and, as the law stands now, at higher surtax rates. I suspect that, in enacting section 443 (b) (and its predecessor section 47 (c) of the 1939 code), Congress never considered the impact of annualization on an individual who derived his principal income from a partnership. In all probability Congress had in mind the situation of an individual who received his taxable income fairly ratably over the year and inserted section 443 (b) to cover situations where occasionally a slight variation might arise. The inequitable situation which I have described can, I believe, be taken care of by the addition of a subsection (3) to section 443 (b) reading as follows: “(3) Rule in case of partnership income.—If the gross income of the taxpayer for the short period includes the taxpayer's share of the net income of a partnership for a taxable year ending within the short period, then the following rules shall apply in computing the tax as provided in subsection (1): "(A) the taxpayer's share of the net income of such partnership shall be excluded and the tax shall be computed as provided in subsection (1); "(B) the tax shall be computed on the taxable income for the short period, including the taxpayer's share of the net income of such partnership, but without placing such income on an annual basis as provided in subsection (1); "(C) the tax shall be computed on the taxable income for the short period, excluding the taxpayer's share of the net income of such partnership, but without placing such income on an annual basis as provided in subsection (1); "(D) the final tax shall be the tax as computed under subparagraph (A) plus the tax as computed in subparagraph (B) minus the tax as computed in subparagraph (C).” If the above amendment is applied to a sample situation, its operative effect will be clearer. Assume an individual on a calendar year basis is a member of a partnership having a fiscal year ending January 31. He decides to change to a January 31 fiscal year. As a result he is required to file a return for the short period; namely, January 1 to January 31, 1957, and to annualize. Let us further assume that the individual has $1,000 of interest income and $15,000 of distributable income from the partnership for its fiscal year ending January 31, 1957, and that all deductions and exemptions are ignored except for the fact that the taxpayer as a married man is entitled to split his income. If there were no annualization, the taxable income would be $16,000, and the tax payable would be $3,920. Applying my suggested amendment, the tax would be computed as follows: (A) Income $1,000. Annualized $12,000. Tax on $12,000—$2,720. Tax payable (1/12th)—$226.67. (B) Income $16,000. Tax payable-$3,920. (C) Income $1,000. Tax payable-$200. (D) Final tax-$226.67 plus $3,920 minus $200, or $3.946.67. I respectfully urge that consideration be given to the problem I have described and that a provision along the lines above suggested be inserted in the amendments to the Internal Revenue Code to be proposed at this session of Congress. I shall, of course, be pleased at any time to furnish additional information and discuss the matter with you or the staff of your committee. Sincerely, THEODORE TANNENWALD, JR. (Thereupon, at 12:30 p. m., the committee adjourned, to reconvene at 10 a. m., Thursday, February 6, 1958.) GENERAL REVENUE REVISION (Mutual Fire and Casualty Insurance Companies; and Miscellaneous Subjects) THURSDAY, FEBRUARY 6, 1958 HOUSE OF REPRESENTATIVES, The committee met at 10 a. m., pursuant to recess, in the Committee Room, New House Office Building, Hon. Wilbur D. Mills (chairman), presiding. The CHAIRMAN. The committee will please come to order. Our first witness this morning is our colleague from Louisiana, whom we all know and respect. For the purpose of this record, would you please give us your name, address, and the capacity in which you appear. Mr. BROOKS. Thank you, Mr. Chairman. STATEMENT OF HON. OVERTON BROOKS, A CONGRESSMAN FROM LOUISIANA Mr. BROOKS. I am Overton Brooks from Shreveport, La., representing the Fourth Congressional District in the United States Congress. Mr. Chairman and gentlemen of the committee: This is the first opportunity I have had to appear here since the elevation of my colleague, Mr. Mills, to the chairmanship of this extremely important committee. I have been talking to the members of the committee, and I know how heavy is your work. Those of us who are in Congress and who know what the problem is, of keeping abreast of not only your office but your committee assignments, know what a terrific job the new chairman has and what a heavy job the members of the committee have. I am not going to take any unusual amount of time this morning. I am going to finish, in fact, as quickly as I can. I have a typewritten statement which I would like, with the committee's consent, to file in the record. The CHAIRMAN. Without objection, the typewritten statement may be made a part of the record. Mr. BROOKS. Then I would like to explain briefly the case. I think I can save the committee's time by using an ad lib approach, rather than following my written statement. (The statement referred to is as follows:) STATEMENT OF CONGRESSMAN Overton BROOKS ON H. R. 6076 Mr. Chairman, I come here today to strongly urge your committee's attention to and consideration of the bill I introduced in the 1st session of the 85th Congress-H. R. 6076. This bill would amend the Internal Revenue Code of 1954 to increase the maximum amount of the deduction for medical expenses and for other purposes. The measure to which I ask your committee to give most careful consideration would amend section 213 of the Internal Revenue Code relating to the deduction from the gross income of the taxpayer medical, dental, hospital, and other expenses incurred due to prolonged and aggravated periods of illness of the taxpayer or dependents of the taxpayer. H. R. 6076 would increase the deduction allowed for such expenses to a maximum of $15,000 for each dependent or person claimed by the taxpayer as an exemption for the taxable year. Under the present limitations of section 213 of the Internal Revenue Code of 1954 only those expenses which exceed 3 percent of the adjusted gross income of the taxpayer up to $2,500 per exemption or dependent or an aggregate of $10,000 may be taken by the taxpayer as an itemized deduction on his tax return. Due to numerous cases which have come to light since this section became operative it is felt that an amendment to the law should be made so as to allow relief to those individuals and families who have cases of severe and prolonged illnesses. This amendment would apply only with respect to expenses paid in taxable years after December 31, 1956. The legislation I propose would also allow a 5-year carryover for medical and hospital expenses which are in excess of the maximum limitation. This feature is needed as there are cases where the total medical expenses for one individual in a family exceeds the maximum which would be established for any one year. In these cases it is felt that by allowing a carryover for not longer than 5 years the medical expenses incurred can be appropriately listed as an itemized deductible and thus still maintain a ceiling on the maximum medical deductible for any one year. Under the provisions of this measure, Mr. Chairman, greatly needed relief will be given in those cases where sickness due to cancer, tuberculosis, strokes from thrombosis, cerebral hemorrhage, paralysis, and numerous other illnesses has caused lengthy and costly medical care both in the hospital and at home. We feel that legislation of this type is reasonable, fair, and equitable and definitely is a step in the right direction to preserve the taxpayer. In introducing this bill, I did not contemplate a sweeping change of the tax laws nor is your consideration of this bill intended to bring such a sweeping change about. My intention is only to provide some relief in certain hardship cases and to amend the law to provide for proper remedies in these cases. I believe that H. R. 6076 will adequately correct these inequities now being perpetrated upon our people by the administration of section 213 of the Revenue Code. I have very definite opinions as to other phases of the income-tax structure which I feel should be looked into by your committee, Mr. Chairman, but I am not here today to discuss these opinions-only in support of H. R. 6076. In many instances these large medical expenses fall upon the taxpayers who are in the later years of life and have saved over the years for retirement. Many have denied themselves to provide for this period when they are not able to actively carry on their normal occupation, and they are required to live on funds and resources they have reserved for this period. The law as now written allows the Internal Revenue Service to reach out and cut deep into their reserve funds. These individuals have to pay taxes on funds which have been reasonably spent for medical care and attention. This, we feel, is not just, equitable, nor the intention of a considerate Congress. I know of a number of very distressing cases throughout Louisiana and the country caused by heavy medical bills and the necessity of paying an income tax on these medical bills of sick and hospitalized persons. The result of the limitations imposed by the present ruling is that persons besieged by the misfortune of failing health or that of a member of the family dependent upon them have already been drained of their reserve assets before taxpaying time. This works a decided hardship upon them. Mr. Chairman, I know of and fully understand the need of revenues necessary to the proper function of our Government. I know also that this matter of taxes is very pressing upon this committee. At the same time, the Members of Congress must realize the severe hardships and financial distress vented upon the taxpayer who is suffering from extremely heavy medical bills. The law as it now operates saps the accumulation of assets of our sick and infirmed people. In many instances the taxes are imposed on funds which had to be expended in order to keep the taxpayer or his dependents well and able to work and earn. Without this expenditure the taxpayer often may die and cease to be a support for our Government in the normal payment of income tax. The assets of these people have been depleted by the need for long, expensive and tedious nursing; long periods of hospital care; expensive physical therapy; and continually mounting doctor bills. These people need our assistance. We have a duty to these citizens also. This bill would give them this needed assistance. My amendment to the present law would adequately preserve the accumulation of assets of our infirmed citizens who now must pay income tax upon money which is expended on medical expenses. Mr. Chairman, there appears to be much discussion that any tax cuts made this year will be for political purposes. I want to say that this bill is in no way political. It is a humanitarian bill. This bill is designed to help those unusual cases, or the out of the ordinary cases, caused by extreme or aggravated expenditures for medical reasons. It is true that these cases are few in number, but the hardship suffered by the taxpayer in such cases is terrific. It is for his relief that this measure was introduced and for which I ask the committee's support. If this amendment is adopted, the cost to the Government in dollars and cents will be negligible due to the limited number of cases which would come under this amendment. Yet, Mr. Chairman, there are enough such cases to warrant and justify this change in section 213. The law as it is now administered unreasonably penalizes many of our people for being ill and at a time when they can least afford to be penalized. Every year the cost of living continues to climb. Everything now costs more than it did several years ago. Amid this ever mounting cost, no one other expense has increased to the degree as has medical costs. family that has had an illness recently can testify to this. The hospital costs are up, the costs of medicine are up, our doctors charge more for their services now, ambulance and nursing care costs are up, in fact, all services surrounding a sick or injured person cost far more now than previously. Any Even Members of Congress now have to pay $20 a day for a room when they have to go to Bethesda for treatment. Our taxpayers also pay a similar amount for hospital rooms. We have today many so-called miracle drugs and wonder drugs. These medicines do an excellent job in healing the sick. However, the cost of these drugs are such that in many cases they are almost prohibitive. When a person is ill they must have these drugs and they must be paid for. Mr. Chairman, your committee was cognizant of this spiraling of costs and in 1954 increased the deduction for medical expenses from $2,500 to $10,000, the present maximum. This has been of great benefits to our people and has helped immensely. However, this spiral has continued and now there are instances where additional assistance in tax relief is needed due to excessive medical expenses. There is a definite need to increase the allowed deductible for medical expenses per year. By increasing this amount to $15,000, the taxpayer who has been unreasonably burdened with illness and hospitalization will receive needed relief. This is only fair and equitable. I have discussed this bill with many of our colleagues, businessmen, doctors, farmers, lawyers, and others in almost every walk of life. Support for this measure among these persons was overwhelmingly in favor of its passage. I believe it is a good bill and one worthy of the committee's full support and I strongly urge your favorable consideration of H. R. 6076. Mr. BROOKS. There is before the members of the committee a short statement from the Honorable N. B. Stoer of Shreveport, La. This bill was first introduced at his request. Since then, I have found any number of cases all over the United States of a similar nature. In fact, numbers of Members of Congress have talked with me about this same problem, and even members of the committe have discussed it with me. The simple purpose of this bill, H. R. 6076, is to amend subsection (c) of section 213 of the Internal Revenue Code of 1954. The deduction allowed for hospital and medical, sick expenses, in the light of |