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after the figure (4). Part I of subchapter C is further amended by adding the following new subsection at the end of section 302 (b):

*(6) ESTATE TAX ANTICIPATION CERTIFICATES ISSUED IN STOCK REDEMPTION.Subsection (a) shall apply to the extent that estate tax anticipation certificates are transferred or assigned by the corporation to one of its stockholders in redemption of part or all of such stockholder's stock, but only if the stock so redeemed has been owned by the stockholder for a period of at least ten years continuously up to the time of the redemption, and in the event that the stockholder is the executor of a decedent's estate, the period of ownership of said stock by decedent during his lifetime may be added to the period of ownership of said stock by his executor."

(h) SPECIAL DEDUCTION IN DETERMINING ACCUMULATED INCOME.-Part I of subchapter G of chapter 1 of the Internal Revenue Code of 1954 (relating to corporations improperly accumulating surplus) is amended by deleting the words “(except section 248)” in section 535 (b) (3), and inserting in lieu thereof the words “(except sections 248 and 249).”

(i) TRANSFER OR REDEMPTION OF ESTATE TAX ANTICIPATION CERTIFICATES. Part VI of subchapter Q of chapter 1 of the Internal Revenue Code of 1954 (relating to readjustment of tax between years and special limitations) is amended by adding at the end thereof the following new section: "SEC. 1348. TRANSFER OR 'REDEMPTION OF ESTATE TAX ANTICIPA

TION CERTIFICATES. "In the case of a surrender for redemption of estate tax anticipation certificates by a taxpayer and in the case of a transfer or assignment of estate tax anticipation certificates by a taxpayer if the face value of the estate tax anticipation certificates transferred, assigned, or surrendered for redemption by the taxpayer is includible in the taxpayer's gross income under section 78 of the Internal Revenue Code of 1954, as amended, and if the original purchase thereof had resulted in whole or in part in a deduction from the gross income of the original purchaser under section 217 or 249 of the Internal Revenue Code of 1954, as amended, then in the computation of the taxpayer's tax under subchapter A for the taxable year in which the estate tax anticipation certificate is transferred, assigned, or redeemed there shall be added to said tax the savings of tax under subchapter A to the original purchaser in the year of purchase of the certificate as a result of said deduction to the extent that said savings exceeds the additional tax to taxpayer in the year of transfer, assignment, or redemption of the certificate resulting from the inclusion of the amount received from the transfer, assignment, or redemption in his gross income computed without the adjustment provided in this section."

(j) TECHNICAL AMENDMENT.—The table of sections for such part VI is amended by adding at the end thereof the following: "Sec. 1348. Transfer or redemption of estate tax anticipation certificates."

(k) PAYMENT OF ESTATE TAXES BY ESTATE TAX ANTICIPATION CERTIFICATES.Subchapter B of chapter 64 of the Internal Revenue Code of 1954 (relating to receipt of payment of taxes) is amended by adding at the end thereof the following new section : "SEC.6317. PAYMENT OF ESTATE TAX BY ESTATE TAX ANTICIPA

TION CERTIFICATES. "(a) ESTATE TAX ANTICIPATION CERTIFICATE DEFINED.-For purposes of this section, the term 'estate tax anticipation certificate' means any certificate which

“(1) is issued by the Secretary or his delegate to carry out the purposes of this section,

"(2) is issued at par,
"(3) bears no interest,

“(4) is transferable, but is redeeinable only on such terms and conditions as the Secretary or his delegate may by regulations prescribe.”

"(b) ISSUANCE OF CERTIFICATES.-The Secretary shall offer for sale estate tax anticipation certificates in such denominations as may be necessary to carry out the purposes of this section.

"(c) LIMITATIONS ON TRANSFER OR ASSIGNMENT, AND REDEMPTION.“(1) Estate tax anticipation certificates shall be regulations prescribed by the Secretary or his delegate, be transferable only in accordance with the rules and regulations prescribed by the Secretary or his delegate.

"(2) Estate tax anticipation certificates shall be redeemable at face value in payment of taxes imposed by section 2001 of the Internal Revenue Code of

1954 when presented by the executor or administrator of the estate of a de cedent, up to the amount of $500,000 for the estate for any one decedent.

“(3) Estate tax anticipation certificates shall be redeemable at such amounts less than face value (as shall have been determined by the Secretary or his delegate at or before the time of issuance thereof) when presented by the executor or administrator of an estate of a decedent for redemption and not in payment of the taxes imposed by section 2001 of the Internal Revenue Code of 1954, or when presented by the executor or administrator of the estate of a decedent in payment of any such taxes in excess of $500,000: Provided, That said amount shall not be less than 90 percent of the face value of the estate tax anticipation certificates.

"(4) Estate tax anticipation certificates shall be redeemable at such amounts less than their face value (as shall have been determined by the Secretary or his delegate at or before the time of issuance thereof) when presented by individuals or corporations other than the administrator or executor of a decedent's estate: Provided, That said estate tax anticipation certificates when so presented shall be redeemable at not less than 75 percent of their face value."

(1) TECHNICAL AMENDMENT.-The table of sections for subchapter B of chapter 64 is amended by adding at the end thereof the following: "Sec. 6317. Payment of estate tax by anticipation certificates."

(m) EFFECTIVE DATE.--The amendments made by this section shall be effective as of the date of enactment of this Act. SEC. 2. INSTALLMENT PAYMENTS OF ESTATE TAX.

(a) ALLOWANCE.-Subchapter A of chapter 62 of the Internal Revenue Code of 1954 (relating to place and due date for payment of tax) is amended by adding at the end thereof a new section as follows: “SEC. 6157. INSTALLMENT PAYMENTS OF ESTATE TAX.

“(a) ESTATES CONSISTING OF STOCK OR INVESTMENTS IN CLOSELY HELD BUSINESS ENTERPRISES.

“(1) ELECTION TO MAKE INSTALLMENT PAYMENTS.-The executor of any estate described in paragraph (2), which is subject to the tax imposed by chapter 11, may elect to pay the amount of such tax in 2 or more (but not more than 10) equal installments.

"(2) ESTATES TO WHICH ELECTION APPLIES.---Paragraph (1) shall apply to an estate only if one-half or more of the value of the gross estate consists of stock or investments in one or more closely held business enterprises.

"(3) CLOSELY HELD BUSINESS ENTERPRISE.-For purposes of paragraph (2), the term 'closely held business enterprise' means

“(A) a business proprietorship,
"(B) a business partnership having 10 or less partners, and
"(C) a business corporation having 10 or less stockholders.

"(b) DATE FOR PAYMENT OF INSTALLMENTS.--If an election is made under subsection (a), the first installment shall be paid on the date prescribed for payment of the tax by section 6151, and each succeeding installment shall be paid one year following the date

for payment of the preceding installment. "(c) PRORATION OF DEFICIENCY TO INSTALLAMENTS.-If an election has been made under subsection (a) and a deficiency is assessed, the deficiency shall be prorated to the installments remaining unpaid on the date of such assessment, and the part of the deficiency so prorated to each such installment shall be collected at the same time and as a part of such installment.

“(d) INSTALLMENTS PAID IN ADVANCE.--At the election of the executor, any installment, or part thereof, under subsection (a) may be paid prior to the date prescribed for its payment by subsection (b).

“(e) ACCELERATION OF PAYMENTS.-If any installment under subsection (a) is not paid on or before the date prescribed for its payment by subsection (b), the whole of the unpaid tax shall be paid upon notice and demand from the Secretary or his delegate."

(b) TECHNICAL AMENDMENTS.

(1) The table of sections for such subchapter is amended by adding at the end thereof the following:

"Sec. 6157. Installment payments of estate tax."

(2) Section 6161 of such Code (relating to extension of time for paying tax) is amended by redesignating subsection (d) as subsection (e), and inserting after subsection (c) a new subsection as follows:

“(d) INSTALLMENT PAYMENT or ESTATE TAX.--In any case in which an executor bas elected under section 6157 to pay the tax imposed by chapter 11 in

installments, subsection (a) (2) shall not apply to the amount determined by the executor as the tax imposed by chapter 11, and subsection (b) shall not apply to the amount determined as a deficiency with respect to any such tax."

(3) Section 6601 (c) (2) of such Code (relating to determination of last date prescribed for payment of tax) is amended by striking out "6152 (a)" and inserting in lieu thereof "6152 (a) or 6157 (a)", and by striking out "6152 (b)” and inserting in lieu thereof "6152 (b) or 6157 (b), as the case may be."

(c) EFFECTIVE DATE.-The amendments made by this section shall apply with respect to estates of decedents dying after December 31, 1956. REMARKS OF REPRESENTATIVE Howard H. BAKER, OF TENNESSEE, UPON INTRO

DUCING H. R. 7600, CONGRESSIONAL RECORD, THURSDAY, MAY 16, 1957 Mr. BAKER. Mr. Speaker, today I am introducing a bill to prevent small businesses from being destroyed by Federal estate taxes. It would provide relief from the double taxation--income and estate taxes--on individuals, and make it possible for family businesses to survive the death of a principal stockholder or partner without the necessity of a forced sale to large national corporations to provide funds for estate-tax payments.

My bill would allow individuals to set aside a reserve fund, represented by non-interest-bearing Treasury certificates, with which to pay estate taxes. A deduction from income tax, not to exceed 10 percent of taxable income in any one year, would be allowed to an individual, or a family corporation, to create such a reserve fund. The fund would be subject to estate taxes, but would have been accumulated free of income tax during the taxpayer's life.

My bill also includes the President's Cabinet Committee on Small Business recommendation which would permit such estates 10 years within which to make Federal estate-tax payments.

I respectfully urge the Congress to give this small-business measure prompt and careful consideration. Small business must be protected and encouraged now if we expect it to survive today's merger-minded economy. A more detailed explanation of my bill is presented in the following statement :

ANALYSIS OF THE LEGISLATION 1. The problem

This legislation is designed to provide some relief from the double taxation resulting from the imposition of both income and estate taxes on individuals and to mitigate the burden and impact of the Federal estate tax. The particular purpose is to make it possible for family businesses to survive the death of the principal stockholder without the necessity of forced sales to large national corporations in order to provide funds for payment of estate taxes. There are a great many owners of private or family businesses who are unable effectively to set aside sufficient liquid assets after the income taxes have been paid on their income, and after estate taxes which will be paid on these liquid assets at their death, to provide for the payment of estate taxes on their present holdings. The result of this is that many such owners are selling their businesses to large national corporations in order to be in a position to have liquid assets to sustain the estate-tax impact.

The proposed legislation is premised on the theory that it is desirable to encourage the preservation of private or small businesses, and that it is unwise of the Federal Government to in effect force the liquidation of small businesses and the merger of small businesses into large corporations. 2. The solution

The basic theory of this proposed legislation is to allow individuals to set aside a reserve fund, represented by certificates of indebtedness of the United States, with which to pay estate taxes. Under the proposed legislation a deduction from income tax, not to exceed 10 percent of taxable income in any one year, would be allowed to any individual or any family corporation for the purpose of creating such a reserve fund. The assets or fund would be subject to estate taxes, but would have been accumulated free of income tax during the taxpayer's life.

3. Outline of the proposed legislation (a) Estate tax anticipation certificates would be issued by the Government for sale to individuals and corporations. The certificates would pay no interest. They would be redeemable at 100 percent of their face value for payment of estate taxes up to the amount of $500,000 on any one estate. They would be

redeemable at not less than 90 percent of their face value when redeemed by an estate, but not in payment of estate taxes, or when redeemed by an estate in payment of estate taxes in excess of $500,000. They would be redeemable at not less than 75 percent of their face value when presented by any other owners.

(6) The purchase of estate tax anticipation certificates from the United States by an individual would entitle the purchaser to a deduction from taxable income in the year of purchase in the amount of the face value of the certificates but not to exceed 10 percent of the taxable income computed without the deduction Purchase of these certificates by a family corporation from the United States would entitle the corporation to a deduction in the same manner, not exceeding 10 percent of its taxable income. A family business is defined as one more than 50 percent of which is owned by not more than 10 individuals, and a corporation which is engaged in an active business.

(c) Except for a transfer by a corporation to a stockholder in exchange for its stock, or when redeemed by an executor, transfers, or redemptions of the certificates result in the face value of the certificate becoming taxable income to the transferor or person redeeming the certificate. A further provision requires that if the tax benefit at the time of acquisition of the certificate is greater than the tax consequence of the transfer or redemption, the difference is added to the tax of the individual or corporation transferring or redeeming the certificates, so that there will have been no income-tax benefit where the certificates are not used for their intended purpose of paying estate taxes.

(d) Where certificates are transferred to a stockholder by a corporation in redemption of part or all of the stockholder's holdings of stock in the corporation, the transaction is treated as a sale or exchange-thus avoiding the question of whether the transfer is equivalent to the payment of a dividend-if the stockholder has held his stock for at least 10 years.

4. Examples of how the proposed legislation will work This legislation is designed to alleviate the double taxation of income taxes and estate taxes on funds being accumulated by a taxpayer in anticipation of the payment of estate taxes at the time of his death. Therefore, we are dealing primarily with the problem of individuals whose estates are large enought that estate taxes are a substantial factor. To illustrate the manner in which the proposed legislation would operate, we will assume three different types of situations which we believe to be typical. These will involve hypothetical situations in which the individual's top income tax bracket and top estate tax bracket are as follows:

It will be observed that under the first illustration above the individual under present law can effectively retain only 35 percent of an item of current gross income which he wishes to set aside for payment of estate taxes on his present holdings. Under the proposed legislation he would be able to retain 70 percent of such an item of gross income for liquidation of estate taxes on his present holdings. The comparable figures for the second illustration are that under present law he can retain only 23.2 percent, whereas under the proposed law he would be able to retain 61 percent of an item of gross income to liquidate estate taxes. Under the third illustration under present law the taxpayer can only retain 14.3 percent of an item of gross income to pay estate taxes, whereas under the proposal he would be able to retain 51 percent for that purpose.

This legislation would also allow up to 10 years in which to complete payment of certain estate tax obligations.

Income and estate tax

brackets

Effect under present law

Effect under proposed legislation

Income tax 50 percent.
Estate tax 30 percent.

Income tax 62 percent.
Estate tax 39 percent.

Item of gross income

$1,000 Item of gross income used to purLess 50 percent income tax. 500 chase estate tax anticipation

certificate.

$1,000 Balance saved for payLess no income tax.

0 ment of estate tax.. 500 30 percent estate tax on this

Fund held in certificates fund..

150

against payment of es-
tate tax..

1,000 Balance available for Less 30 percent estate tax

300 payment of estate tax on prrsent holdings... 350 Balance of certificates

available to pay estate

tax on present holdings. 700 Item of gross income.

1,000 Item of gross income used to 0 Less 62 percent income tax. 620 purchase estate tax anticipa

tion certificate..

1,000 Balance saved for pay. Less no income tax..

0 ment of estate tax. 380 39 percent estate tax on this

Fund held in certificates fund.-

148

against payment of es.
tate tax.

1,000 Balance available for Less 89 percent estate tax... 390

payment of estate tax
on present holdings... 232 Balance of certificates

available to pay estate

tax on present holdings. 610 Itern of gross income.

1,000 Item of gross income used to purLess 72 percent income tax.. 720 chase estate tax Anticipation

certificate....

1,000 Balance saved for pay- Less no income tax..

0 ment of estate tax. 280 49 percent estate tax on this

Fund held in certificates fund...

137

against payment of cs-
tate tax.

1,000 Balance available for Less 49 percent estate tax..---

400
payment of estate tax
on present holdings... 143

Balance of certificates
available to pay estate tax

on present holdings.- 510

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Income tax 72 percent.
Estate tax 49 percent.

The CHAIRMAN. Are there any questions of Mr. Roberts? Mr. Baker will inquire.

Mr. BAKER. Mr. Roberts, I want to compliment you on an excellent statement.

I am particularly impressed by the fact that the gift and estate taxes only account for 1.2 percent of all total Federal revenue and are not repetitive.

I know that nationally people talk about estate taxes, as if that is a tremendous sum of money. Of course, it is a tremendous sum of money, but not in relation to the Federal tax take.

Now, with that thought in mind, particularly H. R. 7600, which is tkbill I introduced, which you are recommending be enacted, the first part of 7600, of course and this is directed to Mr. Mason also, either of you can reply--grants the option of paying the taxes 10 years after death.

As I understand it, the Treasury recommends it.

Now, the second part of my bill provides for estate tax on death anticipation up to 10 percent. "It just seems to me that the second part is just as necessary as the first part. Do either of you gentlemen care to comment on it?

Mr. ROBERTS. I would like to comment first and then let Mr. Mason comment more fully.

I paid a $50,000 estate tax on my father's estate. I had to borrow the money. At the time I paid that tax I had previously made con

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