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by the present tax law, and thereby the Government is deprived of this important adjunct to its own enforcement machinery.

In June 1955, following the Glenshaw Glass decision, the Justice Department wrote to the Commissioner of Internal Revenue, expressing its concern "with any tax situation which might discourage filing such suits and encourage the violation of the antitrust laws." This letter went on to point out that "while a successful plaintiff must pay income tax on recoveries, we think we may properly call to your attention our belief that antitrust policy would not be vindicated if defendants in such suits were placed in a more favorable tax position than a successful plaintiff.” This refers to the fact that while the successful plaintiff is taxed on his total recovery in the year of its award or receipt, the defendant who has been adjudged in violation of the law, receives a corresponding deduction. The position should actually be just the reverse and the penalty recovered by the plaintiff should be a tax-free reward to encourage such suits, while the payment of such a penalty should not be deductible to the violator. If that were the law, there would be no loss in revenue to the Government, and at the same time its antitrust policy would be vindicated.

Even if the deduction allowed the defendant were not affected, however, the potential loss in revenue involved in exempting the penalty awarded from the income tax would be minimal. As Mr. Bicks pointed out, in his statement of June 29, 1955, although the number of private actions brought increased considerably since 1940, the percentage of successful suits has not been great and although some of the damage awards are substantial, it is apparent that in the aggregate they do not amount to the substantial sum taxwise from the standpoint of the Government. For example, Mr. Bicks points out that "actions terminated after trial between 1947 and 1951, produced some 15 damage awards for plaintiffs. Of these, 7 topped $100,000 and at least 2 hit the $1 million mark.” That amounts to an average of no more than $600,000 in any 1 year. At the top corporate tax rate of 52 percent, the revenue involved is a little over $300,000 or about 10 percent of the annual appropriation for Gov. ernment enforcement of the antitrust laws through the Department of Justice in the same period.

2. Wholly apart from the question of whether or not the penalty awarded to the successful plaintiff should be taxed, it is patently inequitable that the damage award should be taxed in the year of its recovery. Such an award usually covers a loss of profits over a long period of prior years. In all fairness, it should at the very least, be allocated over these years. The Treasury Department expressed the view in the past that the prorating of income received from compensatory damages over the period of the antitrust law violation would in effect give special treatment to such recoveries in contrast to amounts received for breach of contract or patent infringement suits, and concluded that: "In the absence of a general review of the problems of averaging income, it does not seem appropriate to single out a particular form of income for an extension of the tax readjustment procedures." (Letter to the Honorable Jere Copper, chair man of the Committee on Ways and Means of the House of Representatives, with regard to H. R. 4566, which would have amended the Internal Revenue Code of 1954, so as to provide relief in the tax treatment of treble damage recoveries under the antitrust laws.)

It has now come about that the refusal to allow allocation of an antitrust recovery is the exception rather than the rule in this general field because the Internal Revenue Code of 1954 was amended in 1955 to allow the allocation of patent infringement recoveries. Thereafter, it was amended in 1957 to allow allocation of all awards in civil actions for a general breach of contract or breach of a fiduciary duty or relationship over the years involved. Consequently, it does not seem appropriate now to single out this particular form of recovery for denial of the equitable tax readjustment procedures which are granted to these other forms. Since the penalty is simply a reflection of the amount received by way of compensatory damages, if it is to be taxed at all, it should be subject to the same allocation.


San Jose, Calif., December 23, 1957. HOUSE WAYS AND MEANS COMMITTEE,

Nero House Office Building, Washington, D.C. GENTLEMEN : Regarding taxation, I am well aware of the fact that some facets of taxation are equitable to some and inequitable to others and therefore the problem of being fair to all concerned is compounded.

However, there are vast fields open to all who desire to be fair and openminded that would treat all fairly. One in particular stands out in my mind and that is H. R. 6794 introduced by Representative Charles Gubser in the last session of Congress. Perhaps there are some legal imperfections in this bill (a point argued amongst attorneys) but the bill definitely places the responsibility of determining what is precedent squarely on the shoulders of the Commissioner of Internal Revenue. At present he accepts no court decision (unless he has appealed to the Supreme Court which he rarely does) adverse to his way of thinking. I have heard objections to this bill on the grounds that the evil of the present system is not met head on. I think that anyone who does not have an ax to grind and reads 6794 will agree it does meet the situation head on.

The objection that the bill by its purpose and language creates more problems than it purports to resolve is false. Every piece of legislation, being a product of human minds is not perfect and leaves room for interpretation. I cannot agree with the objection, if we follow this objection to its logical conclusion, that we have no legislation whatever merely because it does not answer all problems without interpretation.

As mentioned above, this bill leaves the worries of interpretation to the Internal Revenue Department as to what constitutes a precedent and lessens the burden on the taxpayer. This is in line with Progress Report released by the Mills Subcommittee on Internal Revenue Taxation which states that "the Commissioner should either follow a Tax Court decision adverse to him or he should appeal it.” Also “if two or more courts of appeals hold against the Commissioner, he should no longer litigate the same question, but should ask Congress to clarify the law if he still does not want to accept the courts' interpretation."

While 6794 does not give direct tax relief, it most certainly takes the biggest headache business has regarding taxation, and business for the first time would be able to operate just as normally with tax laws as it does with civil and business law. It certainly doesn't enjoy that privilege today.

I think another facet of taxation that could bear some overhaul for the sake of uniformity is depreciation. At present depreciation schedules allowed on a given piece of equipment in one district may be disallowed in another. How is business to operate on a safe and sane basis when not even the Internal Revenue Department is consistent within itself? Congress wrote the 1954 code which the Commissioner has already relegated to the status of arbitrary law or law per se. In fact CPA's and business are still waiting for the official interpretation of 75 percent of the 1954 code.

As to tax relief. The Sadlak bill should be enacted without further “to do" about it. History has consistently proven that after a period of high taxation a drop in the rates brought more income into the Federal Treasury than previousiy—not less as the advocates of high taxes would have us believe. 1926–27-28 proved this when taxes on corporations were dropped to a mere 10 percent and individual dependent allowances increased considerably. The adjusted income before taxes was also raised. In that period we also forgave millions in debts of foreign nations, reduced our national debt to next to nothing, and still had a balanced budget and more tax income in the Federal Treasury. The latest example of increased revenue with tax cuts was the last tax cut granted the overtaxed public. And so it has been through our economic history. Why accept unproven theory as a substitute for historical fact? Those who cry out against the cut on grounds of lost revenue do not consider the economical fact of "a point of diminishing returns" nor the historical fact that tax cuts have produced more revenue.

Business would like to expand and create new jobs but with the present tax situation this is becoming impossible. Records will show that business has spent merely to replace obsolete equipment more than it was allowed in depreciation. This is primarily due to the cost of new equipment. For example, a D-4 caterpillar in 1947 cost approximately $4,300. Today that same tractor sells for $9,800. Therefore a good share of the cost of replacing this obsolete equipment comes from profits which leaves no room for expansion. Small businesses today are either forced to merge or get out while they're ahead or go broke. This procedure of merging will almost certainly produce the cry of violation of antitrust laws

from some quarters to be followed by tighter antitrust laws, to be followed by extinction (or extermination) of small business followed by stagnation of the larger businesses and eventual ownership by a benevolent Federal Government. Tax reform in a downward direction is absolutely necessary if we are to keep pace with Russia and our defense spending.

I wish to thank the committee for the opportunity of presenting my views, views that are more philosophical than on specific tax points, but which I believe would be of benefit to this Nation as a whole and not merely to one segment.

SUMMABY In brief, let us take the confusion out of taxation by requiring the Commissioner to either follow a Tax Court decision adverse to him or to appeal it thus leaving the problem of intrepretation of what constitutes precedent up to the Commissioner.

Secondly, let us require that the Internal Revenue Department and the Commissioner's office be consistent within themselves especially in matters of de preciation.

Thirdly, enactment of the Sadlak bill, equal justice to all and the resultant increase in revenue for the treasury at a lesser cost per dollar profit to the tarpayer. Remember, a dollar can only be taxed if it is spent and the more times it is spent the greater the turnover of that dollar and the more times it is taxed. Respectfully,



October 4, 1957.
Chairman, House Committee on Ways and Means,

House of Representatives, Washington, D. C. DEAR MR. CHAIRMAN: Enclosed herewith are two copies of a statement by Mr. E. R. Jennings, of 500 Fifth Avenue, New York, N. Y. It is requested that your committee include it as a part of the hearings on general revenue provisions which are to commence on January 7, 1958.

I would appreciate your letting me have for my files a copy of any acknowledgement sent to Mr. Jennings by the committee. Sincerely,


SEPTEMBER 9, 1957. Hon. JACOB J. JAVITS, United States Senator from State of New York,

Senate Office Building, Washington, D. O. DEAR SENATOR JAVITS : Thank you very much for your letter of September 3, which was in answer to mine of August 14.

Placing a statutory limit of $1,250 annually as a medical-expense deduction is thoroughly ridiculous.

Since October 17, 1950, when I was injured in an accident to the extent that I cannot walk and cannot use my left arm, the tax collectors have been in a race with the medical racket for my hard-earned dollars. Indeed, I have discovered that one in the middle-income bracket simply cannot keep up with both the medies and the State and Federal tax collectors.

In one bout with surgery at New York hospital, I was obliged to pay the medical racket in excess of $5,000, yet the Federal Government would allow me to deduct one-fourth of that amount for that total year (and I had additional medical expenses in the same year).

The Federal Congress has made it comparatively simple for oil-well owners to get along in life, and it has made the same provisions for capitalists with the capital-gains provisions of the tax law.

How about giving the ill or injured at least as much consideration as has been given the aforementioned? I trust that the House committee will find it possible to be objective enough to understand the problems which confront the iil or injured under the present miserable tax law.

As a matter a fact, I have been unable to keep pace with both the medical racket and the tax collectors; and during the past 7 years wherein I have been crippled, I have been unable to avoid falling behind in my taxes.

How would you like to work for 25 years, after college, in the building of a business, only to have a tax collector threaten to take over your business because you are unable to pay the outrageous taxes; which, when collected, are not used for public schools or public roads, but are sent abroad in great measure? Very truly yours,




Statement by Clifford V. Heimbucher, C. P. A., vice president of Trustees for

Conservation, for inclusion in the hearings before the Committee on Ways and Means, United States House of Representatives, January 1958

Mr. Chairman, Trustee for Conservation would like to be associated with the statement recently presented to you by several national conservation organizations with respect to certain proposed revisions of the Federal Regulation of Lobbying Act and the Internal Revenue Code.

The Trustees were organized in 1954 to serve as a task force to engage in scientific and educational work on specific conservation programs. The enclosed exhibit, from one of our recent mailings, will explain to you what we feel our particular role is.

You will note that from the very beginning we have been concerned with the lack of clarity of the lobbying and tax laws, and indeed that this lack of clarity is a primary reason for our having organized. We are tax-exempt and contributions to our effort are deductible for income tax purposes, both in California and nationally,

We have registered under the lobbying act. Our counsel has been of varying opinions about whether or not we actually are required to register, even as the Supreme Court was of varying opinions on the matter in June 1954. Nevertheless we registered. We are proud of our program, are pleased to report about it, and hope only that the reporting procedure does not become too onerous.

We believe that the country's interest has been very well served, by and large, by the distinction the Internal Revenue Code presently makes between various types of organizations, by distinguishing those whose functions scientific and educational, for example are in the public interest, and by giving them a special tax status. These organizations are thus able to conduct programs and enlist efforts of volunteers which save the Government, in all, far more than is lost in tax revenue.

The Internal Revenue Service has quite successfully been able to determine not all of the time, perhaps, but certainly most of the time which organizations qualify as scientific, educational, literary, religious, and so on.

The further criterion required by the present law, however, has produced widespread confusion. We refer to the code's requiring that legislative activity of these organizations should be only incidental, and not substantial-without defining either of these terms.

If one of these organizations happens to be a trade association, existing primarily to benefit its own members with tangible benefits worth a sizable sum of money, then it does not especially matter to the organization whether or not dues to it are deductible in full as business expenses. If the benefits exceed the costs, even if part of those costs are not deductible, the organization's purpose has been served. Deductible or not, these organizations will give the Congress the benefit of their counsel.

If, however, the organizations are scientific and educational, existing primarily to benefit the public at large with intangible benefits not measurable in dollars, then they may not feel free to give you counsel. Many, if not most, of these organizations would cease to exist without their favorable tax status. Although they are not feathering their own nests, so to speak, in any way, they are nevertheless severely inhibited by the lack of clarity of the law. Some feel that any relationship at all with legislative bodies could be held to be substantial. This is true despite the highly intelligent and fair manner in which the law is being administered by the Internal Revenue Service.

Therefore, what happens in effect is that the trade organization on the one hand is essentially uninhibited, and speaks freely to Congress. The scientific society, on the other hand, may feel severely inhibited or even constrained not to communicate with the legislative body at all. Some of them feel forced by the present wording of the code to infer that any legislative activity, even if

solely in the interest of the public at large, might result in denial of their special tax status and in turn destroy their ability to exist. Therefore they do not speak.

Our point, stated another way, is that if the present language deprives the Congress of information it should have, then the public interest is not served and the language should be changed.

The scientific society, already bound by professional tradition to be concerned primarily with science for its own sake, needs encouragement, not inhibition, in making its voice available to you who formulate our national policy. The same is true of the other kinds of public service groups already singled out by the code.

A specific suggestion for revision of the wording would be to eliminate from section 501 (c) (3) of the Internal Revenue Code the clause which reads: "po substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation," and retaining all the other language.

The word "propaganda," without specific definition in law, can be confusing and that is why we suggest its elimination. Note that the word derives from the College of Propaganda instituted in the 17th century to educate priests for missions, and the word's meaning encompasses any organization or concerted group effort or movement to spread a particular doctrine or system of doctrines or principles. If the present code intended to imply these usages of the word "propaganda," then churches would have to be taxed and contributions to them could not be deductible. We are confident that this was not the intent of the Congress.

If, however, the revised code defined propaganda in the more restrictive "bad" sense a secret or clandestine dissemination of ideas or gossip for the purpose of injuring a person (Webster adds, “as the victim of the opposing party's propaganda”), then we should not object to the named organizations being constrained from using propaganda.

In summary, then, we should like to see the Internal Revenue Code revised to eliminate the legislative test, but to retain the distinction between groups serving to benefit themselves and those serving the public. We subscribe to the reporting of legislative activity, whether it be directly with Congress or indirectly with the executive branch; we do not believe that this reporting should be allowed to imperil any special purpose the reporting organization may have.

You may already have observed to yourselves that if you make these changes in the laws, there might not be any further need for trustees for conservation to exist. This is true. Nevertheless we ask that you make these changes.


January 10, 1958
The Honorable WILBUR MILLS,
Chairman, Committee on Ways and Means,

House of Representatives, Washington, D.O. DEAR MR. CHAIRMAN: Enclosed is a letter I have received from Dr. Gaylord P. Harnwell of the University of Pennsylvania, with regard to H. R. 8381.

I would appreciate your including this letter in the record of the revenue revision hearings which you are now conducting. Sincerely,



Philadelphia, December 31, 1957. Hon. JOSEPH S. CLARK, United States Senator from Pennsylvania,

Washington, D.C. DEAR SENATOR CLARK: I am advised that there is a bill presently pending before Congress (H. R. 8381) which is intended to provide various amendments to the Internal Revenue Code of 1954.

Section 9 of the bill would amend section 170 (b) (1) of the code and also section 267 in such a manner as might materially reduce certain charitable deductions which are now permitted.

For many years it has been legally possible for a generous individual to establish a trust providing that the income should be paid to an eleemosynary institution for a period of 10 years or longer, with the reversionary interest being paid over to children or grandchildren at the termination of the charitable

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