Y4. W36: R32/1/ no.11 REVENUE BILL THIS PRINT OF THE HEARINGS IS SUBJECT TO REVISION JUNE 19, 1918 WASHINGTON 1918 REVENUE BILL. COMMITTEE ON WAYS AND MEANS, The committee met at 10 o'clock a. m., Hon. Claude Kitchin (chairman) presiding. There were also present Representatives Rainey, Dixon, Hull, Garner, Collier, Dickinson, Oldfield, Crisp, Helvering, O'Shaunessy, White, Moore, Green, Sloan, Longworth, Sterling, Martin, and Hawley. STATEMENT OF MR. A. C. DUSTIN OF CLEVELAND, OHIO. Mr. DUSTIN. Mr. Chairman, I would like to hand to the secretary for the use of the committee a memorandum containing a draft on the question of depletion. I believe there was a gentleman who spoke some time last week before the committee on the question, but he did not have a draft covering the rights of lessees. Mr. GARNER. What lessees do you refer to? Mr. DUSTIN. Lessees of oil, gas, and ores. AMENDMENT OF THE INCOME-TAX LAW OF SEPTEMBER 8, 1916, WITH REGARD ΤΟ DEPLETION. Deductions from gross income for depletion of mineral deposits (oil, gas, ores) is allowed to natural persons, citizens or residents of the United States by subdivisions "seventh" and "eighth" of section 5, as to nonresident aliens by subdivision "seventh" of section 6, and as to corporations by subdivision "second" of section 12. The Treasury Department has ruled under the act of Congress of 1913 where depletion to the extent of 5 per cent was allowed and under the law of 1916 where full depletion was allowed that natural persons and corporations operating upon land owned in fee may take the depletion provided by the law, but that persons and corporations operating upon leases may take nothing for depletion. This inequity should be remedied and I beg leave to suggest an amendment to the language employed on the subject of depletion in the act of 1916, as follows: Section 5: Combine subdivisions "seventh" and "eighth" of section 5 so that the new subdivision "seventh" will read as follows: "Seventh. A reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade: (a) in the case of oil and gas wells such reasonable allowance shall be made for actual reduction in flow and production to be ascertained not by the flush flow but by the settled production or regular flow; (b) in the case of mines such reasonable allowance shall be made for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the Treasury. The allowances for exhaustion and depletion herein provided for under (a) and (b) shall be made to all parties interested therein, including owners, lessors and lessees to the extent of the value of their respective rights or interests therein: Provided, That when such allowances shall equal the capital originally invested, or in case of acquisition prior to March first, and so forth." 695 (Here follow the draft of the original subdivision.) Section 6. Subdivision seventh, covering nonresident aliens, should be the same as seventh section 5, as above, except that the words "within the United States" should be inserted and the words "purchase made" should be omitted, and the word “acquisition" substituted. Section 12. Subdivision "second" to be amended to read as follows: "Second. All losses actually sustained and charged off within the year and not compensated by insurance or otherwise, including a reasonable allowance for the exhaustion, wear, and tear of property arising out of its use or employment in the business or trade; (a) in the case of oil and gas wells such reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the Treasury. The allowances herein provided for under (a) and (b) shall be made to all parties interested, including owners, lessors, and lessees to the extent of the value of their respective rights or interests: Provided, That when the allowance authorized in (a) and (b) shall equal the capital originally invested, or in case of acquisition prior to March first, nineteen hundred and thirteen, and so forth." (Here follow the draft of the original subdivision second, sec. 12.) In order to put lessees who acquired their leases prior to March 1, 1913, on an equality with the owners operating upon their own lands acquired prior to 1913, a new section should be written into the new law which will operate as a practical construction by Congress of the laws of 1913 and 1916. While the Treasury Department has ruled under these laws that lessees could not take depletion, as a matter of fact, in the majority of cases in the returns filed, the lessees have taken depletion so that the returns by them as already made would be in harmony with the construction mentioned. The section in the form in which I would suggest it might read as follows: 66 "SEC.. Lessees and other parties interested in oil, gas, mines, and other natural deposits are hereby declared to be entitled to the deductions provided for in the acts of Congress of October third, nineteen hundred and thirteen, and September eighth, nineteen hundred and sixteen, for and on account of the exhaustion or depletion thereof to the extent of their respective rights or interests therein." ASSOCIATION, STATEMENT OF MR. WALTER C. HUGHES, EXECUTIVE SEC- Mr. HUGHES. Mr. Chairman and gentlemen of the committee, I wish to correct an impression that may have been formed in the minds of the committee on account of an inadvertent error that crept into the record in stating that I am an attorney. When your assignment clerk was getting a line on my pedigree, I may have inadvertently admitted I was an attorney, but I am not an attorney at the present time. Mr. GARNER. You have reformed? Mr. HUGHES. I have therefore prepared no brief, although I intend to be brief. I appreciate the enormous task which the committee has undertaken in drafting this revenue bill. I am here in Washington as a volunteer member of the Food Administration, although I am not appearing before the committee in an official capacity as a member of the Food Administration but as secretary of the association to which I have referred. The confectionery industry, Mr. Chairman, is expressed in terms of sugar, and it is my purpose in appearing before the committee to bring certain facts to your attention-certain conditions that are affecting the industry and which will continue to affect the industry as long as the war lasts. When we think of the confectionery industry we think of sugar, and the average person thinks of confectionery as sugar, 100 per cent sugar. |