Lapas attēli


Page Horsky, Charles A., chairman, National Bankruptcy Conference-- 2597 Prepared statement

2594 Ingraham, John W., vice president and senior officer, Citibank, N.A.,

New York, N.Y., on behalf of Robert Morris Associates, the National
Association of Bank Loan and Credit Officers-----

2497 Prepared statement.-

2483 Jerome, John J., attorney, New York, N.Y..

2497 Knappen, Theodore, legislative counsel, Interstate Commerce Commission

2588 Knox, William C., Jr., attorney, New York, N.Y.

2367 Prepared statement

2357 Kripke, Homer, professor of corporate law, New York University- 2472 Prepared statement -

2466 Lavine, Richard A., Deputy Assistant Attorney General, Civil Division, Department of Justice---

2140 Prepared statement--

2093 Lawson, A. E., assistant general counsel, United Steelworkers of America, AFL-CIO..

2449 Prepared statement

2445 Levy, Aaron, Director, Division of Corporate Reorganization, Securi. ties and Exchange Commission.--

2210 Loomis, Philip A., Jr., Commissioner, Securities and Exchange Commission

2210 Prepared statement.--

2152 McCaffrey, R. Lawrence, Jr., Chief Counsel Designate, Federal Railroad Administration.

2639 Prepared statement..

2621 Mattras, John, Director of Finance, Interstate Commerce Commission. 2588 Nowak, Hon. Henry J., a Representative in Congress from the State of New York.-

2567 Prepared statement

2561 Patchan, Joseph, National Conference of Bankruptcy Judges_

2521 Prepared statement..

2513 Plumb, William T., Jr., attorney, Washington, D.C---

2077 Prepared statement.

2034 Powers, Charles H., vice president, United Federal Bank of Denver.- 2497 Rosen, Leonard M., attorney, New York, N.Y.

2478 Prepared statement

2474 Sayre, Maurice M., National Conference of Bankruptcy Judges.. 2521 Prepared statement.--

2513 Sharfman, Jerome, member of the Atomic Safety and Licensing Appeal Panel, Nuclear Regulatory Commission.--

2639 Simpson, Joseph, vice president and investment counsel, Metropolitan Life Insurance Co--

2532 Stafford, Hon. George M., Chairman, Interstate Commerce Commission

2588 Prepared statement

2578 Tierney, Paul J., president, Transportation Association of America - 2532 Prepared statement..

2529 Wisniewski, Stanley, research director, Service Employees International Union, AFL-CIO.

2444 Prepared statement

2442 Wright, Berkeley, Chief, Division of Bankruptcy, Administrative Office of the U.S. Courts--

2554 Prepared statement

2545 Zimny, Max, general counsel, International Ladies Garment Workers Union, AFL-CIO.

2426 Prepared statement

2421 Additional material

Bagley, William T., Chairman, Commodity Futures Trading Commission, prepared statement..

2377 "Because the People Must Know," prepared by the National Newspaper Association.--.

2710 Clagett, Brice M., attorney, Washington, D.C., letter dated June 3, 1976, to Hon. Peter W. Rodino, Jr--

2684 V

Page Georgine, Robert A., president, Building and Construction Trades Department, AFI-CIO, prepared statement

2451 Griswold, Erwin N., attorney, Washington, D.C., letter dated May 24, 1976, to Hon. Peter W. Rodino, Jr.-

2685 Gunther, John J., executive director, U.S. Conference of Mayors, letter dated April 29, 1976, to Hon. Don Edwards.-

2570 Krattenmaker, Thomas G., professor of law, Georgetown University, letter dated June 30, 1976, to Hon. Peter W. Rodino, Jr----

2688 Lucas, Jo Desha, professor of law, University of Chicago, letter dated June 23, 1976, to Hon. Peter W. Rodino, Jr.--

2691 Mahoney, William G., Railway Labor Executives' Association and the

Brotherhood of Railway and Airline Clerks, prepared statement-- 2614 Mishkin, Paul J., Emanuel S. Heller, Professor of Law, University

of California at Berkeley, letter dated May 17, 1976, to Hon. Peter
W. Rodino, Jr---

2696 “Modern Securities Transfers,” by Egon Guttman, professor of law, American University

2244 National Newspaper Association, prepared statement.

2707 Plumb, William T., Jr., attorney, Washington, D.C., letter dated April 6, 1976, to Hon. Don Edwards.--.

2090 Rinaldo, Hon. Matthew J., a representative in Congress from the State of New Jersey, prepared statement

2576 Rodino, Hon. Peter W., Jr., chairman, House Committee on the Judi

ciary, letter dated April 30, 1976, sent to several constitutional

2682 Sandalow, Terrance, professor of law, University of Michigan, letter dated July 13, 1976, to Hon. Peter W. Rodino, Jr---

2697 Shapiro, David L., professor of law, Harvard Law School, letter dated May 17, 1976, to Hon. Peter W. Rodino, Jr.--

2701 Wechsler, Herbert, professor of law, Columbia University in the city of

New York, letter dated June 2, 1976, to Hon. Peter W. Rodino, Jr--- 2704 Wright, Charles Alan, McCormick Professor of Law, University of

Texas at Austin, letter dated June 4, 1976, to Hon. Peter W. Rodino,

2706 Alphabetical index..

2715 Section number index--





Washington, D.C. The subcommittee met, pursuant to notice, at 9:40 a.m., in room 2226, Rayburn House Office Building, Hon. Don Edwards (chairman of the subcommittee) presiding.

Present: Representatives Edwards, Drinan, and Butler.

Also present: Alan A. Parker, counsel; Richard B. Levin, assistant counsel; and Kenneth N. Klee, associate counsel.

Mr. EDWARDS. The subcommittee will come to order.

This morning we continue our hearings on the revision of the bankruptcy laws, focusing on the tax aspects of bankruptcy, both in reorganizations and liquidations. The tax provisions of the bills appear in sections 5–104 and 7-315 of the Commission's bill, and in the parallel sections of the Judges bill.

In addition, the Commission recommended amendments to Internal Revenue Code sections 172, 381, and 382, among others, and we have asked our witnesses this morning to discuss these proposals as well as those contained in the proposed bankruptcy acts themselves, even though they do not appear in either of the House bills.

Our first witness today is Commissioner of Internal Revenue Donald Alexander, who is here to present the views of the Internal Revenue Service and of the Department of the Treasury on the proposed legislation. Mr. Commissioner, it is a pleasure to have you

here. Will you introduce the gentlemen with you? Without objection your prepared statement will be made a part of the record; and you may proceed.

[The prepared statement of Commissioner Donald Alexander follows:]


SERVICE Mr. Chairman and members of the subcommittee: I welcome the opportunity to appear before this Subcommittee to express the views of the Internal Revenue Service and the Department of the Treasury on the proposed revisions of the bankruptcy law. We commend the efforts of both the Commission on the Bank. ruptcy Laws and the National Conference of Bankruptcy Judges.

The Commission's bill (H.R. 31) and the Bankruptcy Judges' bill (H.R. 32) are similar in many respects. For the sake of brevity, my discussion will focus on A.R. 31 and those proposals therein which contain the greatest implications for the Federal tax system. Additionally, we would like to take this opportunity to comment on the proposed amendments to the Internal Revenue Code contained in S. 236, a bill corresponding to H.R. 31.

Essentially, the goal of the proposed bankruptcy legislation is to rehabilitate debtors and protect private voluntary creditors. This goal would be achieved for the most part by allocating the economic burden of debt to the Government, an involuntary creditor.

It appears, however, that the Commission and the Bankruptcy Judges may have failed to take into consideration the methods for collection available to private creditors, as compared to those available to the Government. A private creditor is a consensual creditor and can demand payment in cash by refusing to extend credit, whereas the Government as a nonconsensual creditor does not have this option. In addition, in the case of private creditors, losses resulting from debts discharged in bankruptcy are made up in part by charging higher prices to cash sale customers. Some of the losses are also recovered in the form of higher credit charges. More significantly, private creditors receive tax advantages in the form of deductions for bad debt losses.

The previously mentioned allocation of the economic burden of debt to the Government is manifested primarily in the proposals invalidating Federal tax liens, reducing the priority granted to Federal tax claims in the distribution of bankruptcy estate proceeds, and decreasing the nondischargeability of Federal tax debts. These proposals may undermine the effectiveness of the self-assessment system of Federal taxation, and increase the attractiveness of bankruptcy for debtors and creditors alike. This could lead to a decline in both Federal revenues and taxpayer confidence in the equity and integrity of the Federal tax system. Moreover, the loss of revenue would in all probability be borne by the remainder of the public in the form of increased taxes or an increased Federal deficit.

The proposed transfer of the economic burden of debt to the other members of the public is in our opinion undesirable. Rather, we believe the interests of both debtors and private voluntary creditors should be equitably balanced against the valid interests of the Government in having a reasonable and effective right to collect the taxes due it in bankruptcy cases.

In my comments this morning I therefore would like to discuss those provisions, and others, which may adversely affect the collection and imposition of Federal taxes in bankruptcy cases.

Although Mr. Chairman we are unable to supply for the record all the statistics requested in your letter to me dated March 16, 1976, the Service has recently gathered statistical data pertaining to the amount of Federal taxes collected pursuant to proofs of claim filed in bankruptcy cases. Attached hereto are two charts pertaining to the statistical data the Service has compiled. Based on this data, it is estimated that $11,500,000 was collected in asset cases (that is, where distribution is made to creditors of individual bankrupts, and all other bankruptcies) commenced during fiscal yeay 1974. Additionally, it is estimated that $15,500,000 will be collected in asset cases commenced during fiscal year 1975, and $17,000,000 will be collected in asset cases commenced during fiscal year 1976.

It is noted that the above figures reflect only estimated amounts collected pursuant to proofs of claim filed in asset cases during each respective reporting period. The figures do not pertain to no-asset cases (i.e., where no distribution is made to creditors of individual debtors).

As many bankruptcy cases for which proofs of claim were iled during each reporting period have not yet been concluded, the estimated amounts do not reflect the total amounts of Federal taxes expected to be ultimately collected. In this regard, the average time between the commencement and conclusion of bankruptcy cases varies from 13.5 months for low-dollar asset cases to 29–70 months for railroad and corporate reorganizations, arrangements, and wage earners' plans. The estimated amounts would therefore be much higher if the final amounts of taxes we expect will be eventually collected were included therein.

In 1973, the Service estimated that $46,000,000 would he collected that year in all bankruptcy cases. However, that figure also included amounts collected pursuant to secured tax claims and from exempt property and property abandoned by trustee, and represented collections from all open bankruptcy cases rather than just those cases commenced during 1973. See Report of the Commission on the Bankruptcy Laws of the United States, H.R. Doc. No. 93-137, 93d Cong., 1st Sess. pt. I, 234 n. 228 (1973).

In your letter you also requested our comments pertaining ot the effect of the 1966 amendments to section 17a of the Bankruptcy Act and the Federal Tax Llen Act of 1966. Based on Administrative Office of the United States Courts, Tables of Bankruptcy Statistics, Table F5 (1967–1970, 1975), we believe that the 1966 amendments to Bankrupter Act section 17a have not had a substantial effect on the collection of Federal taxes in bankruptcy cases. Similarly, it is our opinion that the Federal Tax Lien Act of 1966 has had no substantial effect on the

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