period, the present rules would come into play 15 or 21 months after death, and the enactment of an acceleration bill would not change presently applicable law and policy for periods comparable to those now governed by such law and policy. For at least the 6-month acceleration period, however, newer and broader relief rules should apply.

I appreciate the opportunity of appearing before you and if you desire, will be happy to answer any questions which you may have. Mr. ULLMAN. Are there any questions?

Thank you very much.

Our next witness is Mr. Hewitt A. Conway. Mr. Conable.

Mr. CONABLE. Mr. Conway and I were contemporaries in law school. When I was unprepared to recite he would always whisper the answer in my ear. Alphabetical arrangement always placed him next to me. I want to express my gratitude to him. He comes from a fine family in New York and he is an excellent tax lawyer.

Mr. ULLMAN. You come well recommended and we appreciate your appearance. You may proceed.

STATEMENT OF HEWITT A. CONWAY, CHAIRMAN, COMMITTEE ON INCOME TAXATION OF ESTATES AND TRUSTS, TAX SECTION, NEW YORK STATE BAR ASSOCIATION

Mr. CONWAY. I am very thankful for Mr. Conable's remarks but they are certainly a gross exaggeration of the facts as I remember them.

ESTATE TAXES

The tax section of the New York State Bar Association strongly opposes advancing payment of estate taxes from 15 months after death to 9 months thereafter.

There is no doubt that the proposal of the American Bankers Association is far superior to the administration's estimated tax plan. Earlier collection is accomplished without the introduction into the tax law of new and difficult tax concepts. Only familiar tax ideas are used. Also, the tax is payable 2 months later than under the administration's estimated tax plan.

But the American Bankers Association itself does not favor its own proposal over present law. So far as we are aware, no one with substantial estate administration experience has asserted that either of the speedup proposals would improve the law. The substitute proposal is supported because it by far the lesser of two admitted evils.

Accelerating the time for payment of Federal estate taxes from 15 to 9 months after death decreases the liquidation period available to estate representatives by a minimum of 40 percent and probably by 50 percent or more on the average, if delays in probate or the granting of letters of administration are taken into account.

The proposed change is so radical that it touches upon fundamental estate tax concepts. Our estate tax is imposed on the transfer of a decedent's property at the fair market value of such property at death, unless alternate valuation is elected. The regulations, based on court decisions through the years, state:

The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price.

To tax property included in gross estate on the basis that the holder is under no compulsion to sell it, and then compel him to sell it in as short a period as 9 months is basically unjust and is unsound as a matter of tax policy.

Rapid liquidation would not be so great a problem were it not for the very high estate tax rates now in effect. The combined New York and Federal estate taxes that would have to be paid within 9 months of death under the current proposal are $313,200 on a $1 million taxable estate, and $6,124,000 on a $10 million taxable estate, and these figures do not reflect the entire liquidating problem facing the estate representative, who also needs large amounts of cash to pay income taxes of the decedent and the estate, claims against the estate, executor's commissions and attorneys' fees and the usual cash legacies.

One of the most serious objections to the acceleration proposal is that it will effectively prevent experienced estate representatives and their advisers from performing the most meaningful services they are capable of. Everyone would presumably agree that an estate's affairs should be handled on a long-term investment oriented basis, and this is what corporate fiduciaries in particular are trained to do. But liquidation within 9 months is simply too short a time for longer term investment factors to take effect in many cases. If the pending acceleration proposal is adopted, the emphasis will have to be on short-term considerations. This is why the short-term gain treatment for assets included in gross estate is of necessity being discarded in the proposed legislation.

Changing the basic alternate valuation date to 6 months after death rather than the anniversary date of death is another basic estate tax change required by the estate tax speedup. Consideration ought to be given to each of these substantive tax law amendments on their particular merits, but this is not being done. A 6 months' alternate variation date, in particular, seems too close in time to date of death to prevent the excessive taxation in a period of steep economic decline which the alternate valuation rule was enacted to avoid. Riding out a temporary economic storm will indeed be perilous in the future if this proposed legislation becomes law.

The length of time reasonably needed to liquidate estates is of necessity a matter of judgment. No two estates are alike, and people die at all different points in the economic cycle. With respect to this legislation, however, the uniform opinion of the experienced estate administration men in the country is that the change proposed is bad. The historical record confirms their judgment.

At no time since the modern Federal estate tax was enacted in 1916 has the time for paying the tax been less than 1 year after death. The 12-month period was extended to 15 months after death in 1935, when alternate valuation was first permitted as a result of the depression. Extensions beyond the normal date have been authorized by statute in an increasingly liberal way, as experience accumulated in this field.

An extension in hardship cases was first granted in 1918 for 3 years, when the maximum estate tax rate was 25 percent. In 1938, when the top rate had climbed to 70 percent, the possible maximum extension period was increased to 10 years, the rule still in effect.

Since 1958, the estate tax law has also provided for payment of the tax attributable to closely held corporate and noncorporate businesses in 10 annual installments. At no time so far as we are aware, until now, when taxes and our economy are if anything more complicated than ever before, has shortening the estate tax payment time been seriously considered by the Congress.

The particular reason for this amendment-to balance the budgethas long since been shown to be impossible of achievement. The instant proposal should therefore receive no more favorable consideration than any other revenue measure.

As it is intrinsically unsound for the reasons hereinabove stated, it should be voted against by this committee.

GIFT TAXES

The gift tax acceleration proposal will achieve little gain in revenue at the expense of substantial complication in complying with and administering this minor tax, and should be rejected for this reason. Thank you very much for this opportunity to present our views. Mr. ULLMAN. Are there questions?

Mr. CONABLE. First of all, now, on the gift tax issue. Mr. Conway, is it not true that the largest part of the gifts made during the year are usually made in the first quarter?

It has been stated here by a number of witnesses that in all probability the speedup in gift tax collections would result in everyone deferring his gifts until the last quarter.

The gifts are not cumulatively reported throughout the quarters. They would be reported only once if only one set of gifts was given. Do you think that changing the gift tax returns would be likely to alter the pattern of giving very much in view of the 3-year contemplation of death statute and since most gifts are given by elderly people when they can maximize the use of the 3-year presumption?

Mr. CONWAY. My experience has been that gifts are given in the last quarter. People get around to doing their tax planning at the end of the year. But I thing it is more important that Christmas occurs at that time of the year and that is the season of the year when gifts are made. Some gifts unquestionably are made in January or the first quarter of the year because the gift tax under the present law is not payable until April 15 of the following year.

But in my experience first quarter gifts are exceptional.

Mr. CONABLE. Would it be you experience that change would not have much effect generally?

Most people do not consider the convenience of their laywers or accountants when they make gifts, do they?

Mr. CONWAY. No, they do not, but in my experience the change would not have much effect.

Mr. CONABLE. We have heard people say any speedup should be in connection with tax reform. Can you conceive of any circumstances in which the Bar Association of New York would favor a speedup?

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What kind of reforms would again make you change your view on this?

Mr. CONWAY. Actually, this proposal is an increase in taxes paid by the estate or the beneficiaries in one form or another. The income on the tax money, whether the property has been liquidated and reinvested or not, is gone. Therefore, the beneficiaries of the estate will receive less as a result of the decedent's death.

I think it is fair to say, then, that since this is an increase in tax or at any rate a decrease in the amount of property that will eventually pass to the estate's beneficiaries, the proposal would be more palatable if it were made in connection with a reduction in estate taxes which, I think, most people think, are too severely escalated anyway.

The rates start off too high. There should be a more gradual progression of the rates.

Mr. CONABLE. We heard a description of the typical estate as having a flurry of activity at certain points with a substantial hiatus at other points when virtually nothing is happening. I realize that it is only with respect to the highly liquid estate that that is likely to be so.

Do you think there might be some advantage for lawyers in having an accelerated timetable, at least with respect to liquid estates, so that they would not have the usual objections of procrastination from their clients who do not necessarily understand the refinements of the tax law and, usually, are quite anxious to get the matter over with, particularly after 9 months or a year has expired with no visible impact as far as the beneficiaries are concerned?

Mr. CONWAY. I think the complaints that are made about lawyers unduly procrastinating in administering estates

Mr. CONABLE. The only point I am making is lawyers get blamed for many things.

Mr. CONWAY. Usually it is due to the lawyers' dilatoriness or failure to explain the need for time to the beneficiaries. I suppose a speedup would be beneficial to lawyers and fiduciaries as a whole because it would accelerate administration of all of the estates in their offices and thereby reduce the overhead in the office.

But I don't think that is what a lawyer considers primarily, and certainly that is not the purpose of my being here. We want to have a good law, regardless of the effect on the lawyer and the fiduciaries.

With more time, we can unquestionably do a much better job for the estates we are responsible for. I am afraad that so rapidly accelerating the time for payment of the estate taxes will prevent us from doing that.

Mr. CONABLE. If you were before a surrogate, Mr. Conway, your enlightment might even have led you to represent the widows and orphans rather than the lawyers.

Mr. WATTS. Are there any other questions?

If not, thank you very much, Mr. Conway. Our next witness is Mr. Harrold McComas. We are delighted to have Mr. McComas, a member of the State Bar of the State of Wisconsin, with us today.

STATEMENT OF HARROLD J. McCOMAS, MILWAUKEE, WIS.

Mr. McCOMAS. Thank you, Mr. Chairman. I am Harrold J. McComas, of the law firm of Foley and Lardner of Milwaukee, Wis. I appear here today as a practicing attorney, and a member of

the State bar of the State of Wisconsin, and I may say that while my statement is given individually as a practitioner in the gift and estate tax areas, I have also reviewed the matter with various banks in Milwaukee and the Milwaukee Estate Council, all of whom generally support the views which will be expressed.

STATEMENT OF POSITION

This statement is made in opposition to the proposed bill to amend the Internal Revenue Code of 1954 to accelerate the collection of estate and gift taxes as proposed to the Congress under date of July 30, 1970, and now under consideration before the House Ways and Means Committee.

The statement is made in opposition to the proposed acceleration of estate and gift tax collections for the following reasons:

A. The proposed acceleration constitutes, for economic and fiscal purposes, a permanent increase in the rates of the gift and estate taxes assessed under the Internal Revenue Code of 1954 at a time when the whole issue of general revision and of substance and determination effective rates of such taxes is before the Congress of the United States. B. The proposed acceleration of estate tax collections would, in its operations, be discriminatory as between estates in which liquid assets and illiquid assets are held.

C. The proposed acceleration of U.S. estate taxes would unreasonably shorten the time required for liquidation of assets needed for estate tax payment.

D. The proposed acceleration of U.S. estate taxes is unnecessarily complicated and cumbersome.

E. The alternative proposal of the American Bankers Association and the American Bar Association to reduce the alternate valuation date to 6 months is unreasonable.

DISCUSSION

A. An effective increase in taxation rates

There can be no argument but that the fiscal effect of the proposal for acceleration of the collection of gift and estate taxes will be to reduce the total number of dollars distributable from decedent's estates or retained by donors following such acceleration, and equivalently to increase the economic benefit to the U.S. Treasury.

While the exact fiscal impact of such acceleration will vary directly with the cost of money as it may exist from time to time, the before income tax cost of accelerating the estate tax payment date by 8 months from 15 months to 7 months-would represent, in substance, a death tax increase of approximately 5 to 6 percent, based upon the current cost of money.

It is submitted that since Congress has had before it since February 5, 1969, extensive proposals for complete revision of the substance, incidence and effective taxation rates of both the U.S. estate tax and the U.S. gift tax, and, further, apparently intends to take up such matters in detail during 1971, it is inappropriate and premature to consider the proposed acceleration of tax collection, constituting an effective taxation increase, at a time prior to consideration of the entire estate and gift-tax revision proposala