New-York tribune., 1918-10-24
ssSenate Body
Liberalizes
Profits Bill
:;
Makes Sweeping Changes
Allowing Corporations to
Compute Capital
Follows Wishes of
zv
Secretary McAdoo
Committee Inserts Broad
Relief Clause in the
kitchin Measure
BY Theodore M. Knappen


cess war profits title Of the revenue
bill to-day, the Senate Finance Com
nittec made the most significant
~'phangcs in tho Kitchin bill that it has
aade since it began so chop and patch
.....f hc House measure.
g. When 1t arcse from It's stacked up
~piies Of papers and documents this af-
.ernoon the committee had succeeded
to n beating the war excess profits title
INTO the shape desired by the Treasury
Department., and most Of the critics OF
the Kitchin bill. This end was accom-
7lished by sweeping alterations OF the
definition of invested capital and the
part of the law devoted to that subject
e'' important Changes Made
sam These are the outstanding achieve
-rnents of the days work:
40 First--Defnition of invested capital
changed so that "the increase in value
an-of any asset above the original cost"
may be included in capital.
Secondly another change in the
,snvested capital definition the full,
r"'criginal actual cash value of tangible
property paid in for stock in corpora
tion may be allowed even if it is in ex-
ri cess of the par value Of the original
stock issued for it.
,so Third The ADOPTION of broad re-
s'.aief clause for the relief of taxation
aicases in which the rigid application
- of the rules determining invested CAPT
.s..al elsewhere prescribed would work
nr4njury or injustice.
M The first change is of great sig
nlcance. because it makes it possible
=. for corporations to inclue accretions Of
an1alue in their invested capital as part
,,f their surplus or undivided profits.
The Kitchin bill specifically forbids
such an inclusion The amendment
4, o was made in this respect by simply
striking out the forbdding clause
.. The second change is of great impor-
'ance to conservative corporations
which have not adjusted their capital
o,stock to the value of property ac-
quired in exchange for it,
car Text of Relief Clause
The relief clause is introduced as
substitute for section 1927 (A) and
reads rs follows
-n' "Section 1927 (A). That in the follow
ing cases the invested capital shall oo
Determined rs provided in subdivision
F"t 81 of this section:
"(D Where the commissioner is un-
able satisfactorily to determine the in
Vested capital as provided in section
s26
go In the case of foreign cor
polation;
"(3) Where a mixed aggregate Of
tangible property and intangible prop
erty has been paid in for stock or for
stock and bonds and the commissioner
Is unable satisfactorily to determine
the respective values of the several
classes Of property at the time of pay
= ar cnt, to distinguish the classes of
property paid in for stock and for
bonds, respectively:
-a< "(4) Where. as compared with repre-
: sentative corporations engaged in a
ike or similar trade or business, the
corporation would (under section $3.50
be placed in position of substantial
:; inequality, because of the time or man
a.1er Of it's organization, or because the
actual value of it's assets on March |
~ 1913. was substantially in excess of the
amount at which such assets would be
valued for the purpose of computing
nysions of Section 1926:
"(5) Where the invested capital is
materially disproportionate to the net
income rs compared with representa-
tive corporations engaged in like or
Similar trade or business because;
"(a) The capital employed, although
4 material income producing factor is
every small, or is, in large part, bor-
oIowed.
"(b) There are excluded from in
- Fested capital, as computed under the
provisions Of Section 32G, intangible
0"assets Of recognized and substantial
",Nalue built up or developed by the
,d corporation.
"ic) The net income for the taxable
year represents the earnings of capital
unproductively invested through a Pc
sod of years.
-'i "cd) Proper recognition OF allowance
cannot be made for amortization, OBJ
solescence or exceptional depletion due
TO the present war, or to the neces
sty in connection with the present
war plants which will not be wanted for
.he purposes OF the trade or business
after the termination Of the war."
aoo Equalization Is Provided
he section go. referred TO as gov
erning the foregoing section, provides
that in the cases specified the invested
haeapital shall be held to be the amount
which bears the same ratio TO the net
~. income of the corporation for the tax
able year as the average invested cap
ital for the taxable year of representa-
tive corporations engaged In "a like. or
similar, trade or business bears TO their
average net income for such year
Another revision decided upon to-day
and greatly approved by the Treasury
Department IS one providing for con-
SOluated returns Dy a1n!lateu corpora
lions. The Kitchjn bill forbids consol-
idated returns TIL, Treasury Depart
Is"s%nent has found from experience that
! the consolidated return of q group of
affiliated corporations is pre- fcrable to
: separate retucns by each OF the sepa-
rate or subsidiary corporations
: The paragraph governing the deduc-
ton from invested capital on account
. of inadmssble assets was altered to
: read so that the deduction is defined
20 be percentage of the amount of
: the invested capital. as previously de-
fined, equal to the percentage which
the average amount of inadmissibe
assets is of the average amount of
. admissible and inadnissible assets
> held during the year.
Tendency Is to Liberalizc
number of other changes OF
minor or textuai nature were made. all
: tended TO hberalize the administers
: zion OF the war-excess profits pro-
visions While the committee has now
: gone entirely through the war excess
: profits of the bill, it has before it q
! proposition, which is likely to be fav-
i Orabfy acted upon to widen the scope