Evening star., 1935-02-14
CHARGES Of TAX
EVASION REBOUND
Trade Commission State.
ment Puts Neglect Blame
on Treasury.
BY DAVID LAWRENCE.

II has often been said that the LETT
hand doesn't know what the right
hand is doing in Government, and
something happened this week which
illustrates it better than any incident
in long while.
The Federal Trade Commission in
a public statement has accused the
public utilities of tax evasion" If
this is so, then it is also accusing the
Treasury Department of Incompetence
and serious neglect of duty.
It is the business of the Treasury
Department to collect taxes and to
put anybody in Jail who evades taxes.
There is no case of evasion pending
against any of the companies men
toned in the Federal Trade Commits
sion announcement. If it were, the
courts would have the case by this
time.
Also, the Treasury can at any time
proceed on back taxes and the pres
ent administration can lodge a case
against any taxpayer Bho wasn't
prosecuted by the last administration.
"Tax-Evasion Practice"
The announcement from the Fed
eral Trade Commission is clumSily
worded, in that it admits the law
used to permit consolidated returns,
but the statement goes on to refer to
"this taX-evaSion practice" The al
legged practice held up to scorn is per-
fectly we'll known to every tax lawyer
in the country; namely, that a parent
company can pay one return in taxes
on all of its subsidiaries income and
that losses and profits may be offset
one against the other.
But the Trade Commission appar-
emily was seeking to injure the utili-
ties and give the impression they had
done something wrong about their
taxes. Just now the utilities are the
targets of all sorts of abuse. even on
matters in which they have obeyed
the law.
If the Federal Trade Commission is
right in its charges of tax evasion" !"
then the Treasury is remiSs in not
putting in Jail all the tax evaders. If
the Treasury is right and there was no
violation of law by the utilities on
taxes, then the Federal Trade Com
missions announcement contained
several libels against the companies
mentioned by name, for each of these
companies is a going concern and has
issued securities to the public and it
Is a serious matter to accuse them of
tax evasion"
Word Meanings Differ.
Whoever wrote the Federal Trade
Commission statement evidently didn't
know the difference between tax eva
sion" and tax avoidance" The terms
are not used INTERCHANGEABLE. One
means the evasion of the law and is
punishable by fines and imprisonment
upon conviction. The other means
that the law says what shall and shall
not be taxable and that taxpayer
has a right to avoid taxes by taking
advantage of the exemptions and reg
ulations specified in the law itself.
Perhaps the most serious charge in
the Trade Commission statement is
this: Holding companies are not
justified in recording as income the
savings from this procedure (consoli-
dated returns). The subsidiary COM
panieS in a holding company group
are entitled to the benefits of any
savings to the group due to the filing
Of a consolidated return"
II this is so, then all the State
commissions which regulate the oper-
ating companies have missed a bet,
as has also the Treasury Department.
But now that the tax law has been
changed and consolidated returns no
longer are permitted, the operating
companies pay their taxes direct to
the Federal Government. Hence the
alleged savings has been cut off en-
tirely and the consumers do not get
in any more than they did before.
Question of Purpose.
The question then turns on whether
the Federal Trade Commission was
really trying to correct an important
tax evasion" or whether it was al
lowing itself to be used in the gen.
eral attack being made on holding
company investors, who are due to
lose much of their savings altogether
If the present bill is jammed through
without amendment in an atmosphere
Of prejudice created by the Trade Com
missions barrage of statements.
Enough abuses in holding COM
pany financing that need correction
have been disclosed by the Trade
Commission without charging exist
ing companies with violations Of law
they have never perpetrated.
Donald Richberg, Federal co-ordi-
nator, was supposed to watch and iron
out these conflicts between bureaus
and departments, hut there is as yet
no coordination which prevents one
agency in the Government from at
tacking the good faith and integrity
Of another.