The Washington times. [volume] (Washington [D.C.]) 1902-1939, 1937-06-01

GOIIlG VI ONCI p4,OOO1OOu A4OlA&
American dividends in 1886,
though it has not yet filed a
return.
Perhaps the most fragrant
case of this character is that of
a retired American Army officer
with a large income from valu-
able securities which he desires
to sell at a very large profit.
Abandons Citizenship
To escape our income and in
heritance tax laws, he used the
device of becoming a naturallzed
Canadian citizen, and six days
later organized four Bahamas
corporations to hold his Secur-
tiles. He and his lawyers APP
parently think that he can now
sell his securities free from any
taxes on his profits, since there
are no income taxes in the
Bahamas, and that he has
adroitly escaped American taxes.
%. The device of foreign in
Surance companies:
Two New York insurance
agents have caused the organi-
cation of insurance companies
in the Bahamas with a view to
enabling taxpayers to secure
spurious deductions for interest
through an ingenious scheme for
the issuance of life insurance
policies. Americans who went
into the scheme purported to
pay a large single premium for
their policies, but Immediately
borrowed back practically the
entire sum.
Under the plan the so-called
policyholders sought to obtain
large deduction for interest on
this loan, although the fact was
that no interest was really paid.
By this means, five prominent
Americans sought to evade
nearly $3.50, 900 in income taxes
in the years 1923 to 1886.
Offer Full Settlement
This fraud was discovered by
the Treasury Investigators and
all of the taxpayers have now
submitted offers to pay the full
amount Of taxes evaded, plus
interest. Until our investigation
is completed we do not know
how many similar companies
may have been organized in
other countries and utilized by
our citizens; nor do we yet know
whether this newly invented
type of fraud has other ramifi-
cations.
3. THE device of domestic
personal holding companies:
The rates of tax applicable to
personal holding companies
were reduced in 1886 at the
time that the combined rates
of the two taxes would be Suf-
ficient to insure the distribu-
ton of the entire incomes of
these companies, and the con-
sequent imposition of surtaxes
upon their owners. This expec-
tation has not been realized.
Thus, the single stakeholder
of one large personal holding
company saved himself $4,000
by causing his company to dis
tribute none of its income to
him.
Pair Save S791, 900
I'm another case, a man and
his wife saved $791, 900 through
the use of personal holding
companies in 1886.
In a third case, the personal
holding company reported over
100000 of net income, but the
total taxes paid by the two
stockholders, husband and wife,
we're less than 100000, due prin-
cipally to credits for payments on
Indebtedness the holding COM
pany prudently incurred in &C.
cumulating properties for it's
owners. If the personal holding
company had not been in exist
ence, the stockholders would
have paid over 100000 addi-
tional income taxes.
Another favorite device is
to organize a considerable num-
Der of personal holding COM
panies, not only for the sake of
reducing the tax, but of increaS-
ing the TreaSury's difficulties in
auditing transactions between
companies. At last accounts
one man had caused to be set
up some Sc companies scattered
all over the country. Two other
individuals we're utilizing % per
Sonal holding companies.
Many wealthy taxpayers to-
day are lodging the express pro-
visions of the law denying de-
auctions for personal expenses
by Incorporating their yachts or
their country estates, turning
over to the yacht or to the es-
tate securities yielding an in
come just sufficient to pay the
entire expenses of operation.
Hundreds of thousands of dol
lars in income taxes are annual
ly avoided in this way.
Incorporate Homes
Thus. one mans yacht is
owned by his personal holding
company. along with three mil
lion dollars in securities. He
rents the yacht from his COM
pany for a sum far less than the
cost of upkeep, and the COM
pany uses its income from the
securities to pay the wages of
the captain and crew, the ex.
penSes of operating the yacht,
and an annual depreciation al.
loWance None of these items