Evening star., 1937-06-01
TO THE Congress OF the United
States:
A condition has been devel-
ONliHU dNrinn tia nacf FAM

| A condition has been devel-
! oping during the past few
| months SO serious to the Nation that
the Congress and the people are en-
! titled to Information about 1t.
The Secretary OF the Treasury has
given me report Of a preliminary
study Of income tax returns for the
| calendar year 1896. This report re-
veals efforts at avoidance and eva
sion OF tax liability so widespread
and so amazing in their boldness and
their ingenuity that further action
without delay seems imperative.
We face a challenge to the power
OF the Government to collect, uni
formly, fairly and without discrimina-
ton, taxes based on statutes adopted
by the Congress.
Mr.. Justice Holmes said, Taxes
are what We pay for civilized society"
Too many individuals, however, want
the civilization at a discount.
Methods Of escape or intended es-
cape from tax liability are many.
Some are instances of avoidance
| which appear to have the color of
legality; others are on the border
| line OF legality; others are plainly
| contrary even to the letter Of the law.
All are alike in that they are def
nitely contrary to the spirit OF the
law. All are alike in that they rep
resent q determined effort on the
part OF those who use them to dodge
the payment Of taxes which Congress
based on ability to pay. All are
alike in that failure to pay results
in shifting the tax load to the shoul-
ders OF others less able to pay and
In mulcting the Treasury OF the Gov-
ernments just due.
l commend to your attention the
following letter from the Secretary
OF the Treasury:
THE Secretary of the Treasury,
| Washington.
May 20, 1887.
MY dear Mr.. President:
| las you know, the Treasury was
surprised and disturbed by the fall
ure OF receipts from the income tax
on March 18th to measure up to the
budget estimates. Therefore, we under
look an immediate investigation. Only
a preliminary report can be made at
thlS time because the complete in
Vestigation covering all the income
tax returns filed will require the bal
ance Of this year. Furthermore, since
many OF the returns of large manu-
featuring corporations have not vet
been f1led, the present report is con-
hned almost wholly to data disclosed
by the individual tax returns.
But even this preliminary report
dlscloses conditions so serious that
immediate action is called for. More
than the usual examination and audit
oy the Treasury is needed. 1t seems
clear that if tax evasion and tax
avoidance can be promptly stopped
through legislation and regulations
resulting from special Investigation
a very large portion OF the deficiency
IN revenues will be restored to the
Treasury.
Foreign Holding Firms
Set Up to Evade Levies.
| I herewith enumerate some Of the
principal devices now being EMPLOYED
ny taxpayers with large incomes for
the purpose of defeating the income
taxes which would normally be paw
able by them. As We continue DIR
preliminary examination, other deyices
are being disclosed.
| l. The device of evadng taxes
by setting up foreign personal
holding corporations in the Ba-
hamas, Panama, Newfoundland
and other places where taxes are
| low and corporation laws lax.
Americans have formed 81 such
companies In the Bahamas alone in
1888 and 1885 and % more were or
ganized by Americans in the Bahamas
curing the past two months. Panama
ana Newfoundland seem to be even
more fertile territory since their cor
poratlon laws make it more difficult
10 ascertain who the actual stock
holders are. Moreover, the stock
holders have resorted to all manner
OF devices to prevent the ACQUISITION
OF information regarding their COM
panies. The companies are frequently
organized through foreign lawyers,
WIN dummy incorporators and
dummy directors. so that the names
OF the real parties In interest do not
appear.
One American citizen with .
SS,UO0,000 Bahamas corporation has
apparently attempted to prevent the
bureau OF Internal Revenue from
catchlng up with him by filing hi.
Individual tax returns In successive
years from towns in New Brunswick
BRITISH Columbia, and Jamaica.
Another individual believes tha,
ne has been SO successful In remoyins
MS assets from the United States te
the Bahamas that he is defying tn,
Treasury to collect tax upon q
$25O,0OO fee he has received: and. b,
way OF insult, he has offered to com.
promise his admitted tax liability o1
$4,000 for past years by a payment
Of s1,70O.
Still another individual showed ,
large net loss on his personal return
Tor 1886. In considerable part, the
loss was due to the large deduction
ne claims for interest on a loan ma de
70 him by his personal holding com.
pany. But the man in question is ne
OBJECT OF charity, for his persona
holding company, organized in Canada
mad an income of over $l.5O0,0OO from
American dividends in 1886, though
1t has not yet filed a return.
Perhaps the most fragrant case
OF this character is that of q retirec
American Army officer with q large
income from valuable American sc.
curities which he desires to sell at 9
very large profit. To escape our in.
come and inheritance tax laws, he
used the device of becoming a natu.
rallied Canadian citizen, and six day.
later organized four Bahamas cor.
porations to hold his securities. He
| In