Evening star., 1937-08-05
Report
Continued From First Page.)

for incorporation of yachts and coun-
try estates, the committee suggested
that they be handled by revising the
definition of personal holding corpora
tions.
1t also urged that deductions from
gross income should not be allowed
for expenses of operation and main
tenance Of property owned or operated
by holding company to the extent
the expenses exceed rent or compen-
sation unless it is established that the
compensation is the highest obtainable
that there was reasonable expectation
OF profit, that the property was neces-
sary to the conduct of the business or
that it was held in the course of busi-
ness carried on for profit.
The committee said these changes
would have the effect of placing the
personal holding company on the same
basis as an individual who cannot off
set his personal expenses against his
income
Incorporated talents would be
treated similarly. Here again the
committee would redefine personal
holding companies and include in in
come the full amount received bv the
corporation from contracts for per-
sonal services of any individual who,
with his family and partner directly
or indirectly owned 25 per cent or
more in value of the outstanding
stock.
Discussing artificial deductions for
losses from sales or exchanges of
property, the committee noted that
losses can be established under present
law between two personal holding cor
porationS commonly controlled.
IhlS, the committee said, permits
advantage to be taken of any ad-
verse change in the market price with
out an actual transfer of assets into
other hands
DiSall0Wing Losses.
To correct the situation, it recon-
mended that losses be disalloWed be-
tween two personal holding corpora
tlons if more than so per cent in
value of the outstanding stock of both
IS owned by the same individual or
members of his family.
The committee proposed also that
losses be disallowed between an indi-
vldual and his partners corporation
If the individual owns stock in the
corporation, between corporations of
husbands and wives, between the set
tlor OF a trust and the fiduciary of any
trust created by the settlor, between
flduciaries of any trusts created by a
common settlor. between a fduciary
of any trust and any beneficiary Of
the trust.
In the matter of artificial deduc-
tons for interest and business ex-
pense, the committee urged that:
In a transaction between persons
who are not permitted a deduction
for loss from sale or exchange of
property where the debtor makes his
return on the accrual and the creditor
on the cash basis. deductions should
be disalloWed for expense. and interest
accrued by the debtor within the tax
able year but not paid within two and
one-half months after the close of the
year.
With reference to multiple trusts,
the committee proposed that the
$1,000 exemption for each one be re-
pealed.
Taxation of nonresident aliens de-
irving income from American sources
would be changed to subject their in
come, when it exceeded $2l 800, to
normal and surtaxes on net income
Those so taxable would be required
to file annual returns.
The present law provides 10 per
cent withholding tax on income OBJ
tained by nonresident aliens from
American sources. The $21 900 is the
approximate point at which the effec-
tive rate becomes 10 per cent.