Evening star., 1937-06-01

nor do We yet know whether this
newly invented type Of fraud has other
ramifications.
g. The device OF domestic personal
holding companies:
THE rates OF tax applicable to per-
sonal holding companies were re-
duced in 1885 at the time Of the en-
actment OF the undistributed profits
tax. 1t was believed at that time that
the combined rates Of the two taxes
would be sufhcient to insure the dis
tribution of the entire incomes OF
these companies and the consequent
imposition Of surtaxes upon their own
ers. This expectation has not been
realized.
Thus, the single stockholder OF one
large personal holding company saved
himself $4,000 by causing the COM
pany to distribute none Of its income
to him.
In another case, a man and his wife
saved S791 900 through the use Of per-
sonal holding compa nieS in 1896.
In third case, the personal hold
ing company reported over $5OO,OOO
OF net income, but the total taxes paid
by the two stockholders, husband and
wife. were less than $50 1000, due prin-
cipally to credits for payments on in
debtedness the holding company pru-
IDENTIFY incurred in accumulating prop
critics for its owners. If the personal
holding company had not been in ex-
1stence the stockholders would have
paid over 100000 additional income
taxes.
Another favorite device is to organ
1Ze a considerable number OF personal
holding companies, not only for the
sake of reducing the tax. but of in
creaslng the Treasury's difficulties In
auditing transactions between COM
panies. At last accounts one man had
caused to be set up some SO COM
panles, scattered all over the country.
Two other individuals We're utilizing
70 personal holding companies.
Yachts. Estates incorporated;
Artificial Interest Claimed.
4. The device of incorporating
yachts and country estates:
Many wealthy taxpayers today are
lodging the express provisions Of the
law denying deductions for personal
expenses by Incorporating their yachts
or their country estates, turning over
10 the yacht or to the estate securities
yielding an income just sufficient to
pay the entire expenses Of operation,
Hundreds OF thousands of dollars in
income taxes are annually avoided In
this way.
Thus, one mans yacht is owned
by his personal holding company,
along with 100000 in securities
He rents the yacht from his COMPANY
Tor sum far less than the cost of
upkeep and the company uses its in
come from the securities to pay the
wages OF the captain and crew, the ex-
penses OF operating the yacht and an
annual depreciation allowance. None
OF these items would be deductible II
this individual owned the yacht per-
sonally.
"A great many wealthy taxpayers
are utilizing similar arrangement
Tor the operation of their country
places and town houses.
One man has placed his $4,000 600
city residence in such a corporation. :.
another his racing stable. whose
Losses last year were nearly 5000 900.
Inc tax savings he thus sought to
OBTAIN through the use OF the holding
com pany were $4,000.
One wealthy woman has improved
on the general plan OF evasion by
causing her personal holding COM
pany, which owns her country place,
to employ her husband at a salary
TO manage 1t. She can thereby SUD-
ply him with pocket money, and tn
enect claims 4 tax deduction for the
expense Of maintaining him.
IS. The device of artificial deduc-
tlons for interest, losses, ETC.:
Taxpayers are seeking greatly to
reduce their personal income taxes bv
claiming deductions for interest on
loans to them by their personal hold
Ing companies, or on loans to them
by their family trusts These transa c.
tlons normally have no business pur.
pose, but are merely an artificial
means of shifting income from one
member of the family subject to high
surtax rates to another member of the
family subject to lower rates.
| Splitting Up Trusts
Reduces Tax Income.
Thus, one woman claims a large
annual deduction for interest on 9
loan made to her by her husband a,
trustee Of a trust which she created
for their children. The mother there.
by seeks to secure a deduction for hel
contribution to the children's support
and since the trust is revocable by he,
husband, the parents still have the
desired control over the property anc
its income.
In the same category are losse.
deducted by taxpayers who claim thai
their racing stables or hobby farms
were operated for profit, even though
q profit is never realized. Thus. 9
prominent manufacturer seeks de.
duction Of over $125,o00 against his
income from his business on account
Of his losses in operating a chicken
farm.
IS. The device Of the creation Of
multiple trusts for relatives and de.
pendents:
Splitting income two ways, between
husband and wife, reduces income
taxes and leaves the family income
intact. Splitting the family income
many ways by means of many trusts
all for the same beneficiaries, may
effect q much greater saving, while
leaving the money actually in the
same hands. For the creator Of the
trust often constitutes himself or his
wife as trustee, and thus retains full
control over the investment and dis
position of the fund itself and OF its
income.
"One thrifty taxpayer has formed
"a trusts for the benefit of four mem
bers OF his immediate family and
thereby claims to have saved them
over $485,000 in one year in taxes.
I