Evening star., 1938-03-30
CAPITAL GAINS TAX
TO EXEMPT FIRMS
SENTENCED TO DIE
Senate Committee Moves to
Protect Utility Security
Owners.
INVESTMENT TRUSTS
BLANKETED INTO BILL
Both Actions Are Taken With
Approval of S. E. C. After
Chairman Testifes.
BY JOHN c. HENRY.

BY JOHN c. HENRY.
The Senate Finance Committee to-
day exempted from taxable income
the capital gains or losses accruing
from dissolution of utility holding
companies under the so-called death
sentence.
The action would have the effect
Of protecting from prohibitive taxa
ton the equity of security owners in
utility holdings, involved in changes
in corporate structure under the act
of 1886.
At the same time, the committee
blanketed into the ordinary corpora
ton tax group all investment trusts.
thus making them subject to the fiat
18 per cent income tax, with credits
allowable for corporations.
Previously, investment trusts had
received preferential treatment.
Both actions were taken with ap-
proval of the Securities and Exchange
Commission, whose chairman, William
o. Douglas, appeared before the COM
mittee this morning.
Called Obvious Injustice.
Although not important particu-
larly as to revenue, the decision on
the utility transfers has the effect of
correcting an obvious injustice in Gov
eminent policy and should lead to
comparatively rapid progress in the
integration of utilities as provided in
the Public Utility Holding Company
Act of 1886.
Under section II of this act, the
S. E. c. is directed to supervise the
simplification Of the corporate set-up
of the utilities and to accomplish a
geographic integration of the system.
1t is this latter task, implying the con-
solidation of utility enterprises now
existent or their transfer to different
parent groups, that give rise to the
death sentence" description.
Briefly, the job may be accomplished
through voluntary action Of the COM
panies or by specific direction Of the
commission
Under present tax law. however. the
capital gains and losses resulting from
the shifting of ownership of securities
in these utilities are subject to the or
dinary tax treatment accorded to all
capital gains and losses. The effect,
in other words, was to compel transfer
Of the securities and at the same time
compel payment of heavy taxes on the
forced transfer condition which
Chairman Douglas described this
morning as too much like putting
gun at the head of the industry"
Second Qualification.
A second qualification specifies that
the exemption should not be effective
in case of transfers for cash-that is,
if the holder of the securities sells
them outright rather than accepting
securities of different status in the
exchange. Also the transaction be-
comes taxable one at later date if
there is an initial transfer under sec
ton IL and a subsequent outright
sale
The committee was to attempt to
complete its consideration of the reve-
nue. bill in a second session this after
noon.
Meeting in a four-hour session last
night, the committee responded to the
leadership of Chairman Harrison.
Democrat, of Mississippi by conclu-
sively voting down all special inter-
est" pressure to load the measure with
extraneous tariff provisions.
Extra Year Allowed.
Most important decision, however,
was that of lberalizing the tax re-
quirements applying to liquidation of
personal holding companies. The COM
mittee decided to allow them an extra
year in which to complete their liqui-
dation and pay their taxes on an in
stallment basis.
BY the amendment, such companies
could take three years for the process
of liquidation and those receiving the
proceeds from sale of assets could
spread their tax installments over
four years. Many of these companies,
rendered virtually useless by the 1887
law tightening avoidance loophopes,
have stood idle for the past year with
billions of dollars thus withheld from
the reinvestment market because of
the prohibitive taxes which would
have applied had they proceeded with
liquidation.
Pork Tax Excluded.
Chairman Harrison estimated last
night that from $4,000 100000 to s4,-
0O0, 100000 has been frozen in these
companies. Several witnesses appear
ing before the committee during the
open hearings placed the figure as
high as $6,000,000, 900. Availability of
an important part of these totals in
the investment market should be of
material help in stimulating new
business, it is felt.
In its decision to exclude tariff pro-
visions from the modification meas
ure, the committee was complying
with administration wishes as ex-
pressed yesterday by Secretary Of
State Hull and Secretary of Agricul-
ture Wallace. Stricken from the.
House bill was an import excise tax
Of 6 cents per pound on prepared
(see TAXES, Page A-5)