Evening star., 1940-10-08
Excess Profits Bill
Has Relief Section
ForAbnorma| Cases
Special Treatment Will
Be Given Incomes From
Claims and Judgments
Third OF q SerieS.)
By OLIVER MCKEE.

the House bill general relief Sec
ton. The conference accepted the
Senate amendment, with some
changes. The general relief provi-
sion, Senator Harrison told the Sem
ate last week, is one of the most i'm
portant features of the excess profits
tax bill
The Senate amendment was de-
signed to secure special treatment
for income which is either abnormal
In kind or which, in comparison with
the taxpayers earnings during the
base period, is abnormal in amount.
Among the types which will receive
special treatment are incomes aris-
ing out of claims, awards, judgments
and DEGREES, income from contracts
whose performance requires more
than a year and income from ex-
ploration, discovery. research and
the development of patents. The
conference added a new category OF
potentially abnormal income, name
", dividends on stock of foreign
corporations, except foreign per-
Under the conference agreement,
the commissioner of internal reve-
nue. will have the authority to ad-
Just any items which abnormally
affect either income or capital. His
decisions will be subject to review
by the Board of Tax Appeals on ap-
plication of the taxpayer. The
Treasury and the Joint Committee
on Internal Revenue Taxation will
continue to study the problem OF
Hardship" cases and may submit
recommendation for further
liberalization of the law to the next
Congress.
Inadmissible Assets.
In addition to corporate stock, the
House bill treated all Federal. State
and local obligations as inadmis-
sible assets, and the interest which
a corporation received from these
obligations was excluded from tax
net income. Under the Senate
amendment, all Federal obligations,
the interest of which is not exempt
from excess profits taxation, were
treated as admissible assets, and
the interest derived therefrom was
made subject to the excess profits
tax. In addition, the taxpayer could
treat all other Federal, State, and
local obligations as admissible as
sets, adding the interest thus re-
ceived to normal tax net income.
The conference agreement elin1i-
mated the distinction between cer-
tain United States securities and
otner securities of the Federal, State
and local governments. Under the
bill. as enacted, the taxpayer may
include the interest received from
these obligations in normal tax net
income. If corporation elects to
do this. these obligations will be
treated as admissible assets.
In computing its excess profits
credits, corporation had choice
between the average earnings and
invested capital methods, under the
House bill, only if it had been in
existence during the entire 48
months prior to the beginning of
its first taxable year in 1910. For
eign corporations subject to the
excess profits tax were required to
il in existence during this 48-month
period, while the use OF the invested
capital plan was made mandatory
for all other domestic and foreign
corporations. Under the Senate
amendment, adopted by the confer
ence. domestic corporations which
were in existence prior to January
!, 1910, and all foreign corporations
which were required by the House
bill to use the average earnings
method, are offered a choice be-
tween the two formulas in comput-
ing their excess profits credits.
Recovery of Debts.
The bill in its final form contains
several important provisions added
by the Senate. One is the exemp-
ton from the excess profits tax of
income obtained through recovery
of a bad debt, if this debt was de-
ductible from gross income for any
taxable year prior to January l,
1910. Another is the permission to
deduct losses from the sale of de-
preciable assets in computing excess
clusion of refunds and interest on
Agricultural Adjustment Act taxes
from income subject to the excess
profits levy. A fourth Is provision
barring reductions in base period
income through deductions on ac-
count of the retirement or discharge
of bonds.
To encourage domestic produc-
ton, the Senate exempted from the
excess profits tax income obtained |
from the mining of tungsten, manga
nese, quicksilver, platinum, anti
mony, tin and chromite All of these |
have been listed as strategic mate
rials by the Army and Navy NUM-
tions Board, and as part of the ma
tional defense program the Federal
Government is now seeking to in
crease domestic production of these |
metals.
The Senate bill excluded from the |
excess profits tax awards of the |
Mixed Claims Commission estab-
lished in 1922 to adjudicate claims |
between the United States and Ger
many. While most of the awards
made by the commission already
have been paid, there have been a
number of recent awards to Amer
lean nationals on which payments
have not yet been made. The con-
ferees agreed unanimously that
these payments should not be sub
1ect to the excess profits levy and
included them as one of the "ab-
normalities" of income which will
be taken care of under the general
relief section of the law.
I9THcT AA1R