Evening star., 1954-04-20
S2S Million Taxes
Lost in FHA Loans,
Revenue Chief Says

Revenue InleI 9dYS
Internal Revenue Commission
er T. Coleman Andrews teSti-
fled today that the Government
might lose at least $28 million
in tax revenue because of Fed
eral Housing Administration
guarantee of over-appraised
loans to builders.
He offered this partial esti-
mate as the Joint Committee
on Non-essential Federal Ex-
penditures opened hearings on
alleged Irregularities in Govern
ment housing activity. AS the
second set of hearings on the
subject got under way at the
Capitol, Senator Byrd. Democrat.
of Virginia, the committee chair
man, charged that too many
Federal housing programs are
committing the faith and credit
of the Government to nearly
$40 billion which potentially rep
resent tremendous non essential
Federal expenditures.
Probe 1,149 Cases.
Mr.. Andrews told the commit
tee that his agency is investigat-
ing 1,149 cases where private
building corporations obtained
housing loans, built projects at
amounts considerably below the
guaranteed loan appraisal and
then distributed the difference in
"windfall" profits to stockholders.
He also disclosed that his agen-
Cy is checking the personal in
come tax returns of some FHA
appraisers. He reported that 1--WE
have found at least one situation
not just one caSe-where there
may be tax fraud"
Check Tax Returns.
Mr.. Andrews emphasized that
the main purpose of his agency's
investigation is to determine
whether proper and correct tax
returns were filed by builders
who received FILA guaranteed
loans. On the basis of cases
already examined in detail, he
said. we'll over $65.5 million was
distributed to stockholders of
corporations which borrowed
$1.2 billion.
Most of the $65.5 million. Mr..
Andrews explained. represented
the difference between the
amounts and the total actually
spent on housing projects. The
Internal Revenue Service con-
tends that distribution of such ,
surplus funds should be taxed
as regular income instead of as
capital gains.
The builders, however, have
fled such returns on a capital |
gains tax basis at much lower
rate than the normal income tax
rates which in some instances
would exceed rs per cent.
MI. Andrews therefore esti-
mated that, on the basis of $65.5 !
million. the Government stands
to lose at least S28 million in tax
revenue.
Hearing Recessed.
The Byrd hearing recessed
shortly after; noon for at least
a week. The Senator announced
that the committee wanted to
await the return of several House
members who are out of the
city.
Senator Byrd told reporters
later that until yesterday Albert
Cole, head of the Housing and
Home Finance Agency, had not
co-operated with him. 1t was
yesterday that Mr.. Cole brought
rim an answer to a letter of
March "a asking to determine
who passed on the Oaks Village
project in Queens County. New
York. That project is the basis
of a test case which the Internal !
Revenue Service has taken into |
court in it's claims that distribu-
ton of surplus profits from Gov
ernment guaranteed housing |
loans should be taxable as regu-
lar income instead of capital !
gains. The project cost $40 mil /.
lion but was insured by FILA for /
$24 million. /
Senator Byrd said he expects !
no further difficulty in obtaining !
information from the housing |
agency and that he plans to have
Mr.. Cole as witness later.
Cases Prior to 1850.
Heretofore, the public discus
sion has related to alleged ex-
cessively insured mortgages on |
large apartments under a pro-
gram which ended in 1850, and |
alleged fleeing of homeowners
under the current program of !
Government-insured loans for |
home repairs.
Senator Byrd said today, how
ever, there are at least four cur
rent programs, including the
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