Evening star. [volume] (Washington, D.C.) 1854-1972, 1962-11-19
Pafman Cites
Tax Status Of
Hughes Fund
By the Associated Press

HWSHVS
BY the Associated Press
Representative imam
Democrat of Texas. has chal-.
lenged the tax-exempt status of
the Howard Hughes Medical
Institute and raised a question
of whether the Hughes interests
should have paid millions of
dollars in taxes.
Mr.. Patman set forth his
views in an October 2 letter to
Mortimer M. Caplin. commits
sioner of internal revenue,
copy of which was obtained by
the Associated Press.
There has been no reply as
yet from Mr.. Caplin.. AS he left
on a Midwest speaking trip, MIR.
Patman accused the Treasury
Department of dragging its
feet" in the matter.
At the same time. Mr.. Pat
mans office disclosed that the
White House has set up q new
Tntra- governmental group to
study the issue of exempt
foundations.
Hearings Due
Mr.. Patman, who is chairman
Of the House Small Business
Committee, plans to hold hear
lngs on the subject soon. The
committee has been collecting
Information from more than
500 foundations for more than
a year.
H. A. Olsher, director of the
foundation study for the COM
mittee, said in an interview
that the White House action
was in direct response to in
formation already released by
Mr.. Patman.
The new group is made up of
officials of the White House,
the Council of Economic Ad-
visers, Treasury, Justice De-
partment and the Budget
Bureau.
Mr.. Patman has issued sew
eral interim reports on his
foundation survey. He already
had questioned whether the
Howard Hughes Medical In
stitute met the requirements of
the tax exemption law.
The institute, located in Mi
ami Beach. Fla, was created |
in 1858 along with a wholly
owned subsidiary. the Hughes
Aircraft Co. The institutes sole
trustee is Howard Hughes, who
has life tenure and can name
his successor.
Cites Accumulation
In his letter to Mr.. Caplin,
Mr.. Patman suggested:
That millions of dollars of
rental income received by the
institute from the subsidiary,
Hughes Aircraft, should be
taxed as unrelated business
income.
That Hughes Aircraft had
accumulated nearly SIT million
in earnings by the end of 1861
without distributing any to its
sole stakeholder, the institute,
and this should be taxed as
"unre asonably accum u
lated earnings"
That the Hughes Aircraft
accumulated earnings should be
considered in d termining
whether the institute itself has
had an unreasonable accumula-
ton of earnings and, therefore,
has violated its tax-exempt
status.
That the Hughes Medical
Institute is not eligible for tax
exempt status for several tech
nical reasons, principally that
it is conducting the unrelated
business of managing the OPP
erations of Hughes Aircraft.
That a So million charitable
tax deduction taken by another
Hughes enterprise, the Hughes
Tool Co., in 1853 should not
have been allowed. Hughes Tool .
claimed the deduction for
transferring patents, trade
marks and goodwill to the .
Hughes Medical Institute.
Mr.. Patman also asked
whether these millions in values
transferred to the institute |
should be considered as a divi-
dend to Howard Hughes per-
sonally, as the sole stakeholder
Of Hughes Tool. He cited a
previous ruling of the revenue
service that such a dividend
could be taxed at 80 per cent.
He also demanded the names
and addresses of all persons
who took part in the reviews
and conferences that led up to
the granting of tax-exempt
status for the Hughes Medical
Institute in 1857.
In 1855, the Internal Revenue
Service had denied the institute
tax-exemption on the ground
that it was a device for siphon-
ing off otherwise taxable in
come to an exempt organiza-
ton.
Then in 1857 the agency re-
versed itself and granted the
tax-exempt status to the in
stitute.
Mr.. Patman commended the
first ruling was right.