October 10, 1021 



HARDWOOD RECORD 



15 



By li'ilson Coinplon 



Svvrvtiirn (intl il(nia(fn' Xatioind Lumher Manuftirturrftt' Associ'ttion 



On August 15 the Rovciuie Bill as prepared by the Ways ami 

 Means Committee was introduced into Congress. It was passed 

 by the House with amendments on Auust 20. During the recess 

 of Congress from August 24 to September 21 the Finance Com- 

 mittee considered the Bill as it passed the House, and reported it 

 with amendments to the Senate on September 21. 



The Senate Committee completely rewrote the House bill using, 

 however, most of its provisions. A number of changes from the 

 House bill and from the present law have been made in the Senate 

 bill. Some of these are of peculiar interest to taxpayers in the 

 lumber industry. 



General Provisions 



The (donate Committee has agreed to the reduction in surtaxes 

 on individual incomes substantially the same as provided in the 

 bill as it passed the House. Slight change has been made by 

 reducing the rate of surtaxes on the lower incomes. The excess 

 profits tax is repealed effective January 1, 1922. This follows the 

 action of the House of Representatives in postponing the effective 

 date of excess profits tax repeal for one year. 



The capital stock tax would be repealed effective as of the date 

 of passage of the act. 



All transportation taxes are repealed effective January 1, 192.'i. 

 Effective January 1, 1922, and for one year thereafter the trans- 

 portation taxes would be reduced by 50 per cent, namely, on 

 freight from 3 per cent to IVi per cent; on passenger fares from 

 8 to 4 per cent; on pullman fares 8 per cent to 4 per cent. 



Most of the miscellaneous stamp and excise taxes, state taxes, 

 etc., are continued in force although amended in some particulars. 

 Important Administrative Changes 



The Senate Committee bill includes the provision of the House 

 bill providing for the definite determination of tax liability by 

 means of written agreement entered into between the taxpayer 

 and the Commissioner of Internal Revenue; but the Senate bill 

 provides that the decision of the Commissioner on the merits of 

 any claim involving the tax liability of any taxpayer, shall not be 

 subject to review by any administrative official unless it be shown 

 that there has been fraud or error in calculation. 



The Senate bill re-affirms the provision of the House bill that 

 Treasury decisions need not be applied retroactively unless the 

 Commissioner so elects. This is provided in order to avoid the 

 necessity for recalculation of past tax accounts whenever a 

 Treasury decision is rendered changing or amplifying previous 

 rulings. 



The provisions of the House bill providing for a tax simplifica- 

 tion are included in the Senate bill. For ease in computation and 

 avoidance of confusion the allowable Liberty Bond interest 

 exemptions are enumerated and consolidated. This if enacted 

 will be a considerable convenience to many taxpayers. 



Under the Senate bill claims for refund by taxpayer must, be 

 made within four years after the date of paj'ment of any tax, 

 penalty or sum against which he claims refund. In the present 

 law this period is limited to two years. 



The Senate bill provides that no suit by the Government for 

 the collection of any tax shall be begun after the expiration of five 

 years from the time when the tax is claimed to have been due, 

 except in cases of fraud and mis-representation. Furthermore, 

 under the Senate bill all assessments of additional taxes would 

 have to be made within four years after such taxes are claimed 

 to have been due, except in cases of fraud. 



In order to create a substantial inducement to the Treasury 

 Department to make refund to the taxpayer of taxes unlawfully 



or incorrectly assessed and collecti^l, it is provided tli;it interest 

 shall be paid by the Government on the total amount of such 

 refunds or credits at the rate of 6 per cent a year on the following 

 bases: 



Fir&t, if Ihe ta.xcs wt'vr paid hy the taxpayer imdor prot<'st, the interest 

 would run from the time the tax was paid ; 



Second, if the amount was not paid under protest but pursuant to an 

 additional assessment levied by the Treasury Department, the interest 

 would run from the time the assessment was paid ; 



Third, in rase no protest was made, and in ease the tax was not paid 

 because of an additional assessment levied by the Treasury Department. 

 the interest would run fruni a date six months after the taxpayer had 

 filed his claim for refund <>r credit. 



Exchanges of Property 



Timber owners and lumber manufacturers are directly inter- 

 ested in the provision in both the House and the Senate revenue 

 bills providing under certain circumstances that exchanges of 

 property shall not be considered to have given rise to taxable 

 income. The bill as it passed the House provides that exchanges 

 of property wherein the property received in exchange does not 

 have a "definite and readily realizable market value," sh.all not 

 be considered to have created taxable income, but the property 

 received in exchange shall be considered as having taken the place 

 of the property given in exchange. 



The House bill provides that even if the property received in 

 exchange does have a definite and readily realizable market value, 

 no taxable income will be recognized if such property is held for 

 "investment or for productive use in trade or business." 



The Senate bill has changed this provision by limiting the 

 general exemption under exchanges to exchanges for property which 

 has no "readily realizable market value," but eliminating the 

 word "definite." It appears also to limit the application of the 

 special provision by eliminating property held "for investment," 

 but not held for "productive use in trade or Vjusiness" from the 

 benefits of this section. The Senate bill provision apparently would 

 cover all timberland exchanges by operating companies attempting 

 to block up their holdings, but might not so clearly apply to strictly 

 timber-holding companies. 



Net Losses 



The Senate bill as well as the House bill provides for the deduc- 

 tion in subsequent taxable years of net losses incurred during any 

 taxable year. Beginning with the year 1921 this net loss provision, 

 therefore, would apply to losses sustained during the taxable year 

 1921, but would not permit the taxpayer in reporting his taxes on 

 income received during 1921 to deduct losses incurred prior to 

 December 31, 1920. This would mean that those taxpayers who 

 have taken their losses during the year 1920 would not come under 

 the benefit of this provision, but that those having a net loss sus- 

 tained during 1921 may deduct the amount of the net loss from 

 what would otherwise be the taxable income for the years 1922 

 and 1923. 



Distribution of Profits Aciiiiired Prior to March 1, 1913 



The House bill makes tlie same provision covering the distribti- 

 tion by corporations to stockholders of earnings accumulated prior 

 to March 1, 1913, which has been in effect under the Federal 

 Revenue Law since 191G. This provision is in substance that after 

 the corporation has distributed all the earnings or profits accum- 

 ulated since February 1, 1913, the earnings or profits acquired prior 

 thereto may be distributed to the shareholders exempt from the tax. 

 In substance this means that the shareholders are entitled to receive 

 in distributions from a corporation, the same amount of accum- 

 ulated earnings in the form of earned surplus, which the corpora- 

 tion could have distributed to them, free of tax, immediately prioi 



