3. Section 210. One-percent limitation on medicine and drugs.-The committee approved the provision in the House bill without change.

4. Section 211. Child care. The committee previously had adopted an amendment to the child care provision in the House bill (Neuberger amendment No. 209, offered by Senator Williams-see press release No. 3). The committee approved the child care provision in the House bill as previously modified by the Neuberger-Williams amendment.

5. Section 212. Moving expenses.-The committee adopted the Morton amendment No. 375 which provdes that where an employer reimburses an employee for certain expenses in connection with the sale of his house, that this amount is to be treated as a part of the sales price of the house rather than compensation received by the employee. The amounts referred to cover any losses by the employee attributable to the forced sale of his house and also the selling expenses incurred by him in connection with that sale. With the inclusion of this amendment the moving expense provision of the House bill was adopted by the committee.

6. Section 213. Interest on loans incurred to purchase certain insurance and annuity contracts.-The committee adopted the House provision without change.

Press Release No. 12

JANUARY 14, 1964.

TENTATIVE DECISIONS BY SENATE COMMITTEE ON FINANCE ON REVENUE ACT (H.R. 8363)

1. Section 214. Employee stock option and purchase plans.-The committee adopted this provision with three modifications. First, it amended the provision to provide that options granted after June 11. 1963, and before January 1, 1965, which do not in all respects meet the terms of a "qualified option" may be modified to meet those terms without the modification being considered a new option. The second and third amendments related to the so-called reset provisions. The first of these two modifications provides that where one qualified option is granted on an installment basis and then subsequently a second qualified option is granted, that the second option can be exercised before the first if the option price of this second option is higher than that of the first. The second of these two modifications deals with the case where the option price of the second option is lower than that of the first. In such cases the employer will be permitted to accelerate the exercise date with respect to the installments of the first option without this being considered a modification of the terms of this option.

The following stock option amendments were considered by the committee but rejected:

(1) The committee considered extending the option period from 5 years to 10 years;

(2) The committee considered providing a general effective date for the provision of January 1, 1964:

(3) The committee considered a provision repealing the stock option provisions for options granted after January 14, 1964;

(4) The committee considered a provision retaining capital gains treatment for stock options but providing for the taxation of this gain at the time of exercise of the option; and

(5) The committee considered a 2-year holding period for the stock instead of a 3-year holding period.

2. Section 215. Interest on certain deferred payments.-The committee adopted the Smathers amendment No. 358, which provides that the new provision of the House bill will not apply to binding written contracts (including options) entered into before July 1, 1963. The committee also deleted subsection (c) of section 215, which would have provided that an interest deduction is to be available for separately stated carrying charges attributable to services as well as to personal property as under existing law.

3. Unlimited charitable contribution deductions in the case of private foundations.-The committee, on January 13, considered deleting from present law the unlimited charitable contribution deduction. This provision makes available an unlimited charitable contribution deduction where contributions and taxes of the individual involved in 8 out of the last 10 years represent 90 percent of his income. At that time the committee instructed the staffs to prepare an amendment which would make the unlimited charitable contribution deduction unavailable in the case of charitable contributions to private foundations (i.e., those not eligible for the 30 percent charitable contribution deduction under the House bill). The staffs reported back with such an amendment today and it was adopted by the committee.

Press Release No. 13

JANUARY 15, 1964.

TENTATIVE DECISIONS BY SENATE COMMITTEE ON FINANCE ON REVENUE ACT (H.R. 8363)

SECTION 216. PERSONAL HOLDING COMPANIES

The committee approved the personal holding company provision of the House bill with the following modifications:

1. Subsection (j) relating to the increase in basis with respect to certain foreign personal holding companies was deleted.

2. In the case of tangible personal property normally rented for not more than 1 year to one lessee, the committee provided that for purposes of determining the 50 percent test in the case of rental income, depreciation attributable to this short-term rental is not to be deducted. 3. The House bill provides that one of the two tests which must be met for rental income not to be considered as personal holding company income is that personal holding company income (apart from the rent) may not constitute 10 percent or more of the unadjusted gross income of the company. The committee modified this to provide that this 10 percent test will be considered as met if 85 percent of all dividend income is paid out (either actually or through consent dividends) and if all personal holding company income (other than rents) to the extent it exceeds 5 percent of unadjusted gross income also is paid out.

4. A number of technical modifications were provided in the transitional relief provisions which the House bill provides for corporations which have not been personal holding companies but would be under the House provision. These include a provision to the effect that if a corporation attempts to qualify under the new liquidation provision provided in the bill, but then subsequently finds that it was not eligible for this section 333 treatment, it may elect to convert the liquidation to the treatment provided by section 331; corporations will have until January 1, 1967, rather than January 1, 1966, to accomplish the liquidations referred to (but will only avoid payment of personal holding company tax prior to the liquidation if they liquidate before January 1, 1966); the debt which may be amortized before income for these corporations is considered as personal holding company income, is to be the debt incurred prior to January 1, 1964, rather than prior to August 1, 1963; the corporations will determine their qualification for these special relief provisions on the basis of their status in the taxable years ending in 1961 and 1962 rather than the 2 years immediately preceding the enactment of the bill; and, for the future, mineral royalties are to include production payments and overriding royalties.

Press Release No. 14

JANUARY 16, 1964 (Morning).

TENTATIVE DECISIONS BY SENATE COMMITTEE ON FINANCE ON REVENUE ACT (H.R. 8363)

1. Section 216. Personal holding companies, etc.-The amendment adopted January 15 with respect to personal holding companies (release No. 13, item No. 2) was changed so that for purposes of determining the 50-percent test in the case of rental income, depreciation attributable to this rental income is not to be deducted in the case of tangible personal property normally rented for not more than 3 years to one lessee (instead of 1 year to one lessee). In addition, in the case of "contract plans," organized to receive periodic payments where these funds are used to purchase stocks in a mutual fund, an amendment was added to make it clear that if the plan sells stock of the mutual fund to redeem the interest of a person who wants to get out of the plan, the capital gain will not be taxed to the plan (but will continue to be taxable to the person).

2. Section 217. Treatment of property in the case of oil and gas wells.-The committee adopted the House provision relating to the aggregation of property in the case of oil and gas wells without change.

The committee also adopted a provision to the effect that if a foreign tax on a foreign mineral operation exceeds the U.S. tax on the same operation, and this excess is attributable to the allowance of percentage depletion, then this excess foreign tax paid will not be allowed as a foreign tax credit against U.S. tax otherwise due on foreign nonmineral income. Mineral income in this case includes not only oil and gas income but also income attributable to all other

minerals eligible for percentage depletion. This amendment applies to taxable years beginning after December 31, 1963.

The committee also considered but rejected the following proposals:

(1) Senator Douglas offered his amendment No. 368, which would have provided a graduated percentage depletion allowance. The allowance would be 2712 percent on gross income not in excess of $1 million, 21 percent on this income from $1 to $5 million, and 15 percent on this income in excess of $5 million.

(2) Senator Williams offered his amendment No. 341, which would reduce all percentage depletion allowance in excess of 20 percent to that figure. Thus, the allowance for oil and gas would be reduced from 2712 to 20 percent, that for uranium and sulfur would be reduced from 23 to 20 percent, and that for certain other mineral deposits specified in the code from U.S. sources would be reduced from 23 to 20 percent.

(3) Senator Gore offered an amendment to reduce the net income limitation for various minerals from 50 to 333 percent. Under present law, the percentage depletion allowance is either a specified percentage of gross income from the property or 50 percent of net income from the property, if this is less.

(4) Senator Williams offered two amendments which were considered together. The first of these would provide a carryover of intangible drilling and related expenses to the extent they exceed the income from the property. In the year to which these amounts are carried they would be considered as reducing the income subject to the 50 percent net income limitation. The second proposal would provide that on the sale of a mineral property a portion of any gain realized might be treated as ordinary income. The amount which would be considered as ordinary income at time of sale would be the intangible drilling and related expenditures, as well as any depletion taken to the extent of the taxpayer's basis in the property.

(5) Senator Douglas offered an amendment to provide that in the case of foreign oil where the taxing and leasing authorities are the governmental unit, that the amounts specified as taxes in this case should be treated for tax purposes in the same manner as royalty payments; that is, they be excluded in computing income rather than allowed as a credit against tax.

(6) Senator Bennett offered an amendment to make the House provision relating to the aggregation of property effective for taxable years ending after December 31, 1964.

Press Release No. 15

JANUARY 16, 1964 (Afternoon).

TENTATIVE DECISIONS BY SENATE COMMITTEE ON FINANCE ON REVENUE ACT (H.R. 8363)

1. Section 218. Treatment of certain iron ore royalities.-The committee adopted the House provision with two modifications. Under the modifications the capital gains treatment will not be available in

the case of foreign leases and will not be available where the same parties or substantially the same parties directly or indirectly own the iron ore property and operate it.

2. Section 219. Capital gains and losses.-The committee passed over this provision leaving it for future consideration.

3. Section 220. Gains from dispositions of certain depreciable realty. The committee accepted the House provision without change. 4. Section 221. Averaging. The committee accepted the House provision without change.

5. Section 222. Repeal of additional 2-percent tax for corporations filing consolidated returns.-The committee accepted the House provision without change.

Press Release No. 16

JANUARY 17, 1964 (Morning).

TENTATIVE DECISIONS BY SENATE COMMITTEE ON FINANCE ON REVENUE ACT (H.R. 8363)

1. Section 219. Captial gains and losses.-The committee struck this section of the House bill.

2. Amendment No. 337. Treatment by regulatory agencies in the case of a consolidated group.-The committee rejected an amendment which would prohibit Federal regulatory agencies without the consent of the taxpayer from using income, deductions, and credits which arise from or are directly related to nonregulated activities of a consolidated group to reduce the taxpayers' Federal income tax in establishing rates.

3. Section 223. Reduction of surtax exemption in case of certain controlled corporations. The committee approved the House provision without change. In its consideration of this section, it considered the following amendments, all of which were rejected:

(a) Senator Long moved that in the case of a parent and a series of subsidiaries meeting the 80 percent common ownership test of the House bill that the number of surtax exemptions for the group be limited to one.

(b) Senator Long moved that in the case of a parent and a series of subsidiaries meeting the 80 percent common ownership test of the House bill that the number of surtax exemptions for the group be limited to not more than five. The 6-percent penalty provision of the House bill would continue to apply with respect to the first five exemptions.

(c) Senator Dirksen moved that section 1551 of the code which under the House version of the bill applies to transfers by corporations directly or "indirectly" of all or part of its property other than money to a transferee corporation be modified by striking out the reference to "indirectly." The House provision by adding the word "indirectly" denies multiple surtax exemp tions where a corporation is split up and money is transferred to the new corporation which in turn is used to purchase property from the first corporation.

This completes the committee's tentative action on all of the House provisions except those relating to individual income tax rates.