4167 or 4779, would like to get some lunch, I certainly figure they have a good half hour or so to do that. You are welcome to stay, but I don't mean to keep you all sitting around as we plod through items which are not of interest to you. The next witness, Mr. Nagle. STATEMENT OF PAUL NAGLE, ASSISTANT TO THE EXECUTIVE DIRECTOR, UNITED BUS OWNERS OF AMERICA Mr. NAGLE. Yes, sir. I am Paul Nagle. I am assistant to the executive director of United Bus Owners of America, a trade association comparable to that of the American Bus Association. We have the same constituency roughly speaking. We have the same objectives. I certainly associate myself especially with the remarks of Mr. Snyder in closing when he pointed out the urgency of the timing of this matter, that each passing tax year makes recovery a bit more difficult. I am especially pleased to be able to appear this morning in behalf of a bill which has already paid for itself. The savings in administering the motor carrier industry since 1982 when the bus carrier-when the Bus Regulatory Reform Act was approved, have been large, and they will be carried on at a rate substantially lower than those preceding 1982 for the balance of all time that the Commerce Act is in effect. Consequently, the economy that is involved here, the dollar savings are really pronounced. Furthermore, the equity of the matter is that until now, until the passage of the Bus Regulatory Reform Act, the assets of operating authorities were carried on the books of the various carriers precisely as assets. They could not be deducted, not be taken advantage of in any way, and, as Mr. Snyder pointed out, suddenly they became valueless. Consequently, from the dollars which are being saved and the equity which manifestly exists, we think it would be highly appropriate that H.R. 3284 should be approved, with one amendment. There is a $5 million cap in the bill which we think is inappropriate. We believe that the $5 million cap has no special use. We believe it is discriminatory. Chairman STARK. If I can interrupt you at that point. Mr. Snyder, does your association support removing the $5 million cap as well? Mr. NAGLE. We support the bill without the $5 million cap. Mr. SNYDER. The association would like to see passage of this bill as soon as possible. We would really like to defer to the judgment of Congress with regard to any limitations imposed on the deduction. I might add if the cap was proposed, the association would still support the bill. Chairman STARK. OK. It is no secret that Greyhound, who is a significant player in this arena, opposes it. You would speak with a little more unanimity from the industry if there was not opposition to the removal. I wanted that to be clear. Proceed, Mr. Nagle. Mr. NAGLE. Yes, sir. My understanding is that were the cap to be removed, there would be an additional cash outlay of approximately $6 million and $6 million, of course, in the terms of our budget, is a very trifling sum. Furthermore, as I have already indicated, I hope rather strongly, the moneys have been saved countless times over already. Therefore, Mr. Chairman, if I may make the final recommendation that we hope the cap can be removed and that the bill can be adopted speedily. The Senate version of the bill does not contain a cap. We think that following suit with the Senate would be a highly laudable legislative gesture. Thank you very much, sir. [The prepared statement and letter subsequently received follow:] STATEMENT OF Paul Nagle, United Bus Owners of AMERICA Mr. Chairman, my name is Paul Nagle. I am assistant to the executive director of the United Bus Owners of America (UBOA), the largest trade association serving the intercity bus industry, 2,000 operators of regular routes and providers of charter and special transportation. Our constituency includes both Greyhound and Trailways, and a number of their affiliated carriers. The consensus of our membership is that we support, enthusiastically, the concept that there should be tax amortization of investments in operating authority. During the period prior to enactment of the Bus Regulatory Reform Act of 1982 (BRRA or the Bus Act) such investments were the customary method for securing access to certificates of public convenience and necessity. Mr. Chairman, UBOA perceives H.R. 3284 to be a first step on the road to Congressional recompense for losses which came about by reason of Congressional action. When the Bus Act made its commendable improvements in the methods whereby motor carrier applicants are adjudged to merit award of authority to transport passengers, operating certificates underwent, at the stroke of the Presidential pen, a wipe-out of cash value. Just as the Bus Act affords substance to the concept of tax amortization of purchases of operating authority, so too, would the amortization process tend to relieve a pattern of social hardships which were engendered by the Bus Act. Mr. Chairman, the premises for State and Local opposition to the Bus Act were, plaintly and flatly, that given exemption from compulsive control by State and Local regulatory bodies, regular route carriers would seek to exit from routes which were not self-sustaining; that they would not continue, ad infinitum, to cross-subsidize their operations; to operate coaches in regular route service, in order by that continued operation to go on enjoying the benefits of "incidental charter rights." Mr. Chairman, one of the laudable provisions of the Bus Act (and there are many) is the requirement that, through 1985, there be annual oversight hearings both in the Senate and the House of Representatives; that there be surveillance over the stewardship demonstrated by the cognizant administrative bodies. Just yesterday, October 2, there was concluded the 1984 series of those hearings. Before the Surface Transportation Subcommittee of the Public Works and Transportation Committee, Interstate Commerce Commission Chairman Reese H. Taylor, Jr., as the sole presentor of oral testimony, described the pattern of operations by motor carriers of passengers, in the period since the Bus Act became effective. In those hearings, everyone's attention focused upon exit, upon a desire by regular route carriers to divest themselves of the "common carrier obligation" to provide service to all entities covered in each recipient's "certificate of public convenience and necessity." True, the Bus Act does afford to regular route carriers, an escape from the stultifying State-sponsored commitment that a certificated carrier provide service without regard to any level of remuneration. The entire purpose of the Bus Act, as perceived by UBOA, is to bring order into a chaotic marketplace where, historically, operating rights have been auctioned-as always, in an auction-at a price. The concept of H.R. 3284, in the eyes of UBOA, is one which redresses to the buyer a balance which prevailed before Congress changed the rules. UBOS has been strongly supportive of Reese H. Taylor, Jr., Chairman of the Interstate Commerce Commission. Throughout Chairman Taylor's testimony, and in the pattern of yesteday's follow-up questions, there was one over-riding theme: The Bus Act impacts negatively upon small towns and rural communities. Characteristically, UBOA's membership concentrates on charter and special transportation. Our members who perform scheduled service, the number of whom is sizable, do so as appendages to the national networks of Trailways and Greyhound. Here, in the National Capital Area, there has been a recent change in the pattern of operations of Eyre Bus Service. On the West Coast, a bi-modal contract with Amtrak has moved from one UBOA member to another. But, in Chairman Taylor's testimony, the only proper names to be used, were those of Trailways and Greyhound. Questioning of Chairman Taylor had a one-note theme: How do we sustain service to small communities which, either Trailways or Greyhound, no longer can serve in a self-sustaining mode? In short, impact of the Bus Act was observed, not from a broadening perspective of increasingly attractive group travel, but from a narrowing viewpoint of decreasingly attractive scheduled operations. This is the bottom-line. This is the thrust. It is imperative that regular route service be restored to viability. When all peripheral issues are exploded, the one reality persists: Trailways and Greyhound are the lifelines of regular route operations. H.R. 3284 is tremendously important to companies such as Baltimore Motor Coach which swims, today, against a tide that underwent a sea-change when the Bus Act became law. Investments by the Baltimore Motor Coach type of company in purchases of operating authorities, acquisitions of priceless certificates, became worthless. H.R. 3284 would offer a bookkeeping benefit to companies such as Baltimore Motor Coach. H.R. 3284 would open to the principal carriers, Greyhound and Trailways, an avenue upon which to continue to serve rural America. For the smallest and the largest carriers, the advantages of H.R. 3284 are of a bookkeeping character. But who of us does not live by the books which are kept? Accordingly, UBOA suggests that there is unreality in the five million dollar upward limits in the amortizations which are proposed to be set by H.R. 3285. UBOA proposes, Mr. Chairman, that the $5 million figure is extraneous; that it is counter-productive to the purposes of the Legislation; that, properly and purposefully, the $5 millon limit should be excised, eliminated. Mr. Chairman, the Senate Bill, S. 1814, contains no restriction such as the $5 million cap contained in H.R. 3284. We commend to your attention the language of S. 1814, and pray that the Senate version be accepted as an amendment in the nature of a substitute, thereby expediting passage. Except for the unrealistic ceiling, UBOA supports H.R. 3284. We urge that it be modified and approved. We appreciate the opportunity to lay our views before you. Thank you. Hon. FORTNEY H. STARK, UNITED BUS OWNERS OF AMERICA, Chairman, Subcommittee on Select Revenue Measures, Dear Mr. Chairman: We have returned to Mr. Salmon, the transcript of our testimony before your Subcommittee on October 3, 1984. We commented to Mr. Salmon that the transcription had been accomplished, superbly; that we made no corrections. However, we do note an error on Page 128, where on Line 2739, the American Bus Association claims a membership of 30,000 members. Actually, the total of all passenger carriers, including mass transit agencies is approximately 4,000. UBOA's verified membership is 2,000, double the number enrolled by the American Bus Association. From the perspective of UBOA, we thought it appropriate to offer this clarification. Sincerely, Chairman STARK. Thank you. Mr. Duncan. Mr. DUNCAN. No questions. PAUL A. NAGLE, i Chairman STARK. Thank you very much. We would like to call William Morris to testify on H.R. 3388. Mr. Morris, we have your prepared testimony. Without objection, it will appear in the record in its entirety. You may summarize it or supplement it in any manner you feel comfortable. STATEMENT OF WILLIAM MORRIS, COUNSEL, ON BEHALF OF FRED T. FRANZIA, JOHN G. FRANZIA, JR., AND JOSEPH S. FRANZIA, CERES, CA Mr. MORRIS. Thank you very much, Mr. Chairman. I am Bill Morris. I am a partner with the law firm of Rogers & Wells in our Washington, DC office. I am going to be extremely brief. I am here simply to request that the subcommittee and the full committee approve H.R. 3388, which is a bill identical to a measure that has already been approved by the full committee and the House of Representatives and the Committee on Finance on the Senate side during the last Congress. That bill was H.R. 4577. The Treasury had some comments on H.R. 3388 which I would just like to take a second to address. They made two points. The first was that this measure is retroactive. The second point was that it would reopen years that are closed by the statute of limitations. With respect to the first point, which is that it is retroactive, there are a series of examples in the prepared statement indicating numerous instances where the Congress has acted under such circumstances. With respect to the second point about reopening closed years, that statement is incorrect. The years under consideration are actually open and the subject of pending Tax Court cases. If you have any questions, Mr. Chairman, I would be happy to answer them at this time. [The prepared statement follows:] STATEMENT OF WILLIAM MORRIS, COUNSEL, ON BEHALF OF FRED T. FRANZIA, JOHN G. FRANZIA, JR., AND JOSEPH S. FRANZIA, CERES, CA SUMMARY 1. H.R. 3388 would permit certain individuals who received stock in 1973 pursuant to the exercise of employee stock options to elect to have section 252 of the Economic Recovery Tax Act of 1981 apply under certain limited circumstances. Under the bill, any reduction in tax pursuant to such election could not exceed $100,000 with respect to any one employee, The bill would amend the statute of limitations to permit refunds, credits, or assessments, attributable to the provisions of the bill. 2. Federal restrictions which effectively deny certain employees (referred to as "insiders") the ability to dispose of stock for a fixed period of time after receipt of the stock should be taken into account and no tax on any gain in value should be imposed until such time as the Federal restrictions (Section 16(b) of the Securities Exchange Act of "Pooling-of-Interests Accounting" rules) lapse and the employee is free to sell his stock, whether the transaction takes place before or after December 31, 1981. 3. There is ample precedent for the Congress to extend the revised rules added as an amendment to Section 83 of the Code by P.L. 97-34 to taxpayers whose taxable years remain open under the statue of limitations or are the subject of pending cases. For example, in the Deficit Reduction Act of 1984 (P.L. 98-369), the Congress agreed to permit employees who received property subject to tax under Section 83 to elect to treat the full value of the property received over the amount paid as ordinary income in the year in which the transfers occurs rather than in the first year the property is transferrable. The provision only applies to transfer of property made after June 30, 1976, and before November 18, 1982. Moreover, the Committee on Ways and Means and the full House of Representatives has already approved an identical measure to H.R. 3388 in September of 1982. STATEMENT My name is William Morris. I am a partner with the law firm of Rogers & Wells with offices in New York City, Los Angeles, San Diego, Washington, D.C., London, England, and Paris, France. The written testimony submitted is on behalf of three individuals, Messers. Fred T. Franzia, John G. Franzia, Jr. and Joseph S. Franzia, with offices in Ceres, California. We are requesting the members of this subcommittee and those of the full Committee to once again give favorable consideration to the substance of H.R. 3388. This bill would amend P.L. 97-34, The Economic Recovery Tax Act of 1981, by revising the effective date of Section 252 of that Act to provide that it would apply to certain transactions that occurred in taxable years still open under the statute of limitations as the subject of pending Tax Court cases. The revised effective date we seek is in substance the same effective date the Ways and Means Committee approved on July 22, 1981, when it agreed to amend Section 83 of the Internal Revenue Code (IRC) which contains rules for the taxation of property transferred by an employer to an employee. Generally, if property (including stock) received by an employee is not transferable or is subject to a substantial risk of forfeiture (such as the obligation to perform future services), taxation is postponed until the stock or other property is transferable or is no longer subject to a substantial risk of forfeiture. In construing this general rule the IRS has argued that Section 16(b) of the Securities Exchange Act of 1934, under which an "insider's" profit may be recovered by a corporation if the stock is sold within six months of receipt, does not make the stock nontransferable, and therefore does not affect the taxaton of the stock. Thus, the value of the stock (less any amount paid) is treated as compensation when received, by the IRS. During Ways and Means Committee consideration of the Economic Recovery Tax Act of 1981, we brought this matter and similar situations to the attention of the members of the full committee. On July 22, 1981, the Ways and Means Committee, after two roll call votes, of 25-5 and 21-9, agreed to revise the tax treatment for stock received by an employee subject to the restrictions of Section 16(b) of the Securities Exchange Act of 1934. The Committee, at page 263 of its Report to accompany H.R. 4242 (H. Rept. 97-201, July 24, 1981) stated: "The committee believes that the imposition of Federal restrictions, which limit the ability of an "insider" to dispose of stock for a short period of time after receipt, should be taken into account in determining the manner in which the value of the stock should be included in income. Because of mandated restriction on transferability, the committee believes it may be inequitable to tax the employee before the restriction lapses." The Report then explained the provisions approved, which consisted of two parts, the first providing that stock received subject to section 16(b) or the Securities Exchange Act of 1934 would be treated as being subject to a substantial risk of forfeiture and the second providing that stock subject to the Securities and Exchange Commission's "Pooling-of-Interests Accounting" rules would be similarly treated. Finally, because of the unduly harsh result under the IRS' interpretation of Section 83, imposing Federal income tax on income that has not been realized and may never be realized, the Committee agreed to make the provision applicable to all taxpayers who could be affected by the change and who were eligible to file amended returns or claim relief in cases presently pending before the Courts, if the taxpayer elected the relief provided. Subsequently, the House agreed to substitute the Administration-backed ConableHance substitute for H.R. 4242 as reported by the Ways and Means Committee. In approving the substitute, the relief granted under this provision was limited to only transactions occurring after 1981. The provision, as approved as part of the ConableHance substitute was then agreed to by House-Senate Conferees and was signed into law as part of P.L. 97-34 on August 13, 1981.1 1 It should be noted that Congressional approval of this provision represents a partial acceptance of an original Treasury Department proposal put forward in 1969 When Section 83 was first made a part of the Internal Revenue Code. The Treasury Department urged at that time, but the Ways and Means Committee rejected without explanation, a proposal to permit Federal Continued |