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CONTENTS

ADMINISTRATION WITNESS

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PUBLIC WITNESSES

Aidinoff, M. Bernard, partner, Sullivan & Cromwell

American Bar Association, Hugh Calkins, chairman, tax section

American Institute of Certified Public Accountants, Frank O'Connell, Jr.,

chairman...

Andrews, William D., Eli Goldston professor of law, Harvard University

Auerbach, Alan J., professor of economics, University of Pennsylvania
Bacon, Richard L., partner, Bell, Boyd & Lloyd
Bell, Boyd & Lloyd, Richard L. Bacon, partner
Calkins, Hugh, chairman, section of taxation, American Bar Association....
Chamber of Commerce of the United States, Edwin S. Cohen.

Cohen, Edwin S., partner, Covington & Burling on behalf of the Chamber of

Commerce of the United States.....

Collinson, Dale S., chairman, tax section, New York State Bar Association

Eustice, James S., professor of law, New York University..

Faber, Peter L., partner, Kaye, Scholer, Fierman, Hays & Handler.

Hoffman, Arthur S., chairman, tax executive committee, New York State

Society of CPA's...........

Jacobs, Robert A., managing director, Milgrim, Thomajan, Jacobs & Lee...........

Kaye, Scholer, Fierman, Hays & Handler, Peter L. Faber, partner.....

Kiefer, Donald W., special in public finance, Economics Division, Congression-

al Research Service, Library of Congress ...

Low, Evelyn, vice chairman, taxation section, State Bar of California.
McDermott, Will & Emery, James M. Rashe, partner
New York State Bar Association, Dale S. Collinson, chairman, tax section
New York State Society of Certified Public Accountants, Arthur S. Hoffman,

chairman, tax executive committee....
O'Connell, Frank, Jr., chairman, American Institute of Certified Public Ac-

countants
Roche, James M., partner, McDermott, Will & Emery
Schiff, Hardin & Waite, Samuel C. Thompson, Jr., partner....
State Bar of California, Evelyn Low, vice chair, taxation section.
Sullivan & Cromwell, M. Bernard Aidinoff, partner.
Thompson, Samuel C., Jr., partner, Schiff, Hardin & Waite.
Tomasulo, Nicholas, of Silvestein & Mullens ....

ADDITIONAL INFORMATION

Committee press release.

Background material by the Joint Committee on Taxation.

Opening statement of Senator Bob Dole.

Prepared statement of Hon. Ronald A. Pearlman..

Prepared statement of William D. Andrews..

Prepared statement of James S. Eustice.

Prepared statement of Alan J. Auerbach

Prepared statement of Dr. Donald W. Kiefer

Prepared statement of Hugh Calkins

Prepared statement of M. Bernard Aidinoff.

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(III)

Prepared statement of New York State Bar Association.
Prepared statement of Evelyn A. Low.
Prepared statement of Edwin S. Cohen.
Prepared statement of Peter L. Faber
Prepared statement of James M. Roche.
Prepared statement of Samuel C. Thompson, Jr.
Prepared statement of Frank J. O'Connell, Jr.....
Prepared statement of New York State Society of CPA's..
Prepared statement of Robert A. Jacobs.
Prepared statement of Nicholas Tomasulo.
Prepared statement of Richard L. Bacon

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COMMUNICATIONS

Arthur Anderson & Co.
Association of Insolvency Accountants.
George Brode, Jr., Ltd..
Butchart and Associates, P.A
Continental Corp........
Commercial Law League of America
Ellingson, John F.
Florida Bar....
Tax Executives Institute, Inc..

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STAFF RECOMMENDATIONS TO REVISE

SUBCHAPTER C

MONDAY, SEPTEMBER 30, 1985

U.S. SENATE SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT,

COMMITTEE ON FINANCE,

Washington, DC. The subcommittee met, pursuant to notice, at 9:39 a.m., in room SD-215, Dirksen Senate Office Building, Hon. John Chafee (chairman) presiding.

Present: Senators Chafee and Danforth.

[The press release announcing the hearing and background material on Tax Reform Proposals: Corporate Taxation and an opening statement of Senator Dole follow:)

(Press Release No. 85-056, Wednesday, July 17, 1985) COMMITTEE ON FINANCE HEARING ON SUBCHAPTER SCHEDULED FOR SEPTEMBER 30

Senator Bob Packwood (R-Oregon), Chairman of the Senate Committee on Finance, announced today that the Subcommittee on Taxation and Debt Management has scheduled a hearing on the staff recommendations to revise Subchapter C of the Internal Revenue Code that were submitted to the Committee this past May.

Chairman Packwood said that the Taxation Subcommittee's hearing is scheduled to begin at 9:30 a.m., Monday, September 30, 1985 in Room SD-215 of the Dirkseni Senate Office Building.

Senator John Chafee (R-Rhode Island), Chairman of the Subcommittee on Taxation and Debt Management, will preside at the September 30 hearing.

The subject of the hearing will be a final staff report that recommended a number of significant revisions to Subchapter C. The report represented the culmination of over two and one-half years of study. A preliminary report was filed with the Committee in September, 1983, and hearings on the recommendations contained in the preliminary report were held in October, 1983.

“A great deal of time and study has already gone into the Subchapter C project,” Chairman Packwood said. “I am hopeful that this hearing will provide good, constructive testimony that will help to shape any revisions to this important area of the law.”

“It should also be noted that the staff proposals contain specific recommendations relating to the net operating loss rules,” Chairman Packwood added. “At the end of this year, Congress, once again, will be faced with the question of whether to put into effect the 1976 version of Section 382. I hope that this hearing will help to clarify what course of action Congress should take in that difficult area:”

Chairman Packwood requested that witnesses include in their testimony comments on the following issues;

(1) The proposal to make corporate level tax consequences of a qualified acquisition explicitly elective;

(2) The proposed separation of shareholder level tax consequences from the corporate level election, and from the tax consequences to other shareholders;

(3) The proposed uniform definitional structure for "qualified acquisitions”;

(4) The proposed complete repeal of the so-called General Utilities doctrine, assuming adequate relief is provided in appropriate circumstances;

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(5) The various forms of relief from the repeal of the General Utilities doctrine that are proposed in the final staff report;

(6) Assuming any General Utilities relief should appropriately be limited to small business, should the relief follow along the lines of the final staff report recommendations, or is some alternative form of relief for small business preferable?

(7) Regarding net operating losses, the following questions should be addressed:

(a) Are the staff proposals preferable to the current law (1954 version) rules limiting net operating loss carryovers?

(b) Are the staff proposals preferable to the 1976 version of the rules?

(c) Are the staff proposals preferable to the so-called "two-rule” approach (i.e., a separate rule for “mergers” and for "purchases”) or a single “merger” rule approach?

(d) Assuming a single “purchase” rule is to be adopted, is the proposed formula based upon the applicable long-term Federal rate the proper limitation rule?

(e) Should there be a special “investment company” rule along the lines of the staff proposals?

(f) Should built-in gains and losses be treated as proposed? How should built-in depreciation deductions be treated?

(g) What should be the proper role of Section 269 if the staff proposals are enacted? What should be the proper role of the special limitations contained in the consolidated return regulations, including the separate return limitations year (SRLY) and consolidated return change of ownership (CRCO) rules?

TAX REFORM PROPOSALS:

CORPORATE TAXATION

For the Use

OF THE

COMMITTEE ON WAYS AND MEANS

AND THE

COMMITTEE ON FINANCE

PREPARED BY THE STAFF

OF THE

JOINT COMMITTEE ON TAXATION

SEPTEMBER 19, 1985

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