Statement of-Continued White, Thomas J., representing the Commission of Public Docks of Williamson, John C., National Association of Real Estate Boards--- Page 1471 1475 1338 1338 Winslow, Robert L., Jr., T. H. Mastin & Co., Kansas City, Mo---. 1462 1464 Memorandum__. 1466 Additional information: Cumulative advantages and disadvantages of 200 percent and 150 per- Letter from- 1429 Barlow, E. R., assistant professor of Business Administration 1722 1592 Boyd, Robert Lee, vice president, the Block Bros. Tobacco Co., 1356 1368 1491 1367 Butler, Hon. John, mayor, San Diego, Calif., to Hon. Thomas H. 1488 Cardinale, Joseph S., Momsen & Freeman, New York, N. Y., April 1374 Condon, Arthur D., law offices, Davies, Richberg, Tydings, Beebe & 1508 1490 Courts, Malon C., Courts & Co., Atlanta, Ga., to Hon. Walter F. 1251 Delehanty, James A., New York, N. Y., to chairman, April 16, 1954, 1383 Derr, R. A., industrial agent, Hayward, Calif., to Hon. Thomas H. 1492 DeWind, Adrian W., of Paul Weiss, Rifkind, Wharton & Garrison, 1388, 1389 1373 Ellis, Otis H., general counsel, National Oil Jobbers Council, Wash- 1509 1359 1596 1590 1491 Folsom, Hon. M. B., Under Secretary of the Treasury, to Chair- 1255 Funk, Carl W., Drinker, Biddle & Reath, to chairman, April 14, 1365 George, Edward C., chairman, National Association of Securities 1361 1335 1358 Additional information-Continued Letter from-Continued Page Green, Thomas J., New York, N. Y., to committee, April 19, 1954-- 1349 1362 1600 Higgins, Hon. Clarence A., mayor, Pacific Grove, Calif., to Hon. Hole, Wm. Edward, president, American Aggregates Corp., Green- 1490 1354 1593 Kozak, Henry, secretary-treasurer, the Cleveland Patent Law As- 1360 Krabbe, Johan A., administrative officer, La Verne, Calif., to Hon. 1490 Lang, John J., John J. Lang Co., St. Louis, Mo., to chairman, 1506 Lavine, Morris, Los Angeles, Calif., to Hon. William L. Langer, 1592 Liste, J. G., trust officer, First Merchants National Bank & Trust Mallory, G. Barron, of Chadbourne, Hunt, Jaeckel & Brown, New Maloney, Vincent H., New York, N. Y., to committee, April 19, Martin, M. B., clerk, Perris, Calif., to Hon. Thomas H. Kuchel, Maytag, Fred, chairman, committee on taxation, National Associa- McClelland, Harry, president, Capital Co., San Francisco, Calif., Miller, Gyle, chairman, national affairs committee, Merced City Miltenberger, Paul L., Lancaster, Pa., to chairman, April 19, 1954, 1357 1700 1349 1490 1654 1360 1489 1351 Newquist, R. R., president, Roots-Connersville Blower, Conners- 1591 O'Brien, W. Brice, assistant counsel, National Coal Association, to 1415 O'Dowd, J. B., Tucson Title Insurance Co., Tucson, Ariz., to Hon. 1596 1216 Parks, William A., executive secretary, Boston Bar Association, 1601, 1602 Peeler, Joseph D., Musick, Peeler & Garrett, Los Angeles, Calif., to 1597 1488 Preston, Glen H., manager, Culver City, Calif., to Hon. Thomas H. 1491 Rathert, W. H., general manager, J. Neils Lumber Co., Klickitat, 1595 1602 Additional information-Continued Letter from-Continued Page Reynolds, L. E., vice president and general treasurer, the Con- 1333 1594 Roth, Jack, president, Merced City Chamber of Commerce, Inc., 1489 1590 Schiller, W. E., treasurer, Hershey Chocolate Corp., Hershey, Pa., 1499 Smith, Wilber, city manager, San Rafael, Calif., to Hon. Thomas 1492 Stanley, Willard F., president, Corporate Services, Inc., New York, N. Y., to committee, April 20, 1954_. 1504 Stevens, George W., city manager, Torrance, Calif., to Hon. 1489 Swartz, Paul Edgar, Satterlee, Warfield & Stephens, New York, Tannenwald, Theodore, Jr., Weil, Gotshal & Manges, to Hon. Walter F. George, April 12, 1954....... Tellefson, M., city attorney, Culver City, Calif., to Hon. Thomas Toombs, Frank C., Springfield, Ill., to chairman, April 13, 1954____ Walter, Julian D., chartered life underwriter, district agent, the 1386, 1387 Ward, Thomas R., member, Ward, Rea & Shaw, Meridian, Miss., to Hon. John C. Stennis, April 6, 1954_. Wardenburg, Harry A., Pacific Palisades, Calif., to committee, Wender, Ira T., assistant director, international program in taxa- Resolution of the city of San Leandro, Calif. Comparison of the individual income-tax liabilities under the law in effect prior to the enactment of the Revenue Act of 1951, under the Revenue Act of 1951, and under the present law Estimated distribution of the individual income-tax returns ad- $10 billion increase in capital expenditures, stimulated by incen- 1722 1253 THE INTERNAL REVENUE CODE OF 1954 FRIDAY, APRIL 16, 1954 UNITED STATES SENATE, The committee met, pursuant to recess, in room 312, Senate Office Building, at 10:10 a. m., Senator Eugene D. Millikin (chairman) presiding. Present: Senator Millikin, Flanders, Carlson, Frear, and Long. The CHAIRMAN. Mr. Herrmann, will you identify yourself for the record, please? STATEMENT OF DAVID W. HERRMANN, PRESIDENT, NATIONAL ASSOCIATION OF SHOE CHAIN STORES, ACCOMPANIED BY EDWARD ATKINS, EXECUTIVE VICE PRESIDENT Mr. HERRMANN. Mr. Chairman, Senators of the committee, my name is David W. Herrmann. I am vice president of the Melville Shoe Corp. of New York, which operates 794 stores throughout the United States and 12 factories in New Hampshire and Massachusetts. The CHAIRMAN. How many stores? Mr. HERRMANN. 794. The CHAIRMAN. You make your shoes where? Mr. HERRMANN. Primarily in factories located in New Hampshire and Massachusetts. New England. I am president of the National Association of Shoe Chain Stores, and am appearing in behalf of that association, and the American Retail Federation, representing their position on section 359 and related sections of the Internal Revenue Code of 1954, designated as H. R. 8300. Descriptions of both of the aforementioned retail groups and their memberships are appended to this statement. Those responsible for H. R. 8300 are to be complimented on the magnitude of the task they assumed, and the general results of this gigantic effort, in effecting a major revision of the existing code. H. R. 8300 is to be more commended than criticized, but it is inevitable that in drafting volumes of tax legislation, a number of flagrant inequities will appear. Although sections 351 to 373, under the title of "Corporation Organizations, Acquisitions, and Separations," contain a number of clarifications helpful to taxpayers, our opposition is directed to the provisions of section 359 and related sections, dealing with mergers, consolidations, and corporate acquisitions. I will hereafter use these terms interchangeably. As a result of these provisions, relatively large corporations can no longer acquire the assets, or the stock, of relatively smaller corporations in a tax-free statutory merger or consolidation. Two publicly held corporations may merge or consolidate in a tax-free transaction. However, even in this instance, many corporations whose securities are traded on the major stock exchanges would not fall within the definition of a "publicly held corporation," which states: A corporation will be deemed to be publicly held unless 10 or fewer shareholders own more than 50 percent either of the total combined voting power or of the total value of all classes of stock of the corporation. A publicly held corporation could not consolidate tax-free with a closely held corporation unless the stockholders of the transferor corporation received at least 20 percent of the participating stock-after consolidation-of the acquiring corporation. This imposes an almost impossible, if not purely academic, requirement which virtually outlaws consolidations or mergers between publicly held corporations and closely held corporations. The CHAIRMAN. Give me some idea of the stock structure of your association. Who owns your stock? Mr. HERRMANN. The association is made up primarily of chainstore organizations, operating in the shoe business. The CHAIRMAN. Is it a true association, or do you have stock? The CHAIRMAN. Very well, go ahead. Mr. HERRMANN. It is incorporated and tax-exempt under the code, sir. I am not an attorney, but as a businessman, will address myself primarily to the equities and economics involved in those provisions of section 359 relating to consolidations and mergers. Most statutory consolidations or mergers take the form of acquisition by a corporation of the stock, or assets, of another in exchange for part of its voting stock. Under the provisions of section 359, few mergers, involving closely held or privately owned corporations, would ever have been effected. In only exceptional and isolated instances would the greatest portion of these mergers have qualified for tax-free status. The tax impact would have precluded most of them. In a majority of instances, a closely held corporation is consolidated or merged with a publicly held corporation. It is this typical transaction most adversely affected by the restrictions imposed in section 359. Consolidations or mergers are undertaken for a number of reasons recognized by law, and recognized as sound, economically. Considerations accruing to the advantage of the stockholders of a closely held corporation include the following: 1. Additional financial resources. 2. Acquiring capital for business needs and expansion. 3. Increased efficiency through an exchange of personnel, methods, and research, which a small corporation might not be able to afford. 4. Acquisition of more readily marketable stock. 5. Continuity of the business in the event one or more key executives die, and heirs are incompetent to run the business. 6. Insuring the ability to meet estate taxes, without sacrificing the business through forced sale. |