State Of New York et al v. Mnuchin et al

Filing 47

DECLARATION of Owen T. Conroy in Support re: 44 CROSS MOTION for Summary Judgment .. Document filed by State Of Connecticut, State Of New York, State of Maryland, State of New Jersey. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, # 8 Exhibit 8, # 9 Exhibit 9, # 10 Exhibit 10, # 11 Exhibit 11, # 12 Exhibit 12, # 13 Exhibit 13, # 14 Exhibit 14, # 15 Exhibit 15, # 16 Exhibit 16, # 17 Exhibit 17, # 18 Exhibit 18, # 19 Exhibit 19, # 20 Exhibit 20, # 21 Exhibit 21, # 22 Exhibit 22, # 23 Exhibit 23, # 24 Exhibit 24, # 25 Exhibit 25, # 26 Exhibit 26, # 27 Exhibit 27, # 28 Exhibit 28, # 29 Exhibit 29, # 30 Exhibit 30, # 31 Exhibit 31, # 32 Exhibit 32, # 33 Exhibit 33, # 34 Exhibit 34, # 35 Exhibit 35, # 36 Exhibit 36, # 37 Exhibit 37, # 38 Exhibit 38, # 39 Exhibit 39, # 40 Exhibit 40, # 41 Exhibit 41, # 42 Exhibit 42, # 43 Exhibit 43, # 44 Exhibit 44, # 45 Exhibit 45, # 46 Exhibit 46, # 47 Exhibit 47, # 48 Exhibit 48, # 49 Exhibit 49, # 50 Exhibit 50, # 51 Exhibit 51, # 52 Exhibit 52, # 53 Exhibit 53, # 54 Exhibit 54, # 55 Exhibit 55, # 56 Exhibit 56, # 57 Exhibit 57, # 58 Exhibit 58, # 59 Exhibit 59, # 60 Exhibit 60, # 61 Exhibit 61, # 62 Exhibit 62, # 63 Exhibit 63, # 64 Exhibit 64, # 65 Exhibit 65, # 66 Exhibit 66, # 67 Exhibit 67, # 68 Exhibit 68, # 69 Exhibit 69, # 70 Exhibit 70, # 71 Exhibit 71, # 72 Exhibit 72, # 73 Exhibit 73, # 74 Exhibit 74, # 75 Exhibit 75, # 76 Exhibit 76, # 77 Exhibit 77, # 78 Exhibit 78, # 79 Exhibit 79, # 80 Exhibit 80, # 81 Exhibit 81, # 82 Exhibit 82, # 83 Exhibit 83, # 84 Exhibit 84, # 85 Exhibit 85, # 86 Exhibit 86, # 87 Exhibit 87, # 88 Exhibit 88, # 89 Exhibit 89, # 90 Exhibit 90, # 91 Exhibit 91, # 92 Exhibit 92, # 93 Exhibit 93, # 94 Exhibit 94, # 95 Exhibit 95, # 96 Exhibit 96, # 97 Exhibit 97, # 98 Exhibit 98, # 99 Exhibit 99, # 100 Exhibit 100, # 101 Exhibit 101, # 102 Exhibit 102, # 103 Exhibit 103, # 104 Exhibit 104, # 105 Exhibit 105, # 106 Exhibit 106)(Conroy, Owen)

Exhibit 34

I

SEVENTIETH CONGRESS.

SEss. I.

CH. 852.

1928.

799

INCOMN TAX
Income of States, municipalities and other political subdivisions;
Receipts of ship owners' mutual protection and indemnity
associations;
Dividends from China Trade Act corporations.
Inventories
(c) Inventories.-Whenever in the opinion of the Commissioner mine Income tc determay be
the use of inventories is necessary in order clearly to determine the taken.
income of any taxpayer, inventories shall be taken by such taxpayer
upon such basis as the Commissioner, with the approval of the
Secretary, may prescribe as conforming as nearly as may be to
the best accounting practice in the tra e or business and as most
clearly reflecting the income.
Distributions by cor
(d) Distributions by corporations.-Distributions by corporations porations. 822.
Post, p.
shall be taxable to the shareholders as provided in section 115.
of gain
(e) Determination of gain or loss.-In the case of a sale or other or Computation etc., or
loss on sale,
disposition of property, the gain or loss shall be computed as provided property.
POO, pp. 816-822.
in sections 111, 112, and 113.
Soures within and
(f) Gross income from sources within and without United States.- without United States.
For computation of gross income from sources within and without Post, p. 826.
the United States, see section 119.
Deductions from
SEC. 23. DEDUCTIONS FROM GROSS INCOME.
gross income.
In computing net income there shall be allowed as deductions:
Items specified.
(a) Expenses.-All the ordinary and necessary expenses paid or Business expenses.
incurred during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensation Travel, etc.,Included.
for personal services actually rendered; traveling expenses (including the entire amount expended for meals and lodging) while away
from home in the pursuit of a trade or business; and rentals or
other payments required to be made as a condition to the
continued use or possession, for purposes of the trade or business,
of property to which the taxpayer has not taken or is not taking
title or in which he has no equity.
(b) Interest.-All interest paid or accrued within the taxable Interest on debts.
Exception.
year on indebtedness, except on indebtedness incurred or continued
to purchase or carry obligations or securities (other than obligations
of the United States issued after September 24, 1917, and originally
subscribed for by the taxpayer) the interest upon which is wholly
exempt from taxation under this title.
(c) Taxes generally.-Taxes paid or accrued within the taxable Taxes paid.
year, except-(1) income, war-profits, and excess-profits taxes imposed by Exceptions.
the authority of the United States;
(2) so much of the income, war-profits, and excess-profits
taxes imposed by the authority of any foreign country or
possession of the Tnited States as is allowed as a credit against Pot. p. 829.
the tax under section 131; and
(3) taxes assessed against local benefits of a kind tending to
increase the value of the property assessed; but this paragraph
shall not exclude the allowance as a deduction of so much of
such taxes as is properly allocable to maintenance or interest
charges.
Accrual of estate,
For the purpose of this subsection, estate, inheritance, legacy, and etc.
succession taxes accrue on the due date thereof, except as otherwise Limitations.
provided by the law of the jurisdiction imposing such taxes, and
shall be allowed as a deduction only to the estate.
Taxes of shareholder
paid
(d) Taxes of shareholder paid by corporation.-The deduction tion. by the corporal.
for taxes allowed by subsection (c) shall be allowed to a corporation
in the case of taxes imposed upon a shareholder of the corporation
upon his interest as shareholder which are paid by the corporation

800

SEVENTIETH CONGRESS.

SESs. I.

Ci. 852.

1928.

without reimbursement from the shareholder, but in such cases no
deduction shall be allowed the shareholder for the amount of such
taxes.
Losses by individ(e) Losses by individuals.-In the case of an individual, losses
uals.
sustained during the taxable year and not compensated for by
insurance or otherwise-,
Business.
(1) if incurred in trade or business; or
Not connected with
bsns
(2) if incurred in any transaction entered into for profit,
trade or business.
though not connected with the trade or business; or
Casualty losses not
(3)of property not connected with the trade or business,
connected with busiif the loss arises from fires, storms, shipwreck, or other casualty,
ness.
or from theft.
Losses by corpora(f) Losses by corporations.-In the case of a corporation, losses
tions.
sustained during the taxable year and not compensated for by
insurance or otherwise.
Basis for determining
(g) Basis for determining loss.-The basis for determining the
amount of deduction for losses sustained, to be allowed under
.
o
Post p.8subsection
(e) or (f), shall be the same as is provided in section 113
for determining the gain or loss from the sale or other disposition
of property.
(h) Loss on sale of stock or securities.-For disallowance of loss
of 1068
ane
on
deduction in the case of sales of stock or securities where within
thirty days before or after the date of the sale the taxpayer has
Pos
acquired substantially identical property, see section 118.
Losses .prior
(i) Net losses.-The special Seduction for net losses of prior
Post,,.s~s.
years, to the extent provided in section 117.
Worthless debts.
(j) Bad debts.-Debts ascertained to be worthless and charged
off within the taxable year (or, in the discretion of the Commissioner,
a reasonable addition to a reserve for bad debts); and when satisfied
that a debt is recoverable only in part, the Commissioner may allow
such debt to be charged off in part.
(k) Depreciation.-A reasonable allowance for the exhaustion,
bxhaustion, ert., of
wear and tear of property used in the trade or business, including a
tenatareasonable
allowance for obsolescence. In the case of property held
by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner
PropertY In trust.
of the property and shall be allowed to the life tenant. In the case
of property held in trust the allowable deduction shall be apportioned
between the income beneficiaries and the trustee in accordance with
the pertinent provisions of the instrument creating the trust, or, in
the absence of such provisions, on the basis of the trust income
allocable to each.
(1) Depletion.-In the case of mines, oil and gas wells, other
end c
wels,oil
Reasonable allow- natural deposits, and timber, a reasonable allowance for depletion
nce foi' depletion, etc. and for depreciation of improvements,
according to the peculiar
conditions in each case; such reasonable allowance in all cases to be
made under rules and regulations to be prescribed by the CommisIn lea"$e
sioner, with the approval of the Secretary. In the case of leases the
deduction shall be equitably apportioned between the lessor and
Beld in life t
. lessee. In the case of property held by one person for life with
remainder to another person, the deduction shall be computed as if
the life tenant were the absolute owner of the property and shall be
yInt
Property it
allowed to the life tenant. In the case of property held in trust the
allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions
of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each. (For perpi and821.wells,
depletion in case of oil and gas wells, see section 114(b) (3).)
Pst forepleti2centage
INCOME TAX

cBasis for depletion,

(i)

Basis for depreciation and depletion.-The basis upon which

depletion, exhaustion, wear and tear, and obsolescence are to be

SEVENTIETH CONGRESS.

SESS. 1.

CiH. 852.

801

1928.

allowed in respect of any property shall be as provided in
section 114.
(n) Charitable

and

other

contributions.-In

the

case

of

an

OUZ

TAX

oufts.

individual, contributions or gifts made within the taxable year to or
for the use of :
(1) the United States, any State, Territory, or any political For public uses.
subdivision thereof, or the District of Columbia, for exclusively
public purposes;
(2) any corporation, or trust, or community chest, fund, or armilhoths, cerfoundation, organized and operated exclusively for religious, gious, scientific, etc.,
charitable, scientific, literary, or educational purposes, or for the organizations.
prevention of cruelty to children or animals, no part of the net
earnings of which inures to the benefit of any private shareholder or individual;
(3) the special fund for vocational rehabilitation authorized taoational rehabill"'1ol.41, p. 737.
by section 7 of the Vocational Rehabilitation Act;
(4) posts or organizations of war veterans, or auxiliary units War veterans' organor societies of any such posts or organizations, if such posts, IzatioJs, etc.
organizations, units, or societies are organized in the United
States or any of its possessions, and if no part of their net earnings inures to the benefit of any private shareholder or individual; or
(5) a fraternal society, order, or association, operating under Co
o, etc.
the lodge system, but only if such contributions or gifts are to be
used exclusively for religious, charitable, scientific, literary or
educational purposes, or for the prevention of cruelty to children
or animals*
to an amount which in all the above cases combined does not exceed Limit.
15 per centum of the taxpayer's net income as computed without
the benefit of this subsection. Such contributions or gifts shall be
allowable as deductions only if verified under rules and regulations
prescribed by the Commissioner, with the approval of the Secretary. Unlimited deduc(For unlimited deduction if contributions and gifts exceed 90 per toPst, p. 828.
centum of the net income, see section 120.)
eoreal
(o) Future expenses in case of casual sales of real property.- rOn
In the case of a casual sale or other casual disposition of real Future libilities urder
property by an individual, a reasonable allowance for future expense contract, allowed.
liabilities, incurred under the provisions of the contract under which
such sale or other disposition was made, under such regulations as
the Commissioner, with the approval of the Secretary, may prescribe, including the giving of a bond, with such sureties and in such
sum (not less than the estimated tax liability computed without the
benefit of this subsection) as the Commissioner may require, conditioned upon the payment (notwithstanding any statute of limitations) of the tax, computed without the benefit of this subsection,
in respect of any amounts allowed as a deduction under this subsection and not actually expended in carrying out the provisions of
such contract.
(p) Dividends received by corporations.-In the case of a cor- by OAreatived
poration, the amount received as dividendsFrom a domestic cor-

1) from a domestic corporation, or

.From

paration.

a foreign cor-

.
) from any foreign corporation when .it is shown to the portion, centmore than
it
satisfaction of the Commissioner that more than 50 per centum 50 per United derived
from
States

of the gross income of such foreign corporation for the three- sourcess

year period ending with the close of its taxable year preceding
the declaration of such dividends (or for such part of such
period as the foreign corporation has been in existence) was
derived from sources within the United States as determined
under section 119.

Post, p. 826.

802

SEVENTIETH CONGRESS.

INCOME TAX

Dividends from
China Trade Act corexporat ions, etc.,
ce p
s
tt.& ".
Pset, p. s5o.

Amount transferred
to a pension trust in
excess ofcontributions.

Items not deductible.
Objects specified.
Personal,
penses.
Property
ments.

etc.,

ex-

improve-

Restoring property.

Life Insurance
employees, etc.

for

Deductions on Income from life interests,
etc., by gifts, bequests,
or inheritance.

Ante, p. 800.

Tax-free covenant
bonds.
Post, p. 834.
Credits allowed individuals.
Against net income.
Dividends.
From domestic corporation.
Foreign corporation,
,%ith more than 50 per
cent of income from
United States sources.

SEs8. I.

CH. 852.

1928.

The deduction allowed by this subsection shall not be allowed in
respect of dividends received from a corporation organized under
the China Trade Act, 1922, or from a corporation which under
section 251 is taxable only on its gross income from sources within
the United States by reason of its receiving a large percentage of
its gross income from sources within a possession of the United
States.
(q) Pension trusts.-An employer establishing or maintaining a
pension trust to provide for the payment of reasonable pensions to
his employees (if such trust is exempt from tax under section 165,
relating to trusts created for the exclusive benefit of employees) shall
be allowed as a deduction (in addition to the contributions to such
trust during the taxable year to cover the pension liability accruing
during the year, allowed as a deduction under subsection (a) of this
section) a reasonable amount transferred or paid into such trust
during the taxable year in excess of such contributions, but only if
such amount (1) has not theretofore been allowable as a deduction,
and (2) is apportioned in equal parts over a period of ten consecutive
years beginning with the year in which the transfer or payment
is made.
SEC. 24. ITEMS NOT DEDUCTIBLE.
(a) General rule.-In computing net income no deduction shall
in any case be allowed in respect of1 Personal, living, or family expenses;
Any amount paid out for new buildings or for permanent
improvements or betterments made to increase the value of any
propertyor estate;
(3) Any amount expended in restoring property or in making
good the exhaustion thereof for which an allowance is or has
been made; or
(4) Premiums paid on any life insurance policy covering the
life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer,
when the taxpayer is directly or indirectly a beneficiary under
such policy.
(b) Holders of life or terminable interest.-Amounts paid under
the laws of any State, Territory, District of Columbia, possession of the United States, or foreign country as income to the
holder of a life or terminable interest acquired by gift, bequest, or
inheritance shall not be reduced or diminished by any deduction for
shrinkage (by whatever name called) in the value of such interest
due to the lapse of time, nor by any deduction allowed by this Act
(except the deductions provided for in subsections (k) and (1) of
section 23) for the purpose of computing the net income of an
estate or trust but not allowed under the laws of such State, Territory, District of Columbia, possession of the United States, or
foreign country for the purpose of computing the income to which
such holder is entitled.
(c) Tax withheld on tax-free covenant bonds.-For tax withheld
on tax-free covenant bonds, see section 144(a) (4).
SEC. 25. CREDITS OF INDIVIDUAL AGAINST NET INCOME.
There shall be allowed for the purpose of the normal tax, but
not for the surtax, the following credits against the net income:
(a) Dividends.-The amount received as dividendsIfrom a domestic corporation, or
2)from a foreign corporation when it is shown to the satisfaction of the Commissioner that more than 50 per centum of the
gross income of such foreign corporation for the three-year