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 35

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Md CONGRESS.

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SESS. I OCH. 209.

404'-1

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of is compensation;
(7 MIscELLANEOUS irsB.-The following items, to the extent

provided in section 116:
Earned income from sources without the United States;
Salaries of certain Territorial employees;
The income of foreign governments;
Income of States, municipalities and other political subdivisions;
Receipts of shipowners' mutual protection and indemnity
associations;
Dividends from China Trade Act corporations.
(o) INvENTOIE.-Whenever in the opinion of the Commissioner
the use of inventories is necessary in order clearly to determine the
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 trade or business and as most clearly
reflecting the income.
By

179

JUNE 6,1932.

issue thereof as amended and supplemented, and shall be excluded
from gross income only if and to the extent it is wholly exempt to
the taxpayer from he taxes imposed by this title
(5) COMPEN8ATIA FOR INJURIES OR 810KNE88,-kmounts received,
through accident or health insurance or under workmen's compensation acts as compensation for personal injuries or sickness, plus
the amount of any damages received whether by suit or agreement
on account of su injuries or sickness;
(6) MINIsR.-The rental value of a dwelling house and
apurtenances thereof furnished to a minister of the gospel as part

(d) DieraTerrroNs

p'l

I'WWDWlo

ConRATiox.-Distributions by corpora-

U(COMB TAX
Pamenoo

InJ

r sick

esna l

n

Rent of minsters*
dweling.
Mwcellanous
poed$ p.2H4. items.

Inventor to deter.
mine income.

Distributions by cor*
Potations.

tions shall be taxable to the shareholders as provided in section 115. Deterrnnation of
(e) DETERMINATION OF GAIN OR Loss.-In the case of a sale or gain or loss on sale of
other disposition of property, the gain or loss shall be computed as
provided in sections 111, 112 and 118.
woUres within and
(f) Gnoss INCOME FROM ouR708 WrHIN AND WITnouT UNITED without United States&
STATES.-For computation of gross income from sources within and Post, p.20.
without the United States, see section 119.
Deductions from
gross Income.
SEC. 28. DEDUCTIONS FROM GROSS INCOME.
Items specified.
In computing net income there shall be allowed as deductions:
(a) EKPEN8Es.-All the ordinary and necessary expenses paid or Business expenses,
incurred during the taxable year in carrying on any trade or busih
ness, including a reasonable allowance for salaries or other compen. curavel, eto., In.
nation for personal services actually rendered; traveling expenses clouded
(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.
Interest on debts.
(b) INTEREsT.-All interest paid or accrued within the taxable Exception$.
year on indebtedness, except (1) 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 tarpayer) the interest upon which is
wholly exempt from the taxes imposed by this title, or (2) on indebtedness incurred or continued in connection with the purchasing or
carrying of an annuity.

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180

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72d CONGRESS.

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SESS. I. CH. 209.

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JUNE 6, 1932.

(c) TAXES GENERALLY.-Taxes paid or accrued within the taxable
year, except.(1) income, war-profits and excess-profits taxes imposed by the
authority of the United States;
(2) income, war-profits, and excess-profits taxes imposed by the
authority of any foreign country or possession of the United
States; but this deduction shall be allowed in the case of a taxpayer who does not signify in his return his desire to have to any
extent the benefits of section 181 (relating to credit for taxes of
t , p.s
a21
foreign countries and possessions of the United States); and
(8) 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.
Accruementofstate, For the purpose of this subsection, estate, inheritance, legacy, and
etO., taxes.
succession taxes accrue on the due date thereof, except as otherwise
provided by the law of the jurisdiction imposing such taxes, and
Limitation.
-- shall be allowed as a deduction only to the estate.
T es of shareholder
(d) TAxEs OF SHAREHOLDER PAID BY CORPORATION.-The deduction
pal bby corporation.
for taxes allowed by subsection (c) shall be allowed to a corporation in the case of taxes imposed upon a shareholder of the corpora.
tion upon his interest as shareholder which are paid by the corporation 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 INDIVIDAL.-Subject to the limitations provided in
subsection (r) of this section,- in the case of an individual, losses sus.
tained during the taxable year and not compensated for by insurance
or otherwiseBusiness.
(I) if incurred in trade or business; or
Not connected with
2 if incurred in any transaction entered into for profit, though
trade or business.
not connected with the trade or business; or
Casualty losses not
(8) of property not connected with the trade or business if the
connected with busl*
loss arises from fires, storms, shipwreck, or other casualty, or
ness.
Disallowed it de
from theft. No loss shall be allowed as a deduction under this
ducted for estate-tax
paragraph if at the time of the filing of the return such loss has
purposes.,
been claimed as a deduction for estate tax purposes in the estate
tax return.
Losses by corpora*
(f) LossEs BY CORPORATIONS.-Subject to the limitations provided
tIons.
in subsection (r) of this section, in the case, of a corporation, losses
sustained during the taxable year and not compensated fd by insurance or otherwise.
NooMS exX

Taxes paid within

Basis for determining
loss.
Post, p.201.

Disallowance of loss
on wash sales of stock,
et(.
Post, p.s208.

Net losses of prior
year.
Pogot p. 207.

Worthless debts.

(g)

BASIS FOR DETERMINING

Loss.-The basis for determining the

amount of deduction for losses sustained, to be allowed under subsection (e) or (f), shall be the adjusted basis provided in section
118 (b) for determining the gain or loss from the sale or other disposition of property.
(h) LOSS ON IVAs1 SALES OF STOCK oR EuIrrE.-For disallow&
ance of loss 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 acquie substantially identical property, see section 118.
(i)NET LosSES.-The special deduction for 4et losses of a prior
year to the extent provided in section 117.
pr.
0 BAD DEBTS.-Debts ascertained to be worthless and charged
off within the taxable year (or, in the discretion of the Commis.
sioner, a reasonable addition to a reserve for bad debts); and when
satisfied that a debt is recoverable only in part, the Commissioner

Iw'S

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'72d CONGRESS.

SESS. I. oC.

209.

181

JUNE 6, 1932.

may allow such debt, in an amount not in excess of the part charged
off within the taxable year, as a deduction.

(k) DEPRECIATION.-A reasonable allowance for the exhaustion,

MCoo

TAX

bIaunssP etc.,

of

ipe
wear and tear of property used in the trade or business, including Lif estate.
allowance for obsolescence. In the case of property
a reasonable
held by one person for life with remainder to another person, the
deduction shall be computed as if the life tenant were the absolute
to tru.
rt.
owner of the property and shall be allowed to the life tenant. In P
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) DEPLErON.-In the case of mines oil and gas wells, other w tngnl ad
natural deposits, and timber, a reasonable allowance for depletion
and for depreciation of improvements, according to the peculiar
conditions in each case; such reasonable allowance in all cases to be no&e foelelolnlo:
made under rules and regulations to be prescribed by the Commiso esta
sioner, with the approval of the Secretary. In any case in which it
of development work that
is ascertained as a result of operations or
the recoverable units are greater or less than the prior estimate
thereof, then such prior estimate (but not the basis for depletion)
shall be revised and the allowance under this subsection for subse'
quent taxable years shall be based upon such revised estimate. In
be equitably apportioned
the case of leases the deductions shall

between the lessor and 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 ProPey intrut
'
property and shall be allowed to the life tenant. In the case of
shall be apportioned
property held in trust the allowable deduction
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 Post#pPO2.
allocable to each.

(For percentage depletion, see section 114(b)

(8) and (4).)Busfrdpeo4
roR DEREIATON
(8 ) dBA

basis upon etc.si for depleton,
which depletion, exhaustion, wear and tear and obsolescence are to
be allowed in respect of any property sball be as provided in
section 114.
(n) CHAnTABLE AND .mER CoNTRIBUTIoN.-In the case of an t ?tio, etc., con
Individual, contributions or gifts made within the taxable year to otes.
or for the use of:-ForpublIouse
AND DEPISHioN.-The

(1) the United States any State, Territory, or any political

subdivision thereof, or tie District of Columbia, for exclusively
public purposes*.
Corporations, com.
(2) a corporation, or trust or community chest, fund, or founda- manty chests, rell.
seetc.,
tion, organized and operateA exclusively for religious, charitable, rga
or educational purposes, or for the prevention
scientifle, literary,
of cruelty to children or animals, no part of the net earnings of
which inures to the benefit of any private shareholder or
individual;
Vocational rebabilm*
(8) the special fund for vocational rehabilitation authorized to. .1n
organ.
l.4p
by section 12 of the World War Veterans' Act, 1924; .Va
(4) posts or organizations of war veterans, or auxiliary units itanons, etc.
or societies of any such posts or organizations, if such posts,
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

4

Aidr

182

'2d CONGRESS.

mNeOuS TAX
societies,

Fraternal

Condition.

Limit.
Unlimited deduo.

SESS. I. OH. 209. JUNE 6, 1932.

(5) a fraternal society, order or association, operating under
the lodge system, but only if such contributions or gifts are to be
used exclusively for rehibous, 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
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 andregulations

s

prescribed by the Commissioner, with the approval of the ecretary.
(For unlimited deduction if contributions and gifts exceed 90 per
centum of the net income, see section 120.)
Futurxene
(o) FUTURE EXPENSES IN CASE OF CASUAL SALES OF REAL PROP*
Case of casual s10esof
real property
a rr.-In the case of a casual sale or other casual disposition of real
At owants for future
liabilities under con* proerty by an individual, a reasonable allowance for future expense
tr"'*t
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 preBond.
scribe, including te 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, condi.
tioned upon the payment (notwithstanding any statute of limita.
tions) o the tax, computed without the benefit of this subsection,
ii respect of any amounts allowed as a deduction under this sub.
section and not actually expended in carrying out the provisions of
such contract.
Dividends received
(p) DIVIDENDS REEIVED By CoRPoRAnoNS.-In the case of a
by corporations,
corporation, the amount received as dividendspo

a domestio(1) from a domestic corporation which is subject to taxation

under this title, or
(2) from any foreign corporation when it is shownetmo satis.
to the
cen~ou
t drvedactonCmr
M
perntderivet
factionof the Commissioner that more than SQ per centum of the
frmUnted S
gross income of such foreign corporation for the three-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
PoI, psoe
the United States as determined under section 119.
Dividends from The deduction allowed bythis subsection shall not be allowed in
China Trade Act cor*
porations, etc., ex. respect of dividends received from a corporation organized under
*e
the China Trade Act 1922, or from a corporation which under sec
P** *3tion
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 Unitel States.
(q) PNxSIox Tausm..-An employer establishing or maintaining
Co ios to.
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
Allowances under a or payment is made. Any deduction allowable under section 28 (q)
of the Revenue Act of 1928 which under such section was appor.
vo. "44p.ie.
tioned to any taxable year subsequent to the taxable year 1981 shall
be allowed as a deduction in the years to which so apportioned to
From a 1"oreIa

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72d CONGRESS. SESS. I. C.

-UAA

I 88

2009. JUNE 6,)1932.

Imoons TAx
the extent allowable under such section if it had remained in force
with respect to such year.
Umtation on ustock
losses. or exch&Mg
(r) LIurrATIoxoN Stroc LossEs.-l
wals
(1) Losses from sales or exchanges of stocks and bonds as
de ned in subsection (t) of this section) which are not capital Pos, p. igo.
assets (as defined in section 101) shall be allowed only to the
su.
extent of the gains from such sales or exchanges (including gains
which may be derived by a taxpayer from the retirement of his
own obligations).
Dlsalowanceso
(2) Losses disallowed as a deduction by paragraph (1), com00m.
puted without regard to any losses sustained during he precedinF
taxable year shall, to an amount not in excess of the taxpayer s
net income for the taxable year, be considered for the purposes
of this title as losses sustained in the succeeding taxable year from
sales or exchanges of stocks or bonds which are not capital assets.
ee.
(8) This subsection shall not apply to a dealer in securities (as
to stocks and bonds acquired for resale to customers) in respect From insortsa
comn.
of transactions in the ordinary course of his business, nor to a pany.
bank or trust company incorporated under the laws of the United
States or of any State or Territory, nor to persons carrying on the
banking business (where the receipt of deposits constitutes a
major part of such business) in respect of transactions in the
oates or tosses from
ordinary course of such banking business.
gains shortseales.
(s) SAxa--SHoRT SALEs-0For the purposes of this title,
msof
or losses (A) from short sales of stocks and bonds, or (B) attribu- stocks1 er.
Due ptiont Dbuy
table to privileges or options to buy or sell such stocks and bonds, or Brom sales of
(C) from sales or exchanges of such privileges or options, shall be privileges, etc. such
considered as gains or losses from sales or exchanges of stocks or Duorporations t
suhsoepllo.
Stocks and bond
bonds which are not capital assets.
Isdo*
fined,
(t) DENITIoN or STOOKS AND BONDs.-As used in subsections (r) sacso stock In a
and (s), the term "stocks and bonds " means (1) shares of stock in Bondsgetc.
any corporation, or (2) rights to subscribe for or to receive such
shares, or (8) bonds, debentures, notes, or certificates or other evidences of indebtedness issued by any corporation (other than a
government or political subdivision thereof), with interest coupons crticates of profit.
or in registered form, or (4) certificates of profit, or of interest in
property or accumulations, in any investment trust or similar organization holding or dealing in any of the instruments mentioned or
described in this subsection, regardless of whether or not such
investment trust or similar organization constitutes a corporation
within the meaning of this Act.
Items not deduc'tible.

8EC. 24. ITEMS NOT DEDUCTIBLE*

(a) GENmAL RULE.-In computing net income no deduction shall
in an case' be allowed in respect of) Personal, living, or family expenses*
2) Any amount paid out for new .butlhiings or for permanent
improvements or betterments made to increase the value of any
propert or estate;
amount expended in restoring property or in making
(8))ny
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.

Objects speed 1.

Personal, etc.,
expene.
Property imp rove*

ments.

Restoring property.

Life Insurance preml.
urs for employee S.