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 39

48'r

1658
Federal

instrumen.

Federal obligations,

statement
I retur

required

SESS. I.

CH. 690. JUNE 22, 1936.

District of Columbia; or (B) obligations of a corporation
ized under Act of Congress, if such corpration is an
mentality of the Unite States; or (C)the obligations
United States or its possessions. Every person owning

organintruof of
any the

the obligations enumerated in clause (A), (B), or (C) shall, in

Feder options
01917.

injures or sickess.
Payentfor personal

Minister's dwelling.
dIcomeexempt un

*

dert rtoyexemp
MellPa.l ow

CONGRESS.

the return required by this title, submit a statement showing the
number and amount of such obligations owned by him and the
income received therefrom, in such form and with such information as the Commissioner may require. In the case of obligations
of the United States issued after September 1, 1917 (other than
postal savings certificates of deposit) and in the case of obligations of a corporation organized under Act of Congress, e
interest shall be exempt only if and to the extent provided in the
respective Acts authorizing the issue thereof as amended and
supplemented, and shall be excluded from gross income only if
and to the extent it is wholly exempt from the taxes imposed by
this title*
OR 810KNE88.-Amounts
(5)
received, COMPENSATION FOR orINJURIES insurance or under
through accident
health
workmen's compensation acts, as compensation for personal injuries or
sickness, plus the amount of any damages received whether by
suit or a eement on account of such injuries or sickness;
(6)
IlNIsTm.-The rental value of a dwelling house and
appurtenances thereof furnished to a minister of the gospel as
part of his compensation;
(7) INoomEEXEMPTUNDER TREATY.-IBom9 of

anykd, to the

extent required by any treaty obligation of the United States;

(8) AfisoLANEous rEMs.-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;

mine Income.

Distributions by cor-

p0=, p. 1887.
Determination of
gainorloesinsaleetc.,
ofert

Income of States, municipalities, and other political
subdivisions;
Receipts of shipowners' mutual protection and indemnity
associations;
Dividends from China Trade Act corporations;
Compensation of employees of foreign governments.
(0) INVEWroRE.-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.
(d) ISTrRIBUTONS BY CORPORATION.-Distributions by corporations shall be taxable to the shareholders as provided in section 115.
(e) DrBRMINATION OF GAIN

OR Loss.-In

the case of a sale or

other disposition of property, the gain or loss shall be computed as
provided in section 111.

uwtI
wourcitinte
Poet, p. 1eOs.

d

(f) GRoss INcOME FROM SoUROES WIHIN AND WrrouTr UNrFED
STATS.-For computation of gross income from sources within and
without the United States, see section 119.

Deductions
gross Income.

from SEC. 23. DEDUCTIONS FROM GROSS INCOME.

business expenses.

In computing net income there shall be allowed as deductions:
(a) EXPENsE.-All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other com-

74TH CONGRESS.

SESS. II. CH. 690.

1659

JUNE 22, 1986.

sensation 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,
the taxpayer has not taken or is not taking title
of property to whichno equity.
or in which he has
(b) IwrmT.-All interest paid or accrued within the taxable Interest on debts;
year on indebtedness, except on indebtedness incurred or continued eceptons.
to purchase or carry obhgations (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 the taxes imposed by this title.
(e) TAXES ENEBALY.-Taxes paid or accrued within the taxable "" raY.
year, except(1) Federal income, war-profits, and excess-profits taxes (other Anre, p.1019.
than the excess-profits tax imposed by section 106 of the Revenue
Act of 1985);
(2) income, war-profits, and excess-profits taxes imposed the
authority of any foreign country or possession of the United
States; but this deduction shall be allowed in the case of a tax- Deduction for foreign
payer who does not signify in his return his desire to have to any Pot, p.1o98.
extent the benefits of section 181 (relating to credit for taxes of
foreign countries and possessions of the United States);
8 estate, inheritance, legacy, succession, and gifttaxes; and
i4n taxes assessed against local benefits of a kd tending to
inease 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.
Taxestof shareholder
(d) TAXES OP' SAREHOwER PAD By CORPORATION.-The deduce paid by corporation.
for taxes allowed by subsection (a) shall be allowed to a cortion
portion in the case of taxes imposed upon a shareholder of the
corporation upon his interest as sareholder 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.
(e) LossEs BY INDVmuAS.-In the case of an individual, losses nao by individ.
sustained during the taxable year and not compensated for by
insurance or otherwiseIncurred inbusiness,
(1) if incurred in trade or business; or
(2) if incurred in any transaction entered into for profit, Notorconnected with
trade business.
though not connected with the trade or business; or
loabbn
(8) of property not connected with the trade or business, if the
loss arises from fires storms, shipwreck or other casualty or from ness.
theft. No loss shall be allowed as a deduction under tWis para- iucedntoresat
graph if at the time of the filing of the return such loss has been Pases.
claimed as a deduction for estate tax purposes in the estate tax
return.
by corpora(f) LOssES BY CoRPoRATIoNs.-In the case of a corporation losses o
sustained during the taxable year and not compensated lor by
insurance or otherwise.
(g) WAGERING LossE.-Losses from wagering transactions shall Wagerngioses.
be allowed only to the extent of the gains from such transactions.
(h) BASIs won DErERMINING Los.-The basis for determining the ls.

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 loss from the sale or other disposition

of property.

, P.1n

1660

r4TCONGRESS.

Disallowan ce of loss
on wash sale s of stock,
etc.
Peal, p.lo

M

Capital lo=
2 p
16
a.

.

Bad debts.

Depreciatlc
business prol

tetc., of

Lifeestates .1
Property in

Mines, oil
wells, timber, atd
Allowance for dept
etc.oion,

Revision of
allowed.

Leases.
Life estates

OH. 690. JUNE 22, 1986.

(i) LS oON WABH SALES OF STOCK OR SEouRrEml.-For

.

p. is"

Basts for
tion, etc.

Cheatable,
trbutions. etc., e
its.
Public ues.

ReliiousI scientlic,
etc, rganizal u notee

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 acquired substantially identical property, see section
118.
(j) ~rrrCAs LOs8&.-Losses from sales or exchanges of capital
assets shall be allowed only to the extent provided in section 117 (d).
(k) BA DETS.-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 satisfled that a debt is recoverable only in part, the Commissioner may
allow such debt in an amount not in excess of the part charged off
within the taxable year, as a deduction.
(1) DFPRECIATION.-A reasonable allowance for the exhaustion,
wear and tear of property used in the trade or business, including
a reasonable 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 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.
(m) DEPIxoIN.-In the case of mines, oil and gas wells, other
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 made under rules and regulations to be prescribed by the Com-

amas missioner, with the approval of the Secretary.

Property In

Peo,

SESS. II.

In any case in which

it is ascertained as a result of operations or of development work
that 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
subsequent taxable years shall be based upon such revised estimate.
In the case of leases the deductions shall be equitably apportioned
between the lessor and lessee. In the case of property held by
one person for life with remainder to another person, the deduction
the life tenant were
shall be computed shall be allowed to the lifethe absolute owner of
the property and as if
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 percent depletion allowable under this subsection, see section 114 (b), 3) and (4).)
BABIS FOR DEPRECIATION AND DEIFiMrlON.-The basis upon
D(n)
which depletion, exhaustion, wear and tear, and obsolescence are
to be allowed in respect of any property shall be as provided in
section 114.
(o) CHARITABLE AND OTHER CONTRIBtUTION.-Inflthe case of an
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
subdivision thereof, or the District of Columbia, for exclusively
public purposes;

(2) a corporation, or trust, or community chest, fund, or
foundation, organized and operated exclusively for religious,
charitable, scientific, literary, or educational purposes, or for the

-U

74M CONGRESS.

1061

SESS. II. CI. 690. JUNE 22,' 1986.

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, and no substantial part of the activities of which is
carrying on propaganda, or otherwise attempting, to influence
legislation;
(3) the special fund for vocational rehabilitation authorized by
section 12 of the World War Veterans' Act, 1924;
units
(4) posts or organizations of war veterans, or auxiliary posts,
of any such posts or organizations if such
or societies
organizations, units, or societies are organized in tAe 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
the lodge system, but onlY if such contributions or gifts are to be
used exclusively for religous, charitable, scientific, literary, or
educational purposes, or or 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 and regulations
prescribed by the Commissioner, with the approval of the Secretary.
(For unlimited deduction if contributions and gifts exceed 90 per

jgt'oroo

al rehabill

Vol. 43P.611.

War vete erans organ.
c.
et
nations,

Fraterna1

societies,

etc.

Limit.

noinlimted

re, p.1160&
1
centum of the net income, see section 120.)
(p) PENSION TRusm.-An employer establishing or maintaining a maintew an(*
pension trust to provide for the payment of reasonable pensions to

deduo.
of Pen.

707.
his employees (if such trust is exempt from tax under section 165, P P.1
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 us 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. Any deduction allowable under section 28 (q) of the Alowanc es under
Revenue Act of 1928 or the Revenue Act of 1982 or the Revenue Act oia P. 802; Vol.
Vol.
of 1984 which under such section was apportioned to any taxable P.A1 48,P.
year beginning after December 81, 1935, shall be allowed as a deduction in the years to which so apportioned to the extent allowable
under such section if it had remained in force with respect to such
year.
Charitabr0e,eto., con
() CAITABLE AND OTHER CONTRIBUTIONS BY CORPORATIONS.
by oorpors.

IntIe case of a corporation, contributions or gifts made within the

taxable year to or for the use of a domestic corporation, or domestic
trust, or domestic community chest, fund, or foundation organized
and operated exclusively for religious, charitable scientific hterary,
or educational purposes or the prevention of cruelty to chilAren (but
in the case of contributions or gifts to a trust, chest, fund, or foundation, only if such contributions or gifts are to be used within the
United States exclusively for such purposes), no part of the net earnings of which inures to the benefit of any private shareholder or
individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation; to an amount which does not exceed 5 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 Seeretary.

ions.

1662

14m CONGRESS.

Dividends of
stain (r)
banking corporations.
Post, p. 10o.
tions,
Itemsnotdeductible.

Persnal,
pe-nm-s
Property
ments, e.

etc.,

eX-

Improve-

Restoring property.

Life Insurne prenl
urns for employees.

Deductions allocable
to tax-exempt Incomes.

Property losses from
sales, etc., between
members of family;
shareholderrand eorporation.
Defntions.

Holders of life or
terminable Interest.
Deductions on income acquired by gOft,
etc.

Ante, p. 1800.

Tax withheld on taxfree covenant bonds.
Po$, P. 1701.

SESS. II. CH. 690.

JUNE 22, 1986.

For deduction of dividends paid by certain banking corporal.
see section 121.

SEC, 24. ITEMS NOT DEDUCTIBLE.

in

(a) GENRAL Rum.-In computing net income no deduction shall
case be allowed in respect of-.
)Personal,living, or family expenses
Any amount paid out for new buildings or forpermanent
improvements or betterments made to increase the value of any
property or estate;
(8) Any amount expended in restoring property or in making
the exhaustion thereof for which an allowance is or has
en made;

(4) Premiums paid on any life insurance policy covering the
life of any officer or employee, or of any person finiancially interested in any trade or business carried on by the taxpayer, when
the taxpayer is directly or indirectly a benefleiary under such
policy;
(p An amount otherwise allowable as a deduction which is
allocableto one or more classes of income other than interest
(whether or not any amount of income of that class or classes is
received or accrued) wholly exempt from the taxes imposed by
this title; or
(6) Loss from sales or exchanges of property, directly or
in directly, (A) between members of a family, or (B) except in
the case of distributions in liquidation, between an individua and
a corporation in which such individual owns, directly or indirectly,
more than 50 per centum in value of the outstanding stock. For
the purpose of this paragraph-(C) an individual shall be considered as owning the stock owned, directly or indirectly, by his
family; and (D) the family of an individual shall include only
his brothers and sisters (whether by the whole or half blood),
a ouse ancestors, and lineal descendants.
)
OILERS oF Lin OR TERMINABLE INTERET.-Amounts paid
un er 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
shrinkae (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 (1) and (m) 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.
( TAX WrrIHELD ON TAx-FREE COVENANT BOWD.-For nondeductibility of tax withheld on tax-free covenant bonds, see section
143 (a) (8).

Credits allowed In* SEC. 25. CREDITS OF INDIVIDUAL AGAINST NET INCOME.

dividuals.
Normal tax only.

Interet on Fedeal

obligtons.
Arnep. 167.

Interest on oblga.
tons of Federa natu*
mentalities.

(a) CREDm8 FOR NORMAL TAx ON.-There shall be allowed for
the purpose of the normal tax, but not for the surtax, the following
credits against the net income:

(1)

INTEREST ON UNITED STATES OBLIGATIONs.-The

(2)

INTEREST ON OBLIGATIONS

amount

received as interest upon obligations of the United States which
is included in gross income under section 22.
OF INsTRUMENTALIrIES OF THi

UNITED STATES.-The amount received as interest on obligations

of a corporation organized under Act of Congress, if (A) Audi

I!