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 41

L

-~

460
Regulations as to
change.

change to dierent

Distributions by
EaP. 490

Determination of
%a~or
o.
Bouroes within and
without United
states.
t , p.M
Foreign personal
holding companies.
, p. MS.w
Consent dividends.
Pou p.
4
f0.
P

Deductions from
gross Income.

PUBLIC LAWS-CH. 280-MAY 28, 1938

[52 STAr,

the filing of his return for the preceding taxable year, has filed
with the Commissioner his election to have it apply.
(0) REoULATIONS AS TO CHANGE.-Thie change to such method
shall be made in accordance with such regulations as the Commis.
sioner, with the approval of the Secretary, may prescribe as neces.
sar toprevent the avoidance of tax.
~)LHANGB TO DIFFERENT DlETHOD.-An election made under
this subsection shall be irrevocable and the method so elected
shall be applied in all subsequent taxable years notwithstanding
any change in the principal business of the taxpayer, unless with
the approval of the Commissioner change to a different method
1i authorized, and then upon such terms and conditions and in
accordance with such regulations as the Commissioner, with the
approval of the Secretary, may prescribe.
(e) UsTRninuIoNs By CoRPoRATIoNs.-Distributions by corpora.
tons shall be taxable to the shareholders as provided in section 115.
(f) DETERAiNATION 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.
(g) GROSS INCOME FROM SOURCES WITHIN AND WITHOUT UNITED
STATE.-For computation of gross income from sources within and
without the United States see section 119.
(11) FOREIGN PERSONAL HOLDING COMPANIES.-FOr provisions relating to gross income of foreign personal holding companies and of
their shareholders, see section 884.
(i) CONSENT DIVIDENDS.-For inclusion in gross income of
amounts specified in shareholders' consents, see section 28.
SEC. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
(R) EXPENSES.-

General ex
carrylag on ces) ofesGENERAL.-Al

the ordinaryand necessary expensesid
or incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; traveling
expenses (including the entire amount expended for meals and
ho ding) while away from home in the pursuit of a trade or
busies; and rentals or other payments required to be made as a
condition to the continued use or possession, for purposes of the
trade or busin ess, of propertyto which the taxpayer has not taken
or is not taking title or in waichrhe has no equity
Corporate
ble contribut
lion&be (2) CORPORATE CHARITA.L. CONTRBUTMN .-No deduction shall
allowable under paragraph (1) to a corporation for any contribution orget which would be allowable as a deductionsunder
subsection (q) were it not for the 6 per centuin limitation therein
contained an d for the requirement therein that payment must be
made within the taxable year.
(b) IN REsT.-AII interest paid or accrued within the taxable year
Interest.
on indebtedness except on indebtedness incurred or continued to purchase or carry oigatons (other than obligations of thenited States
issued after September 24, 1917, and origmna ly subscribed for by the
taxpayer) the interest upon which is w olly exempt from thetaxes
imposed by this title.ap
rally.
co) TAXES GENERALo-TaXes paid
Taxes enei
accrued fo
within thes thae
01
11year, except-'I1Federal l noome
t (1) Federal income, war-profits, and excess-profits taxes (other
o. taes.
4 S*,a .o10

than the excess-profits tax

imposed by section 10 of the Reven

tActof 198 or by section 602 of this Act);

d

52 STAT,]

461

75Tu CONG., 3D BESS.-CH. 28-MAY 281 1938

(2) income, war-profits, and excessprofits taxes imposed by Impoebeto. taes
the authority of any foreign country or possession of the United country, tQ
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 131 (relatin to credit for taxes of Pw, p.w.
foreign countries and possessions of the United States);
(8 estate, inheritance, legacy, succession, and gift taxes; and Estate, etc., taxes.
(4 taxes assessed against local benefits of a kind tending to womt"loate
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.
(d) TAXES OF SHAREHOLDER PAID BY CORPORATION.-The deduction Taxesof shareholder
for taxes allowed by subsection (c) shall be allowed to a corporation paid by corporation.
in the case of taxes imposed upon a shareholder of the corporation
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.
(e) LOSSES
MB INDIVIDUALS.-In the case of an individual, oSSes
Losses by Individ*
sustained during the taxable year and not compensated for by insur. usS.
ance or otherwise1) if incurred in trade or business; or
Business.
(2) if incurred in an transaction entered into for profit, aot oonnected with
though not connected wit the trade or business; or
loses.
(3)of property not connected with the trade or business, if the Conealtboueb
loss arises from fires, storms, shipwreck or other casualty, or from Dem.
theft. No loss shall be allowed as a deduction under this para. Diowedc
if do.
graph if at the time of the filing of the return such loss has been Purpoesta, e
claimed as a deduction for estate tax purposes in the estate tax
return.
(f) LOSSES BY CORPORATIONs.-In the case of a corporation, losses Losses by corpora*
sustained during the taxable year and not compensated for by insur. lions.
ance or otherwise.
(g) CAPITAL LOSSES.Capital losses.
(1) LiurrATroz.-Losses from sales or exchanges of capital Limitation.
assets shall be allowed only to the extent provided in section
117.
2) SEOURITIES BECOMING WORHLESS.-If any securities (as
becoming
denied in paragraph (8) of this subsection) become worthless worthless.
during the taxable year and are capital assets, the loss resulting
therefrom shall, for the purposes of this title be considered as a
loss from the sale or exchange, on the last day of such taxable
year, of capital assets.
(3) DEFiNTION OF sECURITiE.-As used in this subsection the Definition of secure.
term "securities" means (A) shares of stock in a corporation, and
(B) rights to subscribe for or to receive such shares,
(h WAGERINO LoSSEs.-Losses from wagering transactions shall Waeingilosses,
be allowed only to the extent of the gains from such transactions.
(i) BASIS FOR DETERMININo Loss..-The basis for determining the

amount of deduction for losses sustained, to be allowed under sub.
section (e) or (f), and for bad debts to be allowed under subsection
(k), shall be the adjusted basis proviAed in section 118 (b) for deter-

mning the loss from the sale or other disposition of property.
(j) LoSS ON WAsH SALES OF STOCK OR SEoITnIE.-For disallowance 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.

Basis for determin.
gton,

*
of tockorrseules

U

I:

462

PUBLIO LAWS-OH. 289-MAY 28 1988

(52 STAT,

Bad debt **

(k) BAD DE'8.-.
(1) GENERAL RULE.-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, in an amount not n excess
of the part charged off within the taxable year, as a deduction.
Exception
This paragraph shall not apply in the case of a taxpayer other
than a bank, as defined in section 104, with respect to a debt evi
denced by a security as defined in paragraph (8) of this sub.
P.
section.
'"'n
(2) SEOURITIES BECOMING WoRTHLrEss.-If any securities (as
po
w0*,
wrorthless.
defined in paragraph (3) of this subsection) are ascertained to
be worthless and charged off within the taxable year and are
capital assets, the loss resulting therefrom shall in the case of a
Seurit
iw*1,p. 48
taxpayer other than a bank, as defined in section 104, for the
purposes of this title, be considered as a loss from the sale or
exchange, on the last day of such taxable year of capital asset.
iia d*
(8) DEFINITION OP SEoURITIE.-AS used in ths
8subsection the
term "securities" meain, bonds, debentures notes, or certificates,
or other evidences of indebtedness, issues by any corporation
(including those issued by a government or political subdivision
thereof), with interest coupons or in registered form.
Depreclast
(1) DEPREOIATION.-A reasonable allowance for the exhaustion,
of business 'ropu.
wear and tear of property used in the trade or business, including a
we tenan
reasonable allowance for obsolescence. In the case of property held
by one person for life with remainder to another person, the dedue.
tion shalbe computed as if the life tenant were the absolute owner
Prperty held inof the property and shall be allowed to the life tenant.
In the case
iti*.
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.
Mines, 0o1and g
I
(m) DEPLETION.-In the case of mines oil and gas wells, other
wells. linbot eto.
r
Allowance 1ordeplo. natural deposits, and timber, a reasonable allowance for depletion and
lion, etc.
for depreciation of improvements, according to the peculiar condi.
tions in each case; such reasonable allowance in all cases to be made
sest,.under rules and re ulationsto be prescribed by the Commissioner,
levulor
with the approval
mates alIow
the Secretary. In any case in which it is ascertained as a result of operations or of development work that the
recoverable units are Areater 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
Lessee.
shall be based upon such revised estimate. In the case of leases the
deductions shall be equitably apportioned between the lessor and
Life oesta
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 absoiuto owner of the property and shall be
Property he014allowed to the life tenant.
In the case of property he din trust the
trust.
allowable deduction shall be apportioned between the income bene*
ficiaries 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 percontage depletion allowable under this subsection, see section 114 (b)
(8) and (4).)
osnerstr ate.

Basis (Or dpRrec&
tiou and depi
Potp. 494.

(n ) BASIS FOR DEPRECIATION AND DEPLETION.-The basis upon

which depletion, exhaustion, wear and tear and obsolescence are to
be allowed in respec6 of any property shall to as provided in section
114.

*

52 STAT.1

75Tm1 CONG., 8o 888.-OH. 280-MAY 28, 1038

(o) CHARITABLE AND OTHER CONTRIBTION.-In the Case of an
individual, contributions or gifts payment of which is 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 olumbia, or exclusively public
purposes;
(2) a domestic corporation, or domestic trust, or domestic community chest fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary or educational
purposes, or for the 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 at-

tempting, to influence legislation 1

~

463
ObarabltoW on.
tributions,
For pubUopurposes,

Religions, aleutlse,
etc., purposes.

(8) the a ecial fund for vocational rehabilitation authorized by Vocational rebabill*
section 12 ofthe World War Veterans' Act, 1924;
tation.
(4) posts or organizations of war veterans or auxiliary units or 4313tat. 811. 1440,
38 U.8. 0.
societies of any such posts or organizations i? such posts, organiza. War veterans' ortions, 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 domestic fraternal society, order, or association, operating Fraternlsoit)
s
under the lodge system, but only if such contributions or gifts ares Oonditioall
to be used exclusively for religious, charitable, scientiflo, 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 and regulations
prescribed by the Commissioner, with the approval of the Secretary.
(For unlimited deduction if contributions and gifts exceed 90 per
Itallted deduc.
centum of the net income, see section 120.)
tions. po.08
IW
(p) Paxsiote TnusTs.Pension trust,
(1) GENERAL iuL.-An employer establishing or maintaining aenersl nat.
a pension trust to provide for the payment of reasonable tensions
to his employees shall be allowed as a deduction (in adSition to
the contributions to such trust during the taxable year to cover
the pension liability accruing durin the year allowed as a
deduction under subsection
) of this section a reasonable
amount transferred or paid into such trust during the taxable
ear in excess of such contributions, but only if such amount
has not theretofore been allowable as a deduction, and (2)(1)
is
apportioned in equal parts over a period of ten consecutive years
beginning with the year in which the transfer or payment is
made.
(2) DEDUCTIONS UNDER rRIOR INCOME TAX ACTS.-Any deduction Deductions under
Acts.
allowable under section 23 (q) of the Revenue Act of 1928 or the priorStat.802; 47 Stat.
45
Revenue Act of 1932 or the Revenue Act of 1984, or under 182; 48 Btat. 091; 49
section 28 (p) of the Revenue Act of 1936, which under such Stat. U.18.0.
O.1 23 ()
section was apportioned to any taxable year beginning after 28
December 81, 1987, 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.
(8) EXEMPTION OF"TUSTS UNDER SECTION 105.-The provisions Exemption
of paragraplhs (1) and(2)of this subsection shall be subject a ployees' thSrus, of em*
the quafification that the deduction under either paragraph shall
be allwable only with respect to taxable year (whether, the

464

iUBLIC LAWS-Cl. 289-MAY 28, 1038

1st, p. .618
CharItabl ycopr
tbutou i eec.conet~
tions,

nel

ctlo.

Dividends ofcertaic
banking corporations.
Pret, p.oe.
Items not deduct*
iblo.
General rule.
Personal, etc., e.
penses.
Property improve*
mouts, etc.
Property restore*
lion, etc.
Life insurance pro
miums for employees.

Deductions alloca*
ble to taxzeempt In.
comes.

Losses from sales
or exchanges.
Losses 41sallowed.
Between members
of family.
Post, p.485.
Individual and cor*
portion.

Personal holding
compenias

152 STAT.

year of the transfer or payment or a subsequent year) of the
employer ending within or with a taxable year of the trust with
respect to which the trust is exempt from tax
xtnder section 105.

(q) U VARIABLE

AND OTlER CONTRIBUTIONS BY CORPORATIONs.-IR

the case of a corporation, contributions or gifts payment of which is
made within the taxable year to or for the use of a domestic corporation, or domestic trust, or domestic community chest, fund, or founda.
tion, organized and operated exclusively for religious, charitable
scientifl, literary, or educational purposes or the prevention o
cruelty to children (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 not 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 leislation; 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
Secretary.
(r) For deduction of dividends paid by certain banking corporal
tions, see section 121.
SEC. 24. ITEMS NOT DEDUCTIBLE.
(a) GENERAL RULE.-In computing net income to deduction shall
in any case be allowed in respect of1 Personal, living, or family expenses*
(2) Any amount paid out for new buildings or for permanent
improvements or betterments made to increase the value of any
pro rtor estate*
(rq)r
naount expended in restoring property or in making
good the exhaustion thereof for which an allowance is or has
been made;
(4) Premiums paid on tny 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; or
(6) Ano 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.
(b) LOSSES FROM SALES OR EXOHANOE8 OF PROPERTY.(1) LossES DISALLOWED-In computing net income no deduction shall in any case be allowed in respect of losses from sales or
exchanges of property, directly or indirectly-(A) Between members of a family, as defined in paritgraph-(2) (D) in the
(3) Except
case of distributions in liquidation,
between an individual and a corporation more than 60 per
centum in value of the outstanding stock of which is owned,
directly or indirectly, by or for such individual
(C) Except in the case of distributions in liquidation,
between two corporations more than 50 per centum in value
of the outstanding stock of each of which is owned, directly
or indirectly, by or for the same individual, if either one oL