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 42

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in the principal business of the taxpayer, unless with the approval
of the Commissioner change to a different method is 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.
(6) DisrRauroNe y Conronarros.-Distributions by corporations shall be taxable to the shareholders as provided in section 115.
(f) DrERMINATIONT OF GAIN OR LOs.-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
STATES.-.

(h)
(i)

(j)

For computation of gross income from sources within and without
the United States, see section 119.
FOREIGN PERSONAL HOPING COMPANIES.For provisions relating to gross income of foreign personal holding
companies and of their shareholders, see section 384.
CONSENT DIVIDENDS.For inclusion in gross income of amounts specified in shareholders'
consents, see section 28.
IncOME
NRO
MORTGAGES MADE OR OLIOATIONS ISSUED ilY JOINT

STooK LA"n BANKS.-

For taxable status of income derived from mortgages made or
obligations issued by joint stock land banks, see section 8790.

SEC. 23. DEDUCTIONS FROM GROSS INCOME

In computing net income there shall be allowed as deductions:
(a) EXPENSES.(1) IN ENERAL.-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 compensation 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.
(2) CorRnORATE onA

Atn

coNTRntroNs.-No deduction shall

be allowable under paragraph (1) to a corporation for any contribution or ift which would be allowable as a deduction under
subsection (q were it not for the 5 per centum limitation therein
contained an for the requirement therein that payment must be
made within the taxable year.
(b) INTEm.-All interest paid or accrued within the taxable
year on indebtedness, except on indebtedness incurred or continued
to purchase or carry obligations (other than obligations of the
United States issued after September 24, 1917, and oriamally subscribed for by the taxpayer) the interest upon which is wholly
exempt from the taxes imposed by this chapter.
(e) TAXE8 GErNERAurT.-Taxes paid or accrued within the taxable
year, excepte(1) Federal income, war-profits and excess-prdfits taxes (other
than the excess-profits tax im sea by section 106 of the Revenue
Act of 1935, 49 Stat. 1019, or y section 600 of this title);
(2) income, war-profits, an 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
forei countries and possessions of the United States);
(8 estate, inheritance, legacy, succession, and gift takes; and
(4 taxes assessed against local benefits of a kind tending to
increase the vale o f the property assessed but this paragraph

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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 PAI BY CORPORATION.-The deduction 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 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 INDIVIDAL.-In the case of an individual, losses
sustained during the taxable year and not compensated for by insurance or otherwise-

(1) ifincurred in trade or business; or
(2) if incurred in any transaction entered into for profit,
though not connected with the trade or business; or
(8) of property not connected with the trade or business, if the
loss arises from fres storms, shipwreck, or other casualty, or from
theft. No loss shall be allowed as a deduction under this paragraph if at the time of the filing of the return such loss has been
claimed as a deduction for estate tax purposes in the estate tax
return.
(f) LOSSEs BY CoRPoRAIONo.-In the case of a corporation, losses
sustained during the taxable year and not compensated for by insurance or otherwise.
(g) CAPrrAL LoSSES.(1) LxmiTATIoN.-Losses from sales or exchanges of capital assets

shall be allowed only to the extent provided in section 111.
(2) SEouRITIES BECOMING WORTHLE8.-If any securities (as defined in paragraph (3) of this subsection) become worthless during
the taxable year and are capital assets, the loss resulting therefrom
shall, for the purposes of this chapter, be considered as a loss
from the sale or exchange, on the last day of such taxable year, of
capital assets.
(3) DEFINIION OF EoURIEs.-As used in this subsection the
teim "securities" means (A) shares of stock in a corporation, and
(B) rights to subscribe for or to receive such shares.
(h WAGERING LosE.-Losses from wagering transactions shall
be allowed only to the extent of the gains from such transactions.
(i) BASIS FOR DwrR NINo 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 provided in section 118 (b) for
determining the loss from the sale or other disposition of property.
(j) Loss ON WASH SALES OF STOCK OR SEOURITIE.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.

DEBTs.(1) GENERAL nus.-Debts ascertained to be worthless and

(k). B"

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 in excess
of the part charged off within the taxable year, as a deduction.
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
evidenced by a security as defined in paragraph (8) of' this subsection.
(2) SEOuRrES BECOMING WORTHLEs.-If any securities (as de
fined in paragraph (8) of this subsection) are ascertained to be
worthless and charged off within the taxable year and are capital
assets, the loss r-esulting therefrom shall, i the case of a taxpayer

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CODIFICATION OF INTERNAL REVENUE LAWS
other than a bank, as defined in section 104, for the purposes of
this chapter, be considered as a loss from the sale or exchange, on
the last day of such taxable year, of capital assets.
(8) DEFINIoN OF 8EOuRITIEs.-As used in this subsection the
term "securities" means bonds, debentures, notes, or certificates,
or other evidences of indebtedness, issued by any corporation (including those issued by a government or olitical subdivision
thereof), with interest coupons or in registere form.
(1) DEPREOiAToN.-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) DEPLETIo.-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 Commissioner, with the approval of the Secretary. 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
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.
For percentage depletion allowable under this subsection, see see.
tion 114 (b), (8) and (4).
(n) BAsIS won DEPRECIATION AND DEPLETION.-The basis upon

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) CHArrABLE AND OTHER CoNTRmtTIoNS.-In the case of an
individual, contributions or gifts payment of which is made within
the taxable year to or for the use of :
(i) the United States any State, Territory1 or any political
subdivision thereof, or the District of Columbia, for 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 earning 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;

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(8) the special fund for vocational rehabilitation authorized by
section 12 of the World War Veterans' Act, 1924, 43 Stat. 611
(U. S. C., Title 38, § 440);
(4) posts or organizations of war veterans, or auxiliary units
or societies of any such posts or organizations if such costs,
organizations, units, or societies are organized iie
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
under 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
15 per centum of the taxpayer's not 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

centum of the net Income, see section 120.
(p) PENSION TRUSTS.-

(1) GENERAL RULE.-An employer establishing or maintaining
a pension trust to provide for the payment of reasonable pensions
to his 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.
(2) DEDUorlONs UNDER PRIOR INCOME TAX AMre.-Any deduction
allowable under section 23 (q) of the Revenue Act of 1928, 45 Stat.
802, or the Revenue Act of 1932, 47 Stat. 182 or the Revenue Act
of 1984, 48 Stat. 691, under section 23 (p) o? the Revenue Act of
1986, 49 Stat. 1661, or the Revenue Act of 1988, 52 Stat. 464, which
under such section was apportioned to any taxable year beginning
after December 81, 1937 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 TRUSTS UNDER sEOTION 165..The provisions of
paragraphs (1) and (2) of this subsection shall be subject to the
qualification that the deduction under either paragraph shall be
allowable only with respect to a taxable year (whether the 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 under section 165.

(q) CHARITABLE

AND

TFHER CONTRIBUTIONS BY CORPORAnONS.-

inTthe 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 foundation organized and operated exclusively for religious, charitable,
scientih, literary, or educational purposes or the prevention of 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 Atates 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 inflience legis

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CODIFICATION OF INTERNAL REVENUE LAWS
lation; 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) DIVIoENDS PAID BY BANKING CORPORAIONs.For deduction of dividends paid by certain banking corporations,

see section 121.
SEC. 24. ITEMS NOT DEDUCTIBLE.
(a) GENERAL RuLE.-In computing net income no deduction shall
in ancase 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 property or estate;
(3) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or
has been made;
(4) Premiumsp aid on any life insurance policy covering
thelife 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
(5) Any amount otherwise allowable as a deduction which

is allocable to 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 chapter.

s cE8FROM SALES OR EXCHANGES 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 paragraph
(2) (D) ;
(B) Except in the case of distributions in liquidation, between
an individual and a corporation more than 50 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 of sue corporations,
with respect to the taxable year of the corporation preceding the
date of the sale or exchange was, under the law applicable to
such taxable year, a personal holding company or a foreign
personal holding company;
(D) Between a grantor and a fiduciary of an trust;
(E) Between the fiduciary of a trust and toe fiduciary of
another trust, if the same person is a grantor with respect to
each trust; or
(F) Between a fiduciary of a trust and a beneficiary of
such trust.
(2) STOOK OWVNERSHIP 2 PAMILY, AND PARTNERSHIP RULE.-For
the purposes of determining, in applying paragraph (1), the
ownership of stock.(A) Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust, shall be considered as being
owned proportionately b~y or for its shareholders, partne s, or
beneficiaries;
(B) An individual shall be considered as owning the ~took
owned, directly or indirectly, by or for Ihis family;