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metick” published in 1691. There the principle was laid down that if you took, in taxes, from the rich what they were squandering in riotous living and diverted it to useful purposes, there was little harm in high taxes. After 234 years we have evolved the principle that we should take from the frugal and industrious what they would otherwise invest to good purpose, and refrain from taking it from those who waste their fortunes.

Under our new and most “scientific” law, a taxpayer who sells an investment which has been held for more than two years need only pay 127/2 per cent total tax on any profit realized, no matter how large it may be. An inventor who sells an invention, recently patented, representing the work of a lifetime, may pay more than 40 per cent of the gross amount realized. The 127/2 per cent tax is always taken advantage of by the astute investor. The average investor, not learned in the niceties of the law, whose bonds are retired or redeemed, who has not been warned that they should be sold or exchanged may pay 46 per cent tax on the profit. The Treasury held that under the 1921 law gains derived from the redemption of securities were not capital gains, and no attempt was made in the 1924 law to remedy a glaring inequity which only penalizes the unwary.

The child who inherits $100,000 of 5 per cent bonds is declared to "earn” the $5,000 annual income as fully as the hard-worked executive who receives a salary of $5,000 a year. Could anything be more absurd? And the surgeon or lawyer, who, after a lifetime of experience, earns $12,000 or $15,000 a year, is declared to have earned only part of it.

Since there does not appear to be any chance of our having a 10-year tax holiday, as I suggested two years ago, I make bold to offer another suggestion. It is obvious, even to themselves, that sane tax legislation is beyond the capabilities of the men in Congress. Why not elect a majority of women at the next election in 1926? Women have always been smarter than men; they merely have lacked experience and opportunity to govern the world better than it has been governed. They are good fighters but they would not have permitted as many silly wars as we have had. If women, eventually, are to step in where men failed, why not now? The election of two governors in 1924 is highly significant. Perhaps in a few years a woman may be elected Governor of New York State. Why not accelerate this trend? With the greatest confidence, I can

guarantee that as soon as women set themselves to an understanding of the income tax, and ascertain what a mess the men have made of it, they will rise up in their wrath and enact a short and simple law.

I have understated rather than overstated the chaos into which frequent and unintelligent changes in the law have plunged taxpayers and the Treasury. No one has been closer to the situation from the beginning than Dr. Thomas S. Adams; all of my criticisms and more are confirmed by his public statements.

Treasury officials know the truth about our tax laws and methods. In his annual report made public December 4, 1924, Secretary Mellon said, “A reasonable tax rate will make elaborate, expensive methods of avoidance unprofitable. A reasonable rate of tax will make the administration of the tax laws more simple of accomplishment. With so many doors to the house, the effort to close them all has given us the most intricate tax law in history.”

The Secretary's criticisms of past laws are overwhelmingly supported by these figures from the report of the Commissioner of Internal Revenue for the fiscal year ended June 30, 1924. Cash refunds ....

$118,311,079 Abatements and credits allowed

334,271,612 Claims rejected

375,288,794 Claims received

1,515,786,087 The figures are appalling. The pity of it all is that many of those who should have made claims will never realize their lost opportunities.

Notwithstanding the approach to a complete breakdown, caused by the excess profits tax problems, the overturning of many of the early regulations by recent court decisions and the drastic changes of the 1921 and 1924 laws, the Bureau of Internal Revenue, during the year 1924, accomplished more constructive work than during any year in its history. Taxpayers, who made full disclosures of their affairs and who took the trouble to present in minute detail, their side of disputed questions, have been given more patient and reasonable consideration than ever before. On its part, the Bureau's officers have recognized that while many problems are well nigh insoluble, nevertheless, they must be settled somehow, sometime, and that the courts are no more friendly to the Bureau than to taxpayers. Under these circumstances, failure to compromise would be as foolish on the part of one as the other. Reversing its former refusal to meet taxpayers halfway, the Bureau now follows the highly intelligent method of settling as many cases as possible in the Income Tax Unit.

For several years the author has advocated the simplification of the law by the omission of most of the details which now form the major part of the text, and substituting for these details a great increase in the discretion granted to the Commission.

The outstanding bright spot of the 1924 law is the provision for the U. S. Board of Tax Appeals. Unlike many possibilities the hopes cherished for many years by taxpayers became a reality almost at once by the intelligent and energetic organization of the new Board. What is more important it started forthwith to hear and decide cases. The personnel of the Board is highly satisfactory not because of this or that individual but because the Board as a whole radiates the impression of fearlessness and impartiality. The members talk and act like judges of a high court of justice and the chairman talks and acts like a Chief Justice.

The development of the Board into a full fledged court with an appellate division depends on experience. For the present taxpayers should rest content with the most constructive piece of tax procedure in the history of federal tax legislation.

In the preparation of this edition, I had the invaluable assistance of my colleague at Columbia University, Professor Robert Murray Haig; of my partner, Walter A. Staub, C. P. A.; and of my assistants, J. Marvin Haynes, of the Bar of the District of Columbia ; James O. Wynn, Jr., of the New York Bar; Hamilton Howard, Robert Buchanan, and Conrad B. Taylor, C. P. A.; also of Orrin R. Judd, C. P. A., Trust Officer of the Irving Bank-Columbia Trust Company and his assistants. Needless to say, there would have been no new edition if it had not been for the help of my associates to whom I am deeply indebted.

The authoritative material contained in the income and war tax services of the Corporation Trust Company was used with the company's kind permission.

ROBERT H. MONTGOMERY

110 William Street, New York,

December 8, 1924.

Part III-Deductions

XXXIV Deductions and Credits—General.....

883

XXXV Deductions for Expenses.

885

XXXVI Deductions for Interest.

953

XXXVII Deductions for Taxes..

965

XXXVIII Deductions for Losses.

1005

XXXIX Deductions for Net Losses.

1049

XL Deductions for Bad Debts...

1065

XLI Deductions for Depreciation.

1088

XLII Deductions for Extraordinary Obsolescence and

Amortization

1165

XLIII Deductions for Depletion.

1179

XLIV Deductions for Contributions, Donations, Gifts

and Subscriptions..

1248

Part IV-Special Classes of Taxpayers

XLV Tax on Undistributed Profits of Corporations. . 1269

XLVI Non-Resident Aliens...

1280

XLVII Fiduciaries

1350.

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