A family of four occupying temporary quarters in a metropolitan area can

easily expect to spend more than $1,000 in a thirty-day period. Searching for a new home can take a few days. Hotel costs plus air fare can easily add another $600 disbursement. There should be no dollar limitation on this provision.

Although delayed occupancy of a new residence is considered, no provision is made for deducting the temporary storage charges which will have to be paid during this same period. Temporary storage charges should be included as a (b)(1)(A) expense which is not subject to limitation.

The section provides for inclusion in gross income as "compensation for
Thus, the employer will have withheld

services" any reimbursed moving expense.

those taxes normally taken on wages paid.

This will result in an out-of-pocket

cash loss to the employee that will not be replaced until he receives a refund on filing his annual return. Another problem is presented in a situation where In this case, the deduction would

the employee does not use itemized deductions.

actually be lost while the amount of reimbursement would remain in income. We recommend that reimbursed moving expenses, to the extent that they are deductible, should not be treated as "compensation for services" and should be omitted from gross income.

DISAPPROVE $301 Limit on Tax Preferences
DISAPPROVE $302 Allocation of Deductions

We disapprove of both of these provisions as arbitrary, extremely complex and contrary to established principles of tax law.

The bill classifies certain income as tax preference income, namely, taxexempt interest on state and local bonds; the deduction allowed individuals of one-half of net long-term capital gains, charitable contributions of property which has appreciated in value, the allowance of accelerated depreciation on real estate and the treatment of farm loss. Section 301 introduces the new and entirely novel concept of placing an overall limitation on these so-called tax preferences for individuals. This overall limitation is imposed even though the

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propriety and extent of safeguards with respect to each "preference" item has been separately dealt with in other parts of the bill.

The objective of $8301 and 302 is to impose a higher tax on a comparatively small group of wealthy taxpayers who make extensive use of existing tax provisions and thereby pay a relatively small amount of tax. The "preference" items are still considered sound and, as safeguarded by present and proposed law, will be available in full to the average taxpayer. Hence, the socially and economically desirable effects of these provisions are retained while the politically expedient step is taken of imposing a greater tax on wealthy persons.

Creating new taxpayer classifications is contrary to the concept of equal treatment before the law. If an item is deductible, such deduction is new available to all taxpayers. Allowing deductions and permitting tax incentives to some taxpayers and not others, proposes a method of tax discrimination which has no place in our system. As precedent for future legislation, treating taxpayers differently although the taxable event is the same, marks the accelerated decline of taxpayer confidence and promises further complexity in our tax law.

Section 302 has a similar limitation provision applying to deductions and is equally novel in our federal tax system. This provision segregates nonbusiness deductions and requires them to be allocated between taxable and tax preference income. The amount allocated to preference income is disallowed under a complicated formula. The theory apparently is that one having both taxable income and tax preference income could have paid these expenses proportionately out of both sources. Hence, it is arbitrarily presumed that he has done so regardless of any connection between income and expenses. We find such presumption to be

unreasonable.

An example of tax distortion resulting from the application of this provision would be present in a situation where a taxpayer, having some preference income, realizes a substantial capital gain, i.e., on the sale of his wholly-owned

business. Here the infusion of a large amount of "preference" income will result in the disallowance of otherwise deductible expenses even though the proceeds from such long-term gain were not available to pay these expenses. This formula attempt at "reform" will actually produce new inequities which will certainly require further "reform".

The most serious and significant criticism of $302 is that it will affect the treatment of deductions that arise out of transactions completed well in advance of any proposal now embodied in the current legislation. The orderly planning and predictability of business and investment, which has always been a part of our tax laws, is unceremoniously discarded.

Both provisions create the problem of unintended tax consequences arising through the application of the formulae. Neither formula serves a sufficiently

useful purpose to justify such result. The bill deals specifically with each of the "tax preference" items. We submit that the tax treatment of preference items and deductions should be made head-on. The direct handling of tax events permits taxpayers to evaluate the consequences of their transactions.

There should be no overall limitation on any kind of income nor should

The complexity of the

there be an overall arbitrary allocation of deductions. proposed formulae makes an exhaustive analysis of their effect impossible. This alone should be sufficient reason not to enact them.

APPROVE $311 - Income Averaging

We approve this proposed amendment as a step toward equality amongst taxpayers and as a striking demonstration of how tax simplicity is attainable when the primary problems are faced.

Eliminating the distortion of tax liability resulting from the timing of income was the primary objective of the existing section. Excluding capital gains and certain other income from the average was done in order to avoid manipulation and because of certain misconceptions.

These exclusions, however, resulted in

complexity and limited use of the provision by taxpayers.

The House Committee Report stated, after discussing the amendments,

"these changes will permit the elimination of 21 lines out of the 43 lines presently on the income averaging tax return form". This combination of reform and simplicity is an example of constructive tax legislation.

Liberalizing the averaging provision encourages taxpayers to take their income currently and avoids deferral schemes. It advances equity and furthers confidence in our tax system.

DISAPPROVE $331 - Deferred Compensation

The proposed change in the taxation of deferred compensation introduces two new formulae: The application of one formula requires extensive recordkeeping and places a burden on the taxpayer, matching deferred payments to income years, that can only encourage litigation. The alternative formula arbitrarily provides that if you aren't willing or able to comply with the recordkeeping requirement you must pay a higher tax since the deferred payment is related back to peak income years.

This involved procedure is intended to equate taxation of funded deferred payment arrangements with non-funded arrangements on the erroneous premise that the two are the same. The premise is incorrect since it assumes that a corporate promise of payment is equivalent to money set aside. The bankruptcy and reorganization of publicly-held corporations is not a unique occurrence. Moreover, financial misfortune in closely held companies often results in unfilled

compensation promises.

A significant problem in applying the proposed section is the absence of a definition of "deferred compensation". Compensation agreements with executive personnel often include legitimate provisions for post-employment consulting. Many contracts are dependent on a post-employment, non-competition and nondisclosure of trade secrets provision. These clauses have real value to the

company and are usually assigned an equivalent dollar amount. To change the timing of income by relating these negotiated payments back to the year of active

employment is tax distortion and not tax reform.

We disapprove of this provision as unnecessarily complex, too vague in application, and inappropriately based on an inaccurate premise.

DISAPPROVE $401 - Multiple Corporations

This subject is almost a perennial in the annals of tax reform.

Congress

has repeatedly weighed the pros and cons of allowing multiple exemptions to a "controlled group" of corporations and the present law reflects this exhaustive study. No new development in the past five years warrants any change in the treatment of multiple corporations. Adequate controls are contained in our law to prevent abuse of existing provisions.

The proposed amendment will effectively restrict the competitive ability

For example, if Mr. A

of small business and discourage new business endeavors. now successfully runs a single unit, take-out food store and forms a new corporation to operate at another location, he is placed at a competitive disadvantage in operating at the new location. His competitors will have less tax to pay on the same income and can maintain a fair return on investment using a lower selling price. The same result would obtain if Mr. A sought to enter an entirely unrelated field.

It is unquestioned that important business reasons exist for the operation of multiple corporations: limiting new venture capital to a set amount and protecting the capital of the original business from exposure to excess losses; limiting tort liability in the same way; permitting managerial incentive through stock participation in the operating unit; permitting labor and general business practice to conform easily to local standards. A corporation pursuing sound business and management objectives, via the multiple corporate route, would be paying a tax penalty under the proposed amendment. This is true for the smaller