EXECUTIVE OFFICE OF THE PRESIDENT, BUREAU OF THE BUDGET, Washington, D.C., June 29, 1965. HON. JOHN L. MCCLELLAN, Chairman, Committee on Government Operations, U.S. Senate, DEAR MR. CHAIRMAN: This is in reply to your request for the Bureau's views on S. 1201, a bill "To provide for equitable acquisition practices, fair compensation, and effective relocation assistance in real property acquisitions for Federal and federally assisted programs, and for other purposes." Title I of the bill would establish a uniform policy on land acquisition practices and authorize relocation assistance programs for displaced persons. Title II would amend the Internal Revenue Code with reference to involuntary conversions of property through condemnation and to relocation payments received in connection with condemnation. Title III would provide assistance through loans, retraining, and advice to owners and employees of displaced or injured small business concerns. Title IV would provide rental and home purchase assistance for displaced low and moderate income families. This legislation is the outgrowth of a recent special study by a select subcommittee of the House Public Works Committee. We believe that this report is very worthwhile and useful and that the recommendations for legislation deserve serious and detailed consideration by the executive branch agencies concerned and by the Congress. With respect to the provisions in the bill dealing with relocation payments, we believe that legislation is needed and appropriate at this time. This matter has been under study in the Congress and the executive branch for some time and the need for uniformity in treatment has been long recognized. The relocation payments and assistance provisions in this bill are similar to those in S. 1681 on which we are also submitting a report. As we indicated in that report, we favor the provisions of S. 1681 if amended along the lines proposed in that report. The other provisions of S. 1201 raise important and complex questions of policy and procedure which we feel require more intensive study before the administration will be in a position to make recommendations on them. For example, the proposed uniform policy on land acquisition and the redefinition of fair market value need to be carefully studied both on the merits and to determine whether they will in fact encourage settlements without resort to the courts. Also, in addition to the merits, we would like to consider further the question of whether the proposals in titles II, III, and IV are the kind which should be applied more generally or limited, as the bill would do, to acquisitions by the Federal Government or federally assisted programs. We expect the interested executive agencies to study these matters over the next several months with the objective of being in a position to comment on them in detail in the next session of Congress. Accordingly, we recommend that the committee defer action on S. 1201 except for the subject of relocation payments, which we commented on earlier. Sincerely yours, (Signed) PHILLIP S. HUGHES, Assistant Director for Legislative Reference. Hon. JOHN L. MCCLELLAN, EXECUTIVE OFFICE OF THE PRESIDENT, BUREAU OF THE BUDGET, Washington, D.C., June 29, 1965. Chairman, Committee on Government Operations, DEAR MR. CHAIRMAN: This is in response to your letter of May 7, 1965, requesting our views with respect to S. 1681, a bill to provide for uniform, fair, and equitable treatment of persons, businesses, or farms displaced by Federal and federally assisted programs. The purpose of this bill is to establish a uniform policy for the fair and equitable treatment of owners, tenants, and other persons displaced by the acquisition of real property in Federal and federally assisted programs or by related activity in public improvement programs. This policy is to be as uniform as practicable as to (1) relocation payments, (2) advisory assistance, (3) assurance of avail ability of standard housing, and (4) Federal reimbursement for relocation payments under federally assisted programs. The Bureau of the Budget favors enactment of legislation which would minimize inequities which exist when land is acquired for use in a Federal or federally assisted program. Reports issued by the staff of the House Select Subcommittee on Real Property Acquisition of the House Public Works Committee and the Advisory Commission on Intergovernmental Relations clearly document the case that the Federal, State, and local governments are falling far short of equity in treatment of those displaced by governmental programs. Generally, S. 1681 establishes a workable, uniform system for fair and equitable treatment of individuals displaced by the acquisition of real property in Federal and federally assisted programs. We recommend the following amendments, however, to some of the provisions and, in addition, we have some technical suggestions concerning the bill. We believe the amounts of the optional relocation payments provided by section 3(b), $5,000 for a displaced business, and (d), $1,000 for a displaced farm operation, should be set at lower levels. The amounts in the bill are not justifled in either the report of the Advisory Commission on Intergovernmental Relations or the House subcommittee study. In the case of the displaced business option provided for in section 3(b), we recommend $2,500. This is more comparable to similar payments now made by HHFA under the Housing and Community Development Act of 1964. That agency now pays displaced small businesses $1,500, plus moving expenses. In the case of the optional payment for displaced farm operations we would recommend $500. The report of the House subcommittee notes that the average payment for displaced farms made by the Corps of Engineers to move the farmer and provide for his relocation expenses is $475. It should be noted that in both cases the claimant could request relocation payments on the basis of actual expenses as provided by section 3 (a). Section 3 (c) (3) of S. 1681 provides that should a displaced person who moves from a dwelling select an optional payment in lieu of actual expenses as provided by 3(a), he will receive $300 in addition to a moving allowance and dislocation allowance if he is the owner of the property taken. The House subcommittee study report explains this amount as closing costs and financing charges for the purchase of a replacement home. We do not understand the rationale for this payment. A displaced homeowner would receive it whether or not he purchased a replacement home. A displaced tenant would not receive it even though he purchased a home. Accordingly, we recommend that section 3(c) (3) be deleted. Section 3(e) would authorize the payment on behalf of a displaced family or elderly or handicapped individual of an additional monthly amount, equal to the difference between 20 percent of the displacee's income and the amount necessary to rent an adequate dwelling, for a period of 2 years, but not in excess of $1,000 in total. The President, in his message on the problems of the central city and its suburbs recommended a rent supplement program to pay the portion of rent costs which moderate income displaced families could not afford in standard housing provided for the purpose. The payments could be made as long as needed. This recommendation has been embodied in the pending Housing and Urban Development Act of 1965 (H.R. 7984, S. 1354). We believe this rent supplement program will be effective in meeting much of the problems to which the payments proposed in S. 1681 are addressed. There may, however, be situations where units assisted under the rent supplement program in the housing bill will not, as a practical mattter, be available to meet the needs of displaced families and handicapped and elderly individuals. Accordingly, we would not object to section 3 (e), but we believe that this assistance should be limited to 1 year and $500 to insure that communities will make a maximum effort to provide housing under the regular housing programs. Also, we think that this cost should be treated like other relocation allowances and shared by the State agencies according to the applicable program formula as discussed in our comments below on sections 8 and 9. To this end, line 4 on page 10 of the bill should be amended by deleting the comma after "Act" and by adding "and monthly payments provided under section 3 (e),". Section 4 of the bill provides advisory assistance not only to individuals actually displaced from the acquired property but also to those who occupy property adjacent to the acquired property and who are caused substantial economic injury by the acquisition. 51-896-65——3 We believe it is impractical to determine where to stop Government assistance if indirect effects of Government acquisition are to be considered. For example, a business operating one block (or farther) from the property taken might be affected more than one adjacent to it. Suppliers or customers of businesses adjacent to such property may also be adversely affected if those businesses move or cease operations. Moreover, it would often be impossible to determine whether the decreased profits or losses suffered by an adjacent business were actually caused by the property acquisition or by other factors. We are convinced, therefore, that aid to those indirectly affected should be confined to that generally available, such as loans and advisory services from the Small Business Administration or assistance under the Manpower Development Training Act. Section 6 provides authority for the President to issue such regulations as he deems necessary to carry out the act. In order to make it clear that his authority is delegable, we recommend that line 7 on page 7 be changed to read "Act, the President is authorized to make such regulations as he may". Section 6(a) (3) provides that a displaced person who makes proper application for a relocation payment authorized for such person by this act shall be paid promptly after a move. Some displacees may not have adequate resources to finance a move. To provide for such cases, we recommend that the President be authorized to issue regulations which would permit advance payments under certain circumstances. Sections 8 and 9 detail the requirements for approval of contracts or agreements State agencies must meet for Federal financial assistance, the type of relocation payments and assistance to be provided, and assurance of availability of housing for displaced persons. Section 8(d) provides that costs of relocation shall be included in project costs and Federal financial assistance shall be provided to the same extent as other project costs, except that the Federal agency shall contribute the first $25,000 of the cost of providing a relocation payment to any displaced person. The effect of the proposal would be to have the Federal Government assume almost all relocation payments. We believe that relocation payments are an essential element of project cost and see no reason to exempt the first $25,000 from the usual sharing requirements. The House subcommittee study clearly showed that all governments— Federal, State, and local-consider relocation payments as an essential element of an acquisition. Moreover, these relocation provisions will be administered by local agencies. They can be expected to administer the provisions more economically and efficiently if they are also required to bear the same portion of these costs as of other project costs involved. We believe strongly that relocation payments should be shared as other program costs. Accordingly, we recommend that the last three lines of section 8(d) be deleted and the comma at the end of line 21 be changed to a period. We recommend that section 16 concerning the effective date of the act be revised to read as follows: "This Act shall become effective 180 days after enactment, except that part B and subsections 15 (a) (4), (5), (6), (7), and (8) of part C shall become effective 2 years after enactment." This revision is necessary to provide sufficient time for the assignment of responsibility and for the drafting of regulations for direct Federal programs and to allow States and local governments sufficient time to make necessary changes in their laws and possibly their constitutions to permit the agreements required as a condition of Federal aid. If amended as proposed herein, we recommend enactment of S. 1681 which would then be consistent with the administration's objectives. Sincerely yours, PHILLIP S. HUGHES, Assistant Director for Legislative Reference. THE GENERAL COUNSEL OF THE TREASURY, Hon. EDMUND S. MUSKIE, Chairman, Subcommittee on Intergovernmental Relations, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 1201, to provide for equitable acquisition practices, fair com pensation, and effective relocation assistance in real property acquisitions for Federal and federally assisted programs, and for other purposes. Title I of the proposed legislation would establish a uniform policy on land acquisition practices and authorize relocation assistance programs for displaced persons. Title II would amend the Internal Revenue Code with reference to involuntary conversions of property through condemnation and to relocation payments received in connection with condemnation. Title III would provide assistance through loans, retraining, and advice to owners and employees of displaced or injured small business concerns. Title IV would provide rental and home purchase assistance for displaced low- and moderate-income families. Title II of S. 1201 is of primary concern to the Treasury Department. Its provisions are objectionable to the Department for the reasons stated below. Section 201 contains two amendments to section 1033 of the Internal Revenue Code. The first amendment provides that if any property is involuntarily converted as the result of condemnation, either the purchase of (1) any interest in real property, (2) any property used in the trade or business of the taxpayer (as defined in section 1231(b) (1) of the Internal Revenue Code, but without regard to any holding period), which is essentially depreciable property used in the trade or business, or (3) any property to be held by the taxpayer for investment, will be considered a proper replacement of the property condemned for postponing recognition of gain under section 1033. Under existing law, the requirements of section 1033 with respect to the replacement of condemned property are satisfied only (1) where the taxpayer purchases other property similar or related in service or use to the property so converted, or purchases stock in the acquisition of control of a corporation owning such other property, or (2) where the involuntarily converted business property is replaced with property of a like kind. The proposed amendment is contrary to the historical concept of section 1033. The purpose of section 1033, and its predecessors, has not been to postpone recognition of gain solely on account of an involuntary conversion of property but to do so only where the conversion is accompanied by the factual continuation of replacement property in the same business or activity-where, in other words, the transaction can legitimately be considered to remain open for tax purposes. An involuntary realization of gain is as much a realization in fact as a voluntary realization and the occasion is otherwise most appropriate for imposition of tax. The significant factor which warrants postponement of gain is that prompt reinvestment in the same type of assets shows that there has been no significant change in the taxpayer's activity. The fact that after conversion the taxpayer may reinvest the proceeds in property (other than property of a like kind or property which is similar or related in use to the property so converted) constitutes a significant change in the taxpayer's activity vis-a-vis the property and does not furnish a basis for treating the transaction as open for tax purposes or for postponing recognition of gain at that time. To postpone recognition of gain where there has been an involuntary conversion followed by an unrelated investment of the proceeds would create a discrimination in favor of taxpayers whose property is involuntarily converted, and against other taxpayers who change an investment from one type of property to another for reasons they regard almost as compelling as involuntary conversion. Section 201 would further amend section 1033 by providing that where there is an involuntary conversion of only a portion of any property and a part of the proceeds is related to the portion retained by the taxpayer, gain shall be recognized only to the extent that such part of the proceeds is in excess of the adjusted basis of the portion of the property retained. This amendment is also contrary to the purpose and historical concept of section 1033 as set forth above and is objectionable for that reason. The proceeds received, which are related to the portion of the property retained, are compensation for the taking of some part of the property rights related to the portion retained and the transaction is closed as to such proceeds for tax purposes unless they are invested in like kind property or property similar or related in use to the property converted. Section 202 of S. 1201 would amend section 1033 (a) (3) (B) to provide that the period within which property, which is involuntarily converted, must be replaced shall begin on the earliest date on which the taxpayer had reason to believe that his property probably would be acquired by condemnation, or under the threat or imminence thereof. Under existing law, such period begins, in effect, with the earliest date of the threat or imminence of requisition or condemnation of the converted property. The proposed amendment apparently would substitute a subjective test, which depends upon the reasoning and awareness of the individual taxpayer, in place of the test under existing law, which looks to objective facts to determine the earliest date on which there is a threat or imminence of requisition or condemnation of property. Since the proposed subjective test for the beginning of the replacement period would be difficult to administer and the test under existing law has worked well over the years with little complaint, the Department is opposed to the amendment proposed in section 202. Section 203 of S. 1201 would provide that a taxpayer may exclude from income relocation payments received in connection with the condemnation (or threat or imminence thereof) of his property if the relocation payments are made pursuant to a law of the United States, or are substantially similar in kind to relocation payments authorized by a law of the United States. The Internal Revenue Service has ruled in Revenue Ruling 60-279 (1960-2 C.B. 11) that relocation payments received in connection with urban renewal projects are not includible in income to the extent such payments were spent for moving expenses and for direct losses of property resulting from the displacement. Such payments are related to the assumed obligation of the governmental unit involved and therefore such payments were more to reimburse individuals for governmental expenses than to pay their personal expenses. The ruling points out that whether relocation payments received by a business are includible in income depends upon the particular facts in a given case. It is the view of the Department that the rules applicable to all taxpayers should be applied to recipients of relocation payments and no special provision is justified. Section 204 of S. 1201 would amend section 4362 of the Internal Revenue Code to provide that the documentary stamp tax shall not be imposed with respect to a conveyance of property to the United States, the District of Columbia, a State or political subdivision thereof. Section 4361 imposes a stamp tax on documents by which realty is sold or conveyed. The tax is 55 cents per $500 or fraction thereof of the selling price (if in excess of $100). As in the case of all documentary stamp taxes, liability for tax is imposed on both parties to the transaction except that the United States, or a State, territory, or political subdivision thereof, are not liable for the tax. As a consequence of this, in transactions between a governmental body and a private party, the private party is liable for the tax. The great increase in the last decade in public works expenditures by Federal, State, and local governments, particularly for schools and highways, has necessitated large land acquisitions by these units. This has given rise to suggestions for exemptions of transactions to which these units are a party. It is doubted, however, whether exemption would provide any significant economic benefits to the governmental units involved. The burden of the stamp tax on the conveyances of real estate generally is believed not to affect the selling price, since the price in a sale to a government is supposed to be the equivalent of the price at which two freely negotiating private parties would have arrived. The result is that exemption of such transactions would merely give the private party to the transaction a higher net return than if he had sold the property to a private party. In view of this, the Department is opposed to enactment of section 204. Only two bureaus of the Treasury Department, the Bureau of Customs, and the U.S. Coast Guard, would be involved in the acquisition of land and their acquisitions are few and usually small. Accordingly, the impact of title I on the Treasury Department would be minor. The Department has no comment to make on titles III and IV of the bill. The Department has been advised by the Bureau of the Budget that there is no objection from the standpoint of the administration's program to the submission of this report to your committee. Sincerely yours, FRED B. SMITH, Acting General Counsel. THE GENERAL COUNSEL OF THE TREASURY, Hon. EDMUND S. MUSKIE, Chairman, Subcommittee on Intergovernmental Relations, Committee on Government Operations, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: Further reference is made to your request for the views of this Department on S. 1201, "To provide for equitable acquisition practices, |