Sec. 1379: Qualified Pension Plans-Requirements and Taxability of Shareholder-Employee.-Section 1379 should be repealed to permit corporate shareholder-employees of small business corporations to receive the same benefits to which shareholder-employees of other corporations are entitled.

ESTATE AND GIFT TAXES

Sec. 2014 (b): Credit for Foreign Death Taxes.-The limitation on the amount of foreign death taxes creditable against federal estate tax should, at the option of the taxpayer, be determined on an overall basis.

Sec. 2031, 2512: Valuation of Property for Estate and Gift Tax.-The value of property for estate and gift tax purposes should never be greater than the amount that could in fact be realized by the decedent's estate on the donor.

Sec. 2042: Reversionary Interests Insurance. The provisions relating to the 5 percent reversionary interest should be limited to those situations where the decedent retained a reversionary interest. Any interest that arises through inheritance or operation of law should be excluded from applicability.

Sec. 2503 (c): Exclusion for Gifts of Certain Future Interests.-The annual $3,000 gift tax exclusion should be extended to all gifts of a future interest where the property will be used solely for the benefit of a specified donee during his life and the remainder of the property, if any, will on his death be included in his gross estate.

Sec. 2504 (c): Valuation of Gifts Made in Prior Years.-The prohibition of an adjustment of the value of gifts made and exclusions allowable in prior years where the statute of limitations has expired should not depend upon the payment of gift tax.

Sec. 2523: Gift to Spouse.-The marital deduction should be determined annually.

Sec. 6019: Gift Tax Returns.-Gift tax returns should be filed annually. Sec. 6166: Extension of Time for Payment of Estate Tax.-An extension of time for the payment of estate tax where the estate consists largely of an interest in a closely held business should be permitted in more situations.

PROCEDURE AND ADMINISTRATION

Sec. 6015, 6154(a): Installment Payments of Estimated Tax by Individuals . and Corporations.-Sections 6015 and 6154 (a) should be amended to raise the minimum amount required for individuals and corporations to pay estimated income tax.

Sec. 6405 (a), 6405(c): Reports of Refunds and Credits.-Section 6405 (a) and (c) of the Code should be amended to increase the dollar limitation therein to at least $250,000.

Sec. 6411: Tentative Carryback Adjustments-Foreign Tax Credits.-Tentative carry back adjustments should be permitted for unused foreign tax credits in the same manner as now provided for operating losses, capital losses (in the case of corporations) and investment credit carrybacks.

Sec. 6425: Quick Refunds (45 days) as to Certain Corporate Quarterly Overpayments.-Section 6425 should be amended to allow a corporate taxpayer to file, prior to the end of the taxable year, for a "quick refund" (45 days) as to certain overpayments of estimated installments.

Sec. 6511 (d) (2): Statute of Limitations on Refunds Arising From Net Operating Loss Carrybacks.-Claim for refund with respect to a net operating loss carry back should be timely if filed within three years from due date, including extensions, of the return for the loss year.

Sec. 6601: Interest on an Underpayment on Form 7004.-It should be made clear that, where a corporation has obtained an extension of time for filing its income tax return under Section 6081 (b), interest will be charged on an underestimate only to the extent that the correct first installment exceeds the amount actually paid as a first installment.

Sec. 6672: 100 Percent Penalty for Failure to Collect and Pay Over Tax.-The enforcement of collection of a penalty under Section 6672 should be stayed during a period of judicial review and determination if the taxpayer posts a bond equal to 150 percent of the unpaid amount of the penalty sought to be assessed and collected.

Sec. 6901 (c): Limitations on Assessment and Collection-Transferee and Fiduciaries.-Section 6901 (c) should be amended to provide that where an eighteen

APPENDIX B

SUMMARY OF EVOLUTION OF FEDERAL INCOME TAX TREATMENT OF CAPITAL GAINS AND LOSSES IN U.S.

92-606-73-pt. 3-7

APPENDIX B-Continued

SUMMARY OF EVOLUTION OF FEDERAL INCOME TAX TREATMENT OF CAPITAL GAINS AND LOSSES IN U.S.-Continued

1 Unlimited.

2 Unlimited (provided at least a 7 percent contribution rate for employees).

Mr. ULLMAN. Thank you, Mr. Skinner, for a very thorough statement. Mr. Vanik?

Mr. VANIK. I want to welcome you here as a fellow Clevelander, but I have a question. I am concerned about the methods that are used in corporate reporting where the report sets out a provision for Federal income taxes. This is for a completed year and the financial statement will not tell us what the income tax is.

"Provision for Federal income taxes" bears absolutely no relationship to taxes paid. I wonder about the purpose of this accounting procedure in corporate reporting. What does it tell us? What does it tell the investor? What does it tell the citizen.

Mr. SKINNER. It looks beyond the tax liability for the current year's operations. It is based upon an analysis of the tax liability of the corporation as of the date of the balance sheet. I might add that this area and the area that you mentioned during the previous testimony is an area that is under current study by not only our profession through its accounting principles board but by the SEC. It will very likely be a matter of study by the new FASB.

Mr. VANIK. We have to legislate now. We are dealing with the present situation. That is our problem. We want to deal realistically. Do you think it is appropriate in accounting procedures, particularly in the consolidated returns of a multinational-to lump together all taxes paid? Isn't there a need to separate the foreign operation to see what effect the multinational operation really is?

It is absolutely impossible for me to understand a consolidated return of a multinational conglomerate. Do you think this is a good accounting procedure to permit a multinational to file a consolidated return? Let's talk about the investor. It is fair to the investor to put everything in one big jar and say, here it is, so that he cannot separate whether the foreign operations are in fact good or bad or whether they are meaningful to the company, or whether they actually produce any real contribution to his dividend.

Why shouldn't an investor know just how much the foreign operation is contributing to the portion of the dividend that he receives so that a person could look at the returns and separate the foreign operation.

Mr. SKINNER. As you know, the returns are generally available.
Mr. VANIK. The financial statement is a fairytale.

Mr. SKINNER. I hesitate to say that, but I do say our profession is concerned about adequate disclosure for the benefit of the public investor. I think that, generally speaking, we would favor the disclosure of information that would enable an investor to compare the operation of one company in the same industry with others in the same industry as well as the operating results of the industry with the operating results of other industries.

Mr. VANIK. Under what kind of financing reasoning do corporations report among their taxes paid, the excise taxes paid by consumers of their products, I am talking about the petroleum industry. By what kind of concept of accounting do they have a right to include as taxes paid, the taxes which were paid by a consumer of their product?

How does the accounting profession justify the consolidation within a report of irrelevant matters, irrelevant to the investor and confusing