bill, and under the conference agreement, this latter restriction is not to apply in the case of any of the manufacturers excise taxes except those relating to automobiles, trucks and buses, business machines, and matches. Under the bill as passed by the House, this provision would have applied to sales after December 31, 1961. Under the Senate amendment to the text of the bill, and under the conference agreement, this provision will apply to articles sold on or after October 1, 1962. SECTION 2. CONTRIBUTIONS TO FOUNDATIONS FOR CERTAIN STATE COLLEGES The Senate amendment to the text of the bill amends section 170(b) (1) (A) of the 1954 Code (relating to limitation on the amount of the deduction for charitable contributions by individuals) to add a new clause (iv). Existing section 170(b)(1)(A) provides for an additional allowance (not to exceed 10 percent of an individual's adjusted gross income) above the general 20-percent limitation for charitable contributions. Under existing law this additional 10-percent limitation is applicable in the case of contributions to churches and conventions or associations of churches, and to certain schools, hospitals, and medical research organizations. The effect of the Senate amendment to the text of the bill, and of the conference agreement, is to make the additional 10-percent provision applicable also in the case of contributions to an organization referred to in section 503 (b) (3) of the code which is organized and operated exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a college or university which is an organization referred to in clause (ii) of section 170(b) (1) (A) and which is an agency or instrumentality of a State or political subdivision thereof, or which is owned or operated by a State or political subdivision thereof or by an agency or instrumentality of one or more States or political subdivisions. SECTION 3. LIFE INSURANCE COMPANIES (a) VARIABLE ANNUITIES AND OTHER SEGREGATED ASSET ACCOUNTS.-The Senate amendment to the text of the bill, and the conference agreement, amend section 801 (g) of the 1954 Code, relating to variable annuity contracts (1) to remove the termination provisions contained in existing paragraph (6) of subsection (g) of section 801 (which provides that such subsection (g) is not to apply to taxable years beginning after December 31, 1962), (2) to provide for separate accounting by life insurance companies with respect to contracts with reserves based on segregated asset accounts, and to define such a contract as one (A) which provides for the allocation of all or part of the amounts received under the contract to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company. (B) which provides for the payment of annuities, and (C) under which the amounts paid in, or the amounts paid as annuities, reflect the investment return and the market value of the segregated asset account, (3) to provide, in effect, that income allocated to the contracts described in paragraph (2) is not to be taxed to the life insurance company, and (4) to provide, in effect, that, in the case of qualified pension contracts for which segregated asset accounts are maintained, capital gains allocated to such contracts are not to be taxed to the life insurance company. (b) TAX IN CASE OF CAPITAL GAINS.-Under existing law, a life insurance company is taxed separately on its capital gains. The excess of net long-term capital gains over net short-term capital losses is taxed at a 25 percent rate without the alternative provided other corporations to include capital gains in the regular tax base. The Senate amendment to the text of the bill, and the conference agreement, provide that a life insurance company is to determine its tax as the lesser of the taxes computed under two methods-a regular method and an alternative method. The regular method requires that the excess of the net long-term capital gain over the net short-term capital loss be included, in effect, in life insurance company taxable income. Under this method, such excess is not taken into account in determining investment yield. The alternative method 673762 0-63-76 requires that the tax be determined by adding 25 percent of such excess to the partial tax computed on the life insurance company taxable income determined without such excess. The alternative method is the one required under present law. This provision applies to taxable years beginning after December 31, 1961. (c) LIMITATION ON CERTAIN DEDUCTIONS.-Section 809 (f) (1) of existing law limits the aggregate amount of deductions allowed to life insurance companies under paragraphs (3), (5), and (6) of section 809 (d). Section 809 (f) (2) imposes a priority for the application of this limitation to the three deductions. The deductions under such paragraphs (5) and (6), to the extent allowed after the application of this limitation, are added to the policyholders surplus account under subparagraphs (B) and (C) of section 815 (c) (2). The Senate amendment to the text of the bill, and the conference agreement, amend section 809(f) (2) to provide that the limitation of section 809 (f) (1) is to apply first to the deduction for dividends to policyholders, then to the special deduction relating to group life insurance contracts and to accident and health insurance contracts, and finally to the special deduction relating to nonparticipating contracts. In a case where the limitation would permit the first of these deductions but not the latter two, then the latter two would not have to be added to the policyholders surplus account. This provision applies to taxable years beginning after December 31, 1961. (d) REDUCTION OF POLICYHOLDERS SURPLUS ACCOUNT.-Subparagraphs (B) and (C) of section 815(c) (2) of existing law require the addition to the policyholders surplus account of the amount equal to the amounts which have been allowed as deductions under paragraphs (5) and (6) of section 809(d). Under certain circumstances distributions to stockholders by a life insurance company, when it has amounts in the policyholders surplus account, may result in tax to the company. The Senate amendment to the text of the bill provided that, to the extent that the deductions added to the policyholders surplus account under the indicated subparagraphs, merely increased a loss from operations which did not result in a reduction in tax for any taxable year to which the loss could be carried, then such additions may be removed from the policyholders surplus account without incurring tax liability. The conference agreement does not include this provision. (e) NEW COMPANIES QUALIFING FOR 8-YEAR LOSS CARRYOVER.-Under existing law certain new insurance companies, which are not controlled by another corporation, or which do not control another corporation, may carry over operations losses for 8 years. The Senate amendment to the text of the bill, and the conference agreement, provide that the disqualification from the 8-year operations loss carryover will not apply where the new life insurance company is connected through stock ownership only with a corporation taxable as an insurance company other than as a life insurance company. This provision applies to all losses to which the Life Insurance Company Tax Act of 1959 would have applied, if it had originally contained this provision, except that a loss arising in 1955 shall not by reason of this amendment be an operations loss carryover to 1961 and there shall be no reduction in the amount of such a loss which may be carried to 1962 or 1963 by reason of an offset for 1961. (f) CERTAIN DISTRIBUTIONS OF STOCK OF SUBSIDIARIES.-Under section 815(a) of existing law a life insurance company is, under certain circumstances, subject to tax at the time of distributions of property to stockholders. The Senate amendment to the text of the bill, and the conference agreement, provide that after December 31, 1961, and before January 1, 1964, section 815(a) will not apply to a distribution of stock of a controlled corporation, if (1) the distribution meets the requirements for a tax-free distribution under section 355, (2) the controlled corporation is an insurance company subject to tax under section 831 (relating to tax on certain insurance companies other than life and certain mutuals), and (3) control was acquired before January 1, 1963, in a stockfor-stock transaction qualifying as a reorganization under section 368 (a) (1) (B). W. D. MILLS, NOAH MASON, JOHN W. BYRNES, Managers on the Part of the House. [H.R. 5260] 11 MAKING PERMANENT EXISTING SUSPENSIONS OF TAX ON THE FIRST DOMESTIC PROCESSING OF COCONUT OIL AND PALM OIL [House of Representatives Report No. 2239, Eighty-seventh Congress, Second Session] [August 16, 1962] Mr. MILLS, from the Committee on Ways and Means, submitted the following report to accompany H.R. 5260. The Committee on Ways and Means, to whom was referred the bill (H.R. 5260) to repeal the 3 cents per pound processing tax on coconut oil, and for other purposes, having considered the same, report favorably thereon with amendments and recommend that the bill as amended, do pass. The amendments are as follows: Strike out all after the enacting clause and insert in lieu thereof the following: That subsection (a) of section 4511 of the Internal Revenue Code of 1954 (relating to tax on first domestic processing of coconut and palm oil) is hereby repealed. TECHNICAL AMENDMENTS SEC. 2. (a) Section 4511 (b) of the Internal Revenue Code of 1954 (relating to additional rate on coconut oil) is amended (1) by striking out “ADDITIONAL" in the heading and (2) by striking out "(in addition to the tax imposed by the preceding subsection)". (b) Section 4511 (c) of such Code (relating to termination of additional rate) is amended by striking out “ADDITIONAL RATE" in the heading and inserting in lieu thereof "TAX ON COCONUT OIL”. (c) Section 4513 (b) of such Code (relating to exemptions from additional tax on coconut oil) is amended (1) by striking out “ADDITIONAL" in the heading, and (2) by striking out "additional" each place it appears in the text. EFFECTIVE DATE SEC. 3. The amendments made by this Act shall take effect on the date of the enactment of this Act. Amend the title so as to read: A bill to make permanent the existing suspensions of the tax on the first domestic processing of coconut oil, palm oil, palm kernel oil, and fatty acids, salts, and combinations or mixtures thereof. PURPOSE The purpose of H.R. 5260, as amended by the Committee on Ways and Means, is to repeal the processing tax imposed by section 4511(a) of the Internal Revenue Code of 1954 on the first domestic processing of coconut oil, palm oil, palm-kernel oil and certain derivatives of such oils. GENERAL STATEMENT Section 4511 (a) of the Internal Revenue Code of 1954 provides as follows: There is hereby imposed upon the first domestic processing of coconut oil, palm oil, palm-kernel oil, fatty acids derived from any of the foregoing oils, salts of any of the foregoing (whether or not such oils, fatty acids, or salts have been refined, sulphonated, sulphated, hydrogenated, or otherwise processed), or any combination or mixture containing a substantial quantity of any one or more of such oils, fatty acids, or salts, a tax of 3 cents per pound, to be paid by the processor. The tax on the first domestic processing of coconut oil has been suspended continuously since October 1, 1957, while that applicable to the first domestic processing of palm oil and palm-kernel oil has been suspended since July 1, 1959. 11 Public Law 87-859, page 210, this Bulletin. The Tariff Commission report on this bill reads in pertinent part as follows: Coconut oil and palm-kernel oil are the only commercially important lauric-acid oils now used in the United States. The domestic processing taxes on these oils provided for in IRC subsection 4511(a) were originally imposed in 1934, principally to protect domestically produced edible fats and oils in uses which coconut oil is at present of little importance, such as in margarine. Although very little palm-kernel oil was used in margarine or shortening, it was subjected to the tax presumably because it could be substituted for coconut oil. Coconut oil is currently important in the manufacture of soap because of the superior lathering properties which the oils impart. Palm-kernel oil is used in the United States principally in edible products such as biscuits, crackers, and confectionery. Neither of the oils is made from materials produced in the United States. The principal use of palm oil in the United States is in the tinplate industries where it serves to prevent oxidation in the plating baths. Imports for this use have been exempt from the tax since 1942. The Tariff Commission further advised your committee that it has not received any complaints regarding the suspersion of the processing taxes on the products covered by this bill. Favorable reports were received from the Departments of Agriculture, Commerce, and State. Your committee believes that the history of the temporary suspension of these processing taxes demonstrates that their permanent removal will be in the interest of the users of these oils and there will be no adverse effect on any segment of the U.S. economy. The Committee on Ways and Means is unanimous in recommending the enactment of H.R. 5260, as amended by the committee. [H.R. 5260] 12 COCONUT AND PALM OILS [Senate Report No. 2102, Eighty-seventh Congress, Second Session, Calendar No. 2068] [September 18, 1962] Mr. BYRD of Virginia, from the Committee on Finance, submitted the following report together with supplemental views to accompany H.R. 5260. The Committee on Finance, to whom was referred the bill (H.R. 5260) to make permanent the existing suspensions of the tax on the first domestic processing of coconut oil, palm oil, palm-kernel oil, and fatty acids, salts, and combinations or mixtures thereof, having considered the same, report favorably thereon with amendments and recommend that the bill as amended do pass. I. SUMMARY OF BILL H.R. 5260 as passed by the House would repeal the processing tax on the first domestic processing of coconut oil, palm oil, palm-kernel oil, and certain derivatives of such oils. Your committee has amended this bill to suspend this tax for 3 more years (until June 30, 1966) rather than repeal it. II. GENERAL STATEMENT Present law (sec. 4511(a) of the code) provides for the imposition of a tax of 3 cents a pound upon the first domestic processing of coconut oil, palm oil, palm-kernel oil, fatty acids derived from any of the foregoing oils, salts of any of the foregoing (whether or not such oils, fatty acids, or salts have been refined, sulphonated, sulphated, 12 Public Law 87-859, page 210, this Bulletin. hydrogenated, or otherwise processed), or any combination or mixture containing a substantial quantity of any one or more of such oils, fatty acids, or salts. The tax on the first domestic processing of coconut oil has been suspended continuously from October 1, 1957, to June 30, 1963, while the tax on the first domestic processing of palm oil and palm-kernel oil has been suspended continuously from July 1, 1959, to June 30, 1963. This latter suspension was designed to restore the competitive balance between these oils and competing coconut and babassu oils on which the processing tax had already been suspended. The House bill would have repealed these processing taxes, while the bill as amended by your committee suspends these taxes for an additional 3 years, or until June 30, 1956. Coconut oil and palm-kernel oil are the only commercially important lauric acid oils now used in the United States. The domestic processing taxes on these oils provided for in section 4511(a) of the Internal Revenue Code of 1954, as amended, were originally imposed in 1934, principally to protect domestically produced edible fats and oils in uses in which coconut oil is at present of little importance, such as in margarine. Although very little palm-kernel oil was used in margarine or shortening, it was subjected to the tax presumably because it could be substituted for coconut oil. Coconut oil is currently important in the manufacture of soap because of the superior lathering properties which the oils impart. Palm-kernel oil is used in the United States principally in edible products such as biscuits, crackers, and confectionery. Neither of the oils is made from materials produced in the United States. The principal use of palm oil in the United States is in the tinplate industries where it serves to prevent oxidation in the plating baths. Imports for this use have been exempt from the tax since 1942. The Tariff Commission advised your committee that it has not received any complaints regarding the suspension of the processing taxes on the products covered by this bill. Favorable reports were received from the Departments of Agriculture, Commerce, and State. Your committee has found no objection to the further suspension of these processing taxes although questions have been raised as to their repeal. In view of this your committee has amended the House bill to provide for a further 3-year suspension of these taxes. III. DEPARTMENTAL REPORTS The following reports on this bill were submitted by the Departments of Commerce, Treasury, Agriculture, and the Bureau of the Budget. The analysis submitted by the U.S. Tariff Commission is also printed below for the information of the Senate. HON. WILBUR D. MILLS, Chairman, Committee on Ways and Means, THE SECRETARY OF COMMERCE, DEAR MR. CHAIRMAN: This is in further reply to your request for the views of this Department with respect to H.R. 7830, a bill to make permanent the existing suspensions of the tax on the first domestic processing of coconut oil, palm oil, palm-kernel oil, and fatty acids, salts, combinations or mixtures thereof. The Department favors the enactment of this legislation. Coconut oil, palm-kernel oil, and palm oil are imported for certain uses in edible and inedible products because of their special properties. The raw materials from which these oils are obtained are not grown commercially in the United States. Coconut oil is used in the manufacture of bakery products and confectionery products as well as in soap, lubricants and similar oils, insecticides and germicides, resins, pharmaceuticals, toilet articles, textile auxiliaries, plasticizers, detergents, hydraulic brake fluids, and synthetic rubber. Over half the current consumption of coconut oil is used in edible products. Palm-kernel oil is used primarily in bakery products and confectionery products, in fat splitting, hydrogenation, and other industrial processing. |