International Claims Settlement Act of 1949 to authorize the Foreign Claims Settlement Commission to adjudicate (i.e., pre-adjudicate) claims of United States nationals for losses of property through expropriation, nationalization, or other taking by the Socialist Republic of Vietnam after the fall of the Republic of South Vietnam on April 29, 1975.

Adding a new Title VII to the Act, Public Law 96-606 authorized the Commission, in section 703, to "receive and determine in accordance with applicable substantive law, including international law, the validity and amounts of claims . . . for losses incurred as a result of the nationalization, expropriation, or other taking of (or special measures directed against) property which, at the time. [thereof] was owned wholly or partially, directly or indirectly, by nationals of the United States to whom no restoration or adequate compensation for such property has been made." Under section 704 the rule of continuous nationality applies to such claims.

Under section 705 claims based upon an ownership interest in any United States corporation, association, or other entity are excluded from consideration; claims based upon a debt or other obligation of such corporation, association, or other entity may be considered only if it is a charge on property nationalized, expropriated, or otherwise taken by Vietnam. A claim based upon a direct ownership interest in a corporation, association, or other entity may be considered, without regard to the percentage of ownership, if the corporation, association, or other entity was not a United States national on the date of the loss. A claim based upon an indirect ownership interest in a corporation, association, or other entity may be considered if at least 25 percent of the entire ownership interest thereof was at the time of the loss vested in United States nationals, or if, at the time of the loss, United States nationals in fact controlled the corporation, association, or entity, as determined by the Commission. Under section 705(d) a claim based upon either a direct or an indirect ownership interest (as qualified, ante), is to be calculated in the same proportion to the total loss suffered by a corporation, association, or other entity, as the ownership interest of the claimant at the time of the loss bears to the entire ownership interest.

Under section 710(b), payment of awards to be certified by the Foreign Claims Settlement Commission to the Secretary of the Treasury (out of such sums as might in future be covered into the Vietnam claims fund) would be made under a distribution formula based upon a minimum of $2,500 or the principal amount of the award, whichever is less.

The deadline for filing claims under the Vietnam Claims Program, initially announced effective Feb. 26, 1981, and twice extended, expired on Feb. 25, 1983, in accordance with the limit set out in sec. 703 of P.L. 96-606. In accordance with sec. 711

the Commission was required to complete its affairs no later than Feb. 25, 1986.

See, Fed. Reg., Vol. 46, Nos. 38, Feb. 26, 1981, p. 14230, and 43, Mar. 5, 1981, p. 15386; Vol. 47, No. 149, Aug. 3, 1982, p. 33555; and Vol. 48, No. 35, Feb. 18, 1983, p. 7302. During joint hearings and markup before the Subcommittees on Asian and Pacific Affairs and on International Economic Policy and Trade of the House Committee on Foreign Affairs on July 27, 1979, Congressman Lester L. Wolff, Chairman of the Subcommittee on Asian and Pacific Affairs, asked about the advisability of providing in the legislation for adjudication of claims against Laos and Cambodia (Kampuchea). On Sept. 19, 1979, J. Brian Atwood, Assistant Secretary of State for Congressional Relations, wrote Congressmen Wolff and Jonathan B. Bingham, Chairman of the Subcommittee on International Economic Policy and Trade, that the Department of State was not aware of any outstanding claims of United States nationals against Laos and had been informed of only four possible claims against Kampuchea, totaling $1.6 million. The Department did not believe that the small volume of known claims would "justify or require a program which would adjudicate the validity and amount of such claims by the Commission"; and it was of the view "that the claims involved could best be settled at the appropriate time on a case-by-case basis."

Adjudication of Claims Against Vietnam: Hearing and Markup [on H.R. 2200] before the Subcomms. on Asian and Pacific Affairs and on International Economic Policy and Trade of the House Comm. on For. Aff., 96th Cong., 1st sess. (1979), pp. 9, 18-19.

United States-People's Republic of China

Modification of Distributions

On October 13, 1980, President Carter signed into law as Public Law 96-445, 94 Stat. 1891, amendments to the International Claims Settlement Act of 1949, as amended, which altered the existing statutory provision for pro rata payment on account of awards certified by the Foreign Claims Settlement Commission under the "China Claims Act", insofar as subsequent distributions under the 1979 Claims Settlement Agreement with the People's Republic of China (see, post) were to be made.

Under the amendments, awards certified by the Commission for the nationalization or other taking of property of a claimant which was an incorporated business enterprise on the date of the nationalization or other taking were to be reduced by the amount of the Federal tax benefits derived by such claimant on account of the losses upon which its claim was based; but in no case were the payments to be reduced below the amount paid to such claimant on account of such claim prior to October 13, 1980. For purposes of the reduction provision, Federal tax benefits were "the amount by which the claimant's taxes in any prior taxable year or years under chapters 1, 2A, 2B, 2D, and 2E of the Internal Revenue Code of 1939, or subtitle A of the Internal Revenue Code of 1954, were decreased with respect to the losses upon which the claim was based." The sum of the amounts that would otherwise have been payable but for the reduction provision was to be aggregated and reallocated to

nonprofit organizations operated exclusively for the promotion of social welfare, religious, charitable, or educational purposes, to the extent that unpaid principal balances remained on awards to such nonprofit organizations, after payments to them under the first two payment priorities had been taken into account (the first payment priority being the lesser of $1,000 or the principal amount of the award, and the second payment priority being pro rata payments of any balances thereafter remaining on account of unpaid principal balances).

In discussing H.R. 6440 (which became P.L. 96-445) on the floor of the House on September 30, 1980, Congressman Jonathan B. Bingham stated:

H.R. 6440... would adjust the method of distributing the remaining claims in such a way that nonprofit and religious organizations are compensated for the fact that they were not able to get tax benefits in 1950. At that time, several of the large corporate claimants were able to write off their losses against other taxable income. Nonprofit organizations, of course, do not pay taxes.

In reporting out H.R. 6440, the committee recognized that we have a very unusual situation with China claims. Unlike other situations, a large percent of the claimants are nonprofit organizations that have not had the benefit of the use for 30 years of their expropriated assets. The amendments offered during the committee's consideration of H.R. 6440 guarantee them some compensation in addition to their pro rata claim at the least expense to other claimants, and to the taxpayers. . . . The total amount which will be made available by H.R. 6440 is estimated to be in the vicinity of $4 million.

The bill is supported by a number of nonprofit and religious organizations. It is opposed by the administration on policy grounds, primarily because they are worried that the integrity of the foreign claims settlement process be preserved. The committee made some perfecting amendments to accommodate these concerns, and made clear that H.R. 6440 should not be considered a precedent for other settlements.

I would like to make several points clear for the record concerning the interpretation of H.R. 6440 as amended and reported by the Foreign Affairs Committee. First, the committee fully intends that the Internal Revenue Service cooperate with those in the Treasury who will have to determine the tax benefits accorded certain corporate claimants for purposes of carrying out this legislation.

Second, I would like to make clear the committee's intent that section (2)(a) of the bill apply to awards certified by the Commission to the Treasury with respect to pre-1966 claims and post-1966 claims. In referring in section (2)(a) to awards certified under title V of the International Claims Settlement Act, the committee did

not intend to exclude any awards certified to the Treasury under any other title of the same act.

Cong. Rec., Vol. 126, Pt. 21 (1980), p. 28481.

Congressman Tennyson Guyer, the principal sponsor of H.R. 6440, also spoke to its purpose: "to redress an imbalance" in the distribution of funds under the United States-China Claims Settlement Agreement according to existing law, saying:

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This across-the-board treatment is not entirely equitable. Profitmaking organizations have an advantage not available to the nonprofit and charitable organizations, in that the corporations and business[es] were able to take losses on their income taxes, and thereby be compensated at least in part for their losses already. Most of the benefits allowed under the tax laws accrued in the early 1950's, when the dollar was worth a good deal more than it is now. What the measure will do is to reduce the amounts paid claimants who claimed and were allowed benefits under the tax laws in years past. The funds not paid under this provision will be aggregated and distributed among the nonprofit and charitable claimants.

There are some 50 organizations which would benefit from the measure before us, with members and chapters throughout the United States. As the claims agreement stands, these 50 nonprofit organizations would receive some $24 million. With the benefits of this law, that amount will increase appreciably. Since we amended the measure in committee to vary the payments to profitmaking organizations based on tax benefits granted, rather than tax losses claimed, it is more difficult to compute the actual amounts involved. In many instances they would amount to only a few thousand dollars, which will not make much difference to a corporate claimant, but to many charitable organizations, which depend on individual contributions, this will make a substantial benefit.

I should also point out that legislative precedent does exist for this measure. The War Claims Act of 1948 was amended in 1970 to allow modification of distribution of claims in the same way that H.R. 6440 provides for.

There is in my estimation no reason why we should not provide for redress of the imbalance which the present law displays, since the funds will not come out of the Treasury, and the funds will be going to a series of organizations whose support comes directly from the people of the United States.

I should point out too, Mr. Speaker, that it is the intention of at least some of the benefiting organizations to apply the additional funds received toward renewed efforts to assist cultural and religious exchange with the PRC, as appropriate and agreed to by that government. In this respect there is a historical precedent which goes back to the very sad incident of the Boxer Rebellion. When the

United States received its share of the Boxer indemnity, it applied those funds for education of Chinese youth. . . .

Ibid., pp. 28481-28482.

On Apr. 23, 1980, the Senate Committee on Foreign Relations had held hearings on S. 2141, section 2 of which paralleled the provisions of P.L. 96-445. The prepared statement of Robert H. Mundheim, General Counsel, Department of the Treasury, who testified against the proposed provisions, follows, in part:

Section 2 of the bill would require that the Treasury Department determine the extent to which any incorporated business enterprise claimants took a deduction for Federal income tax purposes for the same losses on which their claims before the Commission were based. Payments to such claimants would be reduced by the full amount of such deductions. All such reductions in payment would be aggregated and distributed pro rata to nonprofit organization claimants.

While the amendment proposed in Section 2 of the bill would also cause certain difficulties for the Treasury Department in carrying out its requirements, our objection to it rests primarily on policy considerations. The procedures for distribution in Section 8 of the Act were in existence as they stand now when these claims against China were heard by the Commission and when awards were made. Claimants filed their claims with the understanding that the percentage of the Commission's awards which they would eventually receive would be determined not by the claimant's tax status, but rather by the amount of the settlement reached. Indeed, deductions for most of these losses would have to have been taken when the loss occurred, long before the Commission began accepting claims in 1968. To make major changes in the process now seems to us inequitable.

Nor does it seem fair to favor one class of claimants, nonprofit organizations, over two other groups of claimants, tax-paying businesses and individuals, on the basis of their tax status. It seems inappropriate public policy to mix together two different systems with different goals, the tax system and the settlement of claims. Our progressive tax system is, and should remain, independent of the claims process. There are several additional problems with the proposal from the tax perspective. First, paying the amount of tax deductions taken by business claimants to taxexempt claimants will result in a loss of tax revenues. This is because payments to those business claimants now would be taxable, as payments to charities would not. Thus, all U.S. taxpayers would share the burden of this reallocation.

Second, under this proposal, a portion of the business claimants' compensation for losses determined by the Commission would be deemed to have come from tax revenues in the form of a prior deduction. While this is always true in the case of a deductible loss, normally, any subsequent compensation received is taxable to the extent the deduction created a benefit. Here, the subsequent compensation would be paid instead to tax-exempt entities.

Third, if payments to the business claimants are to be reduced, the reduction should be based on the actual amount of tax benefit which the taxpayer received from the deduction, as the taxpayer may not have benefitted to the full extent of the deduction. Indeed, under tax law, it is the amount of tax benefit, and not the amount of deduction, that would determine how much of the payments to business claimants would be taxable. A company whose facilities in China were taken in 1951 may well have had reduced income and therefore could not have deducted the full amount of the loss.

Fourth, subtractions should be made from the amount of the award, not from the amount of the pro rata payment. If a company had an award of $80,000 and tax benefit of $10,000, it should receive its pro rata share of a reduced award (40 percent of $70,000, $28,000) rather than pro rata share of the full award (40 percent of $80,000, $32,000), reduced by the amount of tax benefit, ($10,000), which gives $22,000. To reduce the payment rather than the award penalizes those who took legitimate business deductions. Indeed, in the War Claims Act, the Commission was authorized to take the fact of deductions into account in making its awards on claims