Evening star. [volume], June 01, 1937, Page A-2, Image 2

About Evening star. [volume] (Washington, D.C.) 1854-1972

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U. S. SEES TENSION
IN EUROPEEASED
Situation, However, No
Longer Considered Mere
Academic Question.
BY CONSTANTINE BROWN.
The United States Government takes
an active interest in the present diffi
cult international situation. The Eu
ropean situation can no longer be con
sidered as a question of ‘‘an academic
interest’’ it was stated today in offi
cial quarters, since the preservation
of peace in the world is one of the
cardinal policies of this administra
tion.
For the time being the tension aris
ing from the bombing of the German
battleship Deutschland by Spanish
airplanes and from the bombarding of
the Port of Almeria by the German
Mediterranean squadron is considerad
hv the State Department lessened.
There was a hurried four-eorner con
sultation yesterday by President Roose
velt, Secretary Cordell Hull. Undersec
retary Sumner Welles and Ambassador
Bullitt, wno was keeping the adminis
tration informed as to the latest de
velopments by telephone from Paris.
Ambassador Bullitt, who enjoys the
bill confidence and' friendship of
Premier Leon Blum and Foreign Sec
retary Yvon Delbos, informed the
Government yesterday morning that
the dangers of an immediate con
flagration were temporarily removed
by the fact that the German fleet
was ordered to Mellila, instead of
going north.
Feared More Reprisals.
It was feared In Paris that the Ger
man government might continue its
reprisals against Valencia and Barce
lona. This would have caused, so our
diplomats believe, an extremely dan
gerous situation.
Since the tension is somewhat
easier, it is unlikely that the President
or the State Department will make
any formal declaration of policy re
garding the tension in the Mediter
ranean in the near future. What
will happen later, in the event of an
other incident, depends a good deal
on the trend of public opinion in this
country and on any arbitrary act on
the part of the Germans or the
Italians.
While diplomats are satisfied that
tlie Sunday incident has been closed
bv the bombardment of the Port of Al
mrria, and look for some kind of
diplomatic negotiations for the final
settlement of this question, in mili
tary and non-diplomatic quarters fears
are expressed that this incident may
be only the beginning of a series of
similar troubles which will inevitably
end In disaster.
The nucleus for such further inci
dents exists in the order given by
Hitler to his ships in the Mediter
ranean to shoot at sight at any Span
ish man of war or airplane which
might have hostile intentions. This
is a very complicated order. It Is
practically impossible for the captain
of a warship to say whether an air
plane flying at a height of. say, 3,000
feet has hostile intentions or not.
After the bombing of the Deutsch
land it is very likely that the anti
aircraft guns will be put into action
as soon as a Spanish airplane coming
from the Loyalist territory7 is sighted.
The same thing may be said about
any Loyalist man of war. Besides
this, the situation might become diffi
cult by the fact that the commander
bf every German unit in the Medi
terranean is angered by the unpro
voked—that Is the German version of
Sunday's incident—attack op their
flagship and will in all probability
take advantage by the elastic orders
of the Fuehrer to shoot any air or
sea vessel belonging to the Loyalists.
In these non-diplomatic quarters
the present situation is compared to
the one which existed late in July,
1914, when, although the war ap
peared inevitable to military men, dip
lomats continued to believe in the
"common sense of the governments
»nd people who do not want to fight.’’
REV. W. E. HOPPER
DIES IN NEW YORK
Oldest Paulist Pather In U. S.
Was Once at Catholic
University.
Rev, Walter E. Hopper, C. S. P.,
oldest Paulist Father in the United
States, who formerly was procurator
of the House of Studies. Catholic Uni
versity, died yesterday at his residence
in the rectory of the Paulist Fathers'
Church. New York City. He was 78
years old.
Bom in Holy Cross parish, New
York. Father Hopper fulfilled his no
vitiate for the order and was ordained
to the priesthood in New York.
From 1896 to 1900, Father Hopper
taught moraletheoloey at old St.
Thompson College, Catholic Univer
sity. Subsequently he served in many
American cities, including Chicago,
where he became superior of the
order's house there.
He returned to Washington in 1916,
sendng as procurator at the House
of Studies until 1920. In 1934, he
celebrated his golden jubilee as a priest
and retired.
Funeral services and burial will be
held in New York Thursday.
-..m- ■ .
HACKERS DISCUSS
BETTER CONDITIONS
Reorganize Brotherhood and Will
Make Request for More
Cab Stands.
Anxious to improve hacking con
ditions in the District, the Industrial
Brotherhood of Taxi Drivers reorgan
ized last night at a mass meeting in
Mechanics’ Hall.
Electing officers, the group moved to
mobilize the approximately 5,000 hack
ers in the city to alleviate the “grow
ing plight” of overcrowding.
Erwin Dollar, who was active in
the old brotherhood, was elected presi
dent. Charles Leonard was made vice
president: John Wiles, secretary, and
Herman Longhorn, treasurer.
The drivers indicated they would
appeal to the Public Utilities Com
mission for more hack stands, it be
ing emphasized that there are only
accommodations for about 700 cabs.
The drivers will meet again next
Monday night to discuss working
conditions and competition problems.
•-•
Rebels Seize Foreign Ship.
OSLO, June 1 (/P).—A Norwegian
shin, loaded at Segovia with oranges
for Norway, was seized by Spanish
Insurgents and convoyed to Ceuta, It
was reported here today.
Washington
Wayside
Tales
Random Observations
of Interesting Events
and Things.
SKITTLES.
LEE TYLER, who occasionally
finds something incredible in
this column, added another
daisy to his chain the other
day. It was a reference to the char
acters of one of our anecdotes “lapping
up their beer and skittles.”
How, Mr. Tyler wants to know, does
one lap up skittles?
A perfectly valid Question, we
thought, so it was taken up with the
operative who submitted the item.
“He'd have me there, normally,” the
operative agreed, “but not with the
heroes of that item. They simply are
the kind of people who lap up skittles.”
* * * *
FULL MEASURE.
Stage professionals might learn
something from the technique of
Jane Lois Moreau.
At the age of 7. she was making
her debut as a pianist in one of
those, mass recitals which child
performers make so much fun.
Each of the children had been in
structed to pause between pieces
for the applause. The first few
forgot. But not Jane. She paused
and went on pausing when no ap
plause greeted her maiden effort.
It seemed like an impasse be
tween solist and audience until
Jane turned and eyed the audience
quizzically.
The listeners caught cm instantly,
applauded, and Jane swung blithely
into her second number.
* * * *
PAY-OFF.
■p\ID this story come from a less reli
able source than the chap who
drew the illustration for it, we would
not believe it.
At any rate, it concerns a young
man who has developed check fum
bling to a high art. The young man
was one of four who sat down the
other cocktail hour for a sprinkle of
stimulant. When it eame time to pay
the bill, the other three tossed their
silver into the middle of the table with
enough over their shares to give the
waitress a sizable tip.
The fourth man waited, still fum
bling for the money in his pocket after
the other three had left the table. By
chance, however, one of them turned
in time to see him pick up the tip,
count it, add what was needed to pay
his share and start to walk out.
They made him go back, apologize
to the waitress and pay a full share,
plus tip.
* * * *
UTILITY.
Joe Amoroso, portly Italian, is
a vendor of flowers. He carries
them in a basket on his arm and
may be seen in the neighborhood of
Tenth and Massachusetts avenue.
When he. is tired, he chooses not
to sit on a nearby bench, but on
the cast-iron horse watering
trough. The trough is supplied by
the Humane Society and ivatered
by the District. But Joe uses it to
freshen his peonies while he rests.
* * * *
BARTER.
^JEORGE W. FURLOW. whom you
may know as "Bill." has a pretty
interesting answer to those who ask
him about his brother Allen. Allen
Furlow used to be in Congress.
"What's your brother doing now?”
an acquaintance asked Bill the other
day.
"Well,” said Bill, "he had to go
So the Mayo clinic recently for an
overhauling, and before he left the
place they signed him up to overhaul
their legal work.”
The acquaintance went away visual
izing Allen Furlow and the surgeon
coming to terms In one of the most
Interesting professional parleys ever
held in an operating room.
* * m
ROSES.
^ BOWER of roses by Bendemeer’s
stream could never have been as
extravagantly beautiful as the rose
garden in Potomac Park this week.
There you'll find an arbor where Mary
Wallace and Dr. Van Fleet are en
twined and you'll see a nest of robins
not planted by the National Park
Sendee.
If you have ever tended a rose bush,
you will thrill at the squads of plots
filled with thriving red radiants. The
rich green carpet of grass, right now
at least. Is literally perfect.
And if you wander to one side, you
may see the fragment of the monu
ment to the victims of the U. S. S.
Maine, erected in the city of Havana
and destroyed by tornado in Decem
ber, 1926. This is our own free trans
lation of the plaque written in Spanish.
Better times is the sorriest-looking
rose bush in the garden. Better times
have, and/or has, not bloomed yet.
The sun dial in the garden, which
promises “Light follows darkness,” is
unusual in that it tells no time even
■when the sun is in the sky. From all
this you may gather that one of our
Wayside operatives visited the rose
garden in Potomac Park, or did you?
W.C. III. OFFICERS
Meeting Is Held Preliminary
to Sixteenth Triennial
Convention.
An all-day executive session of the
general officers of the Woman's Chris
tian Temperance Union was held to
day, preliminary to the sixteenth tri
ennial convention, which will be held
at the Washington Hotel, starting
Thursday. The officers are headed by
Dr. Ella A. Boole, world president of
the organization.
Dr. Boole arrived in Washington
yesterday. Before her election four
years ago as world president, she
served eight years as national vice
president of the Iowa W. C. T. U.
2,000 Delegates Expected.
Other arrivals yesterday came from
Japan, Siam, New Zealand, Canada
and all parts of the United States.
Over 2,000 delegates were expected to
arrive today and tomorrow to register
for the convention.
The preliminary conference was de
voted to completing arrangements for
the convention and mapping the pro
gram. Today’s meeting was broken
at noon by an informal luncheon
for officers at which Mrs. Ida B. Wise
of Chicago, national president, was
hostess.
Conference on alcohol education
were held at the Washington Hotel
yesterday and today by Miss Bertha
R. Palmer, national director of alco
hol education. She found the audi
ence so interested in her subject that
yesterday’s session extended over the
expected two-hour period. Much of
the time was devoted to impromptu
questions from the audience.
Pre-Convention Features.
Two special pre-convention features
are scheduled for tomorrow. The in
ternational worship service, to be
held at Calvary Baptist Church,
Eighth and H streets, will be led by
Mrs. Anna Brattstrom of Gefle, Swe
den, world union superintendent of
evangelism, and Mrs. Josephine M.
Buhl of Tulsa, Okla., national direc
tor of evangelistic wor kin the United
States.
Musical features of the sendee will
be singing by the White Ribbon Quar
tet of the District Chapter :.nd music
by the String Trio of Washington.
Following the service, tea will be
served in the church parlors.
The second feature tomorrow will be
a young people's rally at First Congre
gational Church, Tenth and G streets,
beginning at 7:30 p.m. This will be
under the direction of Miss Rosamund
Duff of Toronto and Miss Helen L.
Byrnes, Evanston, 111., national secre
tary Youth's Temperance Council.
Nearly every denominational youth
group in the city will be represented.
-•
THIEVES GET LOOT
WORTH $650 HERE
Window Is Jimmied in Home of
P. M. Greenlaw, District
Boiler Inspector.
Price M. Greenlaw, District boiler
inspector, reported to police yesterday
that his home at 3114 Pennsylvania
avenue southeast had been entered by
thieves, who Jimmied a rear window
while he was absent from the city
during the latter part of last month
and stole clothing and Jewelrv valued
at *500 and *150 in cash.
Police are seeking a man who was
seen loitering in the lobby of an
apartment house at 1314 Massachu
setts avenue prior to the theft from
C. Bockstahler's apartment of a watch
valued at *100 and a leather billfold
containing personal effects.
Paul S. Desmond, 207 C street re
ported he was attacked by several
white men while sitting on a bench
on Constitution avenue, between Ninth
and Tenth streets, and robbed of *5.60.
Desmond was treated at Emergency
Hospital for slight cuts to his face
and released.
T0LS0N DEATH INQUIRY
IS BEGUN BY BOARD
Navy Lieutenant, District Native,
Reported as Suicide on Oil
Tender In China.
A board of inquest has been con
vened to investigate the dath of Lieut.
(J. G.) David Watkins Tolson, a na
tive Washingtonian, who reportedly
committed suicide Sunday night
aboard the oil tender Pecos at Chefoo,
China, according to word received
today at the Navy Department.
Tolson, who was 32, had been se
lected for promotion to lieutenant and
was one of the few officers of the
Navy to hold a master’s license under
the mercantile marine. He had nine
years’ service and formerly was on
duty aboard the U. S. S. Herbert, sta
tioned in the Orient.
Tolson was born in the District July
9, 190*, and graduated from the Naval
Academy in 1927. He received his ap
pointment from Minnesota. He is sur
vived by his mother, Mrs. John Tol
son, 3646 Park place, and his widow,
Mrs. Helen Lee Turner Tolson, offi
cials said.
--•
Comdr. Ferrell Dies.
CHARLESTON, S. C., June 1 OP).—
Comdr. Robert W. Terrell, 43, con
struction officer of the Charleston
Navy Yard, died at the Naval Hospital
I last night after a heart attack while
' swimming.
Ethel du Pont as Bride to Wear
‘Something Old,Something Neiv*
Bt the Associated Press.
WILMINGTON, Del., June 1.—Ethel
du Pont, just like any other young
bride, will observe the old tradition of
wearing at her wedding “something
old and something new. something
borrowed and something blue.”
She's the kind of young woman who
has a sentimental love of old things.
Because marrying young Franklin
Delano Roosevelt, jr„ and being her
self a du Pont, she will be surrounded
by tradition on her wedding day,
June 30.
Two traditions in her bridegroom's
immediate family should make her
happy.
Given a Chest of Silver.
Mrs. Sara Roosevelt, the President's
mother, always hat bought a complete
chest of silver for the young Roose
velts as a wedding present. The chest
for Franklin and Ethel already has
been purchased.
The President's wife has made a
custom of giving a string of pearls to
her sons* bride*. They come from a
necklace which her mother-in-law
gave her on her wedding day 32 years
ago. She already has given Franklin,
jr„ a strand, which he has snapped
into place around his fiancee's neck.
Tea, Dancing Later.
The wedding itself will observe a
du Pont tradition. It will be held In
a little stone church where all the du
Pont christenings, weddings and
burials have taken place for 81 years.
Even those members of the family
who wander to other cities to live come
back for christening ceremonies after
their babies are born.
There will be six to eight brides
| maids at the wedding and Miss Aimee
du Pont, the bride's young sister, will
be maid of honor. Among the ushers
will be John Roosevelt, the bride
groom's brother.
After the ceremony the couple will
receive guests at the bride’s home.
High tea will be served and a New
York orchestra win play for dancing.
Text of President's Message on Tax Evasion
TO THE Congress of the United
States:
A condition has been devel
oping during the past few
months so serious to the Nation that
the Congress and the people are en
titled to information about it.
The Secretary of the Treasury has
given me a report of a preliminary
study of income tax returns for the
calendar year 1936. This report re
veals efforts at avoidance and eva
sion of tax liability so widespread
and so amazing in their boldness and
their ingenuity that further action
without delay seems imperative.
We face s challenge to the power
of the Government to collect, uni
formly, fairly and without discrimina
tion, taxes based on statutes adopted
by the Congress.
Mr. Justice Holmes said, “Taxes
are what we pay for civilized society.”
Too many individuals, however, want
the civilization at a discount.
Methods of escape or intended es
cape from tax liability are many.
Some are instances of avoidance
which appear to have the color of
legality; others are on the border
line of legality; others are plainly
contrary even to the letter of the law.
All are alike in that they are defi
nitely contrary to the spirit of the
law. All are alike in that they rep
resent a determined effort on the
part of those who use them to dodge
the payment of taxes which Congress
based on ability to pay. All are
alike in that failure to pay results
in shifting the tax load to the shoul
ders of others less able to pay and
in mulcting the Treasury of the Gov
ernment's just due.
1 commend to your attention the
following letter from the Secretary
of the Treasury:
“The Sectary of the Treasury,
“Washington.
‘ May 29, 1937.
"My dear Mr. President:
"As you know, the Treasury was
surprised and disturbed by the fail
ure of receipts from the income tax
on March 15th to measure up to the
budget estimates. Therefore, we under
took an immediate investigation. Only
a preliminary report can be made at
this time because the complete in
vestigation covering all the income
tax returns filed will require the bal
ance of this year. Furthermore, since
many of the returns of large manu
facturing corporations have not yet
been filed, the present report is con
fined almost wholly to data disclosed
by the individual tax returns.
"But even this preliminary report
discloses conditions so serious that
immediate action is called for. More
than the usual examination and audit
by the Treasury is needed. It seems
clear that if tax evasion and tax
avoidance can be promptly stopped
through legislation and regulations
resulting from a special investigation
a very large portion of the deficiency
in revenues will be restored to the
Treasury.
Foreign Holding Firms
Set tp to Evade Levies.
"I herewith enumerate some of the
principal devices now being employed
bv taxpayers with large incomes for
the purpose of defeating the income
taxes which would normally be pay
able by them. As we continue our
preliminary examination, other devices
are being disclosed.
"1. The device of evading taxes
by setting up foreign personal
holding corporations in the Ba
hamas, Panama, Newfoundland
and other places where taxes are
low and corporation laws lax.
"Americans have formed 64 such
companies in the Bahamas alone In
1935 and 1936 and 22 more were or
ganized by Americans in the Bahamas
during the past two months. Panama
and Newfoundland seem to be even
more fertile territory since their cor
poration laws make It more difficult
to ascertain who the actual stock
holders are. Moreover, the stock
holders have resorted to all manner
of deuces to prevent the acquisition
of information regarding their com
panies. The companies are frequently
organized through foreign lawyers,
with dummy Incorporators and
dummy directors, so that the names
of the real parties in interest do not
appear.
One American citizen with a
$3,000,000 Bahamas corporation has
apparently attempted to prevent the
j Bureau of Internal Revenue from
catching up with him by filing his
Individual tax returns in successive
years from towns in New Brunswick,
British Columbia, and Jamaica.
“Another individual believes that
he has been so successful in removing
his assets from the United States to
the Bahamas that he is defying the
Treasury to collect a tax upon a
$250,000 fee he has received: and, by
way of insult, he has offered to com
promise his admitted tax liability of
$33,000 for past years by a payment
of $1,700.
Still another individual showed a
large net loss on his personal return
for 1936. In considerable part, the
loss wras due to the large deduction
he claims for interest on a loan made
to him by his personal holding com
pany. But the man in question is no
object of charity, for his personal
holding company, organized in Canada,
had an income of over $1,500,000 from
American dividends in 1936, though
it has not yet filed a return.
“Perhaps the most flagrant case
of this character is that of a retired
American Army officer with a large
income from valuable American se
curities wdiich he desires to sell at a
very large profit. To escape our in
come and inheritance tax laws, he
used the device of becoming a natu
ralized Canadian citizen, and six days
later organized four Bahamas cor
porations to hold hts securities. He
and his lawyers apparently think that
he can now sell his securities free
from any taxes on his profits, since
there are no income taxes in the
Bahamas, and that he has adroitly
escaped American taxes.
Foreign Insurance
Is Another Device.
“2. The device of foreign insurance
companies.
"Two New York Insurance agents
have caused the organization of in
surance companies in the Bahamas
with a view to enabling taxpayers to
secure spurious deductions for in
terest through an ingenious scheme
for the issuance of life insurance
policies. Americans who went into
the scheme purported to pay a large
single premium for their policies, but
immediately borrowed back practically
the entire sum. Under the plan the
so-called policyholders sought to ob
tain a large deduction for interest on
this loan, although the fact was that
no interest was really paid. By this
means five prominent Americans
sought to evade nearly $550,000 in
income taxes in the years 1932 to
1936. This fraud was discovered by
the Treasury’s investigators and all
of the taxpayers have now submitted
offers to pay the full amount of taxes
evaded, plus Interest. Until our in
vestigation is completed we do not
know how many similar companies
mar have been erganlaed hi ether
countries, and utilized by our citizens; 1
nor do we yet know whether this
newly invented type of fraud has other
ramifications.
‘‘3. The device of domestic personal
holding companies;
"The rates of tax applicable to per
sonal holding companies were re
duced In 1936 at the time of the en
actment of the undistributed profits
tax. It was believed at that time that
the combined rates of the two taxes
would be sufficient to insure the dis
tribution of the entire incomes of
these companies and the consequent
imposition of surtaxes upon their own
ers. This expectation has not been
realized.
"Thus, the single stockholder of one
large personal holding company saved
himself $322,000 by causing the com
pany to distribute none of its income
to him.
"In another case, a man and his wife
saved $791,000 through the use of per
sonal holding companies in 1936.
"In a third case, the personal hold
ing company reported over $500,000
of net income, but the total taxes paid
by the two stockholders, husband and
wife, were less than $60,000, due prin
cipally to credits for payments on in
debtedness the holding company pru
dently incurred in accumulating prop
erties for its owners. If the personal
holding company had not been In ex
istence the stockholders would have
paid over $200,000 additional Income
taxes.
"Another favorite device is to organ
ize a considerable number of personal
holding companies, not only for the
sake of reducing the tax, but of in
creasing the Treasury's difficulties in
auditing transactions between com
panies. At last accounts one man had
caused to be set up some 96 com
panies, scattered all over the country.
Two other individuals were utilizing
23 personal holding companies.
Yachts, Estates Incorporated;
Artificial Interest Claimed.
"4. The device of incorporating
yachts and country estates:
“Many wealthy taxpayers today are
dodging the express provisions of the
law denying deductions for personal
expenses by incorporating their yachts
or their country estates, turning over
to the yacht or to the estate securities
yielding an Income just sufficient to
pay the entire expenses of operation.
Hundreds of thousands of dollars in
income taxes are annually avoided In
this wav.
"Thus, one man’s yacht is owned
by his personal holding company,
along with $3,000,000 In securities!
He rents the yacht from his oompany
for a sum far less than the cost of
upkeep and the company uses its in
come from the securities to pay the
wages of the captain and crew, the ex
penses of operating the yacht and an
annual depreciation allowance. None
of these hems would be deductible If
this individual owned the yacht per
sonally.
"A great many wealthy taxpayers
are utilizing a similar arrangement
for the operation of their country
places and town houses.
"One man has plared his $5,000,000
city residence in such a corporation;
another his racing stable, whose
losses last year were nearly $200,000.
The tax savings he thus sought to
obtain through the use of the holding
company were $140,000.
"One wealthy woman has improved
on the general plan of evasion by
causing her personal holding com
pany, which owns her country place,
to employ her husband at a salary
to manage It. She can thereby sup
ply him with pocket money, and in
effect claims a tax deduction for the
expense of maintaining him.
“5. The device of artificial deduc
tions for Interest, losses, etc.:
'Taxpayers are seeking greatly to
reduce their personal income taxes by
claiming deductions for interest on
loans to them by their personal hold
ing companies, or on loans to them
by their family trusts. These transac
tions normally have no business pur
pose, but are merely an artificial
means of shifting income from one
member of the family subject to high
surtax rates to another member of the
family subject to lower rates.
Splitting lTp Trusts
Reduces Tax Income.
“Thus, one woman claims a large
annual deduction for interest on a
loan made to her by her husband as
trustee of a trust which she created
for their children. The mother there
by seeks to secure a deduction for her
contribution to the children's support,
and since the trust is revocable by her
husband, the parents still have the
desired control over the property and
its income.
“In the same category are losses
deducted by taxpayers who claim that
their racing stables or hobby farms
were operated for profit, even though
a profit is never realized. Thus, a
prominent manufacturer seeks a de
duction of over *125,000 against his
inoome from his business on account
of his losses in operating a chicken
farm.
“6. The device of the creation of
multiple trusts for relatives and de
pendents:
“Splitting income two ways, between
husband and wife, reduces income
taxes and leaves the family income
intact. Splitting the family income
many ways by means of many trusts,
all for the same beneficiaries, may
effect a much greater saving, while
leaving the money actually in the
same hands. For the creator of the
trust often constitutes himself or his
wife as trustee, and thus retains full
control over the investment and dis
position of the fund itself and of Its
income.
“One thrifty taxpayer has formed
64 trusts for the benefit of four mem
bers of his Immediate family and
thereby claims to have saved them
over $485,000 in one year in taxes.
"Another thrifty pair has con
stituted 40 trusts for their relatives,
and a prominent lawyer and his wife
utilize 16 trusts for the same pur
pose. The first pair maintains num
bered brokerage accounts and only
at the end of the year are beneficial
owners identified. In this way innu
merable transactions are carried on,
often between accounts, which do
not actually affect the beneficial In
terests of their owners but which are
designed solely to reduce tax liabil
ity.
Family Partnerships,
Pension Trust* Others.
“7. The device of husband and wife
or father and children partnerships.
“The purpose of these partnerships,
like the multiple trusts, is to split
the family income artificially into two
parts or, if the children are taken
in, into still smaller fractions.
"There are many instances of this
kind, but to illustrate the point it
is sufficient to cite the case of a New
York brokerage firm which late in
1935 admitted into partnership the
four minor children, two boys and
two girls, of one of the partners. The
tax saving he sought thereby in 1936
amounted to over $50,000.
"8. The device of pension trusts.
"For 10 pear* the revenae nets
have sought to encourage pension
trusts for aged employes by provid
ing corporations with a special de
duction on account of contributions
thereto and exempting the trust It
self from tax. Recently this exemp
tion has beer, twisted into a means
of tax avoidance by the creation of
pension trusts which include as ben
eficiaries only small groups of offi
cers and directors who are in the high
income brackets. In this fashion high
salaried officers seek to provide them
selves with generous retiring allow
ances, while at the same time the
corporation claims a deduction there
for, in the hope that the fund may
accumulate income free from tax.
"Thus in one case $43,000 is an
nually appropriated by the corpora
tion to a pension trust for the benefit
of its two chief owners. One of the
co-owners will retire at the age of 65
with a monthly pension of $1,125, and
the other will retire at 60 with a
monthly pension of $1,425.
Many Are Legal
But Highly Immoral.
"These eight types of tax avoidance
are sufficient to show that there is a
well-defined purpose and practice on
the part of some taxpayers to defeat
the intent of Congress to tax incomes
in accordance with ability to pay. In
some cases, the Bureau of Internal
Revenue under existing law can estab
lish a liability or Indeed proceed on
the ground of fraud; but many of
| these cases fall in the category of a
legal though highly immoral avoid
ance of the intent of the law. It seems,
therefore, that legislation should be
passed at this session of Congress in
order to eliminate these loopholes
which our preliminary Investigation
has proved: and that as a result of
the further investigation this Summer
and Autumn the next session of the
Congress should finally close any fur
ther loopholes which may be dis
covered.
In addition to these cases of moral
fraud, there are three other major
instances in which the law itself per
mits individuals and corporations to
avoid their equitable share of the tax
burden.
"1. Percentage depletion.
"This is perhaps the mast glaring
loophole in our present revenue law.
Since 1928 large oil and mining cor
porations have been entitled to deduct
from 5 to 27 ^ per cent of their gross
income as an allowance for the de
pletion of their mines or wells, and
the deduction may be taken even
though the cost of the property has
been completely recovered. Thus, in
1936, one mining company deducted
nearly $3,000,000 under this provision,
although it had already completely re
covered the cost of its property. The
amount of the deduction was a sheer
gift from the United States to this
taxpayer and its stockholders, and the
revenue that we lost thereby was $818 -
000. Similar annual losses of revenue
in the cases of a few other typical
companies are $584,000: $557,000;
$512,000; $272,000; $267,000; $202,000,
and $152,000. The estimated annual
loss of revenue due to this source is
about $75,000,000. I recommended
in 1933 that this provision be elimi
nated, but nothing was done at that
time; and it has since remained un
changed.
Division of Income
Causes a Lows.
"2. The division of income between
husband and wife in the eight com
munity property states.
"This is another major cause of
revenue loss, which is unjustifiable
because obtained at the expense of
taxpayers in the 40 States which do
not have community property Jaws
A New vork reSident with a salary
of *100,000 pays about $32,525 Federal
income tax; a Californian with the
same salary may cause one-half to
be reported by his wife and the Fed
eral income taxes payable by the
two will be only *18.626. The total
loss of revenue due to this unjusti
fiable discrimination against the resi
dents of the 40 States runs into the
miliums.
< Taxation of non-resident aliens.
"The 1936 act eliminated the re
Qui.ement that a non-resident alien
(without United States office or busi-’
nessi should file a return: fixed the
withholding rate for individuals at
10 per cent; and freed the non-resi
dent alien from taxation on American
capital gains. Since the total Federal
tax upon a citizen or resident amounts
to 10 per cent of his total net income
at about *25,000 (in the case of a mar
ried Individual with no dependents),
the withholding rate has proved in
practice to be too low as applied to
wealthy non-r«6ident aliens with large
incomes from American trusts or with
large American investments whose
taxes have been cut to one-third or
one-fifth of what they paid under
the prior act.
"Thus, one American woman who
married an Englishman had an income
from this country in 1935 of nearly
*300,000. Her tax for 1936 will, there
fore. be approximately *30.000, as
against over *160,000 under the prior
law.
“Another American woman who
married a Frenchman has an income
of over *150,000 from American trusts,
on which she paid a tax of about
$55,000 in 1935. Her tax is reduced
to about *15,000 by the 1936 law. Al
though the tightening of the with
holding provisions in 1936 will tend
to insure more revenue from non
resident aliens in the lower income
brackets, the present taxing provisions
are not satisfactory as applied to non
resident aliens with incomes in the
higher brackets.
Small-salaried Men
Don't Use the Tactics.
"The problem of tax avoidance 1s
not new. The Congress devoted par
ticular attention to it in 1933 and
1934, and by legislation effectively
put a stop to many evasive devices
disoovered then as having been in
use. The practices outlined above
can and should be stopped in the
same way.
In conclusion, I have two obser
vations to make from the evidence
before me. In the first place, the
instances I have given above are dis
closed by a quick check of compara
tively few individual returns. As I
have said before, most of the large
corporation returns have not yet been
filed. The general audit of 1936 re
turns is just beginning. Nevertheless,
it is likely that the cases I have
digested above are symptomatic of a
large number of others, which will be
disclosed by the usual careful audit.
“In the second place, the ordinary
salaried man and the small merchant
does not resort to these or similar
devices. The great bulk of our 5,500.
000 returns are honestly made. Legal
ized avoidance or evasion by the so
called leaders of the business com
munity is not only demoralizing to the
revenues; it is demoralizing to those
who practice it as well. It throws an
additional burden of taxation upon
the other members of the community
who are less able to bear it, and who
are already cheerfully bearing their
fair ahare. The aucceas of our reve
nue system depends equally upon Utt
k^
administration by the Treasury and
upor completely honest returns by
the taxpayer.
“The disclosures are so serious that
I recommend that authority be given
to the Treasury Department with t.n
adequate appropriation in order that
a complete and immediate investi
gation may be conducted. The cost
of such an investigation wdll be re
turned many times over to the Treas
ury of the United States.
“Faithfully,
“HENRY MORGENTHAU, JR.”
“The President,
"The white House."
Schemes Undermine
foundations of Society.
A feeling of indignation on reading
this letter will, I am confident, be
yours, as it was mine.
What the facts set forth mean to
me is that we have reached another
major difficulty in the maintenance
of the normal processes of our Gov
ernment. We are trying harder than
ever before to relieve suffering and
want, to protect the weak, to curb
avarice, to prevent booms and depres
sions—and to balance the budget.
Taxation necessary to these ends is
the foundation of sound governmental
finance. When our legitimate rev
enues are attacked the whole struc
ture of our Government is attacked.
"Clever little schemes” are not ad
mirable when they undermine the
foundations of society.
The three great branches of the
Government have a Joint concern in
this situation. First, it is the duty
of the Congress to remove new loop
holes devised by attorneys for clients
willing ta take an unethical advan
tage of society and their own Gov
ernment. Second, it is the duty of
the executive branch of the Gov
ernment to collect taxes, to investi
gate fully all questionable cases, to
prosecute where wrong has been
d< ne and to make recommendations
for closing loopholes. Third, it is the
duty of the courts to give full con
sideration to the intent of the Con
giess in passing tax laws and to give
full consideration to all evidence
which points to an objective of eva
sion on the part of the taxpayer.
Very definitely, the issue immed
iately before us is the single one
relating to the evasion or unethical
avoidance of existing laws. That
should be kept clearly in mind by the
Congress and the public. Already
efforts to befog this issue appear.
Already Certain newspaper publishers
are seeking to make it appear—first,
that if an individual can devise un
anticipated methods to avoid taxes
which the Congre.ss intended him to
pay, he is doing nothing unpatriotic
or unethical: and second, that because
certain individuals do not approve
of high income tax brackets, or the
undistributed earnings tax. or the
capital gains tax. the first duty of the
Congress should be the repeal or re
duction of those taxes. In other
words, not one but many red herrings
are in preparation.
Congress’ Duty
To Stop the Practices.
But it seems to me that the first
duty of the Congress is to empower
the Government to stop these evil
practices, and that legislation to this
end should not be confused with
legislation to revise tax schedules.
That is a wholly different subject.
In regard to that subject, I have
already suggested to the Congress
that at this session there should be
no new taxes and no changes of rates.
And I have indicated to the Congress
that the Treasury will be prepared
by next November to present to the
appropriate committees information
on the basis of which the Congress
may, if it chooses, undertake revisions
of the tax structure.
The long-term problem of tax
policy Is wholly separate from the
immediate problem of glaring evasion
and avoidance of existing law.
In this immediate problem the de
cency of American morals is involved.
The example of successful tax dodg
| ing by a minority of very rich indi
viduals breeds efforts by other peo
! pie to dodge other laws as well as tax
laws.
It is also a matter of deep regret
to know that lawyers of high stand
ing at the bar not only have advised
and are advising their clients to uti
lize tax avoidance devices, but are ac
tively using these devises in their own
personal affairs. We hear too often
from lawyers, as well as from their
clients, the sentiment "It is all right
to do it if you can get away with it.”
I am confident that the Congress
will wish to enact legislation at this
session specifically and exclusively
aimed at making the present tax
structure evasion-proof.
I am confident also that the Con
gress will give to the Treasury all au
thority necessary to expand and com
plete the present preliminary inves
tigation, including, of course, full
authority to summon witnesses and
compel their testimony. The ramifi
cations and the geographical scope of
a complete investigation make it nec
essary to utilize every power of Gov
ernment whcih can contribute to the
end desired.
Franklin D. Roosevelt
The White House,
June 1, 1937.
OIL FIRM IS ORDERED
TO DEAL WITH UNIONS
Labor Board Ban* Shell Delegate
Plan as Being “Influenced"
by Company.
Bt the Associated Press,
The National Labor Relations Board
has ordered the Shell Oil Co. of Cali
fornia to bargain collectively with
five unions. The board declared these
unions to be legal representatives of
the company's workers.
The order called on the company
to withdraw all recognition from the
so-called Shell Conference delegate
plan, which was declared to be "under
company influence and not a valid
agency for the purposes of collective
bargaining.”
The recognized unions, which filed
charges that Shell violated the Wag
ner labor act, are International As
sociation of Oil Field, Gas Well and
Refinery Workers of America; Inter
national Association of Machinists;
International Brotherhood of Boiler
makers, Iron Shipbuilders and Help
ers; International Brotherhood of
Blacksmiths, Drop Forgers and Help
ers and the International Brother
hood of Electrical Workers.
Shell, the board said, had contended
that electoral units within the Shell
Conference delegate plan should be
recognized as bargaining agent, while
the unions argued that a Statewide
unit was appropriate.
French Living Co*ts More.
The eost-of-Uving index for a work
ingman's family of four in France has
risen ax per eent In the last xa months.
'STRIKE' DECLARED
AGIST RENTS
U. A. W. Committee Orders
Payment Withheld Until
Cuts Are Made.
Ej th* Associated Pres*.
PONTIAC. Mich , June 1 —Charles
Barker, chairman of a United Automo
bile Workers' committee appointed to
bring about a reduction in Pontiaa
rental*, announced today that "ths
strike is on.”
' It is up to the property owners
now,” he said. "We have instructed
tenants to withhold rent payments.
"We are ready to go before the
Circuit Court commissioners in rases
of eviction, and into Municipal Court
in garnishment actions. We Intend
to stall and delay and make it as
difficult as possible for landlords to
do anything until rents are reduced.”
Rent Day for 13,000 Tenants.
Although this is rent day for many
of the 15,000 tenants in the Pontiaa
area whom the committee expects to
Join in the action. Barker said that
‘‘we expect no action for a week or*
two ”
"We believe landlords will wait a
week or 10 days before going to court,”
he explained. "Then we will fight for
every member who is taken to court ”
Barker said the "strike” affects not
only Pontiac but practically all of
Oakland County and surrounding
counties in which workers employed
in Pontiac live.
He said approximately 200 land
lords have reduced rents.
The committee's plan is for all
tenants to withhold payment, whether
they consider their rents fair or un
fair. The ''fair” landlords, Barker
explained, will be notified that their
rentals will be paid when a general
readjustment is obtained.
"We are sorry it has to affect those
landlords who are fair in rentals,” ha
said, "but that will help whip other*
into line.”
Issue to Be Put to Juries.
Odin Johnson, union attorney, said
the committee's plan would leave it
to juries to decide proper rentals. A
Union Commiteee report has said the
average rental Increase the past year
was 62:2 per cent, or 50 per cent
more than wage increases.
Mayor Samuel Backus, a property
owner, rental agent and past president
of the Real Estate Board, said present
rents appeared high because of their
contrast with ‘ distress'’ rents during
the depression.
Complaints, Johnson said, hav*
been received neither from Mayor
Backus’ tenants nor from those of tha
General Motors Corp. Both, he said,
are on the ’’fair” list. General Mo
tors built 700 houses during Pontiac'*
expansion.
FINAL RITES HELD
FOR LIEUT. PRINCE
Flyer s Body, Brought Prom
France. Given Entombment
at Cathedral .
Two services, brief but impressive,
were held at Washington Cathedral
this morning for Lieut. Norman
Prince, American flyer killed fighting
for Prance in 1916.
Escorted by 26 members of the
Norman Prince Post of the Veterans
of Foreign Wars, the bodv of the
aviator was brought from New York
yesterday and lay In the Union Sta
tion Chape! over night. This morning
it was carried by motor hearse to the
Massachusetts avenue entrance of the
Cathedral close, where it was trans
ferred to a military caisson while the
Army Band played "Nearer. My God,
to Thee.”
The procession marched through
! the Cathedral grounds to the Bethle
hem Chapel door, troops from Fort
j Myer under command of Capt. David
; Barr leading the way. Lines of pil
grims. workmen on the Cathedral
fabric and members of the Cathedral
office staff stood at attention as the
cortege passed, and four planes clr
j cled over the church.
Chaplain Wallace E. Hayes was in
charges of the. rites at the Cathedral
| entrance. Following the Veterans of
Foreign Wars' liturgy, he was assisted
by Past Comdr. Anthony J. Rock and
Post Comdr. Joseph Cryan. The mili
tary service ended with the firing of
a volley by a detail of troops.
Inside the Cathedral Right Rev,
James E. Freeman. Bishop of Wash
ington, read the Episcopal ritual of
committal. The casket was borne to
the Chapel of St. Joseph of Arimathea.
Covered with the flag, it was lowered
to the chapel floor while the bishop
pronounced the sentences of inter
ment.
Very Rev. Noble C. Powell. Rev. Dr.
: Anson Phelps Stokes and Rev. Dr.
Raymond L. Wolven assisted in the
final service.
In the congregation were the flyer's
father and mother, Mr. and Mrs. Fred
erick H. Prince of Boston; his brother
and sister-in-law, Mr. and Mrs. Fred
erick Prince, jr.. and personal friends.
Maj. Ralph Robart represented Gov.
Hurley of Massachusetts and Richard
F. Cunningham was the deputy of
Mayor Mansfield of Boston.
Others present included Mrs. Edith
Nourse Rogers, William P. Connerv,
jr.; John W. McCormack, Robert Luce
and George Joseph Bates, members of
the Massachusetts delegation in Con
gress.
Banana Disease Fought.
Honduras believes that It has con
quered the disease that has been de
stroying its millions of banana plants.
Congress in Brief
TODAY.
Receives President's message on tax
evasion.
Senate considers routine business.
House debates relief appropriation
TOMORROW.
Senate:
Program uncertain: may not meet.
Joint House and Senate committee
hearing on the Black-Connally wage
and hour bill. 10 a.m.
Finance Committee meets In execu
tive session on war profits bill,
10:30 a.m.
Interstate Commerce Committee
meets on railroad Investigation,
10:30 a.m.
Appropriations Subcommittee con
tinues hearing on District bill, 10 a.m.
House:
Considers miscellaneous bills on
calendar.
Immigration Committee meets,
10:30 a.m.
Indian Affairs Committee meets,
10:30 a.m.
District Committee meets, 10.30 in