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Senator COUZENS. Do you recall whether there were any undetermined questions in the Standard Steel Car Co. case when we finished yesterday?

Mr. HARTSON. I think that the conference report, Senator, which could not be located yesterday afternoon has now been found on the Berwind-White case that was referred to yesterday.

Senator COUZENS. Have you got it there? If so, will you read it to us now?

Mr. Clack (reading): Taxpayer's conference: Berwind-White Coal Mining Co., Philadelphia, Pa., represented by R. S. Wilson, attorney in fact; C. W. Parkhurst, consulting electric engineer; H. C. Middleton, treasurer; and D. Badger, accountant, of Ernst & Ernst.

Matter presented:

The case is consolidated as to the income, hence only amortization considered in our conference. Taxpayer admits generally that the facts with reference to his history and property are correctly stated in the engineer's report but contends that insufficient allowances have been made owing to inaccuracy of the ratios used in the following cases.

Senator Couzens, if you will pardon me, there follows a long itemization of costs which total $217,491 which the taxpayer contends shows a lower replacement cost of $9,195.90 than shown in the engineer's report.

Senator COUZENS. That is the original report you are reading from?
Mr. CLACK. Of the conference ?
Senator COUZENS. Yes.

Mr. CLACK. No, sir; it is not the original; the original is here. This is a carbon copy. I have the original in the files.

Senator Couzexs. Why was the carbon copy made prior to the committee hearing?

Mr. Clack. No, sir; this is a carbon of the original report.
Senator COUZENS. It is a carbon of the original report?
Mr. CLACK. Yes, sir.
Senator Couzens. That is all right.

Mr. Hartson. The original is in the file. The only difficulty about bringing the original is that it is bound in there and this is more easily handled.

After further discussion the office was willing to concede taxpayer's contention with reference to items 3, 4, 7, 8, 9, and 10 as shown above, because the ratios as to these items are considered inapplicable.

Taxpayer also contends that the plant as a whole is only 70 per cent in use as against 80 per cent computed in engineer's report. On this point it was agreed that additional data would be submitted, and if the information is as claimed by the taxpayer's representative the conference will recommend that value and use be reduced to 70 per cent.

Taxpayer also claimed amortization amounting to $120,579.14 on unit No. 3, costing $360,710.20 of its plant, which was constructed after the close of the war. This claim is based on the theory that the additional unit was an economic necessity. It developed, however, in conference, that the additional unit was to take the place of a similar plant situated somewhat remotely from the new units which were constructed during the war, and the conferees are, therefore, of the opinion that no amortization is allowable on this third unit.

An error amounting to approximately $9,000 was pointed out on sheet 2 of Exhibit A to report, the item being next to the last one on the page. The error is conceded and correction will be made accordingly.

It is understood that the additional data will be submitted at an early date; and in the meantime it is requested that no further action be taken.

Interviewed by J. C. Herring; J. W. Swaren, engineer; C. F. Rhodes, conferee. Initialed E. T. L.--- Mr. E. T. Lewis was acting head of the section in the absence of Mr. De La Mater, I think. It is dated October 30 and 31, 1922.

There follows under date of November 8, 1922, a letter of the industrial department of the General Electric Co. to the BerwindWhite Coal Mining Co.:

In accordance with our conversation of recent date, I am attaching herewith copies of specifications covering one 3,500-kilowat, 3-phase, 25-cycle, 6,600-volt turbine-driven alternator for operation at 150 pounds gauge, 2-inch back pressure. The approximate price of this unit is $90,000. You will find that the turbine operates at a speed of 3,600 r. p. m., which is geared to the alternator, which runs at 500 r. p. m. If we can be of any further service to you kindly advise. This letter is in support of their somewhat detailed and technical

final report.

Senator COUZENS. I think that is all. Have you got the addresses of those witnesses that we were going to subpæna, Mr. Nash?

I think we are practically satisfied—at least I am satisfied on the question of the Standard Steel Car Co. for the present.

The other case that you have here is the Aluminum Co. of America. Have you

the records of that case here? Mr. HARTSON. Yes.

STATEMENT OF MR. H. A. WHITNEY, APPRAISAL ENGINEER,

BUREAU OF INTERNAL REVENUE

Senator COUZENS. How long have you been in the department, Mr. Whitney?

Mr. WHITNEY. Two years and a half. Senator COUZENS. Always in the same department? Mr. WHITNEY. Yes, sir. Senator Couzens. What did you do in connection with the case of the Aluminum Co. of America?

Mr. WHITNEY. Made the examination, wrote the report in conjunction with Mr. De La Mater.

Senator COUZENS. At what time?

Mr. WHITNEY. It was from November 13 to December 23 that the physical examinations of the properties were made, after which we wrote the report.

Senator COUZENS. What year?

Mr. WHITNEY. From November 13 to December 23, 1921, we made the examination, and then wrote the report, which was finished February 22.

Senator Couzens. For what year did you make the examination?

Mr. WHITNEY. We made the examination for the years 1918 and 1919. Senator COUZENS. And that is the record you have here? Mr. WHITNEY. Yes, sir. Senator COUZENS. You have not examined any of the returns since the

year 1919? Mr. WHITNEY. No, sir. Senator COUZENS. Those are the only two years that you dealt with?

Mr. WHITNEY. Those are the only two years that I dealt with.

Mr. HARTsox. Senator, let me interrupt you to say that Mr. Whitney is the engineer who made the valuation with regard to amortization. Of course, their amortization claim only went to those two years and the actual date of those returns and subsequent reports were made by somebody else.

Senator COUZENS. I just wanted to bring out that he is only dealing with the question of amortization and no other deductions or anything else. Have you got your report there?

Mr. WHITNEY. Yes, sir.
Senator COUZENS. Read it to us.
Mr. WHITNEY. May I read the chronology first?
Senator COUZENS. I beg pardon?

Mr. WHITNEY. Do you care for me to read in the chronological order of the events?

Senator COUZENS. If you please.

Mr. WHITNEY. This deals with tax return A-19 for 1918 and schedule A-26 for 1919. The following amounts were taken as amortization, based on the flat rate of 25 per cent of the cost incurred during the war period. These amounts are the amortization claimed in 1918: $6,055,527.26; and the amount claimed as amortization in 1919: $797,170.10, making a total amortization claim of $6,892,697.36.

On November 8, 1921, taxpayer submitted a revised claim based on a total cost of $37,026, 306.11, amortization claimed on this amount being $18,124,339.28, or 49 per cent of the cost.

November 13, 1921, field examination of taxpayer's properties was made by S, T. De La Mater, chief of the section of amortization, and H. A. Whitney, appraisal engineer.

The examination was completed December 23, 1921.

February 16, 1922, the engineer's report was submitted and reviewed, recommending amortization be allowed in the sum of $15,151,840.92 out of a total claimed of $18,124,339.28.

April 8, 1922, taxpayer filed a protest to certain findings of the engineer's report.

April 12 and 13 taxpayer's protest considered in conference. Thirty-seven items were protested to by taxpayer. Adjustment resulting from the conference is found in the engineer's report of May 26, 1922.

May 26, 1922, supplemental report submitted by the engineer in which an additional allowance was made to the taxpayer of $293,676.93 based on the post-war expenditures, which have been disallowed on the first report but were considered as commitments in the current report and as such were allowed.

April 16, 1923, a conference held, matters presented, taxpayer claims that amortization allowance should be based on regulation 62 rather than regulation 45 and pointed out that the engineer's report was dated February 16, 1922, and that regulations 62 were approved February 15, 1922, and that accordingly the amortization report should be based on the later regulations.

Decision: Major De La Mater, chief of the amortization, was consulted and agreed that this change may be made. Taxpayer agreed to submit additional data in order that proper action may be taken.

On May 24, 1923, taxpayer submitted the data referred to in conference.

June 26, 1923, second supplemental engineer's report submitted and reviewed. In this report additional amortization was allowed in the sum of $144,096.54 based on the conference of April 16, 1923.

Summary of amortization allowance: The report dated June 26, 1923. Total cost on which amortization is allowed, $31,602,703.81. Total amortization allowed, $15,589,614.39. Amortization disallowed, $2,678,821.43.

Would you like to take this, Senator?

Senator COUZENS. In other words, about 50 per cent was allowed; is that roughly correct?

Mr. WHITNEY. Approximately that; that is, 50 per cent of the cost. Senator COUŽENS. Yes.

Mr. WHITNEY. We allowed—but of what they claimed as amortization we allowed much more than 50 per cent; we allowed

Senator COCZENS. I understand that; I was just getting at the relation of the amortization allowed to the cost of the property on which it was allowed.

Mr. WHITNEY. Yes, sir.

Senator Couzens. In reading this report you referred to the fact that the taxpayer thought this claim should be allowed under Regulation 62 rather than Regulation 45?

Mr. WHITNEY. Yes, sir.

Senator COUZENS. Because Regulation 62 was promulgated on February 15, 1922, and your report was dated February 16, 1922. What was the difference between those regulations?

Mr. WHITNEY. One regulation took the spread of amortization to the end of the amortization period, and the other regulation-62had a different basis in which it was spread, according to a long drawn-out formula, but it gave a better advantage to properties tnat were acquired during the amortization period but were not used in war work. That is 185-B as Doctor Adams will recall.

Senator 'COUZENS. Well, because Regulation 62 was issued one day prior to your report, although your examination took place several months before the taxpayer was permitted to come under Regulation 62. Can you explain why that was?

Mr. WHITNEY. I can cite you the conference report, Senator; I have that here.

Senator COUZENS. Well, please cite it to us. Has this case been closed up, do you know, under section 1312?

Mr. WHITNEY. I think it has; Mr. Leary could inform you. Mr. HARTSON. It has not, Senator. Senator COUZENS. It has not? Mr. HARTSON. It has not. Senator COUZENS. Who signs these settlments under section 1312? Mr. HARTSON. The commissioner and the Secretary. Senator COUZENS. Then the Secretary signs an agreement to close the tax on his own companies, does he not?

Mr. HARTSON. He is necessarily required to do só under the law. With regard to the 1312 agreement in the above case the suggestion has been made that when the Gulf case was considered under 1312 sometime last summer, if my information is correct, the Secretary was absent in Europe and personally did not sign that particular agreement, but the law does require that the commissioner enter into the agreement with the approval of the Secretary.

Senator CouzENS. Can you bring a copy of that 1312 settlement here?

Mr. HARTson. Yes, we had it here the other afterneoon.

Senator COUZENS. As I remember it, it was not entered into until the fall rather than in the summer.

Mr. Hartson. Well, I am only telling you my information, and I think that is the record, that it was signed by the Acting Secretary during the Secretary's absence. I do not know definitely about it but we can find out about it and give you the definite information.

Senator CouZENS. From your experience in the department, Mr. Hartson, do you know of any other company in which Mr. Mellon is interested other than those he has enumerated in his letter?

Mr. HARTSON. I do not know of any other companies, Senator Couzens, than those that he has mentioned here.

Senator COUZENS. Do you, Mr. Nash, know of any other companies?

Mr. Nash. No, sir.

Senator COUZENS. Do you know if the Mesta Machine Co. is a subsidiary of one of the other companies?

Mr. Nash. I never heard the name before.

Senator COUZENS. Do you, Mr. Ernst, know of the Mesta Machine Co.?

Mr. Ernst. I have heard the name but I have never heard it associated with Mr. Mellon; I have no knowledge whether he is interested in it or not.

Mr. WHITNEY. This report covers several pages. Senator COUZENS. What date is the conferee's report? Mr. WHITNEY. April 16, 17, and 18, 1923. Senator COUZENS. We were asking you with reference to the advantage gained by using regulations 62 rather than regulation 45, Can you tell us from that report the way it dealt with the matter?

Mr. WHITNEY. I was not in on that conference; I was in the West at the time this conference took place, Senator.

Senator COUZENS. But I mean can you read from the conference report where it deals with that?

Mr. Whitney. I think so. Taxpayer's brief, sworn to March 13, 1922, provides the basis for discussion and decision. Assessment letter mailed February 12, 1923. The capital expenditure charges to "expense.” Taxpayer contends that in view of the comparatively small amount charged against expense (over $250,000 construction items and over $200,000 furniture and fixtures, as compared with $40,000 total capitalization), that these should be allowed.

That was one of the items that the auditor threw from expense into capital, and the reason that the taxpayer claimed amortization was that it was a capital expenditure and as such should be amortized in a similar manner to main facilities with which it was thrown.

That is one of the $144,096.74 items.

Now, the “ Contention” disallowed in accordance with article 24, regulation 62, paragraphs 2 and 3. Contention allowed as to certain items erroneously disallowed as follows--do you want me to read this?

Senator Couzens. Can you tell us briefly, if you know, just what the difference between this regulation 62 and regulation 45 is?

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