The War Department interposes no objection to the enactment of this bill. Report of the Secretary of War on S. 978, submitted to your committee under date of February 1, 1935, follows: Hon. MORRIS SHEPPARD, Chairman Committee on Military Affairs, United States Senate, Washington, D. C. DEAR SENATOR SHEPPARD: Careful consideration has been given to the bill (S. 978, 74th Cong., 1st sess.) authorizing the Secretary of War to convey to the University of Oregon certain lands forming a part of the Coos Head River and Harbor Reservation, which you transmitted to the War Department under date of January 16, 1935, with request for a report thereon. A portion of this reservation was conveyed to the University of Oregon pursuant to act of Congress approved March 3, 1931 (46 Stat. 1506). The bill herewith would authorize the conveyance to the university of an additional area which is not now being used for river and harbor purposes, but is at present occupied by the Civilian Conservation Corps. The bill provides that the conveyance to the university shall not be made until the Civilian Conservation Corps relinquishes the area. It also reserves to the United States the right to use the area for jetty site or sites, right-of-way to such site or sites, and the prior right to the use of three-fourths of the natural flow of streams draining lots 2 and 3. These provisions will care for the needs of this Department. So far as the interests committed to this Department are concerned no ojection is known to the favorable consideration of the bill. Sincerely yours, O GEO. H. DERN, Secretary of War. 74TH CONGRESS 1st Session } SENATE { REPORT No. 212 REFUND OF TAXES ERRONEOUSLY COLLECTED FROM CERTAIN BUILDING AND LOAN ASSOCIATIONS FEBRUARY 25, 1935.-Ordered to be printed Mr. LOGAN, from the Committee on Claims, submitted the following REPORT [To accompany S. 279] The Committee on Claims, to whom was referred the bill (S. 279) to extend the time for the refunding of certain taxes erroneously collected from certain building and loan associations, having considered the same, report favorably thereon with the recommendation that the bill do pass without amendment. An identical bill passed the Senate, and was favorably reported to the House, in the Seventy-third Congress. The facts are fully set forth in Senate Report No. 572, Seventythird Congress, second session, which is appended hereto and made a part of this report. [S. Rept. No. 572, 73d Cong., 2d sess.] The Committee on Claims, to whom was referred the bill (S. 2816) to extend the time for the refunding of certain taxes erroneously collected from certain building and loan associations, having considered the same, report favorably thereon with the recommendation that the bill do pass without amendment. The bill provides that claims for the refunding of any taxes erroneously or illegally assessed or collected from any building and loan association, or savings and loan association, under the provisions of section 231, paragraph 4, of the Revenue Acts of 1918 to 1926, both inclusive, may be presented to the Commissioner of Internal Revenue not later than 6 months after the passage of this act, and the Commissioner of Internal Revenue is authorized and directed to receive, consider, and determine, in accordance with law but without regard to any statute of limitations, such claims as may have been presented heretofore and not allowed and such claims as may be presented within the period above named, when and where and only when it be found and determined that such taxes were collected upon the erroneous interpretation of the law passed upon and condemned by the United States Supreme Court in the decision rendered in the case of the United States v. Cambridge Loan & Building Co., reported in 278 United States Supreme Court Reports, page 55: Provided, That no interest shall be allowed on any of these claims. There are approximately 30 building and loan associations affected by this bill located in the States of California, Delaware, Idaho, Indiana, Kansas, New York, Ohio, Pennsylvania, Utah, and Virginia. The amount involved will not exceed $80,000. Since August 5, 1861, Congress has passed 20 revenue acts and building and loan associations have been one of the classes of corporations that have been exempted by all 20. No attempt was made by the Commissioner of Internal Revenue to tax any building and loan association from 1861 (the date of the first revenue act) until after the passage of the Revenue Act of August 5, 1909, when exemption was denied to a number of them and some were required to pay the tax. Test suits were brought in the Federal courts; and their decisions completely reversed the rulings of the Commissioner. As a result, refunds had to be made to these associations. As the statute of limitations on refunds had run against many associations, Congress passed a private bill, approved February 26, 1917 (Senate bill 5672, by Mr. Broussard), making provisions for a refund of these taxes which had been illegally collected. In Senate Committee Report No. 384, Sixty-fourth Congress, first session, reporting Senate bill 5672, the following statement was made: "In view of the decisions by the United States courts made as late as May 11, 1914, and in view of the act exempting domestic building associations, the Commissioner of Internal Revenue concluded that the exaction of the tax was improper and made a refund of so much of the tax as was not barred under the Revised Statutes. 66 'At the time of the adjudication of the questions involved by the courts, the statute had run against the recovery of a portion of the tax, and therefore the only hope for relief is by a special act of Congress. "The Committee on Claims has frequently favorably reported bills of this nature, where the only question involved was the 2-year statute of limitations, which statute had run when the legal questions were finally passed upon by the courts. "(See private act no. 130, approved Feb. 13, 1909, for the relief of the Columbus Gas & Fuel Co., and private act no. 136, approved Feb. 13, 1909, for the relief of the Philadelphia Co., also see bill for the relief of the Chicago, Milwaukee & St. Paul Railway Co., H. R. 13, May 26, 1913, waiving the statute of limitations, which bill passed the House of Representatives on June 12, 1914, and subsequently became a law.) "A large number of bills were favorably reported by the committee to refund legacy taxes illegally collected during the Sixty-second Congress, when the only question involved was the statute of limitations." The relief sought by the present bill presents the identical situation in which Congress granted relief by the passage of the above bill in 1917. On March 30, 1928, Congress passed Public Law No. 229, Seventieth Congress (H. R. 7224), an act to extend the time for refund of certain legacy taxes erroneously collected. During this Congress your committee has favorably reported bills for the refund of taxes illegally collected when the only question involved was the statute of limitations. See bills for the relief of the Fidelity Trust Co. of Baltimore, Md., and others; estate of Benjamin Braznell; Lebanon Equity Exchange of Lebanon, Nebr.; Farmers Grain Co. of Omaha, Nebr.; and Fairmont Creamery Co. of Omaha, Nebr. Three of these bills have become law. The Treasury Department takes the position that because there is some change from year to year in the membership of a building and loan association, the proposed bill would not relieve those who were members at the time the association paid the tax. There is scarcely a building and loan association in this country that is not required by law to maintain a reserve fund, sometimes called "contingent fund", consisting of a certain percentage of its outstanding stock, or in some cases its outstanding loans. That fund is maintained for the purpose of paying losses and contingent unexpected expenses. That fund belongs to the association as a unit and never is distributable among members except upon dissolution of the association. It is maintained not for the benefit of the existing members during any one year, but for the benefit of the association and its membership at any time. The same situation existed when Congress passed the relief measure in 1917. The tax was paid by these corporations and not out of their yearly earnings but out of their contingent funds and the bill provides for a refund to the corporations. There never was a time in the history of the corporations when this refund for taxes that were illegally collected would be more beneficial to the corporations, helping them to liquefy their frozen assets and pay to withdrawing members the money so much needed by them at this time. On November 19, 1928, in the case of United States v. Cambridge Loan & Building Co., reported in 278 U. S. 55, the Supreme Court held that if an association is organized and operating in accordance with the laws of the State under which it is chartered and substantially all of its business is confined to making loans to members, that is the kind of association that Congress meant to exempt. Under this decision these associations were held to be exempt corporations for the year 1928 and all previous and subsequent years. Under the income-tax law if a building and loan association is exempt from income tax, it is automatically exempt from capital-stock taxes. However, refunds of the capita -stock taxes were refused on the ground that payment under protest should not be treated as a claim for refund and the statute of limitations had intervened between the payment of the taxes and the decision in the Cambridge case, the identical situation when Congress in 1917 refunded similar taxes to building and loan associations. So, the sole question in this case is the statute of limitations and it is submitted that the same relief should be granted in 1934 that was granted in 1917 under similar conditions. The following correspondence is appended hereto and made a part of this report: TREASURY DEpartment, INTERNAL REVENUE SERVICE, Wichita, Kans., May 6, 1929. Topeka, Kans. The CAPITAL BUILDING & LOAN ASSOCIATION, GENTLEMEN: Enclosed find copy of letter from the Commissioner's office dated May 1, 1929, in which it is held that your association is entitled to exemption under section 103 (4) of the Revenue Act of 1928 and corresponding sections of prior revenue acts. You are advised that your association will not be liable for the filing of returns for 1928 and prior years, and returns will not be required for subsequent years so long as there is no change in the organization, its purposes, and method of doing business. So much of the amount received from your association by an individual in any 1 year for the year 1924 and subsequent years as dividends or interest as does not exceed $300 is exempt from tax provided there is no change in the present method of operation. Any changes in the form or organization or method of operation of your association as shown by the evidence submitted should be immediately reported to this office in order that the effect of such changes upon your present exempt status may be determined. Respectfully, H. H. MOTTER, Collector, Chief of the Income Tax Division. MAY 1, 1929. COLLECTOR OF INTERNAL REVENUE, Wichita, Kans. Reference is made to the evidence submitted by the Capitol Building & Loan Association, 534 Kansas Avenue, Topeka, Kans., for use in connection with a reconsideration of Bureau ruling of July 21, 1926, holding that the association is taxable as a bank. The status of the association has been reconsidered in the light of the decision of the Supreme Court of the United States of November 19, 1928, in the case of The United States v. The Cambridge Loan & Building Co. and article 515 of regulations 45, 62, 65, and 69, and also article 525 of regulations 74. It appears that the association was incorporated under the laws of Kansas in 1893 as a building and loan association and is recognized as such by that State. It also appears that the subscribers for shares of the association are members within the meaning of the amended regulations referred to above and that substantially all the business of the association has been confined to making loans to members. There is nothing in the evidence submitted which would lead to a conclusion other than that the association has complied in every respect with the laws of Kansas under which it was incorporated and has operated. In view of the foregoing it is held that the association is entitled to exemption under section 103 (4) of the Revenue Act of 1928 and the corresponding sections of prior revenue acts. Accordingly you are requested to notify the association that it is not liable for the filing of returns for 1928 and prior years. returns will not be required so long as there is no change in the organization, its purposes, and method of doing business. Future On the basis of the evidence submitted, the association should also be informed that so much of the amount received from it by an individual in any 1 year for the year 1924 and subsequent years as dividends or interest as does not exceed $300 is exempt from tax, provided there is no change in the present method of operation. The exemption provided in section 213 (b) (10) of the Revenue Act of 1921, however, does not apply to the association under discussion as the loans during the years 1922 and 1923 were not made exclusively to members. Any changes in the form of organization or method of operation of the association as shown by the evidence submitted should be immediately reported to you in order that the effect of such changes upon its present exempt status may be determined. The exemption referred to in this letter does not apply to taxes levied under other titles or provisions of the respective revenue acts, except insofar as the exemption is granted expressly under those provisions to organizations enumerated in section 103 of the Revenue Act of 1928 and the corresponding sections of prior revenue acts. The previous rulings of the Bureau in conflict with this decision are revoked. By direction of the Commissioner. Hon. JOSIAH W. BAILEY, C. B. ALLEN, Deputy Commissioner. TREASURY Department, Chairman Committee on Claims, United States Senate. MY DEAR MR. CHAIRMAN: I have your letter of April 26, 1933, with which you transmit a copy of S. 1523, Seventy-third Congress, first session, entitled "A bill for the relief of the Capitol Building and Loan Association of Topeka, Kans", and request an opinion on the merits of the bill. The purpose of the bill is to authorize the Secretary of the Treasury to pay to the association the sum set forth representing taxes alleged to have been illegally collected, with interest at the rate of 6 percent per annum from the date payment was made. The bill does not designate the character of the taxes proposed to be refunded, but the records of this Department indicate that they are capital-stock taxes. An opinion was previously requested on S. 3599, Seventy-second Congress, first session, which contained a provision for refund to the Capitol Building & Loan Association of Topeka, Kans., of the same sum. A report on that bill was transmitted by my predecessor in office to the chairman of the Committee on Claims, under date of May 13, 1932. Claims for the refund of the capital-stock taxes in question were not filed within 4 years after payment, the period within which such taxes might have been refunded under the law. The bill contemplates the refunding of these taxes on the theory that the association named was a domestic building and loan association within the contemplation of the exemption provisions of the various revenue acts; that the taxes in question were illegally assessed and collected; and that such taxes should be refunded regardless of the fact that claims for the refund thereof were not filed within the statutory period for filing such claims. If the association named is a true domestic building and loan association, its mode of operation of necessity has effected a material change in the personnel of its membership. Persons holding stock in building and loan associations change with comparative rapidity; this is a recognized characteristic of such corporations. Borrowers are required to become members by subscribing for stock, are required to make payments thereon until the total paid, plus earnings, equals the amount of their loans, and then are required to cancel their stock against their loans in payment thereof, in this manner ceasing to be members of the association. Nonborrowing members subscribe for stock but may, and frequently do, withdraw all amounts paid in, plus earnings, and in this manner terminate their membership in |