and again when section 1250 was enacted in 1964, exceptions were provided "if the basis of property in the hands of a transferee is determined by reference to its basis in the hands of the transfer or by reason of the application of section 332, 351, 361, 371(a), 374(a), 721, or 731 . I.R.C. §§1245(b)(3), 1250(d)(3). Summary. The suggested amendment is intended to provide for a carryover of status from the transfer or to the transferee in certain acquisitions under proposed new section 167(j)(4). The omission of such a provision appears to have been unintentional in light of proposed new section 167(j)(3) and amended 381(c)(6), both of which would provide for such a carryover of status in similar acquisitions. The proposed amendment would be consistent with existing precedents and with the stated purpose of the House Committee on Ways and Means to prevent unwarranted tax minimization. September 16, 1969 Sidney I. Roberts STATEMENT FOR THE SENATE FINANCE COMMITTE WITH REGARD TO SECTIONS 451 AND 452 OF THE TAX RORM BILL (Northeast Utilities is a utility holding company system operating in Connecticut and western Massachusetts. Its principal operating subsidiaries are The Connecticut Light and Power Company, The Hartford Electric Light Company, Western Massachusetts Electric Company, and The Holyoke Water Power Company.) Northeast Utilities believes that Section 451 of the Tax Reform Bill is inappropriate tax legislation. First, we feel it is wrong to make regulatory accounting procedures determinative of income tax deductions. This Bill would deny the benefits of accelerated depreciation to those public utilities regulated by commissions which adopt the "flow through" method of accounting. Under this Bill, a utility company's deduction for depreciation, which is the largest single deduction most utilities have, would be controlled by accounting policies adopted by the regulatory commission. We believe that to permit policies and procedures of regulatory commissions to determine tax effects is a questionable precedent for the Congress to adopt. Second, the requirements in Section 451(a)(2) and (3) of the House Bill for the actual use of flow through in establishing cost of service on and prior to July 22, 1969, in order to utilize flow through are too rigid and inflexible. They fail to recognize those situations where a regulated utility which was using accelerated depreciation had taken positive and concrete steps to change from normalization to flow through prior to such date but where such change had not yet been authorized or implemented. As an example of the difficulties and anomalies that this section of the Bill in its present form will create, may I cite the situation in Massachusetts with respect to our subsidiary, the Western Massachusetts Electric Company. This Company has been utilizing an accelerated depreciation method on its tax returns. However, for rate-making purposes, it has been obliged by the Massachusetts Regulatory Commission to "normalize," that is, to charge the tax reduction as a current tax expense and reflect it in its rates to its customers. Since May 1969, the Massachusetts Department of Public Utilities has had under formal consideration and advisement a change in the accounting method required of regulated public utilities from "normalization" to the "flow through" method. At a hearing before the Department in May of this year, Western Massachusetts Electric Company pledged to reduce its rates to its customers by an annual amount of at least $1,700,000 if the Department would permit the use of the flow-through method. Before the Department had had opportunity to act, the House passed the present Bill. Now Section 451 will prevent this rate reduction which the Company is desirous of making since a "flow through" accounting order in Massachusetts would automatically result in the denial under this Bill of the use of accelerated depreciation to the Western Massachusetts Electric Company. We respectfully suggest that Section 451 be modified to provide for situations where the regulated public utility has, on or before July 22, 1969, taken steps to obtain authorization to adopt flow-through accounting. This would be only equitable since the proposed tax legislation was not the i: ducement for proposing the accounting change. With respect to Section 452 of the Tax Reform Bill, we would urge that if the Congress feels corrective action is required in this area, then the situation should be approached with a phaseout method, as President Nixon originally propos 1, rather than with an absolute cut-off for tax years brinning after June 30, 1972, as Section 452 is presently written. The effect of the absolute cut-off date would mean that Northeast Utilities, for example, might have a return of capital dividel of, say, 60 percent in 1972 which would abruptly become fully taxable in 1973. believe this would have a serious detrimental effect on the market price of our common shares. Also, it should be pointed out, a phase-out method would increase Treasury revenues in the interim years. We |