Technical amendments redesignating subsection (a) of section 3154 as para graph (1) of such subsection, and redesignating the clauses of such subsection would be made.

The bill would be applicable with respect to fermented malt liquor lost after the 1st day of the month of enactment.

GENERAL STATEMENT

Existing law recognizes the injustice of retaining the tax imposed upon fermented malt liquor "brewed or manufactured and sold, or removed for consump tion or sale," in the event sale is rendered impossible by reason of the bad condition of the liquor. Your committee believes that the same principle should be applied if sale of the tax-paid liquor is prevented by reason of loss in the bottling house through breakage or leakage, or in the process of filling, capping, pasteurizing, or labeling. Many States already provide similar relief to brewers.

Fermented malt liquor is in the usual course removed from the brewery to a brewery bottling house by pipe line, and the quantity so removed is measured by meter in gallons and accounted for in barrels of 31 gallons each. Internal revenue

tax of $8 per barrel is paid at the time of such removal. The possible bottling production from a barrel of 31 gallons is 13.77 (plus) cases of 24 12-ounce bottles. According to a survey made by the Bureau of Internal Revenue in 1938, the average actual yield for the entire country was found to be 13.44 cases per barrel. The average loss, therefore, was 0.33 case per barrel or 2.39 percent, which is believed to be at least the current average bottling loss.

The testimony of representatives of the Treasury Department and of the industry before your committee in 1940 and on June 2, 1948, agreed that many brewers have bottling losses greatly in excess of 2% percent with some having losses greater than 5 percent. In fact, use of speedier bottling equipment and automatic pasteurization equipment has resulted in substantial increase in bottling-house losses.

Provision for a maximum limitation upon refund or credit of 21⁄2 percent of the tax paid by a brewer on fermented malt liquor removed from the brewery during the calendar month would, in general, allow full recovery of taxes only upon average or less-than-average bottling losses. The taxpayer would be required to prove to the satisfaction of the Commissioner the amount of such loss; that the fermented malt liquor was fully tax-paid; and that no refund or credit has been made or allowed, with respect to the liquor so claimed to have been lost, because of destruction or return to the brewery for nonsalability. The 21⁄2 percent maximum limitation upon credits and refunds would apply separately with regard to each bottling house operated in connection with a brewery.

The revision of section 3154 (b) of the Internal Revenue Code would correlate the time for filing claim for refund or credit because of nonsalability with the time proposed for filing claim for refund or credit because of loss in the bottling house. Taxpayers would, thus, be concerned with only one statute of limitations, whatever might be the basis for filing of the claim for refund or credit under section 3154.

CHANGES IN EXISTING LAW

In compliance with paragraph 2a of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as introduced, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italics, existing law in which no change is proposed is shown in roman):

"INTERNAL REVENUE CODE

"SEC. 3154, REFUNDS AND CREDITS.

"[(a) ALLOWANCE.-] (a) ALLOWANCE.

"(1) UNSALABLE PRODUCTS.-The Commissioner shall make refund, or in lieu thereof, if he so elects, allow credit to a brewer in the amount of tax paid by such brewer on any beer, lager beer, ale, porter, or other similar fermented malt liquor manufactured by such brewer' which has become unsalable by reason of its condition, upon the filing of a claim therefor by the brewer and proof by him to the satisfaction of the Commissioner that such beer, lager beer, ale, porter, or other similar fermented malt liquor [(1)] (4) was fully tax-paid, [(2)1 (B) was lawfully removed from his brewery to his bottling house on or after March 22, 1933, (3)1 (C) never was removed from such bottling house, except in the process of destruction or for return to the brewery, [(4)] (D) had become unsalable without fraud, connivance, or collusion on his part, and [(5)] (E) was destroyed by him

in such bottling house in the presence of a representative of the Bureau of Internal Revenue, or was returned from such bottling house to the brewery in which made for use therein as brewing material.

"(2) Loss.-The Commissioner shall make refund, or in lieu thereof, if he so elects, allow credit to a brewer in the amount of tax paid by such brewer on any beer, lager beer, ale, porter, or other similar fermented malt liquor manufactured by such brewer which was lost in his bottling house through breakage or leakage or in the process of filling, capping, pasteurizing, or labeling, upon the filing of a claim therefor by the brewer and proof by him to the satisfaction of the Commissioner that such beer, lager beer, ale, porter, or other similar fermented malt liquor was fully tax-paid and that no refund or credit was made or allowed therefor under paragraph (1) to this subsection. Refund or credit under this paragraph for such loss during any calendar month shall not exceed an amount equal to 21⁄2 per centum of the tax paid by him on all beer, lager beer, ale, porter, or other similar fermented malt liquor removed by him during such calendar month from his brewery to his bottling house. "(b) TIME FOR FILING CLAIM.-No [such] claim under the provisions of subsection (a) shall be allowed unless filed within ninety days after the close of the month within which such destruction or return to the brewery for use as brewing material, [or, in the case of any beer, lager beer, ale, porter, or other similar fermented malt liquor so destroyed or returned before June 26, 1936, within ninety days after such date.] or loss, occurred."

80TH CONGRESS 2d Session

SENATE

{{No. 1712

REPORT

CARL PIOWATY AND W. J. PIOWATY

JUNE 16 (legislative day, JUNE 15), 1948.-Ordered to be printed

Mr. CAPPER, from the Committee on Agriculture and Forestry. submitted the following

REPORT

[To accompany S. 2524

The Committee on Agriculture and Forestry, to whom was referred he bill (S. 2524) for the relief of Carl Piowaty and W. J. Piowaty, aving considered the same, report thereon with the recommendation hat it do pass without amendment.

STATEMENT

The purpose of this bill is to relieve Carl Piowaty and V. J. Piowaty rom liability for the payment of (1) their indebtedness to the Reional Agricultural Credit Corporation of Washington, D. C., for war rop advances made to them by the Corporation; (2) the promissory otes given by them to the Corporation evidencing such indebtedness; nd (3) the judgments, including attorney's fees and court costs. btained by the Corporation against them for such indebtedness or

otes.

In the spring of 1943, Carl and W. J. Piowaty obtained advances in he sum of $4,225 each from the Regional Agricultural Credit Cororation for the purpose of producing and harvesting crops of beans ear Zellwood, Orange County, Fla. The advances were obtained on pecial terms contained in the notes which were executed by the orrowers. Those terms provided, in substance, that if the county ar board was satisfied that the borrower had used the funds adanced for the purpose of producing the crops and had diligently pplied good husbandry to their production, then if the returns from he crops (including incentive payments) were insufficient to repay the dvances in full, the Corporation would accept the amount of such eturns in full satisfaction of the borrower's obligation and would canel the remainder of his obligation. In this way, the Corporation ssumed the risk of loss through causes beyond the borrower's control.

The Piowatys planted the crop of beans, which grew very well until the time when they were damaged extensively as a result of unseasonably cold weather in April 1943. As a result of the cold weather, much of the bean crop was completely destroyed. The Piowatys replanted the crop at their own expense and proceeded with efforts to produce a satisfactory crop of beans. The weather, however, turned excessively hot in May 1943, and an infestation of thrip invaded the bean crop and caused great damage. The beans which were harvested were of poor quality and were to a large extent practically unsalable. The net returns from the bean crop, together with the incentive payments which were paid to the Piowatys by the Government, were paid to the Regional Agricultural Credit Corporation to be applied against the obligations of the Piowatys to the Corporation. The Piowatys then applied to the Corporation for the relief from the indebtedness in accordance with the terms under which the indebtedness was incurred. In order to obtain relief from the indebtedness, it was necessary for the Piowatys to obtain from the War Board for Orange County, a certificate to the effect that they had applied good husbandry in the production of the crop for which advances had been secured. The war board refused to grant such a certificate to the Piowatys, apparently upon the ground that poor husbandry had resulted in the crop failure. The determination of the war board that the Piowatys had not used good husbandry was apparently based upon reports made to them by the inspector for the Regional Agricultural Corporation and was not based upon any personal inspection by the members of the board of the methods of husbandry employed by the Piowatys. It is significant that although there were approximately 50 growers of beans in the county who sought relief from liability to the Corporation, the Piowatys were the only growers whose claims were denied.

After the failure of the Piowatys to obtain the necessary certificate which would have relieved them from their indebtedness, the Corporation proceeded to sue them in the State court to recover the amount of their indebtedness to the Corporation. In order for the Piowatys successfully to defend themselves in the suit, it was necessary for them to prove that the war board acted arbitrarily in refusing to grant them the certificate which would have relieved them from indebtedness to the Corporation. They were unable to succeed in doing this. At the trial they introduced evidence of reliable farmers to the effect that they had employed good principles of husbandry in connection with the raising of the bean crop. They were also able to prove that the members of the board did not personally inspect the Piowatys' farming operations. Although the Department of Agriculture states that the war board, after investigation, found these two borrowers had neglected the cultivation of their crops, members of the board admitted in the trial proceedings in the lower court that they did not inspect their plantings, and it is evident that the board relied upon the statements of a representative of the Regional Agricultural Credit Corporation who had dealt with the borrowers.

The Piowatys appealed from the adverse decision of the lower court to the Supreme Court of Florida. The Supreme Court of Florida affirmed the adverse decision of the lower court. The decision of the supreme_court, however, was by a 4-to-3 vote of the judges of that court. It is therefore evident that a substantial minority of that