. ene J. M. & M. S. BROWNING CO. OGDEN. UTAH September Honorable John Under WY. 22, 1939 Hanes, Secretary of the Washington, D. CO. Treasury, oir: In line with your desire to have taxpayers present their views regarding suggested changes in the present Revenue Act, we desire to present our: position relative to surtaxes now imposed on personal holding companies: The first surtax on personal holding companies was that imposed by Section 351 of the 1934 Act which provided that upon the undistributed adjusted net income of every personal holding company a surtax of 30% of the amount of such income not in excess of $100,000.00, plus 40% of amount thereof in excess of $100,000.00 would be levied. The reason the enactment of this law, contained in an extract from the Ways and Means Committee report, is quoted as follows: the for "Perhaps the most prevalent form of tax avoidance practiced by individuals with large incomes is the scheme of the “incorporated pocket book". That is, an individual forms a corporation and exchanges for its stock his personal holdings in stock, bonds, or other income-producing property. By this means the income from the property pays corporation tax, but no surtax is paid by the individual if the income is not The distributed". Act changed the rate of tax adjusted net income covering all amounts in varying rates from 8Z income The not in excess 1936 to $2,000.00 at to excess $2,000.00 of undistributed with of 487. Revenue Act of 1937 provided in excess of $2,000.00 would of applicable that all be taxed undistributed adjusted at 65% and all amounts 75%. Under all revenue acts the surtax on personal holding companies has been in addition to the tax imposed on ordinary business corporations. While the general purpose of the tax is to reach corporations which are formed.or availed of to prevent the imposition of a surtax upon the shereholders thereof, the law makes no exception for bona fide business corporations which happen to come within the definition of a personal holding company. The income to be distributed by personal holding companies is net income, as defined in Title 1 of the various revenue acts, less certain There are deductions, arriving at a total termed "adjusted net income". certain deductions from adjusted net income which are made before arriving at undistributed adjusted net income upon which the tax is computed.