Honorable John %. Hanes ~ Zs Among the deductions from adjusted net income allowed under the Revenue Aet of 19% were losses aricing from the sale or exchange of capital asgets, disallowed by Seetion 117(d) of the Revenue Act of 1936. in other words, the difference between the $2,000.00 capital tion and the amount actually sustained wae allowed net income for the purpose of figuring the surtax. ae a deduction in computing undistributed adjusted adjusted net income. net loss iimita- to reduce the adjusted There wae also allowed net income 20% of the The 1937 Revenue Act eliminated both of these deductions and the and 1939 Revenue Acts remain the eame, insofar ae this particular 1936 phase of the law is concerned. . The elimination of the prevision, effective under the Revenue Act of 1936, of allowing corporations to receive the benefit of capital losses in excess of the 72,000.00 Limitation has worked & real hardship upon corporations coming within this claseification. Since the year 1934 aii per- onal holding companies have, of necessity, distributed their as &@ result have not been able to bulld up a Surplus account. earnings and When & cor- poration gustains over the 52,000.00 limitation thie surplus and although there taxable an may excess be of non-deductible difference capital is applied income thie losses to reduce reduction can have the effect of reducing earned surpluste the extent that a part, or poselbly all of the dividende paid, are not taxable in the hands of the recipients, the stockholders, and the holding with personal the reeult holding that company e dividend eurtax It would sesem fair that the law companies the benefit of these 1939 Revenue Act the $2,000.00 capital The effect not of they are the net being only logs able to paid credit is not allowable is agsseseed. should excess be changed to allow personal losses inasmuch as under the class of corporations still subject lisitation. (#ffective after the receive benefit these losses, the of year to 1939). for dividend paid eredit purposes, is that personal holding companies may find themesives, due to circumstances entirely beyond thelr controi, in the position of paying their Title 14 been sustained Another Cireult or lose tax, or in fact, the whole of net income, when, by the company. a large ae a matter of fact, an actual arisen an outcome serious problem Court of Appeals to a corporation transuctione for income has ae the of a tax paid upon ioss has recent decision wherein the court decided that the gain arising through non-taxable or non-recogni zed tax purposes must, nevertheless, be used in deter- mining whether or not dividends are paid out of earnings acewnulated since March 1, 1913. The court decided that the words “earnings or profits” are words in common use and are to be given their plain, ordinary and commonly understood meaning in conaidering earnings that Congrese was aware of the distinction or profits. between net it was also stated income and taxabis net income and the provision that certain gaine or profits should not be recognised in computing taxable income shows that Congrees realized that ae commonly understood they were nevertheless gains or profits.