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21

RAPID AMORTIZATION OF EMERGENCY FACILITIES

TUESDAY, MAY 7, 1957

UNITED STATES SENATE,
COMMITTEE ON FINANCE,
Washington, D. C.

The committee met, pursuant to call, at 10:15 a. m., in room 312, Senate Office Building, Senator Harry F. Byrd, chairman, presiding. Present: Senators Byrd, Frear, Anderson, Gore, Martin, Williams, Flanders, and Bennett.

Also present: Colin F. Stam, chief of staff, Joint Committee on Internal Revenue Taxation.

The CHAIRMAN. The committee will come to order. Some other members will be in shortly.

Senate bill 1795 is under consideration.

(S. 1795 and the reports of the Bureau of the Budget, the Defense Department, and the Treasury Department.

[S. 1795, 85th Cong., 1st sess.]

A BILL To amend section 168 of the Internal Revenue Code of 1954, so as to restrict the issuance of certificates for rapid amortization of emergency facilities to those facilities producing new defense items for use by the Department of Defense or the Atomic Energy Commission in the national defense program

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Emergency Facility Amortization Act of 1957".

SEC. 2. Section 168 (e) of the Internal Revenue Code of 1954 (relating to determination of adjusted basis of emergency facility) is amended

(a) by striking out "There" in paragraph (1) and inserting in lieu thereof the following: "CERTIFICATION BEFORE EMERGENCY FACILITY AMORTIZATION ACT OF 1957.-In the case of a certificate made on or before the date of the enactment of the Emergency Facility Amortization Act of 1957, there"; and

(b) by striking out paragraph (2) and inserting in lieu thereof the following:

"(2) CERTIFICATIONS AFTER EMERGENCY FACILITY AMORTIZATION ACT OF 1957. In the case of a certificate made after the date of the enactment of the Emergency Facility Amortization Act of 1957, there shall be included only so much of the amount of the adjusted basis of such facility (computed without regard to this section) as is properly attributable to such construction, reconstruction, erection, installation, or acquisition after December 31, 1949, as the certifying authority designated by the President by Executive order, has certified is to be used

"(A) to produce new defense items or components of new defense items (as defined in paragraph (4)) during the emergency period, or "(B) to provide research, developmental, or experimental services during the emergency period for the Department of Defense (or one of the component departments of such Department), or for the Atomic Energy Commission, as a part of the national defense program. and only such portion of such amount as such authority has certified is attributable to the national defense program. Such certification shall be

under such regulations as may be prescribed from time to time by such certifying authority with the approval of the President. An application for a certificate must be filed at such time and in such manner as may be prescribed by such certifying authority under such regulations but in no event shall such certificate have any effect unless an application therefor is filed before the expiration of 6 months after the beginning of such construction, reconstruction, erection, or installation or the date of such acquisition. For purposes of the preceding sentence, an application which was timely filed under this subsection on or before the date of the enactment of the Emergency Facility Amortization Act of 1957, and which was pending on such date shall be considered to be an application timely filed under this paragraph. "(3) SEPARATE FACILITIES; SPECIAL RULE.-After the completion or acquisition of any emergency facility with respect to which a certificate under paragraph (1) or (2) has been made, any expenditure (attributable to such facility and to the period after such completion or acquisition) which does not represent construction, reconstruction, erection, installation, or acquisition included in such certificate, but with respect to which a separate certificate is made under paragraph (1) or (2), shall not be applied in adjustment of the basis of such facility, but a separate basis shall be computed therefor pursuant to paragraph (1) or (2), as the case may be, as if it were a new and separate emergency facility.

"(4) DEFINITIONS.-For purposes of paragraph (2) —

"(A) NEW DEFENSE ITEM.-The term 'new defense item' means only an item

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“(i) which is produced, or will be produced, for sale to the Department of Defense (or one of the component departments of such Department), or to the Atomic Energy Commission, for use in the national defense program,

"(ii) for the production of which existing productive facilities are unsuitable because of its newness or of its specialized defense features.

"(B) COMPONENT OF NEW DEFENSE ITEM.-The term 'component of a new defense item' means only an item

"(i) which is, or will become, a physical part of a new defense item, and

"(ii) for the production of which existing productive facilities are unsuitable because of its newness or of its specialized defense features."

Hon. HARRY F. BYRD,

EXECUTIVE OFFICE OF THE PRESIDENT,

BUREAU OF THE BUDGET, Washington, D. C., May 6, 1957.

Chairman, Committee on Finance, United States Senate,

Senate Office Building, Washington, D. C.

MY DEAR MR. CHAIRMAN: This will acknowledge your letter of April 5, 1957, inviting the Bureau of the Budget to comment on S. 1795, "to amend section 168 of the Internal Revenue Code of 1954, so as to restrict the issuance of certificates for rapid amortization of emergency facilities to those facilities producing new defense items for use by the Department of Defense or the Atomic Energy Commission in the national defense program."

In the report which he is making to your committee on this bill, the Secretary of the Treasury expresses agreement with the statutory limitation of amortization certificates to strict defense purposes, but recommends that the categories for which rapid amortization is permitted be revised to cover:

1. Laboratories, research, and development for direct defense.

2. Production or transportation facilities for direct military and atomicenergy procurement.

3. Special strategic minerals, metals, or gases in short supply for direct military or atomic energy requirements.

The Bureau of the Budget, in general, concurs with the views contained in the report of the Secretary of the Treasury. We recognize, however, that the national interest might conceivably make it advisable to adopt a more liberal policy with an absolute minimum of delay. Therefore, while we would support

the enactment of appropriate statutory restrictions, we recommend that the bill also authorize the President, upon notification to the Congress, to suspend such restrictions temporarily.

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MY DEAR MR. CHAIRMAN: This letter is in reply to your request dated April 5, 1957, for the views of this Department with respect to S. 1795, a bill to amend section 168 of the Internal Revenue Code of 1954, so as to restrict the issuance of certificates for rapid amortization of emergency facilities to those facilities producing new defense items for use by the Department of Defense or the Atomic Energy Commission in the national defense program.

This bill would amend section 168 of the Internal Revenue Code so as to restrict the application of rapid tax amortization to those facilities producing new defense items, or providing research, developmental, or experimental services, for the Department of Defense or the Atomic Energy Commission. This Department recommends against enactment of S. 1795 in its present form.

The effect of this bill would be to discontinue the granting of certificates of necessity for rapid amortization of emergency facilities unless the facility is to be used (a) to produce new defense items or components of new defense items (as defined) during the emergency period, or (b) to provide research, developmental or experimental services during the emergency period for the Department of Defense or the Atomic Energy Commission as part of the national defense program. The definition of the term "new defense item" includes only an item (1) which is produced or will be produced for sale to the Department of Defense (or one of its component departments) or to the Atomic Energy Commission and (2) for the production of which existing productive facilities are unsuitable because of their newness or specialized defense features. The term "component of new defense item" means only an item (1) which is or will become a physical part of a new defense item and (2) for the production of which existing productive facilities are unsuitable because of their newness or specialized defense features.

It has been accepted as sound government policy during this and previous emergencies to grant to industry, on a selective basis, rapid amortization of those facilities which are clearly required for the national defense. This is accomplished through the device of establishing an expansion goal for that service or product which after a careful study of defense, defense-supporting, and minimum essential civilian requirements, would not be in sufficient supply to meet those demands under wartime conditions. Certificates of necessity are processed strictly within the terms of that goal. Open expansion goals, which during the Korean buildup numbered over 200 and involved a variety of products and materials, have now been reduced in number to 9 and cover only those products and services directly attributable to national-defense needs in accordance with the policy established by the Director of the Office of Defense Mobilization December 26, 1956, as follows:

"Tax amortization will be granted only to applications directly involving procurement of the Department of Defense and the Atomic Energy Commission or where an expansion goal has been established and publicized because of a clear showing that, under conditions of full mobilization, the military and warsupporting requirements, plus the requiremnts of a rock-bottom civilian economy, would be in excess of the supplies available."

On April 25, 1957, ODM announced that 5 of the 9 open expansion goals are currently undergoing a new review to determine whether they should be continued.

Mobilization studies continually underway in the Office of Industrial Mobilization have indicated certain areas in which expansion goals can be supported under the criteria established by ODM. A recent example was expansion goal No. 229, covering liquid oxygen and nitrogen for defense use.

The national-defense program is proceeding at a high rate of activity, and international tensions seem to foretell the need for a continuation of this rate

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