NRLDA's Legol Eogle Tells Congressionol Committee of Need For New Lien Lqws, Tqx Relief ond Other Deqler Aids

Statement of John H. Else on Behalf of the National Retail Lumber Dealers Association Before the Ways and Means Committee of the House of Representatives, February 7, 1958.

Subjects Covered in Statement

1. Amendment of Tax Lien Larv (Sec. 6323 IRC l9s4)

2. Taxation of Cooperatives (Part III, Subchapter F of Subtitle A, IRC 1954)

3. Tax Deduction for Home Improvements (Part VII of Subchapter B of Chapter l, IRC 1954)

4. General Income Tax Relief

Mr. Chairman and Memlters of the Committee:

My name is John H. E,lse, and I appear before this Committee on behalf of the National Retail I-umber Dealers Association and its 33 State and l{egior-ral Associations. The brief recommendations u'hich f,rllou' rvill not. in our ooinion, result in any loss of revenrle. In fact, they should biing abottt an increase in revenue, if enacted into lau'.

Federal Tax Lien

(Sec. 6323 IItC 1954)

One of the purposes of my irppezrrance today is to urge actitin on legislation pending in 1,6u. comn-Littee u,hich lvould c()rrect :rn inecluity existing in the present l:rrv rellttlng to Fecleral tax liens as they allect mechanic's liens perfected under State larv.

For a number of years, lun.rber dealers, mechanics and otl.rers u.l.ro furnish rnaterials or lalror to improve real propertv have been confrontecl rvith the fact that rrotice of a lien for Federal taxes does not har.e to be filec1 to be valicl as against mechanic's or materialmen's liens.

As a result, there is no l.lry for a firm or l)ersorl funrishing material or laltor to impiove a property to rleten.r.rine, frorn public recorcls, the existence of a Fecleral tax lien against said property.

You can readily see that this sitrration can a.ncl rloes canse many hardships and ineclrrities, und places a supplier of materials or 1ab<.rr in the positiorr of n'rateriallv enhancing tl.re value of a piece of property ancl, er.en aftcr drre cliliger-rcc in checking public records, to find that the Fecleral fl()vern- ment has a lien for t:rxes on tl-re same prol)ert\'.

In such instzrnce, the supplier of materials or lalror is lrlacerl in the lrositi.rr of being rrtralrlc t() receive |;rl.rrrerrt for such improvement.

The tax lien ltecomes elTectir-e fronr the timc the :rssessment is received in the director's olllce.

This places the government in the position of becomirrg unjustly enriched at the expense of those rvho furnished nreiterials and laltor tri imltrove the propcrty sold to satisfl, the tax lien.

At present, the lau' reryuires the gor-ernrtrent to give notice of a tax lien lrefore such lier-r lreconres valid as agltirrst mortgagees, pledgees, purchasers, zrnd judgment creditors (Sec. 6323 IRC 19.5.1). Unfortunately, the sal.ne recrrrirenrL-nt does not exist in the lau- to require notice,,f thc tux lien as against the holder ,,f a mechanic's or materialmen's lien, although such lienor has, bv improvir.rg thc property, enhancecl its value.

It is :rs reason:rlt1e to re<lrrire the same acti()11 lty thc Fecleral government to make the tax lierr effcctive and r.alicl against a mechanic's or materialmer-r's lien as is reclrrire<l for mortgagees, pledgees, lturch:isers and judgn.rent creclitors.

\\'e do not believe that the Congress ever intcnde<l that the Federal government should become er.rrichecl zit thc expense of innocent l)ersons u,ho, rel).ing rlpolr public records, and after using diligence to determine the existencc of_ liens, furnish materials to impror.e the proltertv of another.

\\t'e do not belier.e that our recommendation u'ould. i{ enacted into larv, place an undue burden upon the Ir.rternal Iter,'enue Serr-ice, and it l'oukl stil1 permit the government to enhance its lien after a routine notice of sucl.r lien is filed as is presently required in other instances mentioned.

Tl.re committee nou.has be{ore it H.R. rl51 and H.lt.5281 u'hich l'ould accomplish the action requested.

I am informed that the America.n Bar Association last sunrmer took official action enclorsing the principie similar to tl'rat contained in our recommendation. I am also inforrned that a representatir-e of the Bar Association tax section has appeared before your committee at these hearings ancl presented the l3ar's recornmendation to correct this inectuitv.

I respectiully urge tl.ris committee to carefully study tl-ris proposal and to take far.orable action thereon. I am confident that upon examination of the inequities in the present la\\r, you u.ill corrclude that action is necess;rry to make the lau's relating to l'ecleral tax liens equitable and fair to everyone, including the Federal go\.ernment.

Taxation Of Cooperatives

(Itepealing Part III of Sul>chapter F of Sul;title A of Internal Itevenue Cocle of 195:l) u-itl'r increased expenclitnres for

For a nrrmber of vears taxpaying businesses, including retail lumber and brrilding material dealers, have had to conrpete u'ith cooper:rtives rvho have had the advantage of a favorable tax treatment.

The fa','ored positi<tn of coolteratir.es in the preserrt tax lan creates a compctitit'e adverntage that is destmctive to frrlly-taxerl c{,nil}anies.

I"usiness men have a right to expect fair treatn.rer.rt at the har.rds of the Congress.

Earnir-rgs of all competing business corporatior.rs shorrld be taxed under the santc tax rules.

Cooperatives should l)e ta-\ed at regular corpor:rte rates at the corporate level.

Itquality of opPorturrit-y amons ltrrsiness penclent rrpon eqrrality <-lf t:rxation. Uncler the firn.rs is depresent larvs this dt.res not exist.

()ur rration is norv faced rrational ciefense.

It is tirne tl'rat n-e re-cxantine oltr tAx lal.s to rletermine u'hether everyone is carrving his fair share of these increase<l expenditures ancl ihe'iost of g'overnment.

-\n objective appraisal can lelrd to r,nlv one conclrrsionthat u'e sl'rorrld:ill cirrrl- r,ur fair share Lf this tax brrrclen. .\t present this i. rrot tite c:Lse.

81' taxing' c.ooperatives on the samc basis as other ltusirless corpor:rtions, the Congress u.ill assrlre irll lrrrsiness firms that they can c()mpete i,n lr fair and eclual ltasis nncler ()t1r ta\ l:iu's, ancl tliat each is lrearir-r;1 his share of the cost of gor.ernnrent.

\\'c re.spectfullv rrrge this con-rmittee to apDro\-e legisla- tion to eliminate tl.re tax iar-oritisnr l.hich noirl exists in t,rrr present tlix lzrn.s alTecting cool)erati\-es.***

TAX DEDUCTION

For

HOME

Improvement

(Amerrcline I'art \,'II of Subchal>ter ll of Chapter 1 of L'rternal lteverrue Code 195.1)

-fhere are so-er:rl bills (H.lt. 9611, 235, 23tt, 5899) before this comrnittee l'hich tvoultl, if erracted into 1:ru', pennit honreol-ners to deduct the cost of home im1,1,y1-snlcits, up to lt specifiecl maxir-nunt. for incorne ta\ purl)()ses, ofTere<1 ai an incentive to the honreou.ner to keep hi.s homc in good reo:rir.

'l )rrrins. and follou,ins \\-orld \\-ar II ancl thc I{orean \\-ar, manv fanrilies prrrchased homes n'hich to<l:ry :rrc in-