extends to a number of the other proposals that are being submitted to the committee today and at other times; they may well be full of merit, they may well be noncontroversial, but it is going to take time to process them and consider them and when does the process stop?

Senator BYRD. Your thinking is that the country, everyone would be better off to go ahead with the House-passed bill, have the Senate, if it is willing to do so, enact it in the form in which it passed the House and then start a new technical corrections bill next year, say, is that correct?

Mr. REDMAN. That is correct. I am not sure I would say the country is better off one way or the other, but I think in the tax community it is a good way to go.

Senator BYRD. But from the point of view of those involved in the tax laws, it would be better to get the House-passed bill through the Senate now, without amendments, rather than to attempt to perfect what the House has done and to add other proposals which you yourself or the tax section itself recommends be done at some future date, is that it?

Mr. REDMAN. That is what Redman is proposing, yes, sir.

Senator BYRD. Thank you very much.

Mr. REDMAN. Mr. Chairman, glad to be here.

Senator BYRD. I assume that you will look over these 45 pages and give the committee the benefit of your judgment.

Mr. REDMAN. We certainly will.

Senator BYRD. Thank you.

Mr. REDMAN. Yes, sir.

Senator BYRD. The next witness will be a panel consisting of Mr. William J. Lehrfeld, Shriner's Hospitals for Crippled Children; Mr. Charles L. Boothby, National Association of Conservation Districts; and Mr. Robert Skinner, Western Association of Equipment Lessors.

Welcome, gentlemen. You may proceed.

STATEMENT OF WILLIAM J. LEHRFELD, SHRINER'S HOSPITALS FOR CRIPPLED CHILDREN

Mr. LEHRFELD. Mr. Chairman, my name is William J. Lehrfeld and I serve as counsel for the Shriner's Hospitals for Crippled Children which is a charitable institution providing free hospital care for crippled and burned children in the United States. It is the last free such institution in this country, save for Government hospitals.

As a personal aside, Mr. Chairman, I am a member of the tax section of the American Bar Association which Mr. Redman chairs. I have served on its Nominating Committee and have chaired its Exempt Organizations Committee. I would like to take strong issue with Mr. Lipman Redman's desire for haste in the technical correction process because it creates the same unfortunate situation that created the need for the Technical Corrections Act itself. Legislation that is considered in haste and which is passed in haste requires corrections. If you are going to have an extremely short correction period, you are again not going to provide the kind of thoughtfulness that the process requires to assure that the original intent of Congress is carried forward through corrections.

Senator BYRD. Let me ask you at this point now. Are you speaking now of the 45 page attachment?

Mr. LEHRFELD. I am speaking of the general observation that Mr. Redman had about the need to pass quickly, a corrections act. I think the need for corrections is not so great that it demands the haste Mr. Redman desires. Thoughtfulness is needed so the purposes of Congress in all of the 1978 legislation is carried out. This committee should hold its independent hearings since it is an independent body of the Congress itself and makes independent judgments on the needs for technical corrections.

Senator BYRD. Let me ask you about the House passed bill. Do you have any problem with that?

Mr. LEHRFELD. No, none whatsoever.

Senator BYRD. So you would favor that as passed by the House? Mr. LEHRFELD. Certainly.

Senator BYRD. I think that has been well deliberated.

Mr. LEHRFELD. Absolutely. Perhaps our plight should be reorganized, and that is why your subcommittee is making these hearings available now and will make substantive decisions concerning suggestions made by, among others, this panel. I would be very concerned that the legislative process be expedited simply because of an allegation that the public needs justify merely a one sided set of technical corrections which was prepared by the other body.

Senator BYRD. What length of time do you think would be appropriate to have the new matter under consideration?

Mr. LEHRFELD. I would say there is an availability of some 2 to 6 weeks that would be more than adequate for this committee to receive comments, for the staff to evaluate them, to make presentations to the subcommittee members, have a markup and refer it to the entire committee. The substantive corrections I have deal with amendments to section 514 of the Revenue Act of 1978 dealing with charitable remainders. As I indicated earlier, continuity and consistency between transitional rules is very helpful in the administration of the previous laws. The rules on deferred charitable giving are extremely complex and in 1978 a third transitional rule was enacted which did not for continuity purposes contain the same rules in the 1976 act; namely section 514 of the 1978 act had no effective date and second it had no opportunity for otherwise barred claims to be reopened because the statute of limitation had passed, as existed in section 1304 of the 1976 act. We would suggest that section 514 of the 1978 act contain an effective date consistent with the changes made to the rules governing charitable remainder trusts that was effective for the 1974 law and for the 1976 law. I don't believe there is any objection on anybody's part to assure this continuity.

We would also suggest that the provision in the 1976 act, section 1304(b), dealing with the opportunity to open up otherwise barred claims because the statute of limitation had expired also be added to section 514. I doubt that there would be very much revenue loss caused by this reopening of these closed years because all events have transpired thus far to determine whether a right to a refund exists. In other words, the right to refund had to exist on December 31, 1978, and if it did not exist then there is no adequate remedy

for an effected charity. So you are not giving charities anything that was not given December 31, 1978.

Senator BYRD. Thank you.

Would the Treasury care to comment on that proposal?

Mr. FERGUSON. Mr. Chairman, at this point the only comment I would like to make is that amendments relating to the 1976 actas opposed to the 1978 act-would seem to be beyond the scope of the House-passed bill. Of course, this committee is free to expand the scope if it chooses, but I believe there is a strong argument for trying to keep the bill confined to corrections of 1978 legislation. If I understood the testimony, there was one amendment related to the 1978 act. I cannot comment on that now; we will look at it. One amendment may relate to the 1976 act. I think that, regardless of the merits, there should be a presumption-maybe an irrebuttable presumption that opening up the 1976 legislation is just beyond the scope of this bill.

Senator BYRD. It has been the view and purpose of the committee to confine its deliberations on this matter to the 1978 act so I think the Treasury raises a point that needs to be considered.

Mr. LEHRFELD. I understand that, Mr. Chairman. [The prepared statement of Mr. Lehrfeld follows:]

SUMMARY OF STATEMENT OF SHRINERS HOSPITALS FOR CRIPPLED CHILDREN TAMPA,

FLA.

The Tax Reform Act of 1969 enacted Sec. 2055(e)(2) to bar an estate tax charitable deduction for the value of a remainder passing to charity unless it passes to a charitable remainder unitrust, charitable remainder annuity trust or a pooled income fund. From the very beginning, these provisions were found to be extremely complex and frequently resulted in lost charitable deductions because testamentary trusts were not being drawn to meet the very exacting standards of IRS implementing regulations. In 1974, Congress permitted executors, private beneficiaries and charitable institutions to reform wills and other testamentary instruments containing unqualified charitable remainder bequests to enable estates to obtain an estate tax charitable deduction if the revised trust complied with Sec. 2055(e)(2). This initial provision (Sec. 2055(e)(3)) expired on December 31, 1975, but was revived in 1976 (expiring December 31, 1977) and again in 1978 (expiring December 31, 1978). In the 1974 and 1976 legislation, Congress provided effective dates for the application of the relief, viz, estates of decedent's dying after December 31, 1969. In 1978, a similar effective date provision was omitted, perhaps inadvertently, in enacting the final relief extension. An effective date should be added to the 1978 law assuring that, with respect to the last extension, it is also effective for decedent's dying after December 31, 1969.

When Congress extended the relief in 1976, it also permitted estates to retroactively file refund claims for reformations even though the three year statute of limitations, as prescribed by Sec. 6511, would otherwise bar a refund. A similar provision was omitted, perhaps inadvertently, in connection with the 1978 extension. The 1978 extension should be amended to provide for the same relief to barred claims that was provided to such claims by the 1976 extension. The extension for barred claims should be available to June 30, 1978.

WITNESS STATEMENT OF SHRINERS HOSPITALS FOR CRIPPLED CHILDREN Under present law, deferred giving to charity is discouraged because of the complex rules dealing with charitable remainder trusts. Deferred giving is a means by which a donor, with perhaps his or her spouse, may make a present gift to charity of a remainder interest in property and retain the use of the property (such as a residence or farm) or the income from the property for their lifetimes. Upon their death, the property usually passes free of trust to the charities. In 1969, Congress misperceived alleged abuses in deferred giving and wrote stringent rules limiting the ability of donors to use deferred giving as a means of encouraging the philanthropy of their choice. By enacting such provisions of law such as Sec.

2055(e)(2), and Sec. 664, requiring donors to give property to charitable remainder annuity trusts or charitable remainder unitrusts, the Congress has encouraged the Internal Revenue Service to create a maze of difficult, intricate, inconsistent and improvident rules governing this form of deferred giving.

Partly in recognition of the unfortunate incidents that these limitations on giving created, the Treasury Department, on its own initiative, permitted executors of estates to reform or amend trusts created under wills, or inter vivos trusts, in order to assure that the trusts which had been written wrongly, were in the proper format as to allow a deduction. The Shriners Hospitals for Crippled Children, with other charities, encouraged the Congress to enact into law similar reformation relief after the Treasury Department's reformation period expired on December 31, 1972. This Congress did in 1974 by enacting Sec. 2055(e)(3) with the right of reformation extended to December 31, 1975. The reformation date was twice extended by Congress in recognition of the great difficulties created by the existence of Sec. 664 and Sec. 2055(e)(2).

In 1976, The Tax Reform Act of 1976, permitted estates to file refund claims in connection with reformations of charitable remainder trusts even though the time for filing a claim had expired under Sec. 6511 (the general statute dealing with statute of limitations for refund claims). See Sec. 1304 of 1976 Act. This was done in recognition of the fact that the time for reforming a trust granted to executors, charities and the private beneficiaries, was not very long to permit effective use of the 1974 and 1976 relief provisions. Thus, by opening up otherwise closed periods, the Congress encouraged reformations permitting more funds to flow to charity. More funds flowed to charity upon reformation because the tax refund that is permitted becomes part of the corpus of the charitable remainder trust and eventually passes to charity after the private interests expire.

In 1978, the Congress permitted reformations to take into account the fact that under certain circumstances the charities would not only have a remainder interest in trust, but also an income interest in trust. By enacting Sec. 514 of the Revenue Act of 1978, the Congress encouraged reformation of trusts giving the charities a current interest in the income of the remainder trust along with a current interest in the reformed remainder. Regrettably, Sec. 514 did not carry with it an effective date. We have now experienced the fact that, in at least one district, estate tax examiners are taking the position that Sec. 514, without an effective date, is effective only upon date of enactment of the Revenue Act of 1978, November 6, 1978. Thus, it is the position of this district that trusts may only be reformed, to provide for a charitable income interest, from the period of November 6, 1978, through December 31, 1978. We do not believe the Congress intended sec. 514 not to be coterminously effective with the effective date of Sec. 2055(e)(3) itself. Sec. 2055(e)(3), when originally enacted, was effective for decedent's dying after December 31, 1969. The 1976 changes also had an effective date of decedent's dying after December 31, 1969. See, Sec. 1304(c) of the 1976 Act. Accordingly, Sec. 514 of the Revenue Act of 1978 should be amended to add a provision, such as subparagraph (c), which simply provides that the provision is retroactive in effect to decedent's dying after December 31, 1969.

Next, we also believe that a provision like Sec. 1304(b) of the Tax Reform Act of 1976 be added to Sec. 514 of the 1978 Act to permit otherwise expired claims, dealing, for example, with a reformed income interest, to be filed by decedent's estate up to June 30, 1980. By permitting trusts which have already been reformed, pursuant to judicial decree, or which have been deemed to be reformed because of the decedent's death before December 31, 1978 and the death of the life income beneficiary prior to the filing of the federal estate tax return, Congress would be granting these estates a charitable contribution deduction for the value of the reformed income interest which is passing to charity which today is barred by Sec. 6511.

These two suggested amendments to Sec. 514 are extremely limited in scope and are meant simply to clarify existing law and provide a tax benefit to otherwise barred claims where the income interest was reformed, but no deduction was allowable at the time of reformation for income interest passing to charity since Sec. 514 was not enacted until November of 1978.

Shriners Hospitals for Crippled Children wants to be on record that Sec. 2055(e)(2), and corresponding provisions of the income tax laws (Sec. 170(e)(2)) and gift tax laws (Sec. 2522(c)(2)) are a considerable impediment to charitable giving. If the Congress believes that there is inadequate evidence to justify repeal of these two provisions, we believe that the right of reformation for unqualified trusts should be a permanent part of the law. We wish to make it very plain that Sec. 2055(e)(2) and Sec. 664, requiring complex annuity trusts or unitrusts have not benefited the

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charities as they were purportedly intended to do, but have simply caused them to lose many gifts. Gifts are lost due to donor confusion and fright and wonderment over whether the estate will obtain the deduction. Repeal of Sec. 2055(e)(2), for example, would not harm charities because the charity's interest in trust would be protected by the private foundation excise taxes which are imposed upon these charitable remainder trusts as part of the regulatory scheme which Congress enacted in 1969. We hope this Subcommittee will later concern itself with methods which encourage deferred giving and not thwart the interests of many charitable inclined individuals who feel that present law is simply too rigid and complex. Thank you for your attention.

Senator BYRD. The next witness is Mr. Charles L. Boothby, National Association of Conservation Districts.

STATEMENT OF CHARLES L. BOOTHBY, EXECUTIVE SECRETARY, NATIONAL ASSOCIATION OF CONSERVATION DISTRICTS Mr. BOOTHBY. Mr. Chairman, members of the committee, I am Charles L. Boothby, executive secretary, National Association of Conservation Districts. NACD, as we are commonly called, represents the 2,950 conservation districts, their 52 State associationsincludes Puerto Rico and the Virgin Islands—and the 17,000 locally elected and appointed public officials who administer them. Conservation districts are legal subdivisions of State government, organized to develop and carry out programs of soil and water conservation at the local level. They serve the needs of over 2.5 million cooperating landowners.

Section 543 of the Revenue Act of 1978 added section 126 to part III of subchapter B of chapter 1 of the Internal Revenue Code of 1954. This section exempts from gross income those payments made by Federal and State governments in cost-shares for the installation of conservation measures on the land. It includes payments made under nine Federal cost-share programs and any State program under which payments are made to individuals primarily for the purpose of conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. This same act adds a new section 1255, Gain From Disposition of Section 126 Property.

It has been brought to our attention that many persons contemplating the utilization of section 126 have real reservations about doing so because of section 1255. Section 1255 is perceived as placing an untenable lien against the property and vastly increasing the necessary recordkeeping. People are concerned about being able to show the exact increase in value of the property directly resulting from the application of conservation practices. Further, many times conservation practices may reduce the amount of land on the farm available for crop production. This is true of diversions, terraces, sod waterways, filter strips, and similar practices. Paragraph 3 of section 1255 provides for a 100-percent rollback for the first 10 years and then a decreasing rollback over the second 10 years. Most conservation practices applied to cropland have a design useful life of only 10 years. Therefore, this provision really places a burden on the landowner and will undoubtedly discourage him from utilizing the advantages provided by section 126.

Section 126, as previously stated, excludes from gross income payments made by Federal and State governments for the purpose