dollar amount available to offset ordinary income if any,

on a later sale of the asset which gave rise to the dis

allowance.

7.

Publication of Statistics of Excludable Income

Section 6108 of the Internal Revenue Code should be

amended to provide that the statistics the Secretary is required to publish annually shall include tax-exempt income in addition to taxable income, deductions, and credits.

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Sec. 311-- Income Averaging

Relationship to Accumulation Trust Rules

The House bill provides that if a taxpayer elects the benefits of income averaging, he will not also be entitled to the benefits of certain provisions of section 668 of the Code which limit the tax imposed by the throw-back rules on a beneficiary of an accumulation trust. The limitations of section 668 have the effect of spreading distributions of accumulated income over the taxable years during which the income was earned by the trust, which is a form of averaging. If both income averaging and the limitations of section 668 were available, the taxpayer would obtain an unintended benefit in the event of a large accumulation distribution where the taxpayer qualified for averaging by reason of receiving such accumulation distribution. On the other

hand, however, it is unfair and unnecessary to require a taxpayer who would qualify for the benefits of income averaging even in the absence of an accumulation distribution to

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choose between the benefits of income averaging with respect to all his income and the limitation on tax on accumulation distributions of section 668. Treasury recommends that the limitations of section 668 apply with respect to all accumulation distributions but that accumulation distributions be

excluded from averagable income.

1.

Sec. 321--Restricted Property

Transferable Interests in Restricted Property

Under the House bill an individual receiving restricted property in connection with his performance of services is subject to tax when his interest in that property becomes, transferable even though it is still forfeitable. The intent of this provision was to impose tax when an individual received property which he could transfer to a bona fide purchaser for value whose rights would not be subject to the forfeiture provision. In such a case, the bill imposes a tax on the theory that such individual has unrestricted use of the property even though he might be required to respond in damages to the original transferor in the event of breach by him of the forfeiture condition.

This rule merely says that the property is not truly forfeitable if it is within the recipient's power to realize its full value, avoiding forfeiture, by transferring the property by sale. The House bill, however, would result in

income to the employee merely because the property is trans

ferable by gift or upon death though it remains subject to forfeiture. It would appear that the employee should not

be treated as realizing income merely because a donative

transfer could be made. The employee has not realized the value of the property and the circumstances depriving it of determinable value continue to exist.

Treasury recommends that the provision in the House bill be simplified by providing that an interest in property is not forfeitable unless the original transferor could compel a subsequent transferee to return the identical property upon the happening of events causing forfeiture. Where the prop

erty is forfeitable, the original recipient will be treated as realizing income on a transfer of the property for value if this occurs prior to the time the property ceases to be forfeitable. The original recipient would realize income equal to the amount received in the sale (assuming the sale is an arm's length transaction).