The Revenue act of 1937

In pursuance of a special message of the President on June 1, Congress passed amendments to three titles of the Revenue act of 1936 primarily for the purpose of reducing income-tax evasion and avoidance. The chief methods of evasion and avoidance used by certain large taxpayers which were considered were the creation of personal holding companies, multiple trusts, and family partnerships and the incorporation of country estates, racing stables, yachts, personal talents, etc. The 1937 law increases the rates applicable to personal holding-company income so that they are now as high as the surtax rates on individual income. Definitions of personal holding-company income are made more inclusive, and deductions permitted to such companies are greatly limited. Thus, the gain from personal holding companies and similar devices is so penalized and reduced that it is expected that most of those now existing will be abandoned and that new ones will be formed only in exceptional circumstances, with the result that the administration of the federal income tax will be more equitable and also more productive of revenue.