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upr000204 139

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upr000204-139
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    Hr. W. R. Rouse 6 November 11, 1952 clare the Railroad Company a public utility. If this were done and we were unable to successfully resist the order in court (which could very well be the case), the Railroad would henceforth be in the water business and be unable to extricate itself. There are no disadvantages in the Railroad’s transfer­ring its water production facilities to the LVL&W Company which I can see other than the possible tax disadvantages mentioned by Mr. Sutton. The situation simply boils down to this: that the management will have to decide whether the tax disadvantages outweigh the advantages. I have this further thought to suggest: Perhaps it would be possible to find some way to locate a capital loss in the accounts of the LVL&W Company. I assume that we have securities in the portfolio of the Railroad Company which can be sold at a capital loss to offset capital gains. I do not pretend to know what can be done taxwise, but I suggest that it might be possible to transfer some of these securities at their original cost to the LVL&W Co. so that the LVL&W Co. would have securities which could be sold for purposes of taking a capital loss. If it is possible to transfer the water distribution system of the LVL&W to the Railroad Company at less than its market val­ue so as to have a capital gain realized by the Railroad Company on a sale, it would seem that a transfer of secur­ities could be made from the Railroad Company to the LVL&W Co. at their original cost in excess of market value so as to have the LVL&WCo. realize a capital loss. This is a problem for a person thoroughly familiar with corporate income tax problems. I think that the problem of find­ing a capital loss in the accounts of the LVL&W Co. should be fully explored by someone familiar with tax procedures. I I do not have any comments on the portions of Mr.Sut­ton’s letter dealing with certain letters written by you, of which I apparently do not have copies. bcc - Mr. Wm. Reinhardt Mr. Calvin M. Cory