Veto of a Bill Relating to the Income Tax Treatment of Nonrefundable Capital Contributions to Federal National Mortgage Association

[Released May 16, 1960. Dated May 14, 1960]

To the House of Representatives:

I return herewith, without my approval, H.R. 7947 entitled "An Act Relating to the income tax treatment of nonrefundable capital contributions to Federal National Mortgage Association."

When a financial institution sells a mortgage to the Federal National Mortgage Association, the institution is required to purchase shares of Association common stock at par value in an amount equal to 2 percent of the unpaid principal of the mortgage. The market price for this common stock has been appreciably lower than its par value. H.R. 7947 would permit the financial institution to deduct as a business expense the difference between par value and market value when it sells the common stock it was required to purchase.

I am sympathetic with the objectives of the bill. But it provides for the retroactive application of the proposed amendment in a highly discriminatory manner. This is a defect which is sufficiently serious to require my disapproval. Generally, changes in the tax laws should only apply prospectively, for retroactive amendments result in substantial administrative problems. Wholly apart from this, however, the particular provision for retroactivity in H.R. 7947 would benefit only those taxpayers who previously claimed the deduction contrary to the announced position of the Internal Revenue Service; the bill would not permit refund or credit to those taxpayers who accepted the position of the Internal Revenue Service and paid their taxes. I cannot approve such discrimination.

In view of this defect, I withhold my approval from H.R. 7947.

DWIGHT D. EISENHOWER