Old Linen

Around the Century's turn, young Pierre Samuel du Pont tired of his slow progress in the family business, set himself up as part owner of a streetcar company in Lorain, Ohio. There he hired, for $1,000 per year, a 21-year-old stenographer named John Jacob Raskob. Employer du Pont was vastly impressed by his young secretary's shrewdness. When he came into his heritage and went back to Wilmington as treasurer of E. I. du Pont de Nemours & Co., he took John Raskob along as his $3,000-per-year assistant. And when William Crapo Durant sold Raskob on the future of the automobile business, it was Raskob who persuaded Pierre and the other Du Ponts to make their enormously profitable investment in General Motors Corp. Up & up the two friends went, Pierre du Pont to become board chairman of both Du Pont and G. M., John Raskob to become vice president of Du Pont and finance committee chairman of G. M. Together in 1928 they set out to put the Brown Derby in the White House. Last year, as prime movers of the Liberty League, they worked together almost as hard to put Franklin Roosevelt out of the White House.

In the black autumn of 1929 these two old friends performed a valuable mutual favor. Having amassed substantial capital gains in the golden spring and summer of that year, they understandably wanted to offset these on their tax returns by bringing into account the effect of the Crash on their stocks. Neither, however, wanted to dump his holdings on the panicky market. Mr. Raskob therefore sold some $14,000,000 worth of securities to Mr. du Pont and, with the money thus obtained, bought some $14,000,000 worth of securities from Mr. du Pont. In this transaction the friends established losses of $4,375,523 and $3,120,645 respectively, which they duly deducted on their income tax returns. Within two months each man regained his original securities by another two-way sale.

For six years the Treasury entered no objection to this proceeding. Then last year, as the Liberty League was getting into high gear, the Bureau of Internal Revenue replied to a petition for tax re-fund which Mr. du Pont had made in 1932 by charging that the Du Pont-Raskob exchange of 1929 had been fictitious, demanding some $700,000 additional taxes from Mr. du Pont, $1,026,340 from Mr. Raskob.

Last week this old piece of political linen went out on the public line when large Pierre du Pont and small John Raskob trudged into Manhattan's Old Postoffice Building for hearings--Mr. du Pont's to come first--before the Board of Tax Appeals. Both readily admitted that their deal had been solely for tax purposes, but contended that the sales had been strictly bona fide, with each man repurchasing his stock at the market. It was up to the Government to prove that they had broken the law against an "agreement, plan or understanding to repurchase." As the hearing got under way the Government's prime points appeared to be: 1) that while Messrs, du Pont and Raskob were exchanging letters concerning their stock deals they were sharing an office at No. 230 Park Avenue; 2) that when Mr. Raskob gave Mr. du Pont his check for $4,582,750 he was drawing directly against $4,606,000 which he knew Mr. du Pont was giving him; in fact, both checks went to the bank in one envelope; 3) that the entire transaction, involving a total of $29,776,754, ended up with Mr. Raskob the gainer by $46.86.

When onetime President Charles E. ("Sunshine Charlie") Mitchell of Manhattan's National City Bank used the wash-sale technique to reduce his 1929 income tax, and also failed to report a $666,666.67 bonus, he was tried on a criminal charge of tax evasion, acquitted (TIME, May 1, 1933). In a civil proceeding the Board of Tax Appeals then ordered him to pay the evaded tax, amounting to $728,709.84. This week a U. S. Circuit Court of Appeals in Manhattan turned down Bankster Mitchell's appeal from that ruling. Big difference between the Mitchell and Du Pont-Raskob methods of establishing losses was that Bankster Mitchell sold his stock not to a friend but to his wife, who only promised to pay for it and, according to the Court last week, had "no way to meet the obligation."

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