"A Fantastic Picture"

Ever since Textron Inc. decided to close its Nashua, N.H. plants and wipe out 3,500 jobs (TIME, Sept. 27), New Hampshire's excitable Republican Senator Charles W. Tobey had been gunning for Textron's President Royal Little.

As it turned out, things in Nashua were not as bad as people had feared. Working together, the union, a citizens' committee and Little had managed to save 1,200 of the jobs. But that did not quiet Tobey. As a one-man senatorial committee, he went after Little where he looked the most vulnerable. He attacked the bewildering hodgepodge of tax-exempt foundations and charitable trusts which hold title to most of the property in Little's $60-million textile empire.

Last week, when Tobey published a 28-page report on his findings, Congress got its first good look at such tax-exempt trusts (there are an estimated 10,000 in the U.S.) and it made Congressmen's eyes pop. Tobey charged that:

P:Royal Little had set up six such trusts. Part of their tax-free income, which had totaled nearly $10 million, had been used to finance Textron's expansion. The trusts had paid out very little to their beneficiaries. Example: the Rhode Island Charities Trust had taken in $4,500,000, paid out $85,000 to its beneficiary (the Providence Community Chest). But it had paid out $140,000 to its trustees and banker.

The trusts had milked other cor porations, by buying up control and paying out huge dividends. Example: in July 1948, Textron's "Sixty Trust" bought up the stock of the Cleveland Pneumatic Tool Co. for $6,825,000, then paid itself $4,500,000 in dividends.

P:The various trusts permitted Textron to take out assets, replace them with others of less value. Example: Rayon Foundation Trust let Textron take $200,000 worth of stock, paying 10% dividends, replace it with stock paying 5% or less. The trustees also sold stock to friends and associates, at less than the trust had paid for them.

Concluded Tobey: "The maze of negotiations, investments, loans and leases between these trusts and Textron presents a fantastic picture of fiscal manipulation," which gave Textron an unfair advantage over taxpaying corporations. Tobey's remedy: Congress should pass a law forcing all such trusts to pay out 85% of their annual gross income to beneficiaries, to get tax exemption.

Tobey had also stumbled across a major mystery. In 1947 the Commissioner of Internal Revenue had removed the tax exemption from three of Royal Little's trusts, ordered them to file tax returns on all past incomes. The trusts had not done so, said Tobey, and Internal Revenue had taken no further action. Asked Tobey: "How come?"

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