Self-Defense

As he took the oath the old man's parchment-skinned hand fluttered gently above his head. To his vast relief the courtroom was almost empty. He sat down in the railed-in witness chair, began answering his counsel's questions in a voice so low it could be heard scarcely ten feet away. The three men on the bench leaned forward, hands cupped behind ears. Soon the news of the witness' appearance was buzzing over Pittsburgh. Spectators began to flow in. Within an hour the courtroom was jammed with citizens eager to hear Andrew William Mellon defend himself in person against the U. S. Government's charge that he is a liar, cheat and fraud.

In the six previous weeks of the Board of Tax Appeals' hearing on the onetime Secretary of the Treasury's 1931 income tax return, the Government's two chief charges against Mr. Mellon had been exhaustively aired. One charge concerned his alleged failure to report $5,000,000 of income. In 1900 Mr. Mellon and his late Bother Richard put up $75,000 apiece to help two young engineers, Howard Hale McClintic and Charles Donnell Marshall, start a steel fabricating company. The Government contends that in the complex reorganization deal by which rich & potent McClintic-Marshall Construction Co. passed to Bethlehem Steel in 1931, Mr. Mellon should have paid a tax on the $6,300,000 in Bethlehem stocks & bonds which he received in payment. Mr. Mellon sold $1,300,000 worth of the bonds, now contends that only that amount was taxable. This he reported on his income tax return.

Mr. Mellon's five-day appearance on the stand last week was devoted to discussion of the Government's other charge: that he established large losses by fraudulent security sales, chiefly to his own family holding companies (TIME, March 4 & 11). On the first day the old Pittsburgh financier was his usual painfully shy self. But on the second day he perked up, grew garrulous, cracked mild jokes. Coached by his famed chief counsel, smart little Frank J. Hogan of Washington, he seemed actually to enjoy reminiscing publicly over his rise to power, sketching a portrait of himself as patriot, father, man of affairs.

Had not Mr. Mellon, thundered Government counsel, deliberately sold stocks at a loss in 1931 for the sole purpose of reducing his income tax?

Certainly he had, replied Mr. Mellon. It would have been "stupid" to do otherwise. But only conscience and patriotism had made him pay any tax at all. "I could have, at the time," countered he, "selected enough losses to offset any or all taxes that might have been due. But I felt I still had an income and ought to pay a substantial tax. So I sold Pittsburgh Coal largely to adjust the figure and reach an amount that would be in my mind a justifiable and fair tax to pay."

Were not the holding companies by which he transferred about half of his $200,000,000 fortune to his son Paul and daughter Ailsa merely devices for escaping inheritance and gift taxes?

Certainly not. Mr. Mellon was simply following the example set by his father, the late Judge Thomas Mellon, who gave almost his entire fortune to his children 25 years before he died. "He thought.'' explained Mr. Mellon, "that if there was a spendthrift in the family, the sooner he went through his fortune the better. . . . He told us he wanted to have the satisfaction during his lifetime of seeing how we could manage affairs."

Mr. Mellon declared he almost refused to become Ambassador to the Court of St. James's because of his desire to see Daughter Ailsa Mellon Bruce well provided for during his lifetime.

Why had Secretary of the Treasury Mellon had his Commissioner of Internal Revenue David H. Blair prepare a two-page memorandum listing nine smart ways to reduce income tax payments?

Mr. Mellon indignantly denied that he had done any such thing. Grimly the Government's Chief Counsel Robert H. Jackson presented him with the memorandum in question. Mr. Mellon blinked, adjusted his eyeglasses, stared long at the paper as it rattled in his trembly hands. Then he cried eagerly: "It bears no date. How do you know it was prepared during my term? It is merely addressed to the Secretary. . . ."

His face fell. "Oh yes, I see it is signed by Mr. Blair. Well, of course it was in my term. Still, I don't think I ever saw it before."

Counsel Jackson had time that day to question Mr. Mellon on only six of the nine tax-reducing schemes listed. Mr. Mellon admitted that he had used five of them.

Two days later Counsel Jackson once more caught the Pittsburgh multimillionaire clearly off base. In 1931 Mr. Mellon sold 123,622 shares of Pittsburgh Coal Co. stock to his Union Trust Co. for $500,000, claiming a $5,600,000 loss for income tax purposes, after which the shares were purchased by a Mellon family folding company. Last week Mr. Mellon declared that he had wanted to unload the stock for years but could find no takers. Tightlipped, menacing, Counsel Jackson advanced on the witness. "You don't mean to say," barked he, "that you had no opportunity to sell before December 1931, do you?"

"Yes." replied Mr. Mellon, "that is right." '

"You are sure of that?" "I haven't any doubt about it." Counsel Jackson whirled, whipped from a stack of papers a deposition made by Mr. Mellon in a trial in 1934. in it he had testified that he had three times refused Frank E. Taplin's offer of $10,000,000 for 100,000 shares of Pittsburgh Coal. The first offer was made on June 7, 1927.

Near the end of his week on the stand, Mr. Mellon learned that the New Deal had fresh troubles in store for him. The Bureau of Internal Revenue ruled that he would have to prove that his A. W. Mellon Educational & Charitable Trust is a bona fide philanthropic organization and not a tax-dodging scheme. Thus most of the $19,000,000 worth of paintings which he has set aside in the Trust for a proposed national art gallery in Washington may be subject to a huge gift tax or a 55% inheritance tax on Mr. Mellon's death.

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