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his return, paid the proper tax in full, and that after the period for assessing additional taxes has expired the Government wrongfully collects a further sum from him by distraint. The taxpayer should clearly be permitted to recover the excessive amount thus collected.

The case may be slightly changed to illustrate another aspect of the matter by supposing that the amount collected after the expiration of the period would have been due and owing within the period, and that its collection within the period would have been proper. If the statute of limitations against the Government is to be effective the taxpayer must nevertheless be permitted to recover the amount taken from him after the expiration of the period. Otherwise the Government could legally collect by distraint and retain all barred taxes.

Consideration has been given to the possibility of drawing a line between voluntary payments and involuntary payments made in either Case after the Government was barred from collecting the amount in question. Such a distinction is undesirable. A somewhat similar rule with respect to interest under the 1921 act gave rise to much confusion and difficulty. Consequently, it is recommended that the taxpayer be entitled to recover any payment made by him after the period, whether voluntary or involuntary and whether or not under duress.

It will be seen, therefore, that the first recommendation in substance is that any amount paid by the taxpayer after the Government is barred from collecting additional amounts for that particular year should be considered as an overpayment, regardless of the correct amount of the tax or the manner of securing payment. The overpayment should be credited or refunded the same as any other overpayment, subject to the same limitation period.

The exceptions referred to in the recommendation in connection with decisions of a court or the Board of Tax Appeals are selfexplanatory. The fact that the statute of limitations may not have been raised before the court or the board should not impair the validity of its decision. If the question was raised and the court or board decided it wrongly, the proper way to correct it is by an appeal, not by a new proceeding. Once a closing agreement under section 1106 (b) has been made and additional taxes have been paid pursuant thereto the matter should be definitely closed, even though the payments prove to have been made after the statutory period.

The foregoing rules appear to express the intention of Congress in enacting section 1106 (a) of the 1926 act, and hence it seems proper, despite the recognized objections to retroactive legislation, to make these rules apply to all overpayments of the nature above discussed which are made after February 25, 1926, and further to provide that any refund coming within these rules which has been disallowed by the commissioner, the board, or any court solely on account of section 1106 (a) of the 1926 act, should be promptly allowed.

Refunds by the Government after the limitation period.The revenue acts provide that no refund to a taxpayer may be made unless claim therefor is filed within a specified time. It does not often happen that the Government makes a refund after the expiration of this period. In the occasional case where this occurs, a situation is presented which is the converse of that discussed in preceding paragraphs, though it is of relatively far less importance. Provision should be made for the recovery by the United States of amounts

refunded after the expiration of the period for filing claims. The general rule should not be given retroactive effect. The same exceptions should be made as in the case of payments by the taxpayer after the period. It is suggested that the right of recovery be exercised by a suit by the United States to be filed within two years after the making of such refund.

Limitation periods.-As above indicated, recent revenue acts have provided various periods of limitation, against both the Government and the taxpayer. As a result of the operation of these provisions it may happen that a case is barred as to refunds and open only for additional assessments, or, conversely, that it is barred as to additional assessments and open only for refunds. The tax for a given year is a unit. The determination of the correct tax is more or less like an accounting between the Government and the taxpayer and until the case is finally determined it may not be possible to tell to whom the balance will be owing. It seems desirable to provide so far as practicable that where an administrative determination of the case satisfactory to both parties can not be made and where as a consequence it becomes necessary either for the Government to institute proceedings to collect a deficiency or for the taxpayer to bring suit for a refund, that the case having thus become the subject of litigation should be decided on its merits without restriction, whether the net result is in favor of the one party or the other. This is the effect of the third and fourth recommendations submitted. The operation of the rules suggested may be illustrated:

If, within the proper limitation period, the commissioner sends the taxpayer a deficiency letter and an appeal to the board is taken, the board should ascertain the correct tax liability for that year. If the board finds that there is an underpayment, it should be collected in the same manner as under the 1926 act. If, on the other hand, the board finds an overpayment, the taxpayer should be entitled to a recovery without restriction as to amount. The determination on the merits thus made by the board would be final and binding on both parties unless reversed or modified on appeal.

If the taxpayer received the 60-day letter and chose to pay the tax with a view of bringing a suit for refund rather than to appeal to the board, he should be given a short period thereafter (perhaps no more than a year, or even a lesser period) within which to file a claim for refund and the same length of time after the rejection of the claim as he is now given for bringing suit. Once the case is thus brought before a court, there should be an adjudication of the case on its merits, and judgment should be given for the taxpayer or the United States in accordance therewith without any restriction as to time, dates of payment, or other restriction.

If a taxpayer believes that he has overstated his tax on the return and that the amount originally paid is excessive, he should be given the right to file a claim for refund within the period now provided by law and, if it is denied, to bring suit for a recovery. In that suit the court should decide the case on its merits and render judgment for the taxpayer or the Government as the case might be.

Particular attention is invited to the fact that in all these instances the case has already become the subject of litigation. It is not perceived that any useful purpose is served by restricting the litigation only to one party—that is, by allowing one party to recover in case

the evidence shows he is entitled to a recovery but not allowing the other party to recover if the evidence is in his favor. The suggested rule appears to operate justly both to the Government and to the taxpayer. An important consequence of the adoption of these recommendations will be to discourage the beginning of proceedings either by the taxpayer or by the Government in cases where the moving party is not confident as to the correctness of his position.

BASIS FOR GAIN OR LOSS ON SALE BY AN EXECUTOR

RECOMMENDATIONS

1. The basis for gain or loss on an executor's sale should be the yalue at the decedent's death of the property sold. Consideration should be given to making this rule retroactive in so far as it may be practicable to do so without hardships to taxpayers or undue loss of modified on appeal.

2. In the interests of uniformity the same rule should be applicable in determining gain or loss on the sale of property by a beneficiary or other person acquiring the same by bequest, devise, or inheritance.

DISCUSSION OF RECOMMENDATIONS

None of the revenue acts have specifically provided the basis to be employed in computing gain or less on a sale of property by an executor or administrator. Nevertheless, for years prior to the recent decision of the Court of Claims in the McKinney case, the regulations issued by the department have provided that the basis should be the fair market value of the property at the decedent's death. The McKinney case holds that the basis for the executor or administrator is the same as the basis for the decedent, and following the denial of certiorari by the United States Supreme Court in that case, Treasury Decisions 4010, 4011, and 4012 were promulgated, changing the old rule so as to provide that the basis should be the same as the property would have had if the decedent had sold it.

When property is sold by an executor or administrator, the benefit of any gain or the detriment of any loss, as the case may be, rests finally on the beneficiaries of the estate, not on the decedent. For this reason it seems best to regard the personal representative as acting for and on behalf of the beneficiaries in making the sale, and as a consequence the basis for determining gain or loss when the representative sells the property should be the same as the basis when the beneficiary sells the property.

This rule is particularly desirable in view of the difficulty which may be encountered by executors and administrators in ascertaining what the decedent paid for the property, especially where it had been held by him over a long period of time.

It may be argued that in a substant al sense the rule of the McKinney case results in taxing as income the value of property acquired by bequest, devise, or inheritance, a result which is contrary to specific provisions relating to gross income in practically all of the revenue acts. The rule above suggested preserves intact the full force of section 213 (b) (3) of the Revenue Act of 1926 and similar parts of preceding acts.

Section 204 (a) (5) of the 1926 act provides that the basis for determining gain or loss when the property is sold by beneficiary or other person acquiring it by bequest, devise, or inheritance shall be the value “at the time of such acquisition.” Some doubt ex sts as to the meaning of “acquisition.” It seems advisable to provide specifically that the date of acquisition shall be the date of death.

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INTEREST ON OVERPAYMENTS AND UNDERPAYMENTS

RECOMMENDATION

In the case of overpayments adjusted by a refund, it is recommended that interest be payable to a date not more than 30 days prior to the payment of the refund. Under existing law interest terminates on the date the refund is “allowed," which may be weeks or months prior to the issuance and delivery of a check.

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DISCUSSION OF RECOMMENDATIONS

As already stated, the interest period on a refund stops at the date of allowance and the refund, with the interest, is ordinarily paid about 33 days later. The period between the date of allowance and the date of payment was formerly about 63 days, and it does not appear that any further appreciable reduction is feasible at this time. Nevertheless, it is considered feasible to limit the period of loss of interest to the taxpayer to 30 days. Computation of interest to a date later than the date of allowance is administratively practicable and could be made at the same stage of the procedure at which it is now made. The several steps in the route of a schedule of overassessments are indicated below to account for the present period between the date of allowance (i. e., the date of the commissioner's signature of the schedule of overassessments) and the date of payment of the refund:

To the collector and return..
In claims control section (for computation of interest, etc.)
In General Accounting Office (for approval of disbursement).
In accounts and collections unit (for charge against appropriation)
Incidental travel ---

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TotalIt is apparent that the computation of interest in the claims control section to a current date instead of to the date of allowance would in no way complicate the procedure. It is also apparent that the remaining stages in the procedure would ordinarily be of a perfunctory character and the time necessary therefor could be estimated quite accurately; the variation in the total time (averaging 33 days) required in a specific case would lie in the first stage (the average 21-day period“ to the collector and return ”). While the last three stages require but 9 days in the ordinary case, it is recommended that the Government be permitted to make payment within a 30-day period after the case reaches the claims-control section without additional interest in order to obviate recomputation of interest in the cases where the final steps may take longer.

Of major importance in connection with the proposed change in the law regarding the interest period on a refund is the delay in payment of the refund due to circumstances outside of bureau control. The delays consequent upon the exhaustion of the appropriation for refunding have been as follows:

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We are concerned in this report with the relation between the date of payment and the date to which interest shall run. Equitable treatment of the taxpayer demands that the dates be separated only by the time necessary to allow for the Government bookkeeping and accounting. Interest burdens incident to exhaustion of the refunding appropriation should be borne by the Government rather than the taxpayer. No provision is recommended to force the Government to expedite the payment of a refund by the imposition of an increased rate of interest or compound interest in the event of a delay in refunding, although the taxpayer is subject to such additional burden when he is delinquent.

The adoption of the above recommendation regarding the interest period on a refund made by the commissioner would raise the question as to the advisability of amending section 1117 of the Revenue Act of 1926, providing for interest on judgments. Considerations of the same general nature obtain for adopting a provision allowing interest to within 30 days of payment rather than to the date of entry of a judgment.

Under the existing revenue laws the provisions imposing liability for interest upon the Government in the case of overpayments and on taxpayers in case of underpayments are numerous and are to be found in several different places in the act. It is believed that the convenience of all who use the act would be promoted by collecting these provisions at one place. It is customary to audit the returns for several years at the same time, and in considering the result of such an audit the taxpayer and the representative of the Government must check the interest computations on underpayments and overpayments for several different years. This would be facilitated if all the interest provisions were together in the statute.

There are some difficulties in connection with the determination of interest in cases of affiliated corporations, trusts, and beneficiaries and marital communities. In some of these cases, particularly that of affiliated corporations, the interest periods may operate, particularly with respect to the 1918 and earlier acts, so that the Government pays interest over a term of several years on a refund to the parent when it is able to collect interest only since the passage of the 1926 Act on amounts found to be due from a subsidiary. This results from practical considerations, and possibly even from constitutional considerations, which determined the policies of the last three revenue acts with respect to interest on deficiencies. It is not. believed wise at the present time to undertake the making of further

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