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VOLUME III

SURVEY OF THE ADMINISTRATION OF INCOME

AND EXCESS-PROFITS TAXES

PREPARED AND SUBMITTED BY THE TREASURY DEPARTMENT

60481—27-VOL. III

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Letter of transmittal.--
Chapter I. Introduction --
Chapter II. Conclusions and recommendations.

Part 1. Summary of outstanding facts.-
Part 2. Summary of outstanding conclusions.
Part 3. Summary of causes contributing to congestion.

The size of the job..
Personnel -
The policy to decide upon a basis of absolute accuracy.
The attitude of the taxpayer-
Reopening cases.
Shifting responsibility-
Determinations made because of the running of the statute of

limitations.--
L'art 4. Analysis of the problems.-

Relieving the present congestion before the Board of Tax Ap

peals.
Preventing future congestion--
Eliminating delay in decisions by the Board of Tax Appeals..

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Relieving the general counsel's office ---
Part 5. Detailed recommendations ---

Personnel of the office of the general counsel..
Personnel of the Bureau of Internal Revenue_.
The special advisory committee------
Change in attitude toward settlement of cases.
Closing agreements..
Deficiency determinations-
Revision of deficiency letter-
Stipulations.-

Regulations of prospective rather than retroactive application..
Chapter III. The Bureau of Internal Revenue_.
Part. 1. Present status of the work..

The administrative work of the bureau is current-
Statistics of cases remaining open.-
What is meant by "current".
Final closing of cases the objective---
The effectiveness of closing by the bureau--
Number of old cases pending---

Causes for not closing---
Part 2. Outline of substantial accomplishments of the bureau--

Chart of production --
Cost of administration.
Returns filed..
Delinquent returns.
Old cases still pending-excess-profits tax cases-
Audit current for years subsequent to 1921.
Offers in compromise_
Claims.-

Growth of the Bureau of Internal Revenue..
Part 3. Complexities of the work.--

Valuations_-
Amortization allowances.
Depletion.---

Affiliations
Part 4. Operations of the bureau---

The handling of individual returns (Form 1040)-
The handling of corporation returns.
The handling of claims for refund.

The handling of withholding returns..
Part 5. Recent changes in administrative procedure_-

Preliminary audit__
Decentralization ---
Abolishing claims section.--.
Abolishing specialization in audit.-

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Chapter III. The Bureau of Internal Revenue-Continued.
Part 5. Recent changes in administrative procedure—Continued.

Consolidation of operating units..
Sending the man to the job-----
Closings under the provisions of section 1106 (b) of the revenue

act of 1926__
Procedure with respect to jeopardy assessments.

Special advisory committee-
Part 6. Reopening of cases.-

Number reopened----
Cases reopened by the taxpayer--
Cases reopened by the Government--

Closing agreements will prevent reopening
Part 7. Personnel..

Part 8. Housing-
Chapter IV. The United States Board of Tax Appeals_

Part 1. Introduction --
Part 2. Congestion before the Board of Tax Appeals.

Accumulation of cases.
Disposition of future cases.-
Graphic picture of the situation.-

Relation of deficiency letters mailed to appeals filed.
Part 3. Brief outline of important facts.
Part 4. Restatement of problems---
Part 5. Disposition of pending cases.

Disposition by the Board of Tax Appeals.
Disposition of cases by stipulation.--.

Disposition by the special advisory committee---
Part 6. Possibilities of a reduction in the future in the number of
petitions filed with the board---

Review of statistics_----
Final closing agreements-
Closing of excess-profits tax cases_
Better understanding of the law.
Revision of the deficiency letter--
Deficiency letters and the statute of limitations.
Personnel.--
Change in attitude toward settlement of cases_
Further changes in administration.

The special advisory committee_-
Chapter V. Office of the general counsel-
The general counsel..

Interpretative Division I..
Interpretative Division II.
Penal division.-
Civil division.-
Appeals division..

Personnel
Appendix :

Present organization of the bureau.
Outline of functions performed by the Income Tax Unit.
Typical cases in the bureau..
Statement of income-tax returns filed for the fiscal year July 1,

1926, to June 30, 1927-individuals.
Statement of income-tax returns filed for the fiscal year July 1,

1926, to June 30, 1927—corporations, etc---
Total returns classified by revenue agents, January 1, 1927, to Sep-

tember 30, 1927..
Table showing appointments and separations in the Income Tax Unit-
Cases handled, 1923–1927_.
Total deficiency taxes assessed for the fiscal year ended June 30-
Number of employees, aggregate and average salaries in the various

classification grades of the Internal Revenue Bureau, etc.Recapitulation tax returns filed for the fiscal year July 1, 1926, to

June 30, 1927-
Statement showing progress made on audit of 1040 returns for 1926

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46 47 61 90 107 113 127

129 130 136

147

149

151 155 155 156

157

159

by collectors of internal revenue as of September 30, 1927-. Statistical study of cases before the Board of Tax Appeals.

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LETTER OF TRANSMITTAL

Hon. WILLIAM R. GREEN,
Chairman Joint Committee on Internal Revenue T'axation,

Washington, D. C. MY DEAR MR. CHAIRMAN: A realization of the fact that your committee is charged with the duty of simplifying the internal revenue laws, particularly the income tax, and their administration, prompted the Treasury to enter upon a survey showing the situation as it exists to-day in the administration of the income and excess-profits taxes. It is my opinion that a great opportunity is presented for the simplification of the administration.

The survey is the result of the work of a committee consisting of Alexander W. Gregg, Charles R. Nash, and Ellsworth C. Alvord. Although the members of this committee are well known to your committee, it may be well to explain, for the benefit or others who may examine the survey, that Mr. Gregg has served for seven years with the Treasury Department. For two years he was special assistant to the Secretary of the Treasury and represented the Treasury before the committees of Congress during the enactment of the Revenue Acts of 1921, 1924, and 1926. During the last two years: he has been general counsel of the Bureau of Internal Revenue. His resignation from the latter office took effect on October 10 of this year. Mr. Charles R. Nash has been in the service of the Bureau of Internal Revenue for 17 years, working up from a clerk to his present position as assistant to the commissioner. He has represented the Bureau of Internal Revenue before the Appropriation Committees of the House and Senate during the last five years. He has held his present position for a period of four years. Mr. Alvord has held his present position, special assistant to the Secretary of the Treasury, for slightly more than a year, and is in charge of legislation for the department. For six years he was employed by the Congress, three as assistant legislative counsel of the Senate and three as the assistant legislative counsel of the House of Representatives. The Treasury is indebted to the committee and to the other officials of the department who have made the survey possible, particularly Mr. Mires, Deputy Commissioner of Internal Revenue; Mr. Sherwood, Assistant Deputy Commissioner of Internal Revenue; and Mr. Leming, of the office of the general counsel.

Although an insufficient period of time was available, the survey has been carefully prepared. There has been no attempt to present the picture solely from the Treasury point of view. The facts speak for themselves. I agree unqualifiedly with the conclusions stated.

A. W. MELLON, Secretary of the Treasury.

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