Page 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. 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 Part 4. Analysis of the problems.. Relieving the present congestion before the Board of Tax Ap- Preventing future congestion__. Eliminating delay in decisions by the Board of Tax Appeals. Part 5. Detailed recommendations____. Personnel of the office of the general counsel Personnel of the Bureau of Internal Revenue.. Change in attitude toward settlement of cases-. 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 Part 3. Complexities of the work.. Valuations_. Amortization allowances_ Affiliations. Part 4. Operations of the bureau_-_ The handling of individual returns (Form 1040). The handling of claims for refund__ The handling of withholding returns___ Part 5. Recent changes in administrative procedure__ Decentralization___. Abolishing claims section_. Abolishing specialization in audit--- Chapter III. The Bureau of Internal Revenue-Continued. Part 5. Recent changes in administrative procedure-Continued. Sending the man to the job_-- Closings under the provisions of section 1106 (b) of the revenue 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. Page 30 31 31 31 32 33 33 35 36 36 36 38 Accumulation of cases- Disposition of future cases_. 38 38 Graphic picture of the situation. Relation of deficiency letters mailed to appeals filed.. Part 6. Possibilities of a reduction in the future in the number of 43 43 43 43 44 44 44 45 Change in attitude toward settlement of cases- 45 45 46 Personnel_____ Chapter V. Office of the general counsel. Interpretative Division I. Civil division_.. Appeals division..... Appendix: 46 46 47 61 90 107 113 127 Present organization of the bureau_. 129 Outline of functions performed by the Income Tax Unit_ 130 Typical cases in the bureau___ 136 Statement of income-tax returns filed for the fiscal year July 1, 1926, to June 30, 1927-individuals.... 147 Statement of income-tax returns filed for the fiscal year July 1, 1926, to June 30, 1927-corporations, etc-- 149 Total returns classified by revenue agents, January 1, 1927, to September 30, 1927_. 151 Table showing appointments and separations in the Income Tax Unit_ 155 155 Total deficiency taxes assessed for the fiscal year ended June 30__. Statement showing progress made on audit of 1040 returns for 1926 156 157 159 160 162 LETTER OF TRANSMITTAL Hon. WILLIAM R. GREEN, Chairman Joint Committee on Internal Revenue Taxation, 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. To the UNDERSECRETARY OF THE TREASURY: We are transmitting herewith a survey of the administration of the income and excess profits tax acts. The survey was undertaken primarily for the purpose of assisting the Joint Committee on Internal Revenue Taxation in its study of the administration of the internal revenue laws. It is recommended that, if the survey meets with your approval, it be submitted to the Commissioner of Internal Revenue and to the Secretary of the Treasury and that, if it meets with their approval, it be submitted to the Joint Committee on Internal Revenue Taxation. Approved : A. W. GREGG. OGDEN L. MILLS, Undersecretary of the Treasury. Commissioner of Internal Revenue. A. W. MELLON, Secretary of the Treasury. SURVEY OF THE ADMINISTRATION OF INCOME AND EXCESS-PROFITS TAXES CHAPTER I. INTRODUCTION The accompanying survey of the administration of the income and excess profits tax acts has been undertaken by the Treasury Department in order that an accurate and complete analysis of the conditions existing on June 30, 1927, will be available. It is the first comprehensive inventory of the work confronting the Bureau of Internal Revenue undertaken since 1923. It was the opinion of the Treasury that the completion of a thorough and detailed study would be a substantial contribution toward the ultimate simplification of the income tax laws and their administration. It is hoped that this survey will assist the Joint Committee on Internal Revenue Taxation, the Committee on Ways and Means, the Committee on Finance, the Members of Congress, and the public in an appreciation of the task imposed upon the Treasury in the administration of eight recent and separate acts imposing internal-revenue taxes, of the manner in which that responsibility has been borne, of the unprecedented administrative problems imposed, of the situation as it exists to-day, of the problems confronting the Treasury and awaiting solution, and of the soundness of the solutions suggested. To many of the public the Government is personified. There are criticisms of delays, of decisions in particular cases, and of conflicting rulings. But there were on July 1, 1927, approximately 13,000 officers and employees in the Bureau of Internal Revenue and its field service. The persons who made decisions yesterday are not with the bureau to-day. And they have taken with them their experience, their insight into the problems, and the results of their studies. The administration of any law is effectively limited by the experience, ability, and judgment of the personnel. The personnel problem is the most difficult. A satisfactory solution has heretofore been denied. An effort has been made to so arrange the survey that the important facts revealed and the important conclusions drawn therefrom will be readily available to all readers of the report, and that all the facts will be available to those who may desire to devote the time necessary to an exhaustive study of the report and appendices. The survey does not include the administration of the miscellaneous taxes. The work of the bureau in connection with the administration of miscellaneous taxes has always been reasonably current. 1 |