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had increased to unprecedented proportions during the past few years. The sharp rise in the immediate past is indicated by the following figures:

Nev Fiscal year:

petitions filed 1960

110, 034 1959

100, 670 1958

91, 668 1957.

73, 761 1956.

62, 086 1955.

59, 404 1954.

53, 136 1953

40, 087 The estimate in fiscal 1961 calls for the number of new bankruptcy petitions to exceed 120,000, a new alltime high. In a large percentage (probably as high as 40 percent) of these cases, delinquent tax claims are involved. In order to keep abreast of the increased volume, five attorneys are now engaged in this type of work (until recently, only one attorney was assigned primarily to bank ruptcies, the U.S. attorneys handling directly the more routine cases), and it is necessary to make additional assignments if the Division is to meet its responsi. bilities in this field. Revenuewise the small increase for this work will be an excellent investment. Over $2 million was collected in bankruptcy proceedings last year and an additional $6.5 million was realized in receivership and other insolvency proceedings.

The increase in mortgage foreclosures has paralleled the increase in bankrupt. cies and the number of such actions in which the United States is named as a party defendant because of the existence of a tax lien increased again in fiscal 1960 and has increased more than 120 percent since 1952. In the nonfarm real estate foreclosure report for the first quarter of the calendar year, the Federal Home Loan Bank Board released the following figures :

Number of Calendar year:

foreclosures 1959

44, 075 1958

42, 367 1957

34, 204 1956

30, 963 1955

28, 529 1954.

26, 211 1953.

21, 473 The number of foreclosures increased 5 percent in 1959, and are up 30 percent in the past 2 years. For a number of years the Division had one attorney assigned to this type of lien work (there are other kinds of lien cases handled in :he Claims Section). In 1953, an additional attorney was assigned and, in 1955, the number was increased to three. At present, there are seven attorneys derailed to lien work.

A progressively more active field of law, and one in which great outlays of Federal funds are at stake, arises from attempts of local governments to tax many Federal properties and activities throughout the country, as well as aspects of commercial transactions entered into by private contractors with the United States, all of which indirectly results in a local tax burden being borne by the Federal Government. This litigation, which is handled in the Claims Section, is distinguished from the other litigation supervised by this Division in that it does not arise under the Federal tax laws but concerns the United States as the ultimate taxpayer of local taxes.

In the past 2 years, twice the usual number of formal requests have been received from other agencies of Government to take part in cases involving the application of local revenue laws to facilities operated by the Government directly or indirectly through contractors. With few exceptions, we have successfully resisted such attempts to shift the local tax burden to the Federal Government. As the number of attempts grows the Tax Division must be prepared to continue its efforts to maintain a proper balance of interest (as determined by the Bureau of the Budget) between the States and the Federal Government.

Until recently, one attorney in our Claims Section was assigned the immunity cases. Now, two attorneys devote their full time to this work and, because of the unusually large number of trials set for this fall and winter, five other attorneys have been called upon for part-time assistance. As the activities of the Federal Government continue to expand and as the local tax authorities intensify their efforts to raise revenue, the Division can expect a greater respon. sibility in this Department to advise and assist the agencies (primarily Defense and the Atomic Energy Commission) in their efforts to clarify the law in this regard. It is planned to assign two of the additional attorneys requested to this important work, leaving only three additional attorneys to handle the bankruptcy, receivership and other insolvency proceedings, probate matters and regular collection suits (which were up again in 1960).

In addition to assignment of additional attorneys to bankruptcies, mortgage foreclosures, and other insolvency proceedings, consideration should be given to the increased burden on supervisory personnel and to the necessity of increasing the secretarial staff necessary to handling the great amount of recordkeeping and paperwork involved. As noted, the work of this Section has jumped 50 percent in 3 years and collections from delinquent taxpayers have risen from $7.1 million in 1958 to $18.5 million in 1959 and to $19.2 million in 1960."

(d) Trial Section: Included in the estimate for 1961 are three additional positions in the Trial Section (two attorneys and one legal stenographer and clerk). The work of this section consists of handling all refund suits instituted by taxpayers in the Federal district courts and the Court of Claims. This is the largest section in the Division, having an average staff of 60 attorneys and 33 secretarial and clerical employees. (See sec. A (1), supra, for a report of the reorganization of this section to insure more complete and efficient utilization of available manpower.) The staff is primarily responsible for preparing for trial and trying refund suits, including the preparation of all pleadings and trial briefs, arranging for witnesses and exhibits, taking depositions and conducting other discovery proceedings, arranging for and conducting pretrials, establishing tax calendars, and actually conducting the trial of cases. The total number of taxpayers' suits rose slightly in 1960.

The Trial Section has been successful in recent years in meeting all deadlines and is responsible for the excellent record of reducing the number of requests for extensions of time to file responsive pleadings and the requests for continuances and in holding recoveries by taxpayers to only 12 percent of their claims. The pressure on the staff has been unusually heavy, requiring the performance of a great deal of overtime both in Washington and in the field.

There are many unmistakable signs that the volume of refund suits will continue to rise for many years. The increase already granted in Revenue Service personnel, the installation of automatic data processing equipment and other improved procedures will lead to more deficiency assessments and thus more legal controversies. The Commissioner of Internal Revenue has reported in excess of 100,00 more individual audits in 1959 and 1960 and advises that this will surely mean more tax controversies (House headings, 1961, p. 474, annual report, 1959, 1960). The Commissioner also reported an increase in deficiency assessments in the past 2 years and predicted an $80 million increase for 1961 (House hearings, 1961, p. 485).

It is evident that, if court commitments are to be met, the staff of the Trial Section will have to be increased. The proper and expeditious handling of refund suits, involving directly at present about a half billion dollars, will result in savings to the Government of millions of dollars in principal and interest.16 The additional personnel requested will make such savings possible.

(e) Appellate Section : Three additional attorneys and two additional legal stenographers are requested for the Appellate Section. This Section assumes responsibility for all appeals from decisions of the district courts in tax cases, both civil and criminal, all appeals from the decisions of the Tax Court, and appeals to the State appellate courts in cases within the Division's jurisdiction. Under the supervision of the Solicitor General, it is also responsible for tax cases

17 U.S. attorneys are delegated responsibility in the field for handling routine collections, lien, bankruptcy, receivership and probate proceedings. Their offices have felt the rise in this type of tax litigation and the pressure will increase in fiscal years 1961 and 1962. Some U.S. attorneys (because of the heavy volume of other work) are unable to give these matters the kind of treatment they are entitled to, particularly in view of the large amounts involved ; and it has been necessary, on an increasing scale, to send attorneys from Washington to handle the necessary field work. With few exceptions, all lien and collection cases and matters are received and reviewed initially in Washington and the work of the U.S. attorneys is supervised closely on all matters of importance. This is essential to the coordination of collection efforts, particularly with the Revenue people at the seat of government, and the carrying out of a uniform litigation policy. All appeals are handled in Washington and settlements are processed at the seat of government.

'18 In addition to saving $120 million in refund suits concluded in fiscal 1960, interest costs in excess of $1 million were eliminated by the expeditious handling of cases.

in the Supreme Court. The cases assigned to this Section require extensive and careful review, research and painstaking briefing and argument by attorneys who are specialists in appellate work and in the substantive law of taxation. The work of this Section has grown correspondingly with the work of the other sections and the caseload per attorney is the maximum commensurate with the adequate handling of assignments. The growing number of taxpayers conpled with the continuance of high tax rates and the current level of business activity can be expected to result in an increase in the number of appeals and petitions for certiorari filed by taxpayers in the Supreme Court. In the past term, the Supreme Court completed action on 93 petitions in tax cases. The Government limited its request for review to seven important cases, six of which were granted by the Court and one denied. On the other hand, taxpayers petitioned for a review of 73 cases. The Court denied 58 of these requests, granting only 10, and 5 are pending. In the 1959 term the Court granted only 8 of 109 petitions filed by taxpayers. (The 1959 term was the busiest taxwise in recent history.) This unusually large number of Supreme Court matters involved highly technical and important questions of law and interpretation which had a far-reaching effect upon the revenue collection policy of the Internal Revenue Service. The Division's legal staff must perform much legal work, including the preparation of briefs in opposition in certiorari matters as well as briefs on the merits in those cases in which petitions are granted.

The staff of the Appellate Section prepared 477 briefs on the merits and argued orally 321 cases during fiscal 1960, compared, for instance, with 276 briefs and 241 arguments in fiscal 1952.0 As noted, supra, the Division enjoyed unusual success in appellate decisions, winning 71 percent of the courts of appeals decisions and 76 percent of the Supreme Court decisions in tax cases.

(f) Compromise Section: A request is made for 11 additional employees in the Compromise Section (7 attorneys and 4 legal stenographers). In the justification submitted in support of the Division's estimate for the 1960 and 1961 fiscal years it was stated that as a matter of necessity greater emphasis was being placed upon the settlement of cases. The following tabulation shows the growing number of cases disposed of by settlement and indicates the increased work of the Compromise Section :

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Under any foreseeable circumstance, it is felt that the Division can expect to dispose of only a limited number of cases (less than 1,000 per year) by court action. As the new business increases, it is essential, therefore, that the number of settlements be increased if the Division is to keep pace with the workload. In addition, the settlement of a greater number of cases releases the energies of the courts, the lawyers and the staff of the Revenue Service for the handling of cases which should be litigated. As previously reported (Section on Procedural Improvements, supra), the Division has recently commenced a program of selecting, in collaboration with the Chief Counsel, cases which can be settled without jeopardy to the revenue or which have no precedent value either way. As indicated, the Division is contacting taxpayers' attorneys early in the proceedings inviting exploration of settlement possibilities. The new steps are designed to parallel those followed in the Revenue Service which for many years has had a unit within its organization devoted almost exclusively to the work of settling tax cases and matters. This unit, known as the appellate staff (formerly called the technical staff), presently consists of approximately 720 persons (excluding clerical personnel). The high percentage (around 79

18 While the cases in the Tax Division involve about 600 million, their outcome directly affects billions in revenue to the Federal Government. See footnote No. 9, supra, wherein it is reported that cases decided for the Government by the Supreme Court in the past term involved over $1.6 billion in tax liability.

» A reference to the reports of the Attorney General covering the 1958 fiscal year (p. 35) and the 1959 fiscal year (p. 44) reveals that the work of the Appellate Section of the Tax Division far exceeds in volume similar work in any other legal division in the Department.


percent) of disposition of Tax Court cases by settlement is due in very large part to the efforts of this unit. The Compromise Section in the Tax Division (the counterpart to the appellate staff) has only nine attorneys at present and, not surprisingly, the rate of disposition of district court and Court of Claims cases by settlement is much smaller (39 percent in fiscal 1960) than that of the Revenue Service in Tax Court cases. If the Tax Division could increase its rate of settlement dispositions to anything like 79 percent, the interest savings to the Government would be enormous.

However, with the present staff the Division cannot further increase the number of settlements. If, in addition to the substantial dollar sayings to be realized, the backlog is to be controlled and the threat of further court congestion blocked, it is essential that additional personnel be authorized for fiscal 1961. While it is not certain at this time, it is believed that the results of such a program will eventually result in some reduction in the trial staff.

(0) Administrative Section: Two nonlegal positions are requested for the Administrative Section which has supervision of the Litigation Control Unit, the Statistical and Docket Unit, the Digest and Research Unit, and secretarial and messenger services. Only four persons have been added to the staff of this Section in the past 4 years during which time the overall volume of work has increased approximately 35 percent. In view of this increase in work, the anticipated increases in fiscal 1961 and 1962 and the increase in staff as requested in the operating sections, supra, it is urgent that one position each be added to the Statistical and Docket and Secretarial Units. C. Details of request

1. Personal services.—The recommended allotment contemplates the addition of 34 employees on a gross basis, an 11-percent increase in staff. A reference to standard form 3a indicates that $2,474,000 is required for personal services. The proposed assignment of such personnel on a gross basis is as follows (see sec. B, supra, for explanation for the need for these additional employees) :

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1 Supervisory includes the Assistant Attorney General, his 1st, 2d, and executive assistants and their staffs; the Litigation Control Unit, and administrative, statistical, docket, digest, library, and messenger personnel, and stenographers and typists assigned to the secretarial unit.

2. Travel and other erpenses of litigation.-A breakdown of the amount requested for expenses of litigation is shown on standard form 3a. Expenses of operation other than personal services account for only about 15 percent of the allotment to the Division and amounts to $554,000 for fiscal year 1962. There are slight increases for each of the items of litigation and operational expense. For the most part, they are tied to the increase in personal services. However, at least $44,000 additional is required if no increase is allowed in personal seryices, including $5,500 to rehabilitate dictating machine equipment in order to protect a considerable investment, estimated at $35,000; and $38,000 is required to cover rent for new employees.

The rise in workload and its speedier handling have resulted in the processing of more litigation and increases in work production. (See workload data, supra.) As this trend in volume continues upward so will the cost of litigation. The staff in the Division briefs and argues and prepares for and tries in excess of 90 percent of all civil tax cases in the trial and appellate courts.21 As the courts' deadlines and other commitments are met in an ever-increasing number of cases, the costs of operations will rise. Of course, these and other costs of the Division are more than offset, by savings in interest, limitations on recoveries, etc.

1 In addition, in an endeavor to expedite the final disposition of cases and in order to present the Government's position in the most thorough manner, Division attorneys travel (and otherwise incur expenses) to pretrial bearings, to take depositions, and otherwise conduct investigations and discovery proceedings, etc. These and other costs are kept to a minimum commensurate with the growing work rolume, through carefully supervised coordination between sections and consolidation of assignments.

D. Conclusion.

The volume of tax litigation continues to grow steadily and the amount of revenue involved directly and indirectly goes into the billions of dollars. At a time when every dollar of revenue is vital to the welfare of the Nation it is imperative that tax controversies be considered and solved with all possible dispatch. This, the Tax Division has been able to do in the past few years and must continue to be in a position to do in the future. Because of the sharp rise in workload and the likelihood of further increases the Tax Division is requesting an increase in operating funds for fiscal year 1962. It is felt that the increase will provide the minimum appropriation needed to carry out the Division's responsibility to proceed promptly whenever the Federal Government is brought into litigation by a taxpayer, and to be ready to act upon requests for legal action referred to it by the Revenue Service. The flow of work cannot be turned off or on by the Division or the Department of Justice.

The failure to provide sufficient funds would have at least five serious consequences: (1) A return to the practice of requesting numerous extensions of time within which to file responsive pleadings and continuations in trials and arguments, resulting in a slowdown in the processing and conclusion of cases; (2) increasing costs to the Government in the form of interest in those cases eventually requiring refunds to taxpayers; (3) a return to steady backlog increases, which was the condition prevalent during the 10-year period 1946 through 1955; (4) a loss of an undetermined amount of revenue; and (5) a limiting of the success of the accelerated enforcement program of the Revenue Service authorized by Congress. It is believed that these and other possible consequences must be avoided and that the Tax Division must continue to be in a position to insure the success of our self-assessment system of taxation. During the 1961 and subsequent fiscal years, the Division must be able to continue its drive to make certain that all taxpayers bear their fair share of the costs of Government and that those with honest controversies with the Treasury Department are given their day in court within the shortest time possible.

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Mr. ROONEY. The justifications indicate that the request for general tax matters is in the amount of $3,028,000, which would be an increase of $345,500.

The increases are set forth on pages 13–3 and 13-4. It appears that 34 additional employees are requested, of which 21 are attorneys and 13 are stenographers.

Mr. Oberdorfer, since this is your first appearance before the committee, it might be well if you gave us a brief biographical sketch of yourself.


Mr. OBERDORFER. I shall be glad to, Mr. Chairman.

My name is Louis F. Oberdorfer. I was born and raised in Birmingham, Ala. I am now 42 years old. I was educated in the public schools in Birmingham. My father is an oldtime lawyer there. He has been in practice there since 1901.

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