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PROCEDURE

1919

BY

ROBERT H. MONTGOMERY

Attorney-at-Law. Certified Public Accountant.
Ex-President, American Association of Public
Accountants. Assistant Professor of Accounting,
Columbia University

New York

THE RONALD PRESS COMPANY

112555

JAN 2 7 1937

Copyright, 1919, by
ROBERT H. MONTGOMERY

Burr Printing House, New York

PREFACE

The war is over, but it is not paid for. Taxes will be very high for many years to come. In the government's next fiscal year, beginning July 1, 1919, as much as possible of the expenditures should be raised by taxes, and for the fiscal year beginning July 1, 1920, and thereafter all expenditures should be met by taxation instead of raising any part of the revenue by bond or note issues. In no other way can the trend toward unnecessary expenditure of public money be checked.

The 1918 revenue bill is almost a good one. It would have been a better one if Congress had kept faith with taxpayers generally instead of repudiating certain of its representations, such as the method of taxation of special cash dividends paid during 1918. It is a sad commentary on our system of legislation when it can truthfully be said that Congress deliberately enacts a revenue law purporting to affect future transactions and a short time afterwards completely changes it by enacting retroactive measures.

In last year's book I said that the 1917 law was a mess and would have to be amended or arbitrarily administered or it would not be workable. It was not amended by Congress, but it was in effect amended by the Treasury interpretations of the law and it was intelligently administered. Had this not been the case, the 1917 law would have been a calamity as well as a mess.

Fortunately for the business interests of the country the Bureau of Internal Revenue has vastly improved its personnel and its rulings. Questions of doubt are considered on their merits, as they should be.

When it is considered that a revenue bill which imposed a tax on the 1918 profits of practically every business man and business concern did not become a law until nearly fourteen months after the date as of which it became effective, it

is hardly possible to express one's views of those in Congress who have charge of tax legislation. After a time patience ceases to be a virtue. There is no lack of patriotism involved in asking that tax rates and tax methods be fixed reasonably early. Business is entitled to know in advance what the taxes on business are to be. Intelligent handling of tax matters in Congress would give business adequate time to prepare for the tax burden which so far has been borne willingly.

The remarks of Mr. Kitchin, chairman of the Ways and Means Committee, on February 8, 1919, which accompanied the report of the Conference Committee to the House of Representatives, were not published in the Congressional Record until February 27, 1919. Therefore, those who desired to read the explanations by the chairman of certain obscure passages were unable to obtain such information until about two weeks before the returns for the year 1918 were due.

Incidentally, it is impossible to get out a satisfactory book on the income tax within a few weeks after the passage of a revenue law. I do not believe, however, that this argument would have much weight with Congress, but the argument must be used because it is impossible that this book should be free from errors. It might be urged that it would be better not to issue a tax book at all than to rush it out within a few weeks after a revenue bill becomes a law. The answer to this is that there has been an insistent call for another edition of my former books on the subject of income taxes, and while there was no compulsion and while I could have merely omitted the publication of this book, I could not make up my mind to quit simply because the job was a difficult one.

Within this book there will be found no suggestions for evading the tax, nor for shifting income to a year when tax rates are low and expenses to a year when tax rates are high. To use a common expression such suggestions in my opinion are "rough stuff." No self-respecting taxpayer should countenance any such efforts even though the Treasury might fail

to discover the fraud. In any event the Treasury Department through its reorganized systems of examinations and checks may be expected to discover and punish most dishonest taxpayers. But taxpayers are entitled to protection and relief if they are likely to be assessed and to pay too much because of ignorance or misinterpretations by collectors or inspectors or if they are advised by other persons ignorant of the law and the regulations. I am glad to testify that no group of men is now more ready to afford relief than the responsible officers of the Bureau of Internal Revenue.

It will be noticed that I have revised many of my criticisms of the Treasury. This is not because I have been in the Army for the last year but because of the more reasonable attitude of the Department.

Radical changes will be found in arrangement and general make-up as compared with former editions. Unfortunately, when dealing with a new tax law, we cannot be "off with the old and on with the new" as long as the old was never thoroughly understood and the returns thereunder have not been examined. Those taxpayers therefore who desire to have readily available and easily identifiable the more important decisions and procedure relating to the 1913, 1916 and 1917 laws will find all the more important matter fully digested. To have incorporated this material in the body of the book with similar information regarding the 1918 law would have meant great confusion to the casual reader. An attempt has been made to bring out clearly the entire 1918 law, immediately followed by former decisions and regulations. which are still applicable and in turn by my comments on the new law. When deemed to be of current interest, the previous laws, decisions, regulations and comments have been thrown into footnotes or into sections at the end of the chapters and plainly marked "former procedure." It is to be hoped that the new arrangement will be helpful. I have never personally liked footnotes and regret the apparent necessity for using them.

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