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Commissioner, who will be responsible to the District Commissioner of his area.

Those are the main outlines of the plan. It is the opposite, you will observe, of a Washington top-heavy centralized plan. It places fuller responsibility at the grass-roots level to meet the needs of all taxpayers. The purpose is to assure improved service and greater convenience to the taxpayer.

As I said before, details and blueprinting of these basic features of the plan will be supplied by the Commissioner and his staff assistants. I have stated the essentials. Every American citizen has a direct and vital interest in this plan. The Bureau of Internal Revenue carries a great responsibility for the successful functioning of our Government.

Increasingly mounting demands on the service since World War II have brought heavy accumulations of problems of administration, of operation, of fidelity and integrity. Earnest efforts have been made to keep pace with these problems. I will outline a little later the principal efforts. But structural handicaps under which the service still operates prevent us from adopting necessary improvements which experience has shown to be needed.

The reorganization plan will permit us to bring the revenue service fully up to the requirements of the day. It will enable us to establish maximum efficiency of operation and maximum service to the public. It will bring the service into accord with the merit system of Government employment. It will help remove temptations to which, unfortunately, some revenue-service employees have succumbed in the past.

A revenue service of top efficiency, of unquestioned integrity, and of maximum economy of operation is something to which the American people are entitled. The maintenance of such a service is the greatest assurance for the continued success of our voluntary system of taxpayer compliance, the very foundation of our fiscal strength and economic health. A new, adequate, up-to-date architecture for the service has been planned with these objectives uppermost in mind.

In order to lay the background of the planning which culminated in the basic reorganization proposal now before you, let me tell you some of the more important problems that we faced at the beginning of my tenure as Secretary of the Treasury, and those that developed as the workload of the Bureau increased so rapidly in volume and complexity. It is against this background that we must project the accomplishments of recent years and the situation we face today.

Let me say at this point that the collectors of internal revenue, as a body, have given great assistance in solving our problems and in making our accomplishments possible. They have shared outstandingly in the assumption of the tremendously increased workloads.

The years elapsed since 1940 witnessed an unprecedented increase in the responsibilities of the revenue service in meeting the exigencies of war and defense financing. Between 1940 and 1950 the volume of tax collections increased tenfold, and the number of taxpayers increased from 5%1⁄2 million to over 55 million. With the broadening of the base of the personal-income tax, wage and salary withholding was introduced, creating many new problems, not the least of which was that of mass refunding operations. Many new taxes have been

imposed, including numerous excises, the excess-profits tax, and the recently enacted wagering tax.

But the increased workload has by no means been limited to the processing of returns and tax-collection and refund procedures. There has been as striking a growth in the other main operational responsibilities of the revenue service-tax enforcement, interpretation of tax statutes, and settlement of disputed cases. On the enforcement front, the investigation and prosecution of fraud cases, beginning with the drive on black marketers in 1945, and extending through the current drive on racketeers, has absorbed more and more time and manpower. The racketeer drive alone, for example, requires the services of 2,300 of our best-trained enforcement officers.

The heavy volume of recent tax legislation, designed to finance defense expenditures, close loopholes, and deal with tax inequities, has severely strained the resources of the revenue service. Four major enactments the Social Security Act of 1950, the Revenue Act of 1950, the Excess-Profits Tax Act of 1950, and the Revenue Act of 1951-confronted the Bureau in a space of little more than a year. Let me tell you some of the things we already have done and are doing to meet these problems.

One step I took early in my tenure of office was to create a committee of highly qualified men to direct management improvement studies within the revenue service. An outside management firm was called in to make an independent survey of the Revenue Bureau's structure and organization."

A vigorous work-simplification program was initiated.

To the extent that the present organization permits, we have decentralized operating functions and strengthened headquarters-management control. We have strengthened front-line enforcement, notably through the creation of more than 100 special racket squads to run down criminal tax evaders. We have installed tabulating machines. and other modern equipment. We became the first large-scale business users of electronic computers. We have modernized record keeping by microfilming and other means. We have simplified tax-collection procedures by introducing a depositary receipt system. We have speeded up our refunding operations.

There have been improvements in the performance of various other major tasks. We have reorganized some of the major administrative divisions along functional lines. We have streamlined the field organization by combining the excise-tax agents with the field offices of the Income Tax Division. We have completed an audit-control program aimed at more effective selection of returns for investigation. We have improved and simplified tax forms and instructions.

These improvements give us a strong base for the proposed reorganization. As I have said, we had to do first things first. If we had not moved in this way, it would not be physically possible now to effectuate the reorganization plan on the schedule we have proposed. We have been going ahead steadily with the setting up of a strong independent Inspection Service within the Bureau of Internal Revenue, reporting to the Commissioner.

The Inspection Service is the arm of the Commissioner, by which the operations and the personnel of the revenue service are brought under continuous scrutiny to insure efficiency and integrity of per

formance. The Commissioner is extending the work and expanding the personnel of the Inspection Service so that a closer, more systematic, day-to-day check of the various field and departmental offices of the revenue service can be maintained.

We are also proceeding with management improvements and the combination of functions which will permit greater efficiency within the scope of the present structure. This is being accomplished, for example, by combining the separate Wage and Excise Tax Divisions of the Bureau, so that one division through one operating head can more effectively do the job formerly done by separate units.

We are taking further steps to speed up all our operations. We have already instituted a new procedure for the reference of criminal tax cases directly from the field to the Department of Justice for prosecution. This change is the result of the study of nearly a thousand cases of tax fraud. The new procedure will mean a saving on the average of 4 months or more in each case.

As a part of our reexamination of these procedures, and to eliminate delaying factors, we have recently announced changes in policy.

We announced that we will no longer permit the collateral factor of the taxpayer's health to weigh against our determination that the case is one warranting criminal prosecution. The health of the taxpayer can more appropriately be taken into account by the prosecuting authority or by judicial process.

We have also announced the abandonment of the former voluntary disclosure policy. We abandoned this policy because of its controversial nature as reflected in court decisions, complexities of administration, and the abuses which arose.

Our announcements in these policy areas are in accordance with the intensified enforcement activities of the Bureau's special tax fraud drive and racket squad work throughout the country, which are ferreting out the willful tax evaders and resulting in the recovery of additional taxes and penalties due the Government.

These new procedures will in nowise reduce the rights of honest taxpayers, but they will bring into a more appropriate balance the interest of our taxpayers in the effective enforcement of the tax laws. Obviously, the Federal revenue system must have the public's confidence and support. This means the system's integrity must be unquestioned. Commissioner Dunlap and I, with full authority from the President, have acted promptly to eliminate from the Bureau of Internal Revenue any personnel who brought dishonor on the service. We have taken strong steps to remove any further opportunities for misconduct. Among the actions taken toward this end have been the following:

(1) All supervisory employees and all other employees dealing with the public or handling Government funds-some 31,000 in all-have been required to execute and file with the Bureau a statement which would reflect their income and net worth. This will be a continuing program.

(2) Employees' tax returns have been subjected to special audit. This too will be a continuing program.

(3) All complaints of misconduct have been and will continue to be promptly investigated.

(4) Quick disciplinary action has been taken as soon as the facts of each case were clearly known.

(5) All collectors appointed in the past year have been prohibited from having any outside activities which might conflict with the full and proper discharge of their duties.

(6) We have cooperated fully with the Kefauver and King subcommittees.

All of the above steps reflect the constant and ever-increasing efforts on the part of the Department to provide the best revenue service which it is humanly possible to provide under the existing structure. Now we are at the point where we need the basic authority in the President's reorganization plan as the culmination of our efforts in this direction.

And I would like now to tell you in simple, nontechnical language why we are urging adoption of this plan of reorganization. First, let me comment on that part of the plan which provides that all positions in our revenue service, except the position of Commissioner, would be filled by civil-service men and women. The principal effect of this provision would be to abolish the 64 positions of collector of internal revenue. There are three reasons we are urging this. They are all simple and they are all sound.

First, the system as we now know it under which collectors of internal revenue are appointed by the executive branch outside the civil service is an archaic one of almost a century's standing. It was introduced at a time before the merit system was devised, and then it was perpetuated through decades in our history when our internal revenue system was relatively free of highly technical and legal problems. The official responsibilities of collectors in those days were relatively light. The principal requirement was one of community leadership to encourage local acceptance of Federal taxes. The taxpayer base was narrow and the collectors, in a real sense, acted more or less as mere receivers of tax moneys and as conduits of returns, claims, and other documents which were required to be forwarded to Washington for processing and decision. In its day, this system worked well.

With our phenomenal economic growth, however, our tax system has undergone a steady expansion with a consequent need for continual reappraisal of practices and procedures which have now become either obsolete or cumbersome for the mountainous and complex job that confronts the revenue service today. The present system of appointing collectors of internal revenue is one of these practices. Since collectors are not appointed and cannot be removed by the Commissioner of Internal Revenue or myself, they are not fully responsive to the control of their superiors in the Treasury DepartFurthermore, there are residence requirements which make it difficult for us to rotate or move them from one collection district to another. Added to these impediments is the uncertainty of office tenure which attaches to their position.

Secondly, collectors do not hold the policy-making type of office which should properly be subject to Presidential appointment. Their duties are primarily administrative and technical and are clearly of a type which should be within the framework of our Civil Service System.

Lastly, extension of civil service to the position of collector and all other offices in the revenue service, excepting only that of Commissioner-which is on a high policy-making level in tax

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administration-would further the principles of the merit system in an agency of our Government which preeminently should be free of any hint or suggestion of favoritism or influence.

It should thereby enable us to attract to the service and hold able men and women who are interested in pursuing Government service as a career but who naturally want to look forward to opportunities for advancement to top positions in that service for which they may be qualified.

I would like now to tell you why the plan provides for the appointment of "not to exceed 25 district commissioners." Here again the reason is simple. At the present time there are nearly 200 headquarters field offices reporting to the Commissioner through 7 different separate line divisions. There are 64 main offices in the field engaged in both collecting taxes and in auditing the smaller returns. There are 39 field districts which concern themselves with auditing the larger classes of returns. There are 14 field districts which deal only with the tax fraud aspects of tax cases. There are 12 field districts of the Bureau's appellate staff; and there are 15 field districts engaged in the enforcement of the alcohol and tobacco taxes.

The reorganization plan, as I have said, would combine these various types of offices into not more than 25 regional revenue districts, each of which would be headed by a district commissioner accountable directly to the Office of the Commissioner in Washington. I would like to emphasize as strongly as I can at this point, however, that this does not mean that service to taxpayers will be curtailed in any area, since there will be up to 70 suboffices and the present network of zone offices and posts of duty throughout the country which have been established to meet the public needs, just as there are now. As a matter of fact, not only will there be the same facilities available to taxpayers under the plan as there are at the present time, but these facilities will be expanded to include services which are rot now available in all localities where the Bureau now has collectors' offices.

A plan of this importance had to be developed with the greatest care because of its sweeping nature and many impacts on every taxpayer. The plan has grown out of intensive studies of methods and operations which were begun in the Bureau of Internal Revenue immediately after I became Secretary.

In perfecting the plan we were aided also by four major studies initiated or authorized by the Congress. The first of these was the study of the Bureau made by the staff of the House Committee on Appropriations. The second was made under the direction of the Joint Committee on Internal Revenue Taxation. The third was made by the Hoover Commission and the fourth by a management engineering firm-Cresap, McCormick & Paget-employed by the Bureau under the authority of Congress.

I want to particularly acknowledge the continued assistance which we have received from the Senate Finance Committee, the House Ways and Means Committee, and the King subcommittee of the House Ways and Means Committee. Their aid has included many valuable suggestions and recommendations.

These groups very naturally did not always agree completely with one another in all of their recommendations. But in the main, there has been general recognition of essential points.

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