Miscellaneous service and statistical branch almost speaks for itself. You know that we have to keep certain statistics in the Bureau, the Congress requires them. They are the figures upon which you base your forecasts for your appropriations and your other statistical figures that you must use and have in order to properly operate the Government, either from Congress' or our viewpoint. Of course, you have a central files branch.

That replaces the file rooms scattered over the districts now. It is where after returns have finished their job in the field and have been examined they must be kept for 6 years minimum before they can be destroyed. That will be done centrally.

For many, many years it was done in Washington. They were all kept here and destroyed at a particular time. Corporation returns still are, but under this plan you would have one central place within the district where, after the returns have been gone through all of their processes, they can be stored until all use for them has expired. Mr. HOLIFIELD. May I interrupt to ask if you will take advantage of General Services Administration records management service? Mr. DUNLAP. We comply with that completely at this time and will continue to do so.

These returns must remain in our possession until, at least, limitations have run on them.

We come to the local man, the man actually in the main who contacts the taxpayer on the local level. I indicated that he is the man who replaces the present collector. He does. He replaces the present collector of internal revenue, but he absorbs the other duties of various little branch offices in his area now scattered under different control.

You have assisting him a small but well qualified legal staff. In most cases it will probably be one man. He has a set-up similar to

that now, but not so dignified by that title.

It would be the duty of that attorney to advise this man on all legal matters within this layer of responsibility, such as the procedures for filing cases in bankruptcy court where a taxpayer has gone bankrupt, and filing release of tax liens, and things of that kind which comes within the province of a lawyer.

He is merely the legal adviser to the deputy district commissioner. Within that office, of course, you have to have a cashier's division, because that is the spot where people file their returns and pay their taxes just as they now do. That is something that the internal revenue service must have, that is, cashiers.

You have the enforcement division. There is a major departure, because under one head you now have all of the field functions performed in one given area which are now performed by seven different offices.

You would have one group within there mainly, I think, comprised of beginning deputy collectors, novices just starting out, getting their training, who would do nothing but collect delinquent accounts. In the days when I was a deputy collector, we called it "pounding concrete." And to secure delinquent returns from people who do not file them voluntarily.

I am sure you are familiar with the fact that in all collectors' offices every quarter there is at least 10 percent of our social security withholding taxpayers who do not file, and you have to go out and get the

returns from them. And we must canvass constantly and follow all rumors down, of course, about people who have failed to file other types of returns, income tax returns. That is the duty of the people in this group.

Then you would have an audit branch, all taxes. You would have in that set-up a group that does what we call office audit work. That work is done now in collectors' offices and in the offices of the internal revenue agents in charge, depending on the size of the return. It is an operation where something on the return needs questioning or explanation which can be handled by correspondence without the necessity of having a field man go out and check the taxpayer's records. Some one transaction that lends itself to that kind of an operation.

We do that now, as I say, depending on the level of return in the collector's office or in the internal revenue agent's office.

You have then a field audit section. That field audit section differs from anything we have at the present time, because in it you. would find three groups. You would find a group specialized in all

of the taxes other than income taxes.

You would find a group specialized in returns of a certain size, and a group of highly specialized internal revenue agents.

And now we come to what I think is one of the finest things possible for the taxpayer. Under our present system, as I indicated a while ago, take a department store as an example, the internal revenue agent will come in and examine their income tax returns. Maybe it takes 3 months to do it. It is a big operation. There are detailed accountants and everything else, a big store. It is a source of inconvenience, at least to the taxpayer to have those people in there in their accounting department.

The agent gets through, and along comes a deputy collector and says, "I am here for examination of your withholding tax returns." He examines those. There is more upset.

About the time that finishes, here comes the excise tax agent, and he says, "I want to examine your excise tax return records."

About the time he gets through with that, here comes somebody who wants to check the social security returns.

We are doing that right now because those operations are investigated in different offices, but under this plan, when the internal revenue agent goes in to examine that store's return, he will take with him an excise tax man and a social security man and a withholding tax man and they will complete that examination all at one time and come up with the answer.

Those lesser types of auditors can examine more returns than can the income tax agents. So they will finish and get out of there a long time before the income tax agent will. That means that they can work with three or four internal revenue agents at the same time and complete three or four examinations of that type while the agents are still in there, so that the taxpayer is only upset once a year or once every 2 years, and is not constantly harassed by our visits, as I am afraid they now are.

I have been in favor of that for years. In fact, I might interject right here the fact that when we were studying this plan I sat on a task force composed of two collectors of internal revenue, two internal revenue agents in charge, two excise tax agents in charge, and a couple

of supervisors and some special agents in Chicago. That was about in September of 1949. And that is where this thing had its birth. The special investigations branch is that branch which substitutes now for our special agents in the field and our alcohol and tobacco tax agents in the field. It is a specialized operation. One deals with tax fraud and the other deals with the enforcement activities of our alcohol tax unit. I am sure you know what that means. We raid stills and everything else.

There is one major change here which I think will be very, very beneficial. You will notice that I said a while ago that our personnel inspections would be done here. That is now done by our special agents. They will be relieved of that and their entire duties will be tax fraud investigations. I am sure you know our procedures.

One of these men making a regular examination finds evidence of fraud. He pulls off the case and turns it over to our special agent. And sometimes that poor special agent under our present set-up has a dozen cases assigned to him and is trying to work with a dozen agents.

Under this plan this man comes in and goes to his boss and states, "I think I have found evidence of fraud." This fellow comes down here and gets the fraud agent and he works with this man for 2 weeks or 3 weeks and then comes back and tells me about it, and asks, "Do you think this is a fraud case?" And if it is, then it follows the fraud angle from then on and these people go right on with their other examinations. It is a vast streamlining in that regard.

Over here in the administrative division we have just what we

say

Mr. BONNER. This is his last chart.

Mr. DUNLAP. I have these two little blocks here to finish.

Mr. BONNER. Just finish the chart. That will be satisfactory.
The CHAIRMAN. Go ahead; you may continue.

Mr. DUNLAP. We have a field branch of that training division that I mentioned a while ago. We have here a miscellaneous service branch which, of course, is the supplies and equipment and other such matters that these field people must have.

Working out of this office set-up out in the field are our little zone and division offices in the smaller communities, just like we have now. We cannot get away from the small zone and division offices. We do

not want to.

In most of our smaller communities today we have those offices, and we certainly should not only continue them, but improve them. In those offices, of course, you have a branch of the cashier's division for obvious reasons. They sell stamps, take returns and money that taxpayers turn in. And then you have a group comprised just like this group here which is able to handle all of the type of investigations that would be handled out of that small zone office. In other words, if you can visualize a town that I know in my old district where we had three offices, we had the office of the collector out there, we had a group chief and 12 deputy collectors there. Across the street was an office of the internal revenue agent. He had a group chief, eight internal revenue agents. Right down the street a little way was another office with a group chief and five special agents in it.

Under this plan they would all be in the same office under one group chief, with savings, I think, in rent and other matters like that, tele

phone services. It must be apparent to you that there would be those savings. We cannot tell you what that will be until we have analyzed through 2,000 of those offices and combined them into those set-ups.

So much for these charts. I have run through them very, very hurriedly. I know there are many questions that you want to ask, Mr. Chairman, and I am available as long as you want me.

The CHAIRMAN. I would like to say to the committee that I think this is the most valuable witness that we will have before us to give us the information that we need.

I would also like to state that we must conclude with him this afternoon because he must go before other committees tomorrow. And with that explanation in mind, shall we adjourn now, or shall we go through and complete with this witness--what is your wish? Mr. HOLIFIELD. I move that we adjourn for lunch.

The CHAIRMAN. Is the hour of 2 o'clock a satisfactory hour to all concerned? If so, if you will come back at 2 o'clock.

The meeting will stand adjourned until 2 o'clock.

(Whereupon, at 12 noon, an adjournment was taken until 2 p. m., of the same day.)

AFTERNOON SESSION

The committee resumed hearings Monday, January 21, 1952, at 2:10 p. m., in room 13110, Hon. William L. Dawson (chairman) presiding.

The CHAIRMAN. Will the committee come to order.

At the time we adjourned Commissioner Dunlap had just completed his testimony on the charts that were then on the board. Mr. Dunlap.

FURTHER STATEMENT OF JOHN B. DUNLAP, COMMISSIONER OF INTERNAL REVENUE; ACCOMPANIED BY WILLIAM W. PARSONS, ADMINISTRATIVE ASSISTANT TO THE SECRETARY OF THE TREASURY; N. A. SUGARMAN, ASSISTANT HEAD OF MANAGEMENT STAFF; J. F. WINKLE, ASSISTANT COMMISSIONER FOR OPERATIONS; AND DR. T. C. ATKESON, HEAD, MANAGEMENT

STAFF

Mr. DUNLAP. Thank you.

I want to apologize to the committee for an oversight. I intended to have those sets of charts before you this morning and completely overlooked it.

I know you are interested in the proposed set up of districts under this plan. There it is, gentlemen. [Map displayed.]

(Chart 6 above referred to appears on p. 110.)

Mr. DUNLAP. That is our best thinking to date on it. These districts are set up in order to equalize, as near as possible, the workload within each district, because only by doing that, we take full economies possible under the vast mechanical operations in those central processing operations. They are more or less in consonance with our present supervisory district in some respects and in others they are completely different. The workload has been the main governing factor in setting them up.

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