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MONDAY, MARCH 24, 1924


Washington, D. C. The committee met, pursuant to adjournment, at 2.20 o'clock p.m., Senator James E. Watson presiding.

Present: Senators Watson (chairman), Jones of New Mexico, King, and Couzens.

Present also: Mr. C. R. Nash, assistant to the Commissioner of Internal Revenue; Mr. J. 0. Bright, Deputy Commissioner, income tax unit, and Mr. N. T. Hartson, Solicitor Internal Revenue Bureau.

Senator COUZENS. I want Mr. Hartson to take the stand again for a minute.



Mr. Hartson. Senator, I am suffering from a very severe cold, and I may have difficulty in being heard.

Mr. King. I would like Mr. Nash to furnish me information as to the number of cases Wayne Johnson, Carl Mapes, and Angevine, and others in that office had, and what disposition has been made of those cases, what refunds have been secured by officials of that firm, and how many of that firm have been in the office of the Internal Revenue Bureau.

Senator COUZENS. I think it was the first day of these hearings the question of filing with the Ways and Means Committee of the House of the claims of individuals and corporations desiring refunds was testified to; do you remember that?

Mr. Hartson. I remember it; yes, sir. Senator COUZENS. This is the chairman speaking. He says: There is one thing I would like to ask you about, because it has been discussed in the public press recently and has been asked about by many Senators, that is the $123,000,000 refund which was referred to in the newspapers. People think that is a very large refund. Now, for what purpose was the refund made and what and how did it start?

Mr. Blair, answering this, said: That came from a report that we are required to file under the law. The appropriation act requires us to file with the Ways and Means Committee a list of the refunds made during the year. That was filed last December. I do not know who got them out; they are supposed to be confidential.

Senator Jones. By the way, will you let us have a copy of the report which you made for the Ways and Means Committee?

Commissioner BLAIR. That was last December.
Senator JONES. Yes.

Commissioner Blair. And it has been dormant ever since, and somebody got it out.

I understand, Mr. Hartson--and if you are not the proper person to ask the question maybe Mr. Nash is—that is, when a claim is made by a taxpayer for a refund or for a credit against an assessment, if that claim is granted and he happens to have another claim it is credited on his claim.

Mr. HARTSON. That is correct. The credit is the thing. That has a technical meaning. Under our law and procedure when it has been determined that a credit is due a taxpayer it has been customary to take that credit on some subsequent tax that may be due. In other words there is a distinction between a claim for credit which the taxpayer may file at the time he receives a notice and demand from the collector, and an allowance of credit.

The CHAIRMAN. Does it hurt you to talk, Mr. Hartson?
Mr. HARTson. It does not hurt me at all.
The CHAIRMAN. It does not?
Mr. HARTSON. No; not at all.

Senator Couzens. What I want to bring out is that these claims that have been allowed do not always require money to be paid out; in other words the $123,000,000 that the chairman spoke of is just what was paid out?

Mr. HARTSON. That is correct; the $123,000,000 referred to in the report made before Congress is money paid out, cash paid out which comes out of this appropriation created for the purpose by Congress.

Senzator CouZENS. I just want to point out now to the committee that this $123,000,000 perhaps only represents one-tenth of the claims allowed; it may represent one-fifth; it may represent only a portion, because I have searched high and low for the claim that was made on my account running up into very large figures and which the bureau allowed, and I could not find that allowance in these claims that were filed with the Ways and Means Committee of the House.

Mr. Hartson. I can explain that, Senator, if you wish me to.

Senator COUZENS. I wish you would; I would like to have you explain it.

Mr. HARTSON. The claim that the Senator speaks of relating to his own personal liability was an allowance on a claim in abatement, so called, not a claim for refund. An abatement claim is a claim that the law permits a taxpayer to file with the collector for an assessment.

Senator COUZENS. I do not catch that, sir.

Mr. HARTSON. It abates the collection of the assessment; there is no money changing hands.

Senator Couzens. But it is an assessment by the agent, isn't it?

Mr. HARTSON. The bureau has made an assessment when an abatement claim is filed; yes.

Senator COUZENS. But just what is the difference then whether the assessment is made and paid in cash or whether the assessment is made and then canceled afterwards.

Mr. HARTSON. There is no difference except that in the one case the taxpayer has paid the money and the Government has covered it into the Treasury, and in the other case the bill has been stated to

pays it.

the taxpayer by the Government, reduced to an assessment, but no money changed hands.

Senator King. And he is relieved from the payment before he

Mr. HARTson. That is correct. As a matter of law, Senator King, he is not relieved from payment, the collector can still proceed through his abatement claim and secure collection; he can press it, but in practice it stays collection.

Senator COUZENS. I am asking you-you are the solicitor of the bureau ?

Mr. HARTSON. I am.

Senator COUZENS. Is there anything to prevent bringing before this committee my claim and the treatment of it?

Mr. HARTSON. The bureau would have no objection to it, Senator, if you have none.

Senator COUZENS. I certainly have not, and I would like to have it done.

The CHAIRMAN. What is the object of it, Senator Couzens?

Senator COUZENS. I want to show the amount of the curtail and how it was granted by the bureau and the possibilities within the bureau for the kind of claim that was made against me and the abatement that was granted. I want to find out in a concrete case where it will only involve myself and no one else, but a case which I believe is typical

Senator King. It shows what you conceive to be abuses, or irregularities, or an imperfect system of law and administration?

Senator COUZENS. Well, not so much that as the possibilities, Senator, the possibilities for

Senator JONES of New Mexico. Graft?

Senator COUZENS. Yes; for graft, the opportunities for fixers. Now, I did not hire a fixer, but I suppose I could have hired a fixer.

Mr. HARTSON. Senator, what you wanted

Senator COUZENS. But let me point out I got two hearings, be cause in the first instance I acted upon a ruling of the bureau they afterwards reversed. They assessed me nearly a million dollars, if I remember correctly.

Mr. HARTSON. $900,000, according to my recollection.
Senator COUZENS. So you see it is quite a case.

Mr. HARTSON. I can explain some facts in connection with the Senator's case because I personally passed on it.

Senator COUZENS. I am not finding any fault in your passing on it at all; but I say it leaves wide latitude for the officers. I do not charge them with any dishonesty whatever.

Mr. HARTSON. I understand.

Senator COUZENS. But I think it is an enormous power to put in individuals' hands, and I think it is a power that no individual working for the salary that they are working for should be tempted with. If you had been a dishonest man, and I had been a dishonest man, I could have afforded to have given you a couple of hundred thousand dollars to pass that claim for me. And, therefore, I say that the men in control should not be tempted with such cases; and so as to show the history of this case I would like, Mr. Chairman

The CHAIRMAN. That is all right, to show how such cases are handled, and to suggest remedies where remedies are needed.

Senator COUZENS. Yes; before the committee.
The CHAIRMAN. Before the committee.

Senator COUZENS. There was, as the solicitor knows, a case where a refund was made—whether it was technically in cash or not does not make any difference, it was credited to me on other taxes that I owed and so it was in substance cash to me because if it had not been credited to me I would have had to have paid cash out. Instead of that they credited it on what I owed the bureau for accumulated taxes.

Therefore, in my judgment, it should be reported to Congress in the same manner as that for which you asked appropriations for. The reason you are asked to report those cases for which you ask appropriations is largely as a matter of check. If that should be checked allowances such as I got also should be checked.

Senator King. Just one word: When I moved Friday to strike out from the deficiency appropriation bill the item of $105,000,000 for refunds, and then modified my motion to strike out $75,000,000 when it appeared that more than $75,000,000 had been allowed, when it was insisted that refunds would be allowed and paid which would absorb the $75,000,000, Senator Wadsworth stated, reading from some Treasury report, as I recall his statement, that approximately $250,000,000 only had been refunded actually since 1917. Do you know if those figures are correct: $250,000,000 only have been refunded? That does not represent the entire amount of the refunds and abatements and allowances which have been made by the department upon taxation.

Mr. HARTSON. When refunds are referred to it only refers to the return by the Government of cash paid by the taxpayer to the Government.

Senator King. Do you have any idea as to the number of allowances and abatements of that character that would be comprehended in the report the Senator requested ?

Mr. HARTSON. I have no means of answering the Senator's question; I do not know.

Senator King. Is there anybody in the department who can?

Mr. HARTSON. I think it could be secured; yes; but I can not answer your question now.

Senator King. Would you have any knowledge of the approximate sum? It would exceed a billion dollars, wouldn't it?

Mr. HARTSON. I would not want to concede that, Senator; I do not know.

Senator KING. Mr. Nash, who could furnish that information as to the number of credits, abatements, and allowances aside from where refunds have taken place?

Mr. Nash. We can furnish that information from our accounts division.

Senator King. I wish you would.
Mr. Nash. Yes, sir.

Senator Jones of New Mexico. You went into this proposition during my absence; but I understand that there are two lines of procedure. In one you assess the additional tax and collect it, and the afterwards have a hearing on a refund. Another system is to assess the taxes, but before it is collected give an opportunity for an abatement; is that the way it is handled?

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