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Mr. LYNCH. On the basis of those cases to which you have referred it would appear that the privilege of refusing to give information that might be self-incriminating would be available to the taxpayer. Whether there is anything on the face of this statute which would take that away from him, I do not know. There may be cases where the privilege against self-incrimination is not applicable at all. There might be many cases where there would be no ground for not giving the information on the basis of self-incrimination. In that case it would appear that the statute would not be violative of the privilege against self-incrimination. In other cases, where the person would assert the privilege against self-incrimination, the question would be whether the courts would say, "Notwithstanding this section, he may still claim his privilege and the additional 5 percent cannot be imposed," because it would be an indirect abrogation or erosion of the privilege.

But the statute might still be constitutional on its face. It is a question of interpretation that I would find too difficult to answer. The answer might be found between those two areas.

Mr. COOPER. We are constantly reading in the newspapers of instances where some witness, or somebody appearing before some congressional investigating committee, or in a court, or somewhere, is making claims of his constitutional rights. I was just thinking that it might be helpful if we were as clear as we possibly can be on this point, as we go along. Certainly we realize that the great majority of the taxpayers of this country are honest. If a situation does exist wherein some so-called crooks get by with some things that we do not want to see them get by with, I was thinking that we might well level on this phase of the question now, in order to try to do all that we can to meet these questions that may, and probably will, arise, assuming this proposed provision will be enacted into law.

I am not inclined to debate the desirability of having a provision that will get at the evil and correct it. But I do think we ought to give proper attention to the legality of the methods involved, as we go along, because we want to proceed on sound legal grounds as nearly as we can. Have not the courts usually looked with disfavor on a penalty that is assessed in the guise of a tax?

Mr. LYNCH. Yes.

Mr. COOPER. Is there any difficulty on that point here?

Mr. LYNCH. I would be inclined to think that it might well fit into the same type of penalty as you have for not filing a return on time, or delay in filing returns. There are such penalties in the code now. If it is viewed as being directed specifically to the problem of getting proper accounting for income-tax purposes, proper reporting, I think it probably would be viewed as an appropriate supplement to the requirement that people shall report and shall make adequate information available and shall keep adequate books and records.

Mr. COOPER. You understand, I am just seeking light and information and hoping that we may be able to clear up some of these questions

as we go along, questions that might possibly be raised. Thank you. Mr. REED. Mr. Lynch, I have in my hand Form 1360 of the United States Treasury Department, Internal Revenue Service, and I ask unanimous consent that it be made part of the record, when I finish these interrogations.

The CHAIRMAN. Without objection, it is so ordered.

Mr. REED. This says: "Statement of annual estimated personal and family living expenses of—"

It is divided into three columns-weekly, monthly, and yearly-and lists items such as: Food (groceries, and so forth), outside meals, rent, repairs (home), utilities (gas, electricity, fuel, and so forth), telephone, telegraph, laundry, dry cleaning, domestic help, home furnishings, auto expense, transportation (carfare), recreation, entertainment, vacation, travel, education, magazines, papers, books, insurance, dues (club, lodge, union), personal (tobacco, liquor, lunches, and so forth), taxes-Federal, State, local-contributions, medical, gifts, other, and a line for the signature.

Is that a part of this new set-up?

Mr. LYNCH. Commissioner Dunlap will answer that.

Mr. DUNLAP. That is a form normally used in a fraud case where a taxpayer is suspected seriously of attempting income-tax fraud. That is worked on a net-worth basis in order to determine what allowance should be made that man for his actual living expenses to determine his true income. He is given an opportunity to file that form if he wishes. It is in his own defense.

Mr. REED. Section 54 (a) provides that—

Every person liable to any tax imposed by this chapter or for the collection thereof shall keep such records, render under oath such statements, make such returns, comply with such rules and regulations as the Commissioner with the approval of the Secretary may from time to time prescribe.

The bill, on page 4, goes on to say:

Every such person, to the extent and in the manner prescribed under such regulations, shall keep and retain such records and other information as shall be sufficient to establish the amount, nature, and source of the gross income, deductions, and credits which may enter into the determination of income subject to tax under this chapter.

Of course, the law is broad and you could require every taxpayer to go that far. I do not know just where you draw the line as to who would be under suspicion, politically or otherwise. In any event, I should like to have this copy of the form which I described, 1360, in the record, for the information of the committee.

The CHAIRMAN. Without objection, the matter will be incorporated in the record at this point.

(The matter is as follows:)

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Mr. REED. I have another form here, No. 1352-A, of the United States Treasury Department, Internal Revenue Service, which is a "Statement of Assets and Liabilities as of December 31, 1950."

I suppose that is the net-worth statement to which you referred. It lists here as follows: Names; address; assets-cash in banks; cash on hand; business investments (capital, loans); other loans receivable; securities (at cost); real estate (at cost); mortgages receivable; life insurance and annuities (at cost); personal effects-automobiles, jewelry, furs, other; other assets; total assets.

Then under "Liabilities" there are: Mortgages payable; loans payable (including insurance); other liabilities; total liabilities; net worth; estimated living expenses (calendar year 19-; transfers, gifts, or assignments, 19-.

I hereby solemnly swear that the above is a true and complete statement of my assets and liabilities and that I have no direct or indirect interest in any trusts or financial holdings other than those listed above. Furthermore, I have made no transfers, gifts, or assignments of any of my property except those listed above. The information in this statement has been furnished voluntarily, without any promises having been received in return for same.

There is a place for the signature. I should like to have that put in the record at this point if I may, Mr. Chairman.

The CHAIRMAN. Without objection, it may be put in the record at

this point.

(The matter referred to is as follows:)

Form 1352-A

U. S. TREASURY DEPARTMENT

Internal Revenue Service

NAMES:

STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1950

ADDRESS:

ASSETS

Cash in banks_

Cash on hand.

Business investments (capital, loans)

Other loans receivable___.

Securities (at cost).

Real estate (at cost).

Mortgages receivable.

Life insurance and annuities (at cost) --
Personal effects:

Automobiles

Jewelry

Furs

Other

Other assets_

Total assets

LIABILITIES

Mortgages payable

Loans payable (including insurance).

Other liabilities__

Total liabilities

Net worth_-

Estimated living expenses (calendar year 19__)

Transfers, gifts, or assignments 19__

19__
19__

I hereby solemnly swear that the above is a true and complete statement of my assets and liabilities and that I have no direct or indirect interest in any trusts or financial holdings other than those listed above. Furthermore, I have made no transfers, gifts, or assignments of any of my property except those listed above. The information in this statement has been furnished voluntarily, without any promises having been received in return for same. Sworn to before me this

day of

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19__.

(Signature)

Mr. REED. To what extent have you found those effective, Mr. Dunlap?

Mr. DUNLAP. Quite often taxpayers who have been placed on a networth basis come in and cooperate with us and furnish full information in accordance with our request.

Mr. REED. Generally speaking, Commissioner, the average run of income taxpayers are honest in their disclosures, are they not?

Mr. DUNLAP. We work on the assumption that more than 99.5 percent of them are; yes, sir. They never see that kind of form.

Mr. REED. So far as the matter of keeping records is concerned, I think, as a matter of fact, that I have probably cheated myself, because I forget to put down certain expenses many times, such as expenses for medicines, or what not, as I go along. I was just wondering

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whether you are going to prescribe the kind of records that people must keep and the form in which they must keep them.

Mr. DUNLAP. We have already prescribed such matters in our regulations. The point is that the courts have not always given effect to the regulations. Of course, the great bulk of taxpayers of the United States are perfectly honest and file their returns in that manner. They have the necessary records in the ordinary sense. The ordinary citizen, the man who is on salary, is not affected by such things, but this applies only to the one-half of 1 percent of the people with whom we must deal on a more detailed or fraud type of investigation.

Mr. REED. For instance, if you take the average businessman, the average small attorney who may keep a diary, he does not keep a very detailed record. For instance, in the ordinary diary, in back of it, there is a place where you may record items of income and outgo, any items that have any relation to the income tax that is going to be filed. I have been wondering to what extent a person is going to be required to employ a bookkeeper in order to keep his records.

Mr. DUNLAP. He must keep such records as will reflect his income. Some citizens can do their business through the bank, keeping their bank statements and their canceled checks. That may be all that they need to keep. But these people who are on the fringes, the ones who give us the most trouble, are the ones who keep no records, and there we have to work on a most unusual basis.

Mr. REED. There have been quite a number of people who have had experience with the man out in the field, who may sometimes become very much irritated, and likes to take it out on the taxpayer, perhaps because the taxpayer talks back, becomes a little impatient. I was wondering how far this might be used as a means of penalizing people, perhaps because the tax agent's liver is off, or something of that kind; the field man does not like the attitude of the taxpayer.

It is susceptible of great abuse, if the Government representative wanted to use it that way. On the other hand, I can see the purpose in trying to catch up with the person who is trying to perpetrate a fraud.

Mr. DUNLAP. This particular provision would never affect the average taxpayer in the country. It would affect only those people who have, for some reason best known to themselves, not wished to reveal the sources of their income, so that the source can be verified one way or another. It comes in the criminal field far more than in the civil field. In the civil field we have very little difficulty. It is in the fraud part of our investigations that this provision would be most helpful.

Mr. REED. I am wondering just how far this might lead to further abuses on the part of those who have not been altogether proper in the Bureau of Internal Revenue.

Mr. DUNLAP. I cannot see that this would change that situation one way or another.

Mr. REED. Are these internal revenue agents armed with these blank forms out in the field, to use when they want, or is that decided upon by the Bureau here?

Mr. DUNLAP. That is done by the examining officer in the field working on the type of case that I have described.

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