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ENFORCEMENT AND ADMINISTRATION OF THE
INTERNAL REVENUE LAWS
TUESDAY, MAY 27, 1952
HOUSE OF REPRESENTATIVES,
Washington, D. C. The committee met at 10:30 a. m., pursuant to recess, in the committee room, New House Office Building, Hon. Robert L. Doughton (chairman) presiding.
The CHAIRMAN. The committee will come to order.
The committee adjourned yesterday and the General Counsel of the Treasury Department had not concluded his statement. I talked to him this morning before the committee resumed the session. He and the chairman feel that we would save time to let him conclude his main statement and the members make notes of any matters to which they desire to refer later. He prefers, if it is agreeable to the committee, to conclude his statement and then submit to questions. Without objection we will proceed with that understanding.
The Chair would like to remind the members of the committee that according to the rules under which the committee operates the members should obtain recognition from the Chair before they ask questions or make observations, otherwise we get two or three talking at the same time. Until the rules are changed, I hope the members will observe the rules that the committee has and not ask any questions of the witness or make any remarks until they are recognized by the Chair.
Mr. Lynch, you may proceed now. STATEMENTS OF HON. THOMAS J. LYNCH, GENERAL COUNSEL,
TREASURY DEPARTMENT, WASHINGTON, D. C.; HON. JOHN B. DUNLAP, COMMISSIONER, BUREAU OF INTERNAL REVENUE, WASHINGTON, D. C.; AND CHARLES W. DAVIS, CHIEF COUNSEL, BUREAU OF INTERNAL REVENUE, WASHINGTON, D. C.-Resumed
Mr. LYNCH. Referring to the mimeographed copy of the report, at the hearing yesterday we concluded at the bottom of page 3, so I propose to start at the top of page 4.
I would like to point out that yesterday we concluded with a discussion of section 105. The next section that we propose to discuss is section 107 at the top of page 4. The reason for the omissions of certain sections is explained at the beginning of the report because we thought it would be more helpful to comment first on those sections
which were intended to carry out the purposes and objectives of the subcommittee.
The other sections in the appendix are mainly those which were of an administrative, corrective character which were included in the bill at the suggestion of the Treasury Department. Those will be covered in an appendix after we conclude with the other provisions of the bill. That is the reason why the report is not always in the order of the sections.
Mr. JENKINS. Mr. Chairman, just one thing else. As I understand, you are not going to say anything about 106 now.
Mr. LYNCH. Not now.
Mr. JENKINS. Are there any other sections besides 106 that you will skip; so I can make notes?
Mr. LYNCH. Yes. They will be noted when I come to them.
Mr. Lynch. Section 107 relating to persons assisting in the preparation of returns, would first require any person who, for compensation, prepares a return for another, to state his name and address on the return, and, (2) require any taxpayer who pays a person to prepare, or for assistance in preparing, his return, to state such person's name and address on the return if such person has not already done so. Willful failure to comply with the provision would subject the violator to a $1,000 fine, a year in jail, cr both.
That is the effect of the provision. As to comment on the proposal, a taxpayer should be entitled to choose any person he desires to assist in the preparation or filing of his return, as long as those assisting him do so in good faith and the best of their ability. There are those, however, who hold themselves out to others as persons who will assist in preparing returns who willfully give the taxpayer erroneous advice, which grants the taxpayer an ostensible reduction in tax liability. While section 3793 (b) (1) of the code permits the prosecution of such persons if caught, the initial difficulty is to find them, as they do not sign the returns on which they give assistance, nor does the code specifically require them to do so.
The Bureau has recognized this as a problem and considerable thought has been given to appropriate measures to combat the evil. It would seem that grave consideration should be given as to the warrant for placing a sort of secondary liability on the taxpayer to see that the preparer of the return complies with the law, and to place upon the taxpayer the burden of deciding, at the peril of criminal penalty, whether he has had assistance in preparing his return, a technical question which undoubtedly would require litigation to resolve. A modification of the bill's proposal might require a signing of the return by any person who openly offers his services to the general public, and who prepares a return for compensation. This would go directly to the area of difficulty and not cause undue burdens on the taxpayer, nor on the local school teachers or bank clerks who occasion. ally give valuable assistance.
Sections 108, 109, and 110 are covered in the appendix as well as 111, 201.
Mr. REED. What about 209?
Mr. Lynch. That will be next in the main statement. I am just commenting on the omissions. Up to 209, the sections between 107 and 209 will be covered in the appendix.
Section 209, clarification of powers of Joint Committee on Internal Revenue: That is a matter which came to the attention of the subcommittee as a result of Reorganization Plan No. 1 of 1952 for the Bureau of Internal Revenue and is to make clear that the authority of the joint committee to obtain data directly from the Bureau of Internal Revenue was not affected by Reorganization Plan No. 1 of 1952, a result which it is believed would obtain under present law. The amendment appears thus to be only clarifying in nature.
Section 301, influence peddling, makes it a crime for anyone to pay or to solicit or receive a fee of any sort for the promise or agreement to use, special “influence” (1) to affect the action of any Treasury employee in the matter that is or might be before the Department, or (2) to obtain information with respect to such a matter other than that made available by proper authority. It would not apply to ordinary professional representation.
This section is apparently directed at "fixers" or "influence peddlers", i. e., those who sell or claim to sell "influence" in matters before the Treasury and subjects them to a fine of $10,000 or imprisonment for not more than 1 year, or both.
The Treasury Department would welcome measures to provide more effective sanctions against the evils of so-called influence peddling. In the consideration of this problem, the committee might wish to give thought to the desirability for any such measure to be extended Government-wide rather than being limited in its application to the Treasury Department. Since the provision will be administered and enforced by the Department of Justice, it might be helpful to obtain its views as to the desirability of such extension, and as to whether the language proposed in the bill raises any problems as to scope and application.
Section 302, unauthorized practice before the Department of the Treasury, would establish specific sanctions for unauthorized practice before the Treasury Department by making a crime the representation as agent or attorney for any person, for compensation, before the Department, without being licensed to appear before the Department, in cases where a license is required. The penalty would be a fine of not more than $10,000, imprisonment of not more than 1 year, or
both. Title 5 of the United States Code, section 261, authorizes the Secretary to prescribe rules and regulations governing the practice of agents, attorneys, or representatives of claimants before the Department. Under these regulations an applicant must demonstrate good character and reputation as well as professional qualifications before a license is issued authorizing him to appear before the Department in tax controversies. The license is subject to revocation at any time for failure to conform to the required standards.
The provisions of section 261, title 5, are applicable only in the determination as to whether or not a person is to be recognized by the Department as a representative of the taxpayer. No specific criminal sanctions are, however, provided in such section.
Under the present regulations of the Department, it is made clear that no one may appear before the Department in any matter con
stituting practice without being properly enrolled. Moreover, the conference and practice requirements of the Bureau of Internal Revenue contain detailed rules governing its employees as to the manner of proceeding in cases in which unlicensed representatives appear. In order to emphasize these rules, the Department has recently issued instructions to its employees calling their attention to the requirements as to enrollment and repeating the rule that employees of the Department shall call upon practitioners who appear before them in any matter constituting practice to produce their enrollment cards. There would appear to be a question as to the necessity for criminal sanctions, which might be unduly rigorous in some situations. It is suggested that careful consideration be given before proceeding in this area with the imposition of such sanctions.
Section 303, jury trial in actions for recovery of taxes, would enlarge the right to suit against the United States by extending the jurisdiction of district courts to any civil action against the United States for the recovery of any internal revenue tax, with provision for a jury trial in such case. It would also make clear that the existing right to a jury trial in suits against collectors or their successors is not affected by the reorganization plan.
Under the existing law, a taxpayer seeking a refund of tax has three avenues open to him: (1) He may sue the collector to whom he has paid the tax, regardless of the amount, and with the right to a jury trial; (2) he may bring suit against the United States in the district court, without a jury, if the amount does not exceed $10,000, or if the collector is dead or out of office, regardless of the amount; or (3) he may bring suit against the United States in the Court of Claims, without a jury, regardless of the amount.
The right to jury trial in suits against collectors for refund of taxes was the subject of considerable discussion during consideration of the President's Reorganization Plan No. 1 of 1952, relating to the Bureau of Internal Revenue, although it is clear that under the reorganization plan, suits against the collector would carry over to his successor,
the new Director of Internal Revenue. The suit against a collector creates, for both taxpayers and the Government, a number of substantial problems which make it a form of action poorly suited to the orderly adjudication of tax issues. These problems are caused largely by two basic characteristics of this type of action which distinguish it sharply from the suit against the United States: First, since the suit against the collector is a personal action for money had and received, it can be brought only against the collector to whom the money was paid, even though he is out of office or dead. The suit cannot be brought against a successor collector to whom the tax was not paid. Secondly, in view of the personal nature of the action, the taxpayer must bring the suit in the judicial district wherein the collector resides.
Substantial difficulties may arise where the collector who is out of office moves to a new judicial district, perhaps far removed from the district of his original residence and duties. Because the action is personal in nature, the taxpayer might be required to follow the collector to the judicial district of his new residence, even though it is far removed from his own residence and place of business where essential records and witnesses are located. In contrast a suit against the
United States for refund of taxes is brought in the judicial district of the taxpayer's residence. The taxpayer is never confronted by any problem of seeking out the defendant and he is always assured that the suit will be litigated in a form easily accessible to him.
A second and perhaps even more serious difficulty which may arise in suits against collectors relates to procedural problems. Since the suit against the collector is a personal action having a common-law origin, taxpayers are confronted by a variety of anachronistic commonlaw technicalities, which are confusing and burdensome at the least, and which may even result in the defeat of just claims. Thus, questions affecting the correctness or lawfulness of court process, jurisdiction of the court over the person of the defendant, venue, the subject matter of the action, and many other procedural issues, are questions which may be raised as a defense to the action.
A suit against the United States, on the other hand, is a relatively simple procedure and if the right to a jury trial is provided in all such suits the taxpayer will not be required to use the more cumbersome method of a suit against the collector (or director) unless he so desires. Under these circumstances, adoption of the proposal would constitute an important contribution to the further improvement of our revenue sysem.
I should like to interpolate here that the Department of Justice, I suggest, should be invited to comment on that provision. I think they may want to make some suggestions with regard to it.
Section 304, clarification of section 281 of the title 18, is intended to clarify what is understood to have been the original intent of Congress in enacting section 281 of the Criminal Code. Section 281, as it stands, prohibits, under criminal penalty, Federal officials (including members of Congress) from representing persons before agencies and departments of the Government for compensation. However, it does not bar representation of clients in judicial proceedings. This has led some to construe the statute to allow such officials to undertake representation of persons before departments on the theory that if the matter involved is not settled, it might end in the courts. This section is intended to correct that possible ambiguity by making it clear that any representation of a person for compensation in a matter in which the United States is a party may be undertaken only as trial or appellate counsel in a judicial proceeding.
That statement is purely an explanatory statement. This is a subject matter which is not within the competence, of course, of the Treasury Department. Again I would like to suggest that the Justice Department be given an opportunity to present views on tḥat section.
Concluding the body of this report, it has been the earnest desire of the Treasury to cooperate in every possible way with your committee and the Subcommittee on Administration of the internal revenue laws. During the past few weeks, the members of our staff, together with members of the staff of the Joint Committee on Internal Revenue Taxation, have been working closely with members of the subcommittee staff in an attempt to give all possible assistance in the Subcommittee's consideration of legislative proposals. Further