assistance in connection with the proposed legislation will, if your committee so desires, of course be made available by the Department. We come now to an appendix which refers principally to those sections which are designated to bring about administrative improvements in various areas where the Treasury Department and the Bureau of Internal Revenue were of the opinion that enactment of the sections could improve administration and in some cases ease compliance problems by taxpayers.

Mr. FORAND. Mr. Chairman, may I ask a question right there? Mr. COOPER. Yes.

Mr. FORAND. I want to find out from Mr. Lynch if I understood him correctly when he said the appendix contains not the recommendations of the subcommittee but recommendations of the Treasury.

Mr. LYNCH. Yes, if I may answer this way, in the consideration of this bill opportunity was given to the Treasury Department to bring forth administrative suggestions for inclusion in the bill and these sections in the appendix are of that character. I think I should add also that as a result of that opportunity for us to present suggestions for inclusion in the bill, there were included also section 303 which I have already commented on relating to the right to sue, the proposal that a taxpayer should be able to sue the United States with the right of trial by jury, and also section 103.

Mr FORAND. I am trying to differentiate between the recommendations of the committee and the recommendations of the Treasury. As this is set up, the appendix is the Treasury Department recommendations?

Mr. KEAN. The subcommittee has gone over these recommendations and the majority of the subcommittee is in accord with them.

Mr. FORAND. I do not doubt that. I am trying to get the line of demarcation as to the origin of the suggestions.

Mr. COOPER. Go ahead, Mr. Lynch.

Mr. REED. I would like to ask a question, if it is proper at this time.

Mr. COOPER. We have agreed to wait until he has read his state

ment.

Mr. REED. All right.

Mr. COOPER. Go ahead with the appendix.

Mr. LYNCH. Section 103, relating to records: This section would amend section 54 of the Internal Revenue Code to require every income taxpayer to keep and retain such records, to the extent and in the manner prescribed in regulations, as shall be sufficient to establish the amount, nature, and source of the gross income, the deductions, and the credits which may enter into the determination of income subject to tax under this chapter.

At the present time, section 54 merely states in broad language that the taxpayer shall keep such records as the Commissioner may require. In effect, the proposal would incorporate into the broader language of section 54 some of the more detailed specifications now found in the regulations under that section.

It is believed desirable for these reasons: (1) It will give express statutory sanction to the requirements for adequate books and records and other information of deductions and losses now contained in the regulations. This will provide a clearer indication to the taxpayer that the Congress desires adequate and detailed books and records kept, along with substantiating evidence, and assist field officers of the Bureau in persuading taxpayers that adequate records must be kept. (2) It will strengthen the possibility of criminal prosecution under section 145 (a) for failure to keep proper records or supply information required by law or regulations.

Section 106, authority to examine records: This provision would grant the Secretary permission to make an examination of the taxpayer's books and records, for the purpose of ascertaining whether appropriate books and records are being kept, at any time during the taxable year. At the present time, under sections 3614 (a) and 3631 of the code, books and records may be examined only for the purpose of making a return or ascertaining the correctness of a return after the close of the taxable year, and only once for such purposes unless notice is given. In many instances, investigation, after the taxable year involved, of gamblers, racketeers, and other taxpayers who deal primarily in currency transactions, discloses that the records have been "lost," "accidentally destroyed," or "misplaced." In other instances, the taxpayer alleges lack of knowledge of the requirements. The penalty for failure to keep records or supply information required by law or regulations is provided by section 145 (a) and requires proof of wilfull failure, that is an evil motive. It is difficult to establish evil motive in the face of such explanations.

The present difficulties under section 145 (a) can be eased by the proposed amendments. If no books or records are available, or if the records are insufficient to show the amount of the gross income and the deductions, credits, or other details required to be shown on a return, the taxpayer can be warned at the time of the preliminary examination of the requirement that proper books and records be kept. Lack of, or inadequate records in the face of such a warning may then provide a basis for proof or wilfull failure within the meaning of section 145.

Section 108, collection of delinquent taxes of employees: This section would authorize the withholding of compensation from Federal officers and employees liable for payment of Federal income taxes. It would also provide a similar procedure to facilitate the collection of delinquent taxes from the salaries and wages of employees other than those of the Federal Government.

At the present time, a surprising number of Federal officers and employees owe delinquent taxes to the Government. In almost every case, the employee has no property out of which collection can be made, and the sole source of his income is his Federal compensation. The Treasury Department's remedies to collect the tax in these cases are not adequate. Existing United States statutory provisions concerning offsets against the salary of Federal employees (5 U. S. C. 82, 31 U. S. C. 71) have been held to be inapplicable to income tax liabilities.

The proposal would alleviate the problem by providing that if the tax remains unpaid for a period of 10 days after notice and demand

for payment from the employee, the Department may send notice to the agency employing the delinquent officer or employee of the amount of the unpaid tax, and require it thereafter to withhold 10 percent of the employee's compensation up to the rate of $10,000 per annum and 25 percent of the amount in excess of such rate, until the tax is paid.

In the case of employees other than Federal employees, the difficulty of collection is also very great. While section 3692 of the Code authorizes a levy upon the unpaid salary of the employee, this remedy is limited to amounts actually owed by the employer at the time of the levy. The levy does not attach to future earnings. Accordingly, the proposed additional remedy in the form of a continuing levy against such future earnings, which will correspond to the remedies to be made available against the salaries of Federal employees, will be helpful to the Bureau in its enforcement activities.

If a notice to withhold (in the case of a Federal employee) or a continuing levy is effected within the 6-year period of limitations for collection of tax provided in section 276 (c), any subsequent notice or levy for the same tax liability served upon the same or any other employer of the employee owning the tax shall be considered to be effected within such period. Thus, an employee who changes employment after a notice or levy has been served upon his employer will be unable to escape the effect of the procedures designed to collect the tax from his salary in his new employment, even though the 6year period of limitation prescribed in section 276 (c) would prevent a new levy. This is comparable to the result which would obtain had the Bureau obtained against the taxpayer a judgment, which can be periodically renewed.

Section 109, authority to distrain: This section would amend section 3690 to provide that where the collection of any tax is believed to be jeopardized by delay, the Department is authorized to distrain immediately if the taxes are not paid upon notice and demand.

Section 3660 of the Internal Revenue Code authorizes the Commissioner, wherever the collection of a tax is determined to be in jeopardy by reason of delay, to make immediate distraint of taxpayer's property, upon notice and demand for the tax. This provision, however, is confined to excise and miscellaneous taxes, and no such authority is provided with respect to income, estate, and gift taxes.

In the collection of income, estate, and gift taxes, notice and demand for payment must be made at least 10 days before action is taken against the taxpayer's property. This 10-day waiting period, during which the taxpayer has notice of the asserted claim, provides an opportunity for secreting, disposition, or removal of the property. The lack of authority to make immediate distraint in jeopardy cases may prove especially serious where the taxpayer is preparing to leave the country or where the goods include personal property which may be sold or concealed. The proposed amendment thus would strengthen the revenue collection system.

Section 110, extension of period of limitations for certain offenses: The first portion of the amendments made by this section would amend section 3748 (a) to make the 6-year statute of limitations applicable to the offenses described in section 145 (a), namely, the failure to file a return or declaration, to pay any tax, keep any records or supply any information at the time or in the manner required by law or regulations. While the present period is 6 years for willful attempt to

evade tax (sec. 145 (b)) it is only 3 years for the willful failure to file a return, pay tax, and so forth (sec. 145 (a)).

The short period of time constitutes a serious obstacle to the effective enforcement of the revenue laws against gamblers and racketeers who operate by cash transactions and cover up their financial affairs, as well as other taxpayers who willfully fail to file tax returns. The difficulties of investigation in cases where no return is filed are frequently great, and the Government is placed at a distinct disadvantage due to the very short 3-year period of time within which prosecution must begin. Attempts to contend that a willful failure to file constitutes a willful attempt to evade have not been successful—that is for the purpose of bringing the failure to file within the 6-year period of limitations, those attempts have not been successful as it has been held that the willful failure to file a return, even where the taxpayer has received a large amount of income, does not of itself constitute willful attempt to evade or defeat the tax within the meaning of section 145 (b). Spies v. U. S. (317 U.S. 492).)

The second portion of the amendments made by this section would also amend section 3748 (a) to make the 6-year statute of limitations applicable to the offenses described in section 3793 (b) (2) as added by section 111 of the bill. These offenses provide criminal liability for those persons who falsely make returns, statements, or documents in connection with revenue matters. There is now a 6-year period of limitations on those persons who assist in the preparation of false statements or documents, and it seems anomalous not to have the same period applicable to offenses by the principal wrongdoer.

Section 111, penalty for misrepresentations in revenue matters: This section would add to section 3793 of the Internal Revenue Code a provision identical to section 1001, title 18 of the United States Code. The proposed amendment provides that any person who, in any matter before the Bureau of Internal Revenue, willfully falsifies, conceals, or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious, or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain a false, fictitious, or fraudulent statement or entry, shall be fined not more than $10,000, or imprisoned not more than 4 years, or both.

While section 1001 of title 18 of the United States Code is presently applicable in internal-revenue matters, section 110 of the bill proposes to extend the statute of limitations on the offenses covered therein to 6 years rather than 3 years, the present period applicable to section 1001. Though it is clear that a 6-year statute with respect to false statements is desirable in revenue matters, it has not been suggested that the general statute of limitations contained in section 3282 of title 18 be extended. Therefore the provisions of section 1001 have been specifically added by this section to the Internal Revenue Code and the statute of limitations with respect to it has been extended under section 110.

Perhaps a word of explanation would be well. The substance of the words of this section are identical to those now included in the criminal code. The criminal code now provides an offense of the kind here described with respect to any matter before any agency or department of the Government, but as a part of the criminal code is subject to the general criminal statute of limitations of 3 years. The proposal is

that as this offense relates to Bureau of Internal Revenue matters, the statute of limitations be made 6 years instead of 3 years, the same as is recommended with respect to other criminal violations of the Internal Revenue Code just mentioned above. The proposal is made in this form so that the specific crime with respect to internal-revenue matters will be made subject to the 6-year statute of limitations.

Section 201, exemption from requirement on declarations of estimated tax: This section would eliminate the requirement to file a declaration of estimated tax where the estimated tax amounts to less than $10.

At the present time, an individual is required to file a declaration of estimated tax if he expects to receive during the taxable year (1) wages subject to withholding in excess of $4,500 plus $600 for each exemption, or (2) more than $100 of income not subject to withholding and a total gross income of $600 or more. Under these provisions, declarations of tax are required in many instances although the tax withheld at source is sufficient. to cover the entire liability or the taxpayer is not liable for income tax. As a result there were more than 700,000 nontaxable declarations of estimated tax filed in 1951, and a large number of taxable declarations disclosed a small amount of estimated tax.

Elimination of the requirement of a declaration where the amount involved is less than $10 would relieve the Bureau of the burden and expense of handling a large number of declarations which, if nontaxable, serve no useful purpose, and of submitting quarterly bills for very small amounts of tax. In view of the small amounts involved, the proposed amendment would not violate the principle of pay-asyou-go. Those taxpayers who preferred to do so could continue to make declarations and pay the tax quarterly. Of course, comparable to the requirements under existing law, if circumstances change during the year so as to indicate that the estimated tax liability will exceed $10, the taxpayer must file a declaration.

Section 202, abatement of jeopardy assessment when jeopary does not exist Present law provides for the immediate assessment of a deficiency of income, estate, and gift tax whenever the Commissioner believes that the collection of the tax will be jeopardized by delay. The jeopardy assessment is ordinarily invoked when it appears that the taxpayer may be insolvent, preparing to leave the United States, or may be disposing of his properties.

Since jeopardy assessments must be made on short notice, subsequent investigation of the facts may reveal that jeopardy does not exist. There is, however, no authority in the Code to remove a jeopardy assessment (except where the taxpayer subjects himself to the expense of a costly bond) when one has been made, regardless of how clearly it may appear that the jeopardy assessment was unnecessary.

This section of the bill would authorize the Commissioner to abate the jeopardy assessment if it appears, upon further investigation, that there was no risk justifying the tying up of the taxpayer's assets. Sections 273, 872, and 1013 would be amended to achieve this result. In order that recourse to the usual procedures may not be barred by expiration of the statute of limitations on a subsequent assessment, it has been necessary to provide for a suspension of the running of the statute during the period when the jeopardy assessment is in effect.