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ernment prevail in 71 percent of all court decisions (the highest margin of success in 15 years), but the Government limited taxpayers' recoveries in refund suits to only 12 percent of the amount sued for (the smallest percentage of recovery on record). The significance of the margin of success in 1960 is shown in the following tabulation :
The final box score in one of the most active Supreme Court terms for the Tax Division in recent years shows 16 Government wins, 5 losses, and 3 partial de cisions. Most of the issues in those cases attracted nationwide interest, involving hundreds of millions of dollars in tax liability, and have far-reaching consequences for the assessment and collection procedures of the Revenue Service.**
The Government's position was sustained in 192 of 273 decisions of the courts of appeal (a 71 percent margin) while the Government was successful in 486 of 694 trial court judgments (a 70 percent margin). Of particular significance is the 83 percent success figure in the Court of Claims. This, coupled with 81 percent wins in 1959, gives a better than 80 percent margin in this court over the past 2 years.
On the criminal side convictions were obtained in 94 percent of the cases disposed of. This compares with 92 percent in fiscal 1959 and 94 percent in fiscal 1953. The conviction of 473 persons for tax fraud brought to 4,817 the number found guilty since 1952.
5. Savings and recoveries.-Thé Tax Division during fiscal 1960 saved the Treasury $120.7 million, and limited recovery against the Government to only 12 percent of the amount claimed in refund suits. The percentage of recovery was the lowest for taxpayers in the history of the Division, while the monetary savings to the Treasury were exceeded only by last year's record high. Since 1952 the Division has saved the Government a total of $637.4 million, and taxpayers' recoveries have been limited to 21 percent of their claims. This compares with total savings in the 6-year period 1947 through 1952 of $70.8 million and recoveries by taxpayers of 42 percent of the amount previously paid by them.11 Additionally, the Division collected directly from delinquent taxpayers $19.2 million during 1960, compared with $18.5 million the year before, $7.1 million in 1958, and $6.1 million in 1953. In the past 8 years, total collections have exceeded $108 million compared with $90 million collected in the 8-year period 1945–52, an average collection of $2.2 million more each year during the current 8-year period.
6. Currency of work.-At the outset of this justification (see general statement, supra) it was noted that one of the principal objectives was to handle tax cases in the most expeditious manner commensurate with the best interests of the t'nited States and taxpayers.
Fiscal 1959 saw the end of 5 years of effort to bring the volume of pending cases under control. From a high of 6,770 in 1955 the number of pending cases was reduced to 4,200 at the end of 1959. While the backlog was reduced in fiscal 1955, the number of cases over 2 years old increased. In an effort to bring tax litigation to a more or less current status and thereby contribute to the Attorney General's drive to relieve court congestion and at the same time reduce interest costs, overage cases were attacked on many fronts and district by district. In fiscal 1955 about one-half of the work had been pending 2 years or longer. In
10 After much litigation in the lower courts the Department of Justice concluded cases before the Supreme Court which (1) established that depletion allowance on minerals is restricted to the costs of mining (if attempts to broaden the allowance to manufacturing costs were successful over $1 billion in revenue would have been lost) : (2) successfully resisted several attempts of State and local governments to tax Government contractors (it has been estimated that from $ 600 million to $1 billion would be added to contract costs if the basic immunity of the Federal Government was weakened) ; (3) reaffirmed the principle of "pay first-litigate later" in the Federal courts (upsetting this principle would delay the collection of about $100 million in taxes each year); and (4) upheld a longstanding closing procedure of the Revenne Service which assures prompt collection of delinquent taxes (nullifying this procedure would have resulted in the commencement of hundreds of suits for refund).
11 If taxpayers had recovered 42 percent of the claims during the past year (the 6-year average 1947–52) rather than 12 percent, an additional $41.3 million would have been disbursed by the Treasury Department.
1956 this was cut to 35 percent. Reductions occurred in each succeeding year and as of June 1, 1960, less than 10 percent were over 2 years old. Thus, it can be said, including all time in all courts, that better than 90 percent of all tax cases (civil and criminal) have been pending less than 2 years.
7. Procedural improvements. The Tax Division has provided for the constant review of its methods of operation and numerous steps have been taken to speed up interoffice processing of cases and to improve liaison with the Internal Revenue Service, the U.S. attorneys, and the courts. Many of these measures adopted have been reported in previous justifications and the work continues to benefit from their installation and operation."
Within the past fiscal year the Trial Section was reorganized into units and the work divided geographically. The growing volume and importance of refund litigation required the adoption of measures to insure effective supervision and management of the extensive docket and the large staff of attorneys assigned thereto. In addition, it was believed essential to proper and expeditious bandling of the caseload to improve relations with the courts, the U.S. attorneys, the personnel of the Revenue Service, and the bar. The concentration of small units of attorneys upon permanently assigned areas has achieved the desired results and it is believed that all concerned (Government and taxpayer, counsel and the courts) will benefit substantially from this reorganization. Increasing specialization for trial attorneys in geographical areas has permitted them to realize many of the advantages of the local practitioner-increased familiarity with local court rules, judges, court personnel, and Internal Revenue administrative staff-and at the same time they retain the benefits of centralized organization, the incomparable research facilities of the Department, and the fund of knowledge and experience of associates specializing in all phases of tax litigation.
Realizing the necessity for greater settlement authority to meet the growing caseload, an arrangement was worked out with the Chief Counsel of the Revenue Service which will expedite the settlement of the large number of tax cases involving small monetary amounts, commonplace issues of fact, and no important legal questions. This will free the staffs of both offices so that cases important as precedent or to the collection of the revenue may receive major attention. Effective utilization of the arrangement will also eliminate the necessity of trying many cases of a type which have heretofore clogged the courts' dockets.
A procedure has been adopted which alerts taxpayers' counsel immediately after cases are filed of the machinery available for working out stipulations, completing discovery, and investigating settlement possibilities.
A nationwide drive to set up pretrial conferences in civil tax cases conducted during the past 3 years contributed materially to the speed with which cases were tried and concluded. This effort was in conformity with one of the Attorney General's main suggestions to the conferences to relieve court congestion. Over 1,600 cases have been pretried in the past 312 years and an increasing number of district court judges are adopting this means of expediting the disposal of cases.
Due to the efforts of the Tax Division, increased use has been made of special tax calendars in district courts throughout the country, making it possible to concentrate legal counsel and available witnesses to dispose of tax cases in a group with the minimum expenditure of effort and time.
The early contact with taxpayers' counsel, the increasing utilization of pretrial procedures, the greater use of discovery procedures, the setting of special tax dockets, and the reorganization within the Tax Division have not only permitted the speedy handling of cases but have eliminated wasted effort and reduced excessive expenditures for travel, witness fees, etc. It is only because of the adoption and use of these and other measures that the Tax Division has been able to increase its production and handle the unprecedented volume of work within the funds available.''
* Most of these over-2-year-old cases were on appeal or in inactive status pending the outcome of test suits.
13 A monthly inventory system calling for the listing of cases in various postures and the operation of a followup system have assured that no problems are allowed to accumulate. Criminal and Civil Tax Liaison Committees were established between the Tax Division and the Internal Revenue Service. A litigation policy committee was formed in 1958 to eliminate unnecessary and wasteful litigation. A Litigation Control Unit was established within the Division, in 1957. to be responsible for expediting the flow of cases and matters through the Division and through the courts. A new Claims Section was created in December 1957 to handle all civil matters in the courts of original jurisdiction other than refund suits which remain with the Trial Section.
14 On top of the improvement noted, the staff's willing contribution of overtime and other extraordinary services has been an important factor in our success.
Consideration will continue to be given to the improvement of existing office procedure with an eye to eliminating any roadblocks in that direction. This concerted divisional effort in the past few years, together with the Attorney General's program to clear congested dockets, made the past 542-year period the most successful and productive in the history of the Division.
8. Comparisons.-(a) Current period, 1951-60: The achievements of the past 10 years are due partly, of course, to the provision for additional funds and personnel. It is important to note, however, that the legal staff has increased since 1951 by only 65 percent, while work production has increased as follows:
1960 fiscal year over 1951
65 Cases received..
103 Cases closed.
133 Trials and arguments.
155 Briefs written.--
120 Legal memos written --
70 The following graph depicts the rise in tax litigation and shows the disparity between the amount of work received and the funds available for operation. While new cases have risen 240 percent in the past 13 years, funds have risen only slightly more than 160 percent, and even this increase was due in substan. tial part to automatic or uncontrollable increases in operating costs, such as pay raises, employee benefits, and price increases. Inasmuch as the Division's legal staff has increased only 77 percent over the same period, it must be concluded that the adoption of better office procedures, the institution of new litigation techniques, increased and closer liaison with the Internal Revenue Service, the U.S. attorneys and the courts, organizational changes and the exercise of more effective managerial control of the workload and the working staff (including the willing contribution of exceptional services of the staff) have been the principal factors contributing to the extraordinary accomplishments of the past 6 years.
(0) First 20 years of tax division: In the 28 years since the creation of the Tax Division, 7,717 persons have been convicted of income tax fraud. In the first 20 years of its existence (1933–52), the Division prosecuted successfully 2,900 persons, while in the past 8 years (1953-60) the Division convicted 4,817 persons for tax fraud.
In the past 28 years, the Tax Division has collected or saved $1.3 billion in civil tax litigation. In the first 20 years, $593 million was saved or collected, while in the past 8 years (1952–60) $747 million has been recovered or saved for the Treasury.
The following table shows the tremendous growth in the volume of tax controversies and the very substantial record of accomplishment in recent years :
9. Summary.-In summary, the Tax Division's performance under the budget allotment covering the past year shows (a) increased work production, (b) acceleration of all phases of case processing and litigation, (c) increased margin of success in winning cases and limiting recoveries against the Government, (d) substantial monetary savings in principal and interest in litigated cases, and (e) increased collections from delinquent taxpayers. These accomplishments were made in the face of a record volume of new work, in spite of which pending work at the end of the year was more current than at any time in the history of the Division, B. Work pending and anticipated-Current and budget year program
1. Pending.–At the beginning of the 1961 fiscal year 4,416 tax cases and matters were pending in the courts in which there was $600 million in controversy. Of the total volume, there were 2,905 civil actions in the Federal district courts, 394 in the Court of Claims, 355 in State courts, and 209 in the appellate courts. There were 553 criminal tax fraud cases pending in either the Federal district or appellate courts.
It has been estimated that the Tax Division will receive approximately 6,800 cases in fiscal 1961 and close the same number. Thus, the workload at the be ginning of the budget year will approximate the 4,400 cases pending at the beginning of the current year. This will represent an average caseload per attorney of 40 active court cases, with each attorney's docket involving about $7 million in taxes. This is not only a larger caseload than the average practitioner handles, but represents a far greater responsibility than one lawyer should be called upon to assume.
To the pending caseload must be added some 6,500 to 7,000 new cases each Fear involving an additional $200 million, or 65 additional cases involving $1.5 million per attorney. These figures are based upon the estimate of 10 additional attorneys in the current year and 21 additional attorneys for the budget year. If the additional personnel is not authorized, the caseload per attorney will be unrealistic and result in serious loss of time and money to the Government and the taxpayers.
2. New tar litigation.
(a) General: As indicated, the work of the Tax Division has increased steadily for the past 13 years. Analysis of the factors which influence the workload of the Division-all of which are outside of Division control-confirm continuation over the next few years of the rising trend in the volume of work."
15 In the written justification submitted with the estimate for recent fiscal years, some of the factors influencing the rise in tax cases were discused, e.g., the increase in population, resulting in more taxpayers ;, the expansion in business activity over the past 20 years: the stepped-up activity in the Internal Revenue Service during the past 7 years ; and the continuance of high tax rates. As previously noted, and as predicted, the volume of new business did rise in 1960. These influences will continue to be felt in the years to come, and coupled with the sharp rise in the number of bankruptcies and mortgage foreclosures, in a high percentage of which delinquent tax claims are involved, almost certainly will create a further increase in tax litigation.
Testifying in support of operating funds for fiscal 1961, both the Secretary of the Treasury and the Commissioner of Internal Revenue have indicated broad expansion of the collection and enforcement activities of the Revenue Service "over the next several years." A substantial increase in the number of agents, auditors, and revenue officers (2,000) was yoted by the 86th Congress with instructions to increase further general enforcement. Funds were also provided to commence a long-range mechanization of the processing activities by the Revenue Service. At present 95 million returns are filed and the number jumps up each year (it is predicted that the number will reach 125 million in a few years). The Commissioner has stated (pp. 476 477), (House Hearings, 1961 Fiscal Year) that such automatic data processing “will be of value enforce mentwise and of great benefit to the taxpayers." The Chief Counsel announced to the tax section of the American Bar Association Convention in Washington, D.C., on August 30, 1960, that legal services of the Revenue Service were being expanded to keep pace with the overall increase in enforcement activities, and, specifically, that approximately 50 additional attorneys were being added to the legal staff immediately and that plans called for the addition of from 50 to 70 new attorneys each year over the next 5 years. Such an expansion of activities by the Division's chief client will inevitably reflect an increase in workload in the Tax Division. If the Government is to be properly represented and the Internal Revenue Code effectively enforced, the growth of this Division must keep pace. Such long-range plans of the Treasury Department to produce additional revenue through a major increase in administrative enforcement activities will, in large part, end in frustration if judicial enforcement of our revenue laws slackens because the growth of the Tax Division is not commensurate with the mounting pressure of tax litigation.
Thus the Tax Division is faced with a staggering caseload of active litigation--substantially different in size, complexity and national importance from the caseload of a few years ago. Coupled with the small size and rapid turnover of the Division's staff, this workload has compelled a studious appraisal of our needs, which are conservatively stated in the following sections.
(6) Criminal Section: Four additional attorneys and two additional legal stenographers are requested for the Criminal Section. While the work of this section took a dip in fiscal 1958 (from a record high in fiscal 1957), the downward trend was reversed in March of 1959 and since that time (through the 1960 fiscal year) new criminal cases have increased better than 30 percent and advice from the Commissioner of Internal Revenue and the Chief Counsel is to the effect that a 20 percent rise may be expected in each of the next 2 years. The Intelligence and Enforcement Divisions of the Internal Revenue Service have inventories of cases on hand which will result in a 72 percent increase (compared with last year) in the number of cases to be referred to the Tax Division in the first half of the current fiscal year. These estimates do not take into account the effect of the additional enforcement personnel authorized by Congress and the automatic data processing program, both of which will result in more cases. The Tax Division, performing as it does an important function in aiding the overall collection effort of the Federal Government, must be in a position to present the Government's case in the best light and in the most forceful manner in these criminal tax cases, The present staff is inadequate to handle the increase over the next 2 years. The addition of four attorneys will enable the Division (with temporary assignments from other Sections during periods of peakloads) to fulfill its vital role in the enforcement program of the Treasury Department.
(c) Claims Section : It is proposed to add five attorneys and two stenographers to the staff of the Claims Section. The workload of this section took another jump in 1960 and has increased 50 percent in 3 years. Of particular significance is the fact that insolvency proceedings involving tax claims rose 22 percent in fiscal 1960.
The Director of the Administrative Office of U.S. Courts, in his annual report for fiscal 1960, predicts a continued rise in the number of bankruptcies, which
16 Hearings. Subcommittee, House Appropriations Committee, fiscal 1961. pp. 31, 32, 457, 474, 476, 478, 479, 485. Hearings, Subcommittee, Senate Appropriations Committee, fiscal 1961, pp. 13, 17, 26-29, 34, 44.