The administration of the Revenue Act is placed in the hands of the Commissioner of Internal Revenue, referred to in this book as the "Commissioner," subject to the supervision and control in certain respects of the Secretary of the Treasury.1

This chapter describes and comments on the organization of the Internal Revenue Bureau, and sets forth the conditions governing practice before the Treasury. The procedure which should be followed when assessment letters showing additional taxes are received, and when action is to be taken on claims for abatements, credits or refunds, is set forth in Chapters 4-7.

Steps in the assessment and collection of the tax. The steps in the regular procedure of the Bureau of Internal Revenue. are as follows:2

1. The taxpayer makes a return and pays to the collector, who receives the return, one-fourth or all the tax shown due on the face of the return. (See Volume I, Chapter 9.)

2. The returns are given a preliminary inspection in the offices of collectors, and taxpayers are notified by the collector of any changes in tax liability due to mathematical errors detected in the course of inspection.

3. All returns, except those made on form 1040A and such others

1

1 Formerly the Solicitor of Internal Revenue, an officer of the Department of Justice, functioned practically as a member of the Internal Revenue Bureau. This officer is now called the General Counsel, and is classified as an officer of the Treasury Department.

2 See C. B. V-1, 115; T. D. 3867, and Bulletin of National Tax Association, Vol. VI, page 49.

as the collectors specifically may be authorized to audit, are next surveyed by revenue agents and grouped into three classes:

(a) Those requiring no audit;

(b) Those which can be adjusted by office audit; and

(c) Those requiring an investigation of the books and records

of the taxpayer.

4. The Collector lists the returns, entering the taxes due upon his books, and forwards the returns to Washington.3

5. In Washington the returns are first checked against the collector's lists and the original tax verified.

6. The "audit" of the returns is completed and supplemental amounts of taxes due [and the amounts of overpayments] are determined; the taxpayer is notified and [after the procedure laid down in section 274 (a) and Article 1232, has been complied with] the return is sent to a separate section of the Bureau for entry on a supplemental list.4

7. Supplemental lists are transmitted from time to time to the collectors, the taxpayer is formally notified [of additional taxes] and the tax is due for payment within ten days after such notice.

Administrative organization.

BUREAU OF INTERNAL REVenue, general.—The Bureau of Internal Revenue, referred to in this book as the "Bureau," is charged with the collection of all federal revenue other than customs. In addition to the Commissioner, the law provides for one General Counsel, four Assistant General Counsel, one Assistant to the Commissioner, one Special Deputy Commissioner, five deputy commissioners, and a Commissioner in charge of the Prohibition Unit. Income taxes are collected through the local collectors of internal revenue, who are also charged with the collection of all other internal revenue taxes except customs. The collectors of internal revenue are the officers who come into the most direct touch with the taxpayers

5

'Returns on form 1040A are not sent to Washington, but are audited in the collectors' offices.

If it is found that there has been an overpayment of tax, the taxpayer is sent a certificate of overassessment which enables an adjustment to be made by the local collector.

The deputy commissioners at present in office are in charge of the following: 1. Miscellaneous (including Estate, Sales and Capital Stock Tax Divisions, Tobacco Information, etc.); 2, Accounts and Collections Unit.

The Assistant to the Commissioner is in charge of the Income Tax Unit.

and they are held primarily responsible for the proper collection of the tax in their districts. At present there are sixty-seven collection districts, each with a collector at its head assisted by a staff of subordinates.

THE INCOME TAX UNIT.-Those who have dealings with the Bureau will be interested in the organization of the Income Tax Unit, as set forth in the chart reproduced on page 17. This chart shows the organization at July 1, 1926, no revised chart having been issued since that date.

Revenue agents.—Unless a special examination is handled from Washington, field investigations are conducted by revenue agents. There are eight supervisory districts throughout the United States. Each district has a supervisory agent in charge, and has one or more divisions located at various cities with "revenue agents in charge" at the head. There are thirty-four such divisions. All of the field force are under the supervision of the Assistant to the Commissioner in Washington, who is also the head of the Income Tax Unit.

GENERAL COUNSEL.-The office of General Counsel (formerly Solicitor of Internal Revenue) is divided into seven divisions:

1. Interpretative Division No. 1, which handles all questions of law arising within the Bureau in connection with income. and excess-profits taxes;

2. Interpretative Division No. 2, which handles all questions of law arising within the Bureau in connection with all other internal taxes; this division also passes on all offers in compromise;

3. The Civil Division, which handles all cases before the courts in cooperation with the various United States district attorneys;

4. The Penal Division, which handles all fraud cases, whether the proceedings are before the Bureau or the courts;

5. Review Division, which passes on all claims involving refunds in excess of $50,000; this division also took over all appeals within the Bureau when the Committee on Appeals and Review was abolished. Practically all these appeals have been considered and the division is now merely reviewing claims.

6. Appeals Division, which handles all cases appealed to the U. S. Board of Tax Appeals; and

7. Administrative Division, which has charge of all questions dealing with organization and personnel.

CRITICISM OF ORGANIZATION.—In the past the author has been critical of the overcentralization of the Bureau of Internal Revenue. During the last three years considerable progress has been made toward decentralization and the powers of revenue agents have been increased. The Board of Tax Appeals was authorized, under the 1924 and 1926 laws, to hold its hearings in various cities. This is a step in the right direction. As rapidly as the quality of the personnel permits, the process of decentralization should be extended.

The Income Tax Unit, like most of the government departments, is bound hard-and-fast by "red tape." The chief fault is that there are too many checks and reviews. For example, in a case where an agreement under section 1312 of the 1921 law was entered into with the Commissioner, the agreement was approved by seven different people before the Commissioner and Secretary signed it. These reviews are being continued in the administration of the 1926 law and if anything are more technical than ever. These unnecessary checks not only add to the cost of collection, but they cause confusion and irritation to taxpayers, and tend to destroy the initiative of the Unit's employees.

There can be no question about the vital necessity of enough supervision to detect fraud on the part of taxpayers and collusion of one kind or another. It would certainly be highly desirable for the Bureau to stop the leaks regarding proposed assessments and other information which so frequently appears to be in the possession of so-called tax experts. The connections of each ex-employee who practices before the Treasury require even more careful inspection.

Precaution should be taken to see that the conferees do not actively participate in the preparation of assessment letters, i.e., they should not make decisions on cases which disqualify them for considering cases when presented by the taxpayer.

Many of the conferences and decisions of conferees are farcical. Review bodies are permitted to review decisions and to reverse them without notifying the taxpayer. The taxpayer is not notified of the appeal within the Bureau, hence he is not allowed to appear to present his case before the review body. The reviewers do not attend con