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Full text of "IRS historical fact book : a chronology, 1646-1992"

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j£istorkal 
Cf act Bo ok: 

<ui Qhronology 



1646-1992 






i 




IRS 

HISTORICAL 

STUDIES 



Published as part of a continuing series of historical studies to preserve and disseminate the 
history of the Internal Revenue Service and tax administration in the United States. 

Department of the Treasury 
Internal Revenue Service 



Qontents 



5 Preface 

7 Introduction 

11 1646-1799 

Reluctance Turns To Reality: The Young Nation Establishes 
Its Own System of Taxation 

21 1800-1859 

To Tax or Not To Tax: Meeting the Needs of Expansion 

29 1860-1865 

Rebellion and War: Creative Financing Creates Lasting Legacies 

39 1866-1872 

Reconstruction and Reuniting: Congress Reconsiders the Income Tax 

51 1873-1885 

Years of Consolidation:Alcohol and Tobacco Remain Revenue 
Mainstays 

65 1886-1895 

Revenue Experimentation: Regulatory Taxes, Expanding Duties, 
and Supreme Court Rulings 

73 1896-1909 

The Rebirth of the Income Tax: Congress Proposes a Constitutional 
Amendment 

83 1910-1918 

Revenue Expansion: A Constitutional Amendment and World War I 
Provide the Push 

95 1919-1925 

Prohibition, Appeals , and Decentralization: The Bureau Faces an 
Increasingly Complex System of Taxation 

1 1 1 1926-1934 

Depression and Organized Crime: Tax Rates and Gangsters Fall 

125 1935-1941 

Social Security and Firearms Control: New Responsibilities 
for the Tax Collector 



135 1942-1949 

World War II and the Income Tax: A Marriage of Convenience 
That Survived 

147 1950-1953 

Investigation and Turmoil: The Depoliticization of Tax Collection 

159 1954-1959 

Rebuilding a Reputation: "Service" Becomes More Than Just a Name 

169 1960-1964 

Computerization and International Aid: The IRS Gears up to 
Support the Global Reach of the United States 

181 1965-1969 

ADP, IMF, BMF, FTD, DDES, DIF, IDRS: Tax Collection 
Becomes Alphabet Soup 

193 1970-1973 

Economic Stabilization and Union Negotiations: The IRS Adapts 
to New Demands 

203 1974-1979 

Outreach and Automation: The Rise of Taxpayer Service and 
the Demise of TAS 

215 1980-1986 

Tax Reform and Processing Nightmares: The IRS Struggles with the 
Increasing Pace of Change 

227 1987-1992 

Focus on Quality and Taxpayer Service: Putting the "Service" Back 
Into the IRS 

239 Appendix 1: Commissioners of Internal Revenue 

242 Appendix 2: Chief Counsels of the Revenue Service 

245 Appendix 3: Total Internal Revenue Collections by Year 

248 Appendix 4: Personnel 

251 Appendix 5: Federal Income Tax Rates and Exemptions 

255 Subject Index 

269 Date Index 



Preface 



The approach of April 15 each year 
brings a flood of questions into the 
IRS. Questions from taxpayers about 
how to fill out their tax forms. Ques- 
tions from citizens on why we pay 
taxes and what the money is used for. 
Questions from the media on various 
aspects of our tax system to write 
about during this period of height- 
ened interest. And on and on. 

This volume is intended to pro- 
vide IRS employees and the public 
with information on the evolution of 
our tax system, from the colonial era 
to the present. Presented in a chrono- 
logical format, this book will be a 
basic reference source to answer 
questions about when things hap- 
pened. The "why" of most events in 
the history of tax administration will 
be left to future publications of the 
IRS History and Archival Services 
Program. 

The historic role of taxation in the 
formation and growth of the United 
States is a vast topic that encompasses 
areas ranging from tax policy to tax 
administration to processing technolo- 
gies to personnel practices and a myr- 
iad of other subjects. This volume 
does not attempt to be comprehen- 
sive. Rather, the intent is to provide 
the user with a handy reference tool 
to respond to basic questions. 

Many entries may appear incom- 
plete or confusing. Rather than 
omitting such entries, they are 
included because they provide some 
insight into the evolution of our tax 
system. Sources on the history of tax- 
ation are somewhat scarce, making 
research in this field quite challeng- 
ing. It is my hope that this volume 
will be a first step in expanding 



research into the fascinating subject 
of tax administration as a defining 
aspect of our history. 

Also, it must be noted that while 
many topics are covered in this vol- 
ume, many are not. This is the first in 
what will be a continuously updated, 
expanded and improved "Fact Book." 
With this in mind, users of this work 
are asked to call or write the IRS His- 
tory and Archival Services Program 
with additions and corrections for the 
next edition. 

To make this work as helpful as 
possible, two indexes are included. 
The first is a subject index to direct 
the user to topics of interest. The 
second is a date index, which can be 
used by those wanting to know what 
happened on "this day in history" in 
the IRS. The Introduction provides 
a brief historical overview of tax 
administration in the United States. 




^ 



Shelley L. Davis 
IRS Historian 



Introduction 



The history of tax administration is 
closely intertwined with the 
growth and evolution of the United 
States. Colonial protests against 
British policies, especially tax poli- 
cies, helped spur the revolutionary 
movement. The Boston Tea Party 
is perhaps the best known event 
preceding the Revolutionary War 
which points to the growing radi- 
calism with respect to tax policies. 

After gaining independence, the 
Continental Congress was wary of 
the power of taxation. As a result, 
the Articles of Confederation did not 
grant the new national government 
the authority to tax its citizens. 
Money to finance federal govern- 
ment activities was obtained by 
requesting donations from the states. 

By the time of the Constitutional 
Convention ten years later, it was 
obvious that the government simply 
could not be effective without at least 
some power to tax. As a result, Article 
1, Section 8 of the Constitution gave 
the federal government the power to 
"lay and collect taxes... to pay the 
debts..." of the young country. It also 
specified that "duties and imposts 
shall be uniform throughout the 
United States." 

During the early years of the 
nation, most federal revenues were 
raised through tariff and customs 
duties and land sales. The first resort 
to internal taxation came in 1791 with 
the passage of a revenue act which 
placed an excise tax on distilled spir- 
its and tobacco products. 

Because most distilling activity 
was centered in rural areas, many 
farmers considered this excise tax 
an unfair burden placed upon them 



at the expense of their wealthier 
fellow citizens living in urban areas 
such as New York and Philadel- 
phia. Trouble arose almost imme- 
diately as the government struggled 
to enforce this excise tax. 

Six months after passage of this 
excise tax, reports of a group of men 
disguised in women's clothing 
attacking a revenue collector in 
western Pennsylvania reached 
Washington. Protests culminated in 
mid-1794 with the Whiskey Rebel- 
lion, the first major challenge to the 
legitimacy of the young government. 
So concerned at this event, Presi- 
dent Washington called out the mili- 
tia in what became an historic 
demonstration of his resolve to sus- 
tain the authority of the nation and 
enforce its revenue laws. 

Upon his election to the Presi- 
dency, Thomas Jefferson abolished 
all internal taxes. Once again, the 
country supported itself through 
land sales and customs revenues. 
The War of 1812 generated a need 
for additional revenues, resulting 
in the return of internal excise 
taxes for a short period. After the 
end of the war, the nation once 
again abolished all internal taxes. 

It was not until the economic 
strains of the Civil War stretched 
the existing financial structure that 
the nation once again resorted to 
internal taxation. In addition to 
restoring many of the excise taxes 
from previous years, the Civil War 
brought the creation of the Office 
of the Commissioner of Internal 
Revenue in the Treasury Depart- 
ment and along with it, the nation's 
first income tax. 



The income tax of the Civil War 
did not affect many citizens, nor 
did it raise much revenue. The 
most significant and long-term 
impact of this new revenue mea- 
sure was that it created a precedent 
for future income tax measures. 
Most of the revenues needed for 
the Civil War came once again 
from excises on consumer prod- 
ucts, primarily alcohol and tobacco. 
The income tax expired in 1871. 

An attempt to revive the income 
tax came in the 1890s with the 
growth of the Populist movement. 
Although an income tax amend- 
ment attached to a tariff bill made 
its way through Congress in 1894, 
immediate legal challenges 
resulted in the Supreme Court 
declaring the income tax unconsti- 
tutional in 1895. The court ruled 
that some portions of the income 
tax enacted in 1894 violated the 
requirement of Article 1, section 8 
of the Constitution requiring all 
taxes to be apportioned equally 
among the states. 

It took another 14 years before 
another attempt to restore the 
income tax was made. This effort 
came in the form of a proposed 
constitutional amendment to 
resolve the conflicts with the 
requirement to apportion internal 
taxes equally among the states. 
Four years after it was introduced, 
Wyoming became the 36th state to 
ratify the Sixteenth Amendment to 
the Constitution in 1913, paving 
the way for a permanent system of 
income taxation in the United 
States. 

Congress quickly enacted an 
income tax law, with the first 
returns (on the new Form 1040) 
due on March 1, 1914. Through 
the next 25 years, income tax rates 
remained at levels that affected 
only the very wealthy- Fsscntially, 



payment of income taxes in the 
years preceding World War II was 
a sign of affluence. Some citizens 
proudly reported that they had 
paid their taxes as evidence of 
their financial success. 

World War II brought funda- 
mental changes to the income tax 
system in the United States. 
Although today many taxpayers 
assume that the annual ritual of 
filling out income tax forms has 
been around since the beginning of 
time, actually it was not until 
World War II that tax rates reached 
the average citizen. For example, 
while just over 350,000 income tax 
returns were filed in 1914, by 1945 
the Bureau of Internal Revenue 
was processing 50,000,000 returns 
annually. 

The successful expansion of the 
income tax base during the years of 
World War II was brought about by 
several factors. First, national pride 
and patriotism were at all time 
high levels and most citizens felt 
strongly about helping their gov- 
ernment in whatever manner they 
could. Second, incomes were 
higher than in pre-war years, pro- 
viding more disposable income and 
a tax bite that did not leave deep 
financial scars. Finally, the revenue 
demands of World War II necessi- 
tated new ways of raising govern- 
ment funds. 

Before World War II, income 
taxes had been payable in quar- 
terly installments to the local Col- 
lector's Office. The expansion of 
the tax base during the war years 
found many new taxpayers unpre- 
pared to pay a large tax bill — they 
simply had not put aside enough 
money to cover their obligation. 
This situation led to the first wide- 
spread use of the "pay-as-you-go" 
system, or withholding, as we 
know it today. 



Following World War II, the 
American public became accus- 
tomed to the annual ritual of 
income taxes. The filing date was 
pushed back from March 15 to 
April 15 in the mid-1950s to allow 
taxpayers more time to fill out the 
increasingly complicated forms as 
well as to give the overburdened 
IRS more time to process the 
forms. 

In 1952, after a series of politically 
damaging incidents of tax evasion 
and bribery among its own employ- 
ees, the Bureau of Internal Revenue 
was reorganized under a plan put 
forward by President Truman, with 
the approval of Congress. The reor- 
ganization decentralized many func- 
tions to new district offices which 
replaced the collector's offices. Civil 
service directors were appointed to 
replace the politically appointed col- 
lectors of the Bureau of Internal 
Revenue. Not long after, the Bureau 
was renamed the Internal Revenue 
Service. 

By the early 1960s, the increas- 
ing demands of processing more 
and more tax returns led the IRS to 
develop and implement a series of 
centralized processing facilities. 
Within ten years, a total of ten ser- 
vice centers were scattered around 
the country, equipped with banks 
of computer terminals and other 
data processing equipment to 
process the growing numbers of tax 
returns. 

In the 1980s, the IRS looked to 
the future to take advantage of the 
vast technological leaps of the past 
decade. In 1986, the first electroni- 
cally filed return was processed, 
eliminating the need for some tax- 
payers to mail a paper tax return to 
a service center. Four years later, 
electronic filing was available 
nationwide. The decade of the 
1990s will be one of discovering 



and implementing new techniques 
and technologies into the tax pro- 
cessing system as well as reempha- 
sizing the "service" in the IRS 
name. 




Tench Coxe, first Commissioner of the Revenue 



1646-qgg 

Reluctance Turns to Reality: 

The Young Nation Establishes 

Its Own System of Taxation 

vH 7 



Although born as a nation resisting what were believed to be unfair policies 
of taxation forced upon the colonies by the British Empire, the United States 

quickly realized that it needed some centralized way to pay its debts 

and finance its expanding operations. The years between the birth of the new 

nation and the dawning of the nineteenth century saw Congress replace the 

weak Articles of Confederation with the more powerful Constitution which 

provided the authority for the creation of a system of internal taxation. 



1646 Some colonists in New Eng- 
land paid occupation or "faculty" 
taxes as early as this year. This tax is 
credited as being the ancestor of the 
modern income tax. Faculty taxes 
were levied on certain occupations 
by the British empire, requiring 
"every laborer, artificer, and handi- 
craftsman" to pay a portion of his 
earnings to the taxing authority. 
Residents of Massachusetts Bay 
Colony were subject to taxes on per- 
sonal and real estates as well as the 
"returns and gains" of tradesmen, 
artificers, and handicraftsmen. 

1649 The principle of taxation 
established by the New Plymouth 
and Massachusetts Bay colonies was 
soon adopted by other colonies. This 
year, New Haven introduced an act 
taxing the profits of laborers, trades- 
people, and others. 

1650 Connecticut passed a faculty 
tax on all "manual persons and 
artists" in addition to a general prop- 
erty tax. 

September 1, 1673 The Naviga- 
tion Act of 1673 went into effect to 
collect customs duties in colonial 
ports. 

1673 Rhode Island established that 
taxes were to be assessed according 
to "equity in estate and strength," 
not only according to the property 
but also in proportion to the "fac- 
ulty" or the "profits and gains" of 
the colonists. 

1684 New Jersey became the only 
colony outside New England to levy 
a tax. This year it taxed the profits 
on traders, merchants, artificers, inn 



keepers, and other profitably 
employed non-real estate owners. 
Also in this year, the first excise tax 
on liquor went into effect in Penn- 
sylvania. 

1699 In an attempt to prevent 
colonial competition with the Eng- 
lish woolen industry, the Wool Act 
prohibited the exportation of wool 
products from the colonies. 

1732 The Hat Act required a 
seven-year apprenticeship for all 
colonial hatmakers and prevented 
the exportation of hats from one 
colony to another. 

1733 The Molasses Act imposed 
prohibitive duties on sugar, rum, 
and molasses imported to the 
colonies from the French, Spanish, 
and Dutch West Indies. This act 
sought to force the purchase of 
British molasses. 

1736 The British were unable to 
enforce the Molasses Act as colonial 
merchants continued to import 
sugar, rum, and molasses from other 
islands in the West Indies. 

1 750 & 1 757 The Iron Acts prohib- 
ited the colonial manufacture of 
finished iron products. 

1 761 Colonial leader James Otis of 
Massachusetts argued against the 
British Writs of Assistance (search 
warrants), claiming that they were a 
violation of the natural rights of the 
colonists. In his arguments, Otis 
stated that everyone should be "free 
from all taxes but what he consents 
to in person or by his representa- 
tive," which later was translated into 



vf? 



12 



the rallying cry for rebelling colonists 
in the American Revolution. 

1764 The British Parliament 
enacted the Sugar Act, extending 
the Molasses Act of 1733, in an 
attempt to raise money to pay the 
British debt from the French and 
Indian War. Although the Sugar Act 
reduced the duty on molasses from 6 
pence to 3 pence per gallon, it 
increased duties on a wide range of 
imported goods, including coffee, 
sugar, and wines. 

1764 The Currency Act required 
that the sugar tax be paid in specie 
(gold and silver) and prohibited 
colonists from issuing money. 

November 1, 1765 The Stamp 
Act required placing tax stamps 
on virtually every kind of printed 
material including newspapers, 
advertisements, legal documents, 
bills of lading, notes, playing cards, 
and bonds. This was the first direct 
internal tax imposed on the colonies 
by the British Parliament. The 
colonists protested this as taxation 
without representation and an 
infringement on their liberties. 
Ultimately, the Stamp Act led to 
the Colonial Stamp Act Congress 
and a resolution voicing the colo- 
nial protest that "taxation without 
representation is tyranny." The law 
affected the most articulate ele- 
ments in the colonies, lawyers and 
newspapermen, who helped orga- 
nize general protests. 

March 18, 1766 After vocal 
protests and economic boycotts from 
the colonists left their impact, Parlia- 
ment repealed the Stamp Act, but 



on the same day passed the Declara- 
tory Act which asserted full authority 
over the American colonists "in all 
areas whatsoever." 

June 29, 1767 The Townshend 
Acts, called "England's most fateful 
decision," established a Board of 
Customs Commissioners in Boston 
and imposed import duties on glass, 
lead, oil, paints, paper, and tea. 
Colonists responded by following a 
nonimportation policy which in 
effect served as an embargo against 
British goods. 

1767 An argument against taxation 
by Parliament appeared in John 
Dickinson's "Letters from a Farmer 
in Pennsylvania." 

1768 Colonial assemblies urged 
opposition to the Townshend Acts. 

July 19, 1769 The British sloop 
"Liberty" was scuttled while trying 
to enforce royal revenue laws. 

January 1770 The new Prime 
Minister, Lord Frederick Norton, 
called for repeal of the Townshend 
Acts, excluding those on tea. 

March 5, 1770 Colonists in 
Boston clashed with British troops 
in protests against the Stamp Act 
and its effects, resulting in five 
casualties. This event became 
known as the "Boston Massacre." 
On this same day Parliament 
repealed the Townshend Acts, but 
retained the tax on tea. In 
response, colonists ended the 
embargo against British goods. 



77 



13 



June 9, 1772 Rhode Island 
colonists attacked and burned the 
armed British revenue schooner 
"Gaspee" while it attempted 
to enforce revenue laws in 
Narragansett Bay. 

1773 Parliament passed the Tea 
Act which granted the East India 
Company a monopoly on the sale of 
tea to the colonies in an attempt to 
bolster the finances of the ailing 
company and to reaffirm its right to 
tax the colonies. This Act threat- 
ened the economic status of the 
colonial tea merchants and precipi- 
tated the Boston Tea Party. Ship- 
ments of tea landed at Charleston, 
but were refused at New York and 
Philadelphia. 

December 16, 1773 A group of 
about 150 patriots, disguised as Indi- 
ans and calling themselves the Sons 
of Liberty, protested the Tea Act by 
boarding three British merchant 
ships and dumping 342 large chests 
of tea into Boston Harbor. When 
Britain retaliated with new coercive 
laws, they only widened the split 
that eventually led to the American 
Revolution. 

Spring 1774 Parliament passed the 
"Intolerable Acts" to punish the 
Massachusetts colonists for the 
Boston Tea Party. The port of 
Boston was closed until restitution 
was made to the East India Com- 
pany for the destroyed tea. The 
quartering of British troops in occu- 
pied dwellings was legalized 
throughout the colonies and the 
colonists were deprived of many 
chartered rights. 



August 25, 1 774 A North Carolina 
convention resolved to boycott 
British goods. 

September 5-October 26, 1774 
The First Continental Congress 
assembled in Philadelphia with rep- 
resentatives from all colonies except 
Georgia. 

April 1775 Fighting began at Lex- 
ington and Concord. 

May 10, 1775 The second Conti- 
nental Congress convened in 
Philadelphia, appointing George 
Washington as Commander-in-Chief 
of the Continental Army. 

November 6, 1775 The Conti- 
nental Congress appointed a com- 
mittee to estimate the public debt. 

July 4, 1776 The formal severance 
of ties with England came when the 
Continental Congress approved the 
Declaration of Independence. 

September 10, 1777 Congress 
appointed a committee to prepare a 
recommendation that the individual 
states commence taxation. 

September 27, 1777 Congress 
resolved that the Treasurer should 
move to York, Pennsylvania. 

November 15, 1777 Congress 
adopted the Articles of Confedera- 
tion and submitted them to the 
states for ratification. This first 
attempt at self-government by the 
United States did not give the new 
Congress the power to levy taxes. 
Money to finance the government 
was obtained by making requests for 



V 



donations from the states of the 
Confederation. 

1777 Massachusetts authorized a 
faculty tax which was in effect an 
income tax. 

September 19, 1778 The Commit- 
tee on Finance of the Continental 
Congress reported the first national 
budget. 

March 1,1781 The Articles of 
Confederation were ratified. 

1782 Citizens at a town meeting in 
Worcester, Massachusetts, opposed a 
state liquor tax on the premise that 
liquor was necessary for the morale 
of farm workers. 

September 3, 1783 The Treaty of 
Paris ended the American Revolu- 
tion and Britain recognized Ameri- 
can independence. 

January-February 1787 Daniel 
Shay, a destitute Massachusetts 
farmer and Revolutionary War vet- 
eran, led an uprising of 1,200 men to 
protest the Massachusetts legisla- 
ture's failure to enact laws to allow a 
moratorium from debt collection or 
the use of depreciated paper cur- 
rency as repayment of debts or taxes. 
What became known as Shay's 
Rebellion failed and confirmed the 
judgement of George Washington 
and other leaders that a stronger 
government than that provided 
under the Articles of Confederation 
was needed. 

February 21, 1787 Congress 
endorsed Alexander Hamilton's plan 
for a constitutional convention to be 



held in Philadelphia to revise the 
Articles of Confederation. 

1787 By the time of the Constitu- 
tional Convention it was apparent 
that the new government could not 
be effective without the power to 
tax. The Constitutional Convention 
included Article 1, Section 8 in the 
new Constitution, stating, "...the 
Congress shall have the power to lay 
and collect taxes, duties, imposts, 
and excesses, to pay the debts and 
provide for the common defense and 
the general welfare of the United 
States." This section also stated that, 
"...duties and imposts shall be uni- 
form throughout the United States." 
The limitations placed on the pow- 
ers of taxation in the Constitution 
were the result of the colonists' pre- 
vious unpleasant experiences with 
taxes. 

March 4, 1789 The First Congress 
under the Constitution convened. 

April 30, 1789 George Washing- 
ton took the presidential oath at 
Federal Hall on Wall Street in New 
York City. 

July 4, 1 789 The first tariff act 
passed by the new Congress imposed 
duties on "Goods, Wares, and Mer- 
chandises," including more than 30 
kinds of commodities. A duty of six 
cents per pound was placed on 
imported manufactured tobacco. 

July 20, 1789 Congress passed the 
second revenue measure of the new 
national government, imposing 
duties on the tonnage of all ships or 
vessels entering the United States. 



77 



15 



July 24, 1789 The Committee on 
Ways and Means originated as a 
select committee responsible for 
economic issues. It was discharged 
two months later in favor of the new 
executive Department of the Trea- 
sury under Alexander Hamilton. 
After Hamilton left office, his politi- 
cal opponents reestablished the 
Committee on Ways and Means. 

July 3 1 , 1 789 The Customs Ser- 
vice was established, thereby 
becoming the oldest agency in the 
federal system. The mission of this 
new organization was to raise rev- 
enue and protect domestic manufac- 
turers. This date also saw the 
enactment of provisions for collect- 
ing the duties imposed by the rev- 
enue acts passed earlier in this 
month. Customs districts and posi- 
tions for customs collectors were 
established. 

September 2, 1789 The Depart- 
ment of the Treasury was estab- 
lished with Alexander Hamilton 
appointed as the first Secretary of 
the Treasury. 

September 11, 1789 Tench Coxe 
of Pennsylvania assumed the duties 
of Assistant to the Secretary of the 
Treasury. This position was redesig- 
nated "Commissioner of the Rev- 
enue" in 1792. 

November 13, 1789 In a letter to 
Jean Baptiste LeRoy, Benjamin 
Franklin wrote, "Mais dans ce 
monde, il n'y a rien d'assure que la 
mort et les impots" (Nothing in life 
is certain but death and taxes.) 



January 4, 1 790 The First Federal 
Congress met with the major issue 
before it being funding the Revolu- 
tionary War debt of approximately 
$80 million. 

January 9, 1 790 Alexander Hamil- 
ton put forth the first in a series of 
reports on the nation's economy 
titled, "Report on Public Credit." 

May 5, 1790 A bill came before 
Congress to place an excise on 
whiskey and other distilled spirits in 
the United States. 

June 21, 1790 Congress defeated 
the proposed excise bill to levy duties 
on distilled spirits by a vote of 35-23. 

December 1790 Secretary of the 
Treasury Alexander Hamilton 
renewed the request for a whiskey 
excise in his report on public credit. 

1790 Congress increased tariff 
rates to raise additional revenue. 
Between 1794 and 1816, Congress 
passed some 25 tariff acts. 

1790 The Revenue Marine Service 
was established to aid in the collec- 
tion of revenue. 

JANUARY 22, 1791 The Pennsylva- 
nia Assembly instructed the state's 
senators to oppose a national excise. 
The legislature resolved that "any 
proceeding on the part of the United 
States tending to the collection of 
revenue by means of excise [is] 
established on principles subversive 
of peace, liberty, and the rights of 
citizens." 



7T- 



16 



March 3, 1791 The Revenue Act 
of 1791 became law. This act was 
the first resort to internal taxation in 
the United States and it imposed 
excise duties on distilled spirits (the 
famed "whiskey tax") and tobacco 
products. The act provided that the 
duties on distilled spirits were to be 
paid before removing them from 
the distillery. 

The act provided for "supervisors 
of revenue" whose job was to collect 
levies from both commercial distil- 
leries and private still owners. The 
act also called for the establishment 
of 14 revenue districts, one in each 
state, to be headed by "collectors." 
The collectors could subdivide each 
district into "surveys of inspection." 
which would function under 
"inspectors of revenue." 

Under this act, the President was 
authorized to appoint a supervisor to 
each district and as many inspectors 
to each survey as deemed necessary. 
The supervisors worked under the 
supervision of the Assistant Secre- 
tary of the Treasury. 

This revenue act was based on a 
proposal by Secretary of the Treasury 
Alexander Hamilton and delegated 
the power to "collect" to the Treasury 
Department, a power held ever since. 
The intent of this act was to provide 
revenues to pay the debts incurred by 
the federal government's assumption 
of the states' debts following the Rev- 
olutionary War as well as to avoid the 
need for a direct tax on lands. 

September 6, 1791 Sixteen men 
assaulted excise collector Robert 
Johnson in western Pennsylvania. 
Johnson was the tax collector for 
Washington and Allegheny counties 
in Pennsylvania and as such, was 



^77 



responsible for collecting the new 
excise tax on whiskey. Disguised in 
women's clothes, the attackers cut 
off Johnson's hair, tarred and feath- 
ered him, stole his horse, and left 
him in the forest in a "mortifying 
and painful situation," according to a 
report by Secretary of the Treasury 
Alexander Hamilton. 

May 8, 1792 Congress abolished 
the Office of the Assistant to the 
Secretary of the Treasury and 
required that "instead thereof there 
be an officer in the Department of 
the Treasury to be... Commissioner 
of the Revenue who shall be 
charged with superintending the col- 
lection of other revenues." The 
compensation for the Commissioner 
was set at $1,900 per year. Tench 
Coxe of Pennsylvania assumed these 
duties on this day (he had held the 
position of Assistant to the Secretary 
of the Treasury). 

1 792 Tax receipts totalled $208,943 
this fiscal year — less than one-tenth 
of the amount collected through cus- 
toms duties. The cost of collecting 
this money was about 20 percent of 
the total revenue collection. 

1792 The duty on distilled spirits 
was reduced and the importation of 
spirits from foreign ports was prohi- 
bited except in casks of 90 or more 
gallons. The intent was to encourage 
the manufacture of distilled spirits in 
the United States and to increase 
the revenue. 

March 26, 1794 A 15 member 
Ways and Means Committee was 
appointed in the House of Repre- 
sentatives, consisting of one member 



17 



from each state and chaired by 
William Loughton Smith of South 
Carolina. 

May 3 1 , 1 794 The federal district 
court in Pennsylvania issued process 
against 75 distillers in western Penn- 
sylvania who had not paid their 
taxes. The processes were not arrest 
warrants, but summonses which 
required the defendants to appear in 
court to show cause why an arrest 
warrant for failure to pay the 
whiskey tax should not be issued. 

June 5, 1794 The Federalists 
extended the internal revenue sys- 
tem through an act taxing carriages, 
sales of certain liquors, the manufac- 
ture of snuff and refining of sugar, 
and auction sales. This act laid 
duties on the issuance of licenses to 
retail dealers in wines and in foreign 
distilled liquors. 

June 9, 1794 Congress passed a 
law requiring auctioneers to retain 
the required duties from the pro- 
ceeds of sales at auctions, making 
the auctioneer the first withholding 
agent in the history of our tax sys- 
tem. The auctioneer was allowed to 
keep a commission of one percent 
on the duties retained "for his trou- 
ble in and about the same." 

JULY 15, 1794 General John 
Neville, inspector of the revenue for 
the tax survey encompassing west- 
ern Pennsylvania, accompanied by 
U.S. Marshal David Lenox, 
attempted to serve summons on 
whiskey tax evaders in Allegheny 
County. Shortly before noon, the 
two men arrived at William Miller's 
farm to serve Miller with a sum- 



mons. While serving the summons, a 
group of 30 to 40 men ran towards 
the federal officers and fired at them 
from a distance. Neville and Lenox 
managed to escape. 

July 16, 1794 At daybreak, about 
50 men armed with rifles and clubs 
marched to John Neville's house and 
demanded his resignation. By the end 
of the day, Neville had killed five of 
the rebels. The Whiskey Rebellion 
had begun. In response, President 
Washington called out the militia to 
put down the insurrection in what 
became an historic demonstration of 
the government's early determination 
to enforce its revenue laws. 

July 17, 1794 After much debate, 
the whiskey tax rebels decided to 
return to Neville's home to force 
him to resign as inspector of the rev- 
enue. About 500 armed men gath- 
ered at Couch's Fort under the 
leadership of James McFarlane. 
After taking five prisoners, the 
rebels burned Neville's home and 
looted his possessions including his 
wine cellar. 

August 7, 1794 A commission was 
set up under Attorney General 
William Bradford to negotiate peace 
with the whiskey rebels in western 
Pennsylvania. At the same time, 
President Washington issued a 
proclamation calling for an end to 
the insurrection and ordered the 
governors of Pennsylvania, New Jer- 
sey. Maryland, and Virginia to 
muster 13,000 militiamen to be pre- 
pared to march into Pennsylvania. 



7T 



September 24, 1794 Because 
many of those involved in the 
Whiskey Rebellion refused to sign 
an oath of allegiance to the govern- 
ment, Washington ordered the mili- 
tia to suppress the rebellion. He 
placed the militia under the com- 
mand of the Governor of Virginia 
and Revolutionary War hero, 
Lighthorse Harry Lee. Secretary of 
the Treasury Alexander Hamilton 
served as second in command, at his 
own request. Washington himself 
marched with the militia as far as 
Bedford, Pennsylvania — the only 
time in American history that a pres- 
ident has taken the field at the head 
of his army. 

September 30, 1794-March 3, 1795 
A tax on the manufacture of snuff 
was in effect during this period. 

November 13, 1794 Known as the 
Dismal Night, most of the suspects 
in the Whiskey Rebellion were 
arrested on this night. Ensuing trials 
dragged on for a year before all but 
two of the defendants were acquit- 
ted. Although the two guilty men 
were sentenced to hang, President 
Washington eventually pardoned 
them. The cost of suppressing the 
Whiskey Rebellion to the federal 
government was $1.5 million. 

January 31, 1795 Alexander 
Hamilton resigned as Secretary of 
the Treasury. 

May 28, 1796 Congress passed an 
act continuing the tax on carriages 
and providing that these duties were 
to be collected and accounted for by 
and under the immediate direction 
of the supervisors and inspectors of 



-? 



the revenue. This act provided a 
penalty of 25 percent of the tax 
owed to be paid upon demand of the 
revenue officer. 

1796 The Supreme Court upheld 
the tax on carriages in the case of 
Hylton v. United States by deter- 
mining that the tax was not a direct 
tax in the Constitutional sense of 
the term. The taxpayer (Hylton) 
had insisted that the tax was 
unconstitutional because it was a 
direct tax and not apportioned 
according to the population as 
required by the Constitution. 

The four Justices agreed with 
Alexander Hamilton, counsel for 
the government, that the direct 
taxes contemplated by the Consti- 
tution included only land and capi- 
tation taxes and possibly a general 
tax on all personal property. This 
was the basis on which all similar 
cases were decided by the Supreme 
Court until 1895. 

March 3, 1796-June 1, 1796 
A tax on snuff mills was in effect 
during this period. 

July 6, 1797 Stamp taxes as a rev- 
enue measure began this year 
through the passage of the Stamp 
Act which imposed duties on legal 
transactions, including a duty on 
receipts for legacies and probates of 
wills. This was also the first step in 
the development of a federal inher- 
itance tax. 

December 15, 1797 Implementation 
of the stamp taxes imposed by the 
act of July 1797 was postponed for 
six months. 



19 



January 16, 1798 Tench Coxe left 
the Office of the Commissioner of 
the Revenue in the Department of 
the Treasury. At this time, the total 
office force consisted of four men: 
Doyle Sweeny, principal clerk; 
Ezekiel Forman, accountant; John 
Mease and Peter Footman. 

Late January 1 798 William 
Miller, Jr., became the second Com- 
missioner of the Revenue. 

March 19, 1798 An appropriation 
act provided $5,525 for the compen- 
sation of the Commissioner of the 
Revenue, his clerks, and persons 
employed in his office. An additional 
$400 was provided for stationary and 
administrative expenses. 

July 9, 1 798 Congress imposed a 
direct tax on real property. This act 
set up the machinery for the valuation 
of lands and dwellings and the enu- 
meration of slaves with the tax appor- 
tioned to the states in specified 
amounts. Revenue commissioners 
divided their states into assessment 
districts, appointing supervisors of the 
revenue and making regulations. In 
addition, supervisors of the revenue 
appointed surveyors of the revenue. 
Assessment lists prepared by assessors 
were turned over to the surveyors 
who enumerated the slaves, kept a 
record of new buildings, computed 
the tax, and delivered a statement of 
taxes due to the "persons who may be 
appointed to receive the same." 

July 14, 1798 The first direct tax 
imposed by the federal government 
took effect. The tax of two million 
dollars applied to dwelling houses, 



lands, and slaves between the ages of 
12 and 50. The tax on houses was pro- 
gressive. The tax on slaves was 50 
cents. The tax on lands was assessed 
on an evaluation of each lot at a rate 
high enough to raise the two million 
dollars. 

July 16, 1798 Collectors of internal 
revenue were officially authorized by 
an act this date. The collectors were 
appointed by and subordinate to the 
supervisors. They were fiscal agents 
and did not have powers associated 
with collectors in later years. 

March 1799 An auctioneer named 
John Fries incited a small rebellion in 
eastern Pennsylvania against the fed- 
eral tax on houses. After U.S. Mar- 
shals arrested several men who had 
interfered with tax assessors, Fries 
organized an armed band to rescue 
the prisoners. President John Adams, 
like his predecessor, could not allow 
the challenge to federal authority to 
go unanswered and the militia 
marched again on Pennsylvania. 

1799 The first income tax in the 
United Kingdom was introduced 
by Prime Minister William Pitt to 
provide revenue to finance the 
Napoleonic Wars. The rate was 
two shillings per pound (10 percent) 
on income above 200 pounds. The 
income tax was intended to be 
a temporary war measure. After 
Napoleon's defeat at Waterloo in 
1815, the income tax expired and 
was not reintroduced until 1842. 



77 



20 




Excise taxes on manufactured goods were often paid through the use of revenue stamps such as this one. 



l800- 18$) 



To Tax or not to Tax: 
Meeting the Needs of Expansion 



During these years the nation experimented with various methods of raising 
revenue, ranging from excise taxes on manufactured goods to land sales and 

customs duties. For most of these years the United States imposed no 
internal taxes, resorting to this form of taxation only when the demands of 
the War of 1812 created a need for greater revenues. During the war years, 

Secretary of the Treasury Alexander Dallas proposed establishing a 

permanent system of raising internal revenue. A century would pass before 

this concept became reality. 



April 23, 1800 The Treasury 
Department established the Office 
of Superintendent of Stamps to issue 
revenue stamps. 

1800 The tax on snuff mills was 
repealed. 

March 3, 1801 The Appropriation 
Act for this year provided $6,253.06 
for compensation of the Commis- 
sioner of the Revenue and his staff 
and $900 for administrative 
expenses. 

1801 In his annual message to 
Congress, President Thomas Jeffer- 
son proposed the immediate aboli- 
tion of excise taxes. 

April 6, 1802 Congress repealed 
the first internal revenue laws effec- 
tive June 30, 1802. This action also 
resulted in the abolishment of the 
position of Commissioner of the 
Revenue and all offices having to do 
with the collection of internal taxes. 
This marked the end of internal tax- 
ation in the United States until 1813. 
The Commissioner and Supervisors 
of the Revenue were to continue in 
office until all outstanding taxes had 
been collected. 

April 30, 1 802 The Office of the 
Superintendent of Stamps was dis- 
continued and its close-out duties 
were transferred to the Commis- 
sioner of the Revenue. 

February 20, 1804 The Appropri- 
ation Act passed on this date does 
not mention the Commissioner of 
the Revenue, confirming the discon- 
tinuance of this function. 



1807 Congress enacted the Embargo 
Act of 1807. In reprisal against trade 
restrictions placed on U.S. ships by 
England and France during the 
Napoleonic wars, Jefferson called for 
an embargo that prohibited ship- 
ment of American raw materials and 
finished products to the European 
belligerents. Because of its drain on 
American shipping profits, Congress 
repealed this controversial trade 
measure in 1809. The Embargo Act 
was replaced with the Noninter- 
course Act, which prohibited trade 
only with England. 

March 4, 1812 Congress passed a 
new tax bill which increased cus- 
toms duties and reimposed a tax on 
salt, with the provision that it would 
not go into effect until after a decla- 
ration of war. 

May 1813 President Madison 
advised Congress to adopt a well- 
defined system of internal revenue. 

July 22, 1813 Congress passed an 
act to facilitate the collection of the 
revenue, dealing with organizational 
and procedural matters. This act 
established a system of "collection 
districts" for the purpose of assess- 
ing and collecting direct taxes. Each 
collection district was to be staffed 
with a collector and a principal asses- 
sor and subdivided into assessment 
districts. 

July 24, 1813 The effects of the 
War of 1812 prompted Congress to 
resort to internal taxation once again. 
The revenue act passed on this day 
provided for a direct tax on refined 
sugar, carriages, distillers, and auc- 
tion sales. The Office of the Com- 



77 



22 



missioner of the Revenue was 
revived in the Department of the 
Treasury. The Secretary of the 
Treasury was authorized to transfer 
the collection of customs duties to 
the Commissioner of the Revenue 
from the Comptroller. This act also 
established the collectors as the 
responsible agents to grant licenses 
for distilling. 

August 2, 1813 Congress passed 
an act providing for a direct tax of 
three million dollars to be collected 
on "the value of all lands, lots of 
ground with their improvements, 
dwelling-houses, and slaves," a tax 
on licenses of retail liquor dealers 
and retailers of foreign merchandise, 
and a stamp tax on bank notes and 
legal instruments. 

March 24, 1814 An appropriation 
act passed on this date granted 
$9,410 in compensation for the 
Commissioner and his clerks. 

April 18, 1814 An act allowed 
deputy collectors to assume the 
duties of the collector in case of ill- 
ness, death, removal, or resignation. 

August 24, 1814 The British 
burned the Treasury building in 
Washington, D.C. and dined by the 
light of the fire across the street in 
Rhodes Tavern. 

September 1814 Congress recon- 
vened in a special session to replen- 
ish an exhausted treasury and 
renovate public credit. 

November 22, 1814 The Commis- 
sioner was authorized to designate a 
clerk to assist him in signing licenses. 



December 15, 1814 Graduated 
duties on carriages and harnesses 
were placed on a valuation basis. 
With this change, the assessor dis- 
placed the collector as the principal 
tax determinator. 

December 21, 1814 Additional 
duties were laid on distilled spirits, 
auction sales, licenses to retail sellers 
of wines and spiritous liquors, and 
foreign merchandise. 

1814 In a report to Congress, Sec- 
retary of the Treasury Alexander 
Dallas advocated establishment of a 
system of permanent annual rev- 
enue to be raised by internal taxes, 
in addition to external revenue 
already derived from customs duties. 
This marked the beginning of nearly 
a century of debate between advo- 
cates of internal taxation and those 
in favor of financing the needs of the 
country solely through external rev- 
enue. The debate continued until 
the ratification of the 16th Amend- 
ment and imposition of a new 
income tax in 1913. If the War of 
1812 had not ended, Congress might 
have enacted such a proposal. 

January 9, 1815 A direct tax of six 
million dollars was "annually laid 
upon the United States," on houses, 
lands, and slaves. A board of princi- 
pal assessors was created and given 
the duty of equalizing and propor- 
tioning valuations among the several 
counties or state districts. 

January 18, 1815 "Sales taxes" on 
manufactured articles, tobacco, cig- 
ars, and snuff made for sale in the 
United States, household furniture, 
and gold and silver watches were 



w 



23 



levied. These duties were levied on 
a valuation basis with the assistant 
and principal assessors responsible 
for determining the amount of tax. 

January 21, 1815 Secretary of the 
Treasury Alexander Dallas recom- 
mended the adoption of an inheri- 
tance tax and an income tax but the 
Ways and Means Committee 
rejected this idea. 

February 27, 1815 Congress 
extended the sales taxes to cover 
gold, silver-plated ware, and jewelry. 

March 3, 1815 An administrative 
act strengthened the authority of 
collectors to bring suits without 
delay and to prosecute for breaches 
of revenue. Collectors were granted 
authority to search and seize for vio- 
lations of the tax laws. This act also 
specified that the collector had a 
duty to make an annual statement, 
listing in alphabetical order the 
names of all persons who paid to him 
or his deputies any tax, with an 
aggregate amount listed next to the 
name, to make 100 copies of this list, 
and distribute it to the Commissioner, 
the town clerk, and others. A copy of 
this list was to be posted at the local 
court house for public inspection. 

December 6, 1815 Secretary of 
the Treasury Alexander Dallas 
stated, "The establishment of a rev- 
enue system, which shall not be 
exclusively dependent upon the 
supplies of foreign commerce, 
appears, at this juncture, to claim 
particular attention," in his annual 
report on finances. 



February 2, 1816 With the end of 
the War of 1812, Congress abolished 
taxes on manufactured articles, cig- 
ars, cigarettes, snuff, gold, silver- 
plated ware, and jewelry. 

April 27, 1816 The Tariff of 1816 
was the first protectionist tariff 
designed to protect domestic indus- 
try rather than raise revenue. It 
placed an average duty of 25 percent 
on imports that competed with 
American-made goods and provided 
for yearly reductions until a uniform 
20 percent rate was reached in 1819. 

December 1817 President Monroe 
called for the repeal of all internal 
taxes in his first message to Congress. 

December 23, 1817 Congress 
abolished all remaining internal rev- 
enue taxes effective December 31, 
in response to popular pressure 
against their retention. From this 
point until the outbreak of the Civil 
War, the federal government made 
no use of excise, stamp, income, 
inheritance, or direct property taxes. 
The federal government was sup- 
ported by revenue from import 
duties and proceeds from sales of 
public lands. The Office of the 
Commissioner of the Revenue was 
again abolished and the offices of 
collectors and assessors were to be 
eliminated after outstanding taxes 
had been collected. 

January 28, 1818 George Sewell 
Boutwell, destined to become the 
first Commissioner of Internal Rev- 
enue, was born in Brookline, Massa- 
chusetts. 



77 



24 



April 20, 1818 Congress officially 
authorized the President to abolish 
all existing offices of collectors of the 
direct tax and internal duties. 

1818 The Tariff of 1816 was 
amended to extend the duty on cot- 
ton and woolen goods through 1826. 
Duties on iron and certain manufac- 
tures were also increased. 

March 3, 1819 The Appropriation 
Act of this year still included a provi- 
sion for the Commissioner and the 
clerks in his office. 

1819 The McCulloch v. Maryland 
Supreme Court decision involved a 
Maryland state tax on the Second 
Bank of the United States. Chief 
Justice John Marshall declared, 
"The power to tax involves the 
power to destroy" in determining 
that the state could not have that 
power over federal government. 

April 1 1, 1820 The Appropriation 
Act of this year made no provision for 
the Commissioner of the Revenue, 
but did include $3,700 for three clerks 
to "complete the duties of the Com- 
missioner of the Revenue." 

May 15, 1820 As part of an "Act pro- 
viding for the better organization of 
the Treasury Department," the Presi- 
dent was authorized to designate an 
officer as "Agent of the Treasury" 
with part of his duties being the recov- 
ery of money or property, including 
taxes, in the name and for the use of 
the United States. This position was 
the ancestor of the Solicitor or Chief 
Counsel of the Treasury Department. 



April 2, 1824 The Appropriation 
Act of this year transferred the clerks 
completing the duties of the Commis- 
sioner of the Revenue to the Fifth 
Auditor's Office in the Treasury 
Department. 

1824 The Tariff of 1824 increased 
duties on wool, cotton, iron products 
and hemp. 

1826 Pennsylvania levied a tax on 
inheritances, the earliest predecessor 
of the modern inheritance tax. 

1 828 The protectionist Tariff of 
1828 increased tariffs on manufac- 
tured goods under what was called 
the "tariff of abominations." This pro- 
voked a revolt in South Carolina and 
sparked a nullification crisis as state 
officials asserted their right to nullify 
acts of Congress they viewed as 
unconstitutional. Andrew Jackson's 
supporters designed this tariff to 
embarrass President John Adams by 
boosting tariff duties to unreasonably 
high levels on raw materials and ship 
building supplies needed by New 
England manufacturers and mer- 
chants. Northern mercantile interests 
were in conflict with the Southern 
agricultural economy dependent on 
foreign markets. 

May 29, 1830 The Office of the Solic- 
itor of the Treasury was established 
and charged with responsibilities 
related to the collection of outstand- 
ing direct and indirect duties. 

March 2, 1831 The beginning of 
the authority to "compromise" taxes 
is found in an "Act for the relief of 
certain insolvent debtors of the 
United States," passed on this date. 



^77 



25 



July 14, 1832 President Jackson 
signed the Tariff of 1832 which 
reduced tariff levels to about the lev- 
els of 1824. John C. Calhoun and 
other southern spokesmen took an 
increasingly intransigent position 
against protective tariffs, viewing 
them as undermining the Southern 
economy. Calhoun eventually 
sparked the nullification crisis when 
South Carolina declared the tariffs of 
1828 and 1832 to be null and void in 
that state. 

June 1 0, 1 833 The office of Solicitor 
of the Treasury as established in 1830 
was abolished by executive order and 
replaced by a new office of Solicitor of 
the Treasury with revised responsibil- 
ities for only "the legal work of the 
Treasury Department now performed 
by [the Justice] Department." 

1833 Henry Clay of Kentucky 
helped produce the compromise tar- 
iff of 1833 by proposing that tariffs 
be gradually reduced until 1842 
when they would be at about the 
same level as the tariffs of 1816. 

1834 The national debt was 
retired. 

1836 Land sales accounted for 
nearly half of all federal revenues. 

June 1836 Congress passed a bill 
providing that the money in the 
Treasury on January 1, 1837 in 
excess of $5 million should be 
deposited with the various states in 
proportion to their respective repre- 
sentation in Congress. Under this 
law the Treasury paid out over $28 
million to the states before the 1837 
panic forced it to halt this activity. 



July 1836 President Jackson 
ordered Treasury Secretary Levi 
Woodbury to issue a circular that 
allowed only gold and silver to be 
accepted in payment for federal 
lands after August 15. 

1836 Construction began on the 
Treasury Building. 

May 1837 In the Panic of 1837 
New York banks suspended specie 
payments as the second worst 
depression in United States' history 
began (1837-1843). Secretary of the 
Treasury Roger Taney announced 
that federal funds would no longer 
be deposited in the Second Bank of 
the United States in an effort to 
carry out Jackson's opposition to the 
Bank. The destruction of the Sec- 
ond Bank gave a free hand to various 
paper money schemes, fueling the 
inflation preceding the Panic of 
1837. This depression stimulated a 
new wave of protectionism as Ameri- 
can manufacturers blamed high 
unemployment on cheap imported 
goods. 

October 2, 1837 Congress sus- 
pended payment of surplus rev- 
enues to the states. 

March 3, 1839 The common law 
right to sue a tax collector for 
the refund of wrongfully collected 
taxes was first recognized by the 
Supreme Court in the case of Elliott 
v. Swartout this year. As a result, col- 
lectors routinely refrained from pay- 
ing taxes over to the Treasury when 
collected under protest. Congress 
enacted legislation on this date 
requiring the payment of taxes into 
the Treasury regardless of whether 



vt7 



26 



or not they were collected under 
protest. The Secretary of the Trea- 
sury was required to refund taxes 
paid under protest when such taxes 
were shown to be excessive. 

1840 Pennsylvania became the 
first state to enact a state income 
tax. Tax rates were so low that the 
revenue raised from this tax was 
insignificant. 

1841 Maryland adopted an income 
tax, exempting incomes under $500 
and those derived from taxed prop- 
erty. Collection of the tax was so lax 
that by 1850 the law was virtually 
repealed. 

August 26, 1842 The Treasury 
Department established a fiscal year 
running from July 1 to June 30. 

1 842 The Tariff of 1 842 invoked 
substantially higher duties. 

1842 The first segment of the 
Treasury Building was completed. 

1843 Virginia passed an income 
tax, taxing one percent of salaries 
and professional income over $400 
per year. The tax also included a 
ZVi percent tax on all interest or 
profit from money, bonds, notes, or 
certificates of debt. Alabama also 
instituted taxes on professional and 
business income this year. 

January 21, 1845 The Supreme 
Court held in the case of Cary v. 
Curtis that if a collector was not free 
to retain protested taxes he could 
not be held personally accountable 
for the amount. This resulted in 
serious questions as to whether any 



7T 



judicial remedy was recognized for 
reviewing of the legitimacy of tax 
collections. 

February 26, 1845 Congress in 
effect overruled the Supreme Court 
decision of Cary v. Curtis by provid- 
ing that nothing in the legislation 
should be construed to eliminate 
the right to sue collectors for duties 
paid under protest. The legislation 
also provided that to preserve the 
action, the taxpayer's written 
protest setting forth his objections 
had to accompany or precede the 
disputed tax payment. 

1845 Florida enacted an income 
tax, but had such little success that 
ten years later it abolished the 
entire system. 

1845 Maryland instituted an 
inheritance tax. 

1 846 The Tariff of 1 846, known as 
the Walker Tariff, significantly low- 
ered duties. This marked the closest 
the United States came to free trade 
in the period before the Civil War. 

1847 North Carolina levied an 
inheritance tax. 

1848 Representative David 
Wilmot of Pennsylvania proposed 
that five million dollars be raised 
annually through a tax on personal 
and other property, stocks, and 
money. This tax would finance the 
Mexican War and pay off the public 
debt. Since this would have taxed 
the slave property in the South and 
financial investments in the North, 
the measure was defeated 139-47. 



27 



1848 Alabama levied an inheri- 
tance tax. 

1849 North Carolina enacted an 
income tax on salaries and fees and 
on interest and profits. 

1851 Maine enacted a prohibition 
law which forbid the manufacture 
and sale of alcoholic liquors in the 
state. 

1851 Massachusetts passed the 
first state law which allowed towns 
to tax inhabitants to support free 
libraries. 



1855 The Court of Claims was cre- 
ated, allowing for refund suits to be 
brought directly against the United 
States for the first time. Decisions of 
the Court of Claims were considered 
to be only advisory and required 
approval by Congress. 

1856 The Democrats endorsed 
free trade in their party platform and 
pressed for reduced tariffs. 

1857 The economy was shaken by a 
sharp but short-lived financial panic. 



77 



28 




Taxpayers line up in a collector's office during the Civil War to pay their income tax. 



i860 -l865 



Rebellion and War: Creative Financing 
Creates Lasting Legacies 

7T7 



The financial demands of the civil war required that Congress seek new ways 

to raise revenue. As a result, the first income tax imposed on the citizens 

of the United States was enacted in 1861. Because Congress neglected to 

simultaneously establish a mechanism to collect this revenue, another year 

passed before the Bureau of Internal Revenue was created to administer the 

Civil War income tax and other revenues. This first income tax, intended to be 

a temporary revenue raising measure, featured progressive rates ranging from 

three to five percent on incomes above $600 per year. 



June 1860 The Ways and Means 
Committee eliminated one million 
dollars from a naval appropriations 
bill for repair and equipping of ves- 
sels. Congressman Lovejoy of Illinois 
stated, "I am tired of appropriating 
money for the army and navy when, 
absolutely, they are of no use 
whatsoever." 

December 1860 The Secretary of 
the Treasury reported that receipts 
from customs duties were already 
falling below what would ordinarily 
be expected. 

February 8, 1861 Congress autho- 
rized the President to borrow $25 
million before July 1 by issuing 
stocks with interest not to exceed six 
percent. Before Congress adjourned, 
the President was authorized to bor- 
row an additional $10 million at the 
same rates. This was the last financial 
measure passed during the Buchanan 
administration. 

March 2, 1861 Congress passed 
the Morrill Tariff Act which became 
the existing tariff at the onset of the 
Civil War. This tariff was amended 
in 1862 and 1864, with duty levels 
reaching 47 percent by the end 
of the war. 

JUNE 6, 1 86 1 The New York Times 
praised the English revenue system 
and proposed a very slight tax upon 
incomes. 

July 4, 1861 The 37th Congress 
convened in a special session which 
lasted through August. The nation 
had been in a virtual state of war 
since April 15. 



July 9, 1861 The Ways and Means 
Committee reported a bill authoriz- 
ing the Secretary of the Treasury to 
borrow $250 million over the next 
12 months. 

July 16, 1861 Congress introduced 
the first bill of the Civil War provid- 
ing for an increase in revenues, but 
it provided only for changes in tariff 
duties and not for any form of inter- 
nal taxes. The bill called for an 
increase in duties on sugar, tea, and 
coffee. 

July 17, 1861 Congress passed a 
loan act empowering the Secretary 
of the Treasury to borrow $250 mil- 
lion in three-year, 7.3 percent Trea- 
sury notes or in 20-year bonds not 
exceeding 7 percent. 

JULY 1 7, 1 86 1 The New York Tri- 
bune declared, "We do not strenu- 
ously object to direct taxes, though 
we prefer to raise money by excise 
rather than by an indiscriminant 
Income or Property Tax." 

July 19, 1861 Congress approved 
a tariff bill containing moderate 
increases on items such as coffee, 
tea, and sugar. 

July 23, 1861 The House Ways 
and Means Committee approved a 
bill providing for a direct tax of $30 
million, apportioned equally among 
the loyal and seceded states. About 
$20 million of this tax fell on the 
loyal states. 

JULY 24, 1861 Vermont Represen- 
tative Justin Morrill of the Subcom- 
mittee on Taxation of the Ways and 
Means Committee reported the bill 



77 



30 



providing for a direct tax and various 
internal duties. Borrowing from an 
earlier measure in 1813, the omnibus 
bill provided $30 million in revenues 
derived principally from real estate 
taxes apportioned on a state requisi- 
tion system. 

July 25, 1861 Senator James F. 
Simmons of Rhode Island attached a 
proposal for an income tax to a tariff 
bill he introduced. 

July 29, 1861 The Ways and 
Means Committee reported Morrill's 
bill again, diminishing the direct tax 
by one-third (to $20 million) and 
including a tax of three percent on 
all incomes over $600 per year. The 
House passed this bill by a vote of 
77-60 on this day. 

July 29, 1861 The Senate adopted 
Senator Simmon's amendment for a 
tax on incomes over $1,000 for per- 
sons residing in the United States 
and a tax of 7.5 percent on incomes 
derived from property owned in the 
United States by any citizen of the 
United States residing abroad. 
Income derived from interest on 
securities of the United States was 
to be taxed at only 2.5 percent. 

August 5, 1861 The Conference 
Committee of both houses reported 
back a bill which included the 
changes in tariff rates, the direct tax, 
and the income tax which was passed 
in an emergency session of Congress. 
President Lincoln signed the bill 
which would be known as the Rev- 
enue Act of 1861, imposing a direct tax 
of $20 million per year apportioned 
among the existing states and territo- 
ries and the District of Columbia. 



This bill also imposed new excise 
taxes and an income tax set at three 
percent of annual income over $800. 
The rate was raised to five percent 
on income derived from property 
owned by American citizens resid- 
ing abroad, except for income 
derived from U.S. securities which 
was taxed at a rate of 1.5 percent. 
The tax was to be paid by June 30, 
1862. Each state was allowed to 
assess, collect, and pay its quota of 
the direct tax. 

This act established the position 
of "Commissioner of Taxes" with 
powers and responsibilities similar 
to those of the Commissioner of the 
Revenue of earlier periods (this 
position was never filled), allowed a 
principal assessor and collector in 
each state and territory and a collec- 
tor and an assessor in each of the 
collection districts. Because all loyal 
states (except Delaware) had paid 
their taxes by February 1862, no col- 
lectors or assessors were appointed 
under this law. 

August 5, 1861 In response to the 
new tax law, the New York Herald 
stated, "Millionaires like Mr. W.B. 
Astor, Commodore Vanderbilt... and 
others, will henceforth contribute a 
fair proportion of their wealth to the 
support of the national govern- 
ment." 

December 2, 1861 When Con- 
gress reconvened in regular session, 
the Secretary of the Treasury 
reported that nothing had been 
done in his office toward getting the 
machinery in order for the collection 
of direct taxes. 



7*7 



31 



1 86 1 The Secretary of the Trea- 
sury recommended to Congress that 
a national banking system be estab- 
lished to strengthen the Union's 
finances and provide a uniform cur- 
rency. 

January 8, 1862 The New York 
Times asserted that the income tax 
was "one of the most equitable and 
bearable taxes that can be proposed." 

January 21, 1862 Congress passed 
a resolution "that, in order to pay the 
ordinary expenses of the Government, 
the interest on national loans, and 
have an ample sinking fund for the 
ultimate liquidation of all public 
debts, a tax shall, with the tariff on 
imports, secure an annual revenue 
of not less than $150 million." 

February 1862 Congress autho- 
rized the printing of treasury notes, 
dubbed "greenbacks" because of 
the green ink used for printing. 

March 3, 1862 The House Ways 
and Means Committee presented 
a revenue measure to the House 
providing for taxes expected to yield 
about $164 million annually. The 
bill included an income tax, but it 
was not an important item, as its 
yield was estimated at only $5 mil- 
lion. Approximately one million dol- 
lars in revenue was expected from 
a tax on inheritances of personal 
property exceeding $1,000. 

April 10, 1862 The internal rev- 
enue bill was sent to the Senate after 
easy passage in the House. The 
House version of the bill placed a 
tax of three percent on all incomes 
over $600 and also provided for a 



direct tax. The Senate voted to 
strike out the direct tax, raised 
income tax rates, and made them 
progressive. 

The Committee of Conference 
ironed out the differences between 
House and Senate versions — keep- 
ing the direct tax, but suspending its 
operation for two years. The pro- 
gressive rates for the income tax 
were kept with tax rates of three 
percent on income from $600 to 
$10,000 and five percent on incomes 
over $10,000. 

June 7, 1862 An act provided for 
the appointment of a board of tax 
commissioners in each of the states 
in rebellion to collect the direct tax. 
Commissioners were not to enter on 
duty until the military authority of 
the United States was established in 
each state. Commissioners were 
authorized to lease lands until the 
rebellion was put down and the 
authority of the United States estab- 
lished. 

The U.S. Direct Tax Commis- 
sion for the District of South Car- 
olina was authorized on this date, 
as part of the bill providing "for the 
collection of direct taxes in insur- 
rectionary districts within the 
United States." During this month 
a board of three commissioners was 
sent to Beaufort, South Carolina to 
collect the direct tax levied by the 
act of August 5, 1861. 

JUNE 30, 1862 The first income 
taxes were due under the law of 
August 5, 1861. These taxes were 
never collected because there was 
no administrative system established 
for this purpose. 



^7 



32 



July 1, 1862 The second revenue 
measure of the Civil War was signed 
into law by President Lincoln on 
this date and featured progressive 
taxation, levies on incomes, and 
withholding. Congress suspended 
the operations of the act of August 5, 
1861 until April 1, 1865, except for 
the collection of the first annual 
direct tax of $20 million. 

Congress levied internal revenue 
taxes and established an internal 
revenue system as a permanent gov- 
ernment organization for the first 
time. The law also taxed estates, 
public utilities, occupations, distilled 
spirits, tobacco, banks, insurance 
companies, advertisements, slaugh- 
tered cattle, railroads, ferry boats, 
and other specified commodities. 
Stamp taxes were also added on cer- 
tain commercial papers, perfume, 
cosmetics, medicines, and playing 
cards. 

The law introduced the first with- 
holding system, requiring that three 
percent of salaries in civil, military, 
and naval services be withheld after 
August 1, 1862. The Office of the 
Commissioner of Internal Revenue 
was established in the Treasury 
Department by this law and the 
President was authorized to divide 
the country into "convenient collec- 
tion districts" and to appoint, with 
the advice and consent of the Sen- 
ate, an assessor and collector for each 
collection district. The assessor was 
charged with locating objects of tax- 
ation and preparing assessment lists 
to be delivered to the collector. 

July 3, 1862 The signing of the 
revenue law by President Lincoln 
was front page news in Washington, 
D.C. Also signed on the first of July 



were an authorization for a rail and 
telegraph line between the Missouri 
River and the Pacific Ocean and a 
bill to prevent and punish polygamy. 

July 14, 1862 Congress passed a 
tariff act to increase duties to offset 
the impact of the previously enacted 
internal taxes. 

July 17, 1862 The First Commis- 
sioner of Internal Revenue took 
office. George S. Boutwell, a Massa- 
chusetts lawyer who had served in the 
state legislature and also as governor, 
was confirmed by President Lincoln 
for this position on April 24, 1862. 

July 29, 1862 Six collection dis- 
tricts were established in Iowa. 

July 30, 1862 Five collection dis- 
tricts were established in California. 

August 1, 1862 The Revenue Act 
of July 1 specified 33 trades or pro- 
fessions which could not be per- 
formed until a license was obtained. 
The penalty for carrying on a trade 
or business without such a license 
after this date was three times the 
cost of the license. 

August 6, 1862 Three collection 
districts were established in New 
Hampshire and three in Vermont. 

AUGUST 8, 1862 Four collection 
districts were established in Con- 
necticut and two in Rhode Island. 

August 11, 1862 Five collection 
districts were established in New 
Jersey. Twenty-four collection 
districts were established in Penn- 
sylvania. 



77 



3i 



AUGUST 12, 1862 Five collection 
districts were established in Maine. 

AUGUST 15, 1862 Eleven collection 
districts were established in Indiana. 

AUGUST 19, 1862 Nineteen collec- 
tion districts were established in 
Ohio. 

August 22, 1862 Thirty-two col- 
lection districts were established in 
New York. 

August 25, 1862 Thirteen collec- 
tion districts were established in Illi- 
nois. 

August 26, 1862 Ten collection 
districts were established in Massa- 
chusetts. Six collection districts were 
established in Wisconsin. 

AUGUST 27, 1862 Five collection 
districts were established in Mary- 
land. 

August 1862 The Commissioner 
advertised for bids for printing rev- 
enue stamps. A contract was 
awarded to Butler and Carpenter of 
Philadelphia. 

September 1, 1862 The new inter- 
nal revenue laws on alcohol and 
other items went into operation. The 
tax on fermented liquors was $1 per 
barrel of not more than 31 gallons. 

September 17, 1862 Six collection 
districts were formed in Michigan. 

OCTOBER 1, 1862 The portions of 
the Revenue Acts of July 1, 1862 
imposing stamp taxes went into 
effect. The Commissioner was given 



responsibility for issuing all stamps. 
Adhesive backed revenue stamps 
were first issued this year. 

December 25, 1862 An amenda- 
tory act to the Act of July 1, 1862 
provided that all official documents 
of the United States were exempt 
from stamp taxes. This act also held 
that no instrument could be consid- 
ered invalid for lack of a particular 
kind of stamp with the exception 
that stamps for use on proprietary 
articles could not be used on legal 
instruments. 

1863 In its first year of operation, 
the Office of the Commissioner of 
Internal Revenue collected $39.1 
million. 

January 1, 1863 By this date, the 
work force of the Bureau of Internal 
Revenue totalled 3,882 employees. 
This included 3,822 in the field ser- 
vice (366 collectors and assessors, 
898 deputy collectors, 2,558 assistant 
assessors) and 60 in administrative 
offices in Washington (1 Commis- 
sioner, 51 male clerks, and 8 female 
clerks). 

Assessors were paid $3 per day 
while giving instructions; $5 per day 
while hearing appeals, considering 
valuations and preparing assessment 
lists; and $1 for every 100 names in 
the tax lists submitted to the collec- 
tor. Assistant assessors received $3 
per day and an allowance of $1 for 
every 100 names delivered to the 
assessor. Collectors received a com- 
mission of four percent on all money 
collected up to $100,000 and 2 per- 
cent on money above that amount. 
Deputy collectors were paid by the 
collector. 



7*7 



34 



February 2, 1863 Commissioner 
Boutwell issued a decision that, 
however slaves may have been 
regarded by the laws of a state previ- 
ous to their emancipation, if they 
were liberated by the last will and 
testament of their masters, they 
were not to be treated as personal 
property and were not subject to the 
inheritance tax. 

February 25, 1863 Congress 
passed the National Banking Associ- 
ation Act which established a system 
of national banks. The banks were 
required to have one-third of their 
capital invested in U.S. securities, 
deposited in the United States Trea- 
sury. The banks could then issue 
paper currency up to the value of 90 
percent of their U.S. bond holdings. 
By the end of 1865, more than 
1 1,500 banks had joined the national 
banking system. 

March 3, 1863 Congress passed an 
act which included a provision allow- 
ing the President to appoint a 
Deputy Commissioner of Internal 
Revenue as well as a Cashier of Inter- 
nal Revenues. 

The Cashier would be in charge 
of all monies received in the Office 
of the Commissioner. The first 
Deputy Commissioner was C.F. 
Estee of New York. Authority was 
also given to the Secretary of the 
Treasury to hire not more than three 
revenue agents to help detect, pre- 
vent, and punish fraud. 

The tax on fermented liquors was 
lowered from $1 to 60 cents per bar- 
rel. All banks, associations, corpora- 
tions, or individuals issuing notes or 
bills for circulation as currency were 
required to pay a duty of one per- 



cent every six months. The Secre- 
tary of the Treasury was authorized 
to compromise claims. 

March 4, 1863 George Boutwell 
resigned after less than one year as 
Commissioner to become a Massa- 
chusetts Congressman. Boutwell later 
became Secretary of the Treasury. 

March 18, 1863 Joseph J. Lewis of 
Pennsylvania became the second 
Commissioner of Internal Revenue. 

April 1863 The Bureau of Internal 
Revenue issued rules to guide asses- 
sors and collectors in collecting the 
inheritance tax. 

June 4, 1863 A group of western 
and eastern manufacturers met in 
Chicago and adopted resolutions 
demanding that the income tax be 
suspended, so far as it affected 
income from stocks, until Congress 
assembled again. The Treasury 
Department refused to bow to this 
pressure. 

September 16, 1863 The Presi- 
dent instructed the South Carolina 
Direct Tax Commission to reserve 
81 plantations on the sea islands of 
that state for military, naval, charita- 
ble, educational, or police purposes. 
These instructions also provided for 
the sale of homesteads of 10 and 20 
acres to heads of families of African 
descent. 

October 1863 Taxation of bank 
circulation and deposits began. 

January 1864 Pennsylvania Rep- 
resentative Thaddeus Stevens intro- 
duced a bill to raise the tax on 



vt 



35 



distilled spirits from 20 to 60 cents 
per gallon, as recommended by Sec- 
retary Chase. Whiskey speculators 
began hoarding the commodity. 

March 7, 1864 The tax on dis- 
tilled spirits was raised from 20 to 60 
cents per gallon. 

April 1, 1864 The tax on fer- 
mented liquors was raised from 60 
cents to $1 per barrel. 

April 14, 1864 The Ways and 
Means Committee reported a bill to 
provide additional internal revenue, 
with an income tax rate of 5 percent 
on incomes above $600. 

JUNE 30, 1864 Congress suspended 
the act of August 5, 1861 levying the 
annual direct tax of $20 million. The 
Committee of Conference passed an 
internal revenue bill with progres- 
sive rates of 5 percent on income 
between $600 and $5,000; 7.5 per- 
cent on incomes between $5,000 and 
$10,000; and 10 percent on incomes 
over $10,000. 

The bill also provided for with- 
holding of 3 percent of income up to 
$5,000 and on interest and dividends 
paid by banks, railroads, insurance 
companies, etc. The tax on distilled 
spirits was raised from 60 cents to 
$1.50 per gallon. 

This law exempted savings-banks 
from all taxation where they had no 
capital stock and confined their busi- 
ness to receiving and loaning 
deposits for the benefit of depositors 
only. This act imposed a tax upon 
the capital, circulation, and deposits 
of persons and corporations engaged 
in banking. The tax on dividends 
was raised from 3 to 5 percent. 



The Commissioner was autho- 
rized to compromise all suits "relat- 
ing to internal revenue," to abate 
outstanding assessments, and to 
refund taxes, subject to prescribed 
regulations. This act provided for 
the seizure of property "found in the 
possession of any person for the pur- 
pose of being sold or removed in 
fraud of the revenue or with design 
to avoid the payment of tax." 

The tax on smoking tobacco was 
increased from 5 to 25 cents per 
pound. Fine-cut chewing and plug 
tobacco taxes were increased from 
15 to 35 cents per pound. 

The Commissioner was autho- 
rized to refund taxes erroneously or 
illegally assessed and collected. 
The Secretary of the Treasury was 
authorized only until July 1, 1866 to 
assign the number of clerks he 
deemed necessary to the Bureau of 
Internal Revenue. 

Taxes imposed on banks, insur- 
ance and railroad companies required 
returns to be filed with the assessor 
with payment made to the collector. 
The number of revenue agents was 
increased from three to five. 

July 4, 1864 Congress imposed an 
income tax in addition to that of 
June 30, of 5 percent on all incomes 
over $600 for the year ending 
December 31, 1863. This tax was to 
be collected on or before October 1, 
1864. This emergency levy was 
inspired by the fear that despite the 
anticipated revenues from the June 
30 bill, the Treasury would lack the 
income needed to meet the war's 
demands. This extra levy was 
expected to pay bounties for the 
enlistment of 200,000 men. 



77 



.% 



September 1, 1864 Revenue 
stamps were required on matches. 

December 22, 1864 The tax on 
distilled spirits was raised from $1.50 
to $2.00 per gallon. 

1864 Mark Twain paid an income 
tax of $36.82, plus a $3.12 late filing 
fine and remarked that he felt 
"important" because the govern- 
ment was finally paying attention 
to him. 

February 9, 1865 Justin S. Morrill 
introduced a bill to amend the Inter- 
nal Revenue Act of June 30, 1864 to 
increase the revenue and reinforce 
the Treasury. He recommended 
increasing taxes to a rate of 10 per- 
cent on all incomes over $3,000. 
Robert Mallory of Kentucky main- 
tained that this was an excessive 
amount and suggested a tax of 
5 percent on incomes between $500- 
$5,000 and 10 percent on incomes 
over $5,000. This was the version 
adopted by the House on February 
16 by a vote of 65-56. 

March 1, 1865 One collection dis- 
trict was established in Arkansas. 

March 3, 1865 Morrill's internal 
revenue measure became law. This 
act imposed the highest tax rates of 
the Civil War. As part of this mea- 
sure, Congress created the U.S. 
Revenue Commission to study ris- 
ing tax revenues and the efficiency 
of tax administration. The members 
were to be appointed for four-year 
terms and included David Wells of 
New York, Stephen Colwell of 
Pennsylvania, and Samuel Hayes of 
Illinois. 



v*T 



Wells was appointed "Special 
Commissioner of the Revenue," 
with his four-year term beginning 
June 30, 1866. During his tenure, 
Wells submitted four annual reports 
which had significant impact on the 
fiscal policy of the United States. 

Also under this bill, the assistant 
assessor was empowered to increase 
any taxpayer's estimate of his 
income, even if made under oath, 
when it seemed to be an understate- 
ment. Existing tax rates were 
increased by 20 percent. Savings 
banks were made liable to taxation 
under this act. 

Cigar stamps were required and 
cigars were taxed at a uniform rate of 
$10 per thousand. The tax on smok- 
ing tobacco, except that made exclu- 
sively of stems, was increased from 
25 cents to 35 cents per pound while 
the tax on fine-cut and plug chewing 
tobacco was increased from 35 to 40 
cents per pound. 

This act also provided that assis- 
tant assessors could be appointed 
directly by assessors with approval of 
the Commissioner rather than being 
appointed by the Secretary of the 
Treasury. This act provided that any 
person feeling aggrieved by the 
decision of an assistant assessor 
could appeal to the assessor whose 
decision would be final unless 
reversed by the Commissioner. The 
number of authorized revenue 
agents increased from five to ten. 

April 16, 1865 The Treasury 
Department building served as the 
temporary White House for Presi- 
dent Johnson for two months. 



37 



April 27, 1865 Six collection dis- 
tricts were established in Missouri. 

May 17, 1865 The Commissioner 
issued instructions to the Direct Tax 
Commissioners to suspend all sales 
of lands for taxes until otherwise 
ordered. 

May 30, 1865 Four collection dis- 
tricts were established in Georgia. 
Three collection districts were 
established in South Carolina. 

June 2, 1865 Three collection 
districts were established in Missis- 
sippi. 

June 5, 1865 Four collection 
districts were established in Texas. 

JUNE 22, 1865 Three collection 
districts were established in 
Louisiana. 

June 1865 The U.S. Revenue 
Commission was organized. 

JULY 1, 1865 Joseph Lewis 
resigned as Commissioner and was 
replaced by William Orton, who had 
served as Collector of the Sixth Dis- 
trict of New York. 



July 1, 1865 Prior to this date, Col- 
lectors of Internal Revenue served 
as their own disbursing agents and 
were allowed to keep that part of 
their collections necessary to pay the 
expenses of assessing and collecting. 

October 31, 1865 William Orton 
resigned after only four months as 
Commissioner to become President 
of American Telegraph Company 
and later, Western Union. 

November 1, 1865 Edward A. 
Rollins, a Republican from New 
Hampshire, became the fourth Com- 
missioner. Rollins had served as 
Deputy Commissioner under Joseph 
Lewis. 

1865 The imposition of a 10 per- 
cent tax on state bank notes drove 
the 7,000 different types of these 
notes out of circulation. 



7v 



38 




Clerks leave the Treasury Department building on a rainy afternoon. 



1866-/872 

Reconstruction and Reuniting: 
Congress Reconsiders the Income Tax 

vT7 



The income tax enacted as an emergency measure during the Civil War 

expired and the nation once again relied on raising revenue through other 

means. The Bureau of Internal Revenue began to consolidate its 

organizational structure as fewer field offices were needed and the first 

of many Congressionally-sponsored investigations into the operations 

of the Bureau was undertaken by the "Special Commissioner of the 

Revenue" during these years. 



JANUARY 25, 1866 Nine collection 
districts were established in Ken- 
tucky. 

February 27, 1866 Seven collec- 
tion districts were established in 
North Carolina. 

February 1866 The U.S. Revenue 
Commission made a special report to 
Congress on "Distilled Spirits as a 
Source of National Revenue." 

March 14, 1866 Three collection 
districts were established in West 
Virginia. 

April 23, 1866 Eight collection 
districts were established in Virginia. 

May 9, 1866 A joint resolution 
deleted paraffine oil and crude petro- 
leum from the list of taxable items. 

May 19, 1866 Eight collection dis- 
tricts were established in Tennessee. 

July 13, 1866 Congress reduced or 
eliminated many taxes. The bill 
passed on this date allowed the 
income tax to stand with minor 
amendments due to the lack of time 
to deal with the many changes 
needed. The intent was to reduce 
the revenue collected by about $65 
million per year. 

These changes included having 
the tax apply to citizens residing 
outside the United States; applying 
a tax rate of 10 percent on salaries 
above $5,000 to officers of the fed- 
eral government, who had previously 
been exempt from tax; carriages val- 
ued under $300, yachts, pianofortes, 
and other musical instruments were 
exempted from tax; the 20 percent 



increase in tax rates was removed; 
the income tax was declared payable 
every year "until and including the 
year 1870 and no longer." 

This act established a definite 
number of personnel for the Bureau 
of Internal Revenue. The Commis- 
sioner was authorized a total of 256 
employees, including 3 deputy com- 
missioners, a solicitor, 7 heads of 
divisions, 221 clerks, 8 messengers, 
and 15 laborers. The law also created 
the Office of Solicitor of Internal 
Revenue. Walter H. Smith, a lawyer 
from Ohio, became the first Solicitor 
of the Revenue. 

All deposits in savings banks and 
institutions where the deposits made 
by any one person amounted to 
$500 were subject to taxation. This 
act changed the payment of taxes 
on dividends and interest on bonds 
from direct payment to the Commis- 
sioner to collectors and assessors in 
local districts. The amount of annual 
taxes paid by brewers and distillers 
was doubled. Manufacturers of 
tobacco, snuff, and cigars were 
classed as tobacconists instead of 
manufacturers. 

This act provided a process by 
which collectors could sell goods 
seized for violation of the revenue 
laws where the value did not exceed 
$300. This act provided that any per- 
son who executed or attempted to 
execute a fraudulent bond for the 
purpose of withdrawing spirits from 
bonded warehouses should forfeit all 
property in such spirits. This act pro- 
vided for "special taxes" in lieu of 
the license taxes of earlier laws. 



7*7 



40 



July 13, 1866 Three collection dis- 
tricts were established in Arkansas. 

July 16, 1866 Congress autho- 
rized the unsold and unleased lands 
in South Carolina acquired in pay- 
ment of the direct tax to pass into 
the custody of the Freedmen's 
Bureau. 

August 1, 1866 The tax on cot- 
ton increased from two to three 
cents per pound. Affidavits, 
receipts for the delivery of prop- 
erty, appeals, confessions of judg- 
ments, writs, and other original 
processes were made exempt from 
stamp duty while a tax on bankers' 
and brokers' sales of stocks and 
bonds was added to the stamp 
schedule. 

August 3, 1866 The Secretary of 
the Treasury issued an order to the 
Commissioner to suspend collec- 
tion of the direct tax in the states 
which had been in secession. The 
commissions for the tax collectors 
in these states were dissolved, 
except in South Carolina where the 
collection of deferred payments on 
lands which had been bid in by the 
United States and afterwards sold 
on three years time to persons in 
the Army and the Navy continued. 

August 1866 The tax on bankers 
and brokers sales was reduced from 
V20 to Koo of one percent and was 
made payable by stamps. 

September 1, 1866 Prior to this 
date, the tax on fermented liquors 
was paid in currency. After this 
date, the tax was paid by stamps 
affixed to the spigot of every barrel 



removed from a brewery. This 
method of collection remained 
unchanged until Prohibition. 

September 30, 1866 The commis- 
sion to collect the direct tax in 
Alabama was dissolved. 

November 1866 Commissioner 
Edward Rollins reported to Con- 
gress on the administration of the 
income tax and for the first time pro- 
vided information on the number of 
taxpayers and the amount of rev- 
enue in each class of the progressive 
tax rates. He also recommended that 
the amount of exemption be raised 
from $600 to $1,000. 

December 1, 1866 The commis- 
sion to collect the direct tax in North 
Carolina was dissolved. 

December 15, 1866 The commis- 
sions to collect the direct tax in 
Georgia and Louisiana were dis- 
solved. 

December 31, 1866 The commis- 
sion to collect the direct tax in Mis- 
sissippi was dissolved. 

December 1866 Congress charged 
a select committee with investigating 
"any frauds or evasions in the pay- 
ment of internal duties" as well as 
the role of revenue officers in com- 
promises, settlements, and under- 
payments. The committee issued a 
report the following year stating that 
"they doubted that the laws would 
ever be efficiently executed until 
there has been a reorganization of 
the revenue force." 



41 



1866 Representative James 
Garfield of Ohio (later President) 
spear-headed an effort to make tax 
information private. 

1866 The national debt stood at 
$2.86 billion, a level that would not 
be reached again until World War I. 

February 13, 1867 Justin Morrill 
presented a bill to the House Ways 
and Means Committee on internal 
revenue, stressing the need to lower 
taxes. The bill proposed a flat 5 per- 
cent tax rate on incomes above 
$1,000. 

February 25, 1867 Congress 
approved refunding illegal collec- 
tions of the direct tax by the Secre- 
tary of the Treasury. 

February 28, 1867 The commis- 
sion to collect the direct tax in Texas 
was dissolved. 

February 1867 The Secretary of 
the Treasury adopted a hydrometer 
designed by a Mr. Tagliabue of New 
York. A committee of the National 
Academy of Sciences had approved 
the design of this hydrometer in an 
effort to establish a uniform and cor- 
rect system to inspect and gauge spir- 
its subject to tax. All gaugers were 
required to use this hydrometer. 

March 1, 1867 Clothing or articles 
of dress not specifically enumerated 
were exempt from taxation while tax 
rates on boots and shoes were 
reduced from six to two percent. 

March 2, 1867 The Senate 
accepted the House approved 
internal revenue measure in less 



than three days, with its proposal 
for abandoning the progressive 
income tax rates. This new bill 
remained in force until 1870 and 
included a tax of 5 percent on all 
income over $1,000. This act also 
moved back the date for the last 
collection of income taxes to April 
30, 1870 (from June 30, 1870). 

Receipts for the delivery of prop- 
erty, affidavits, appeals, confessions 
of judgement, writs, and other orig- 
inal processes, canned and pre- 
served meats and shellfish, 
vegetables, and fruits, were 
exempted from stamp duty by this 
act. The use of packages known as 
"thirds" by brewers was authorized 
to accommodate brewers west of 
the Rocky Mountains. Taxes on 
cigars were reduced from $10 to $5 
per thousand. 

Under this act, district attorneys 
were required to report to the 
Bureau of Internal Revenue at the 
close of each court term the num- 
ber of suits brought and the status 
of suits underway. This act autho- 
rized the Secretary of the Treasury 
to adopt, procure, and prescribe for 
use such hydrometers and weighing 
and gauging instruments for the 
prevention and detection of frauds 
by distillers of spirits as he deemed 
necessary. 

This act also provided that if the 
amount of the tax on distilled spir- 
its could not be obtained the spirits 
should be destroyed. This act 
amended the procedure for appeal 
to provide that no penalty would be 
assessed for making a false or 
fraudulent income return except 
after reasonable notice of the time 
and place of hearing. 



42 



March 5, 1867 The commission 
to collect the direct tax in Arkansas 
was dissolved. 

March 26, 1867 Congress passed an 
act allowing the Secretary of the 
Treasury to discontinue the employ- 
ment of any person involved in the 
collection of the direct tax in insur- 
rectionary districts where, in his 
judgment, these services were no 
longer needed. 

March 1867 The time for making 
the annual assessment of articles in 
Schedule A (income and special 
taxes) was changed from May to 
March. 

April 3, 1867 A Committee of the 
National Academy of Sciences com- 
pleted a report promoting the use of 
spirit meters designed by Mr. Isaac 
P. Tice of New York to measure the 
production capacity of distilleries for 
taxation purposes. 

April 26, 1867 The Secretary of 
the Treasury announced the adop- 
tion of spirit meters made by Mr. 
Tice and required distillers to apply 
for the devices by May 15, 1867. 

April 30, 1867 The commissions 
to collect the direct taxes in Virginia 
and Tennessee were dissolved. 

September 1, 1867 The tax on 
cotton was reduced from three cents 
to two and one-half cents per pound. 

1867 Congress prohibited legal 
challenges to tax assessments prior 
to their collection. 



February 3, 1868 A joint resolu- 
tion provided for the appointment of 
a commission to examine and test 
spirit meters. 

March 31, 1868 Heavy penalties 
were laid upon revenue officers and 
agents for gross neglect of duty or for 
defrauding the United States. The 
same penalties applied if the rev- 
enue officer or agent had knowledge 
of fraud committed by any person 
and failed to report it in writing. 

March 1868 A new congressional 
committee investigated revenue 
frauds. The committee report 
accused President Andrew Johnson 
and his supporters of direct involve- 
ment in the fraud. 

June 8, 1868 Commissioner 
Rollins submitted his resignation to 
President Johnson, contingent on 
the appointment of a successor. 

July 20, 1868 Congress passed a 
revenue act strengthening the 
administrative control of the Com- 
missioner over his field officers. The 
Commissioner was authorized to 
appoint 25 "supervisors of internal 
revenue" who would have the power 
to transfer or suspend any officer or 
field employee of the Internal Rev- 
enue Bureau for neglect of duty, 
abuse of power, or fraud. The Com- 
missioner was also given authority to 
hire 25 "detectives" to prevent fraud 
upon the government and assist in 
the collection of taxes. 

The revenue provisions of this act 
were devoted almost exclusively to 
the taxation of distilled spirits and 
tobacco. Manufacturers were 
required to pack their product in 



WF 



43 



prescribed packages, to which 
stamps denoting payment of the tax 
were affixed. This act abolished all 
provisions for leakage on spirits 
manufactured after its enactment. 

This act imposed two rates of 
taxation on tobacco products — 16 and 
32 cents per pound. Taxes on distilled 
spirits were reduced from $2.00 to 50 
cents per gallon, but special taxes 
were added which made the total tax 
burden for distillers close to 75 cents 
per gallon. Under this act all spirits in 
bonded warehouses at the time of pas- 
sage were required to be withdrawn 
and the tax paid prior to July 1, 1869. 

July 23, 1868 Congress passed 
a joint resolution suspending the oper- 
ation of the direct tax law until Janu- 
ary 1, 1869. After this, no further 
action was taken by Congress or the 
President to put these laws into effect. 

July 30, 1868 A revenue law 
passed this date required that a rec- 
tifying establishment could not be 
within 600 feet of a distillery and 
gave authority to revenue officers 
to break up any ground in order to 
look for pipes connecting two such 
places. This law was passed to pre- 
vent evasion of the tax. 

August 5, 1868 President Johnson 
accepted Commissioner Rollins' 
resignation. 

AUGUST 31,1 868 A warrant was 
brought against Commissioner 
Rollins, Deputy Commissioner 
Thomas Harland, several local dis- 
tillers and others for tax evasion, 
bribery, and blackmail during 



December 1867. The government 
later dismissed the case when the 
star prosecution witness was arrested 
for perjury. 

November 2, 1868 The Secretary 
of the Treasury set this date for 
putting into operation the provisions 
of the revenue act of July 20, 1868 
pertaining to the use of stamps on 
distilled spirits. 

November 23, 1868 The Secretary 
of the Treasury set this date for 
putting into operation the provisions 
of the revenue act of July 20, 1868 
pertaining to the use of stamps on 
tobacco products. 

1868 The constitutionality of the 
gross receipts (corporation) tax was 
tested in the case of Pacific Insur- 
ance Co. v. Soule. Soule was the 
Collector for the First District of 
California. The Supreme Court ren- 
dered an opinion that the tax on pre- 
miums received by insurance 
companies was not a direct tax, but 
an excise duty and was therefore 
constitutional. 

1868 Beginning this year, taxation 
of distilled beverages and tobacco 
became a major source of internal 
revenue. From 1868 to 1913, nearly 
90 percent of all internal revenue 
collections came from these taxes. 

February 5, 1869 A New York 
Tribune editorial stated, "The income 
tax is the most odious, vexatious, 
inquisitorial, and unequal of all our 
taxes... a tax on honesty, and just the 
reverse of protective. It tends to tax 
the quality out of existence." 



^7T7 



44 



March 4, 1869 Congress amended 
the act of July 20, 1868 to provide 
that the compensation of storekeep- 
ers was to be repaid to the govern- 
ment by the manufacturers of 
distilled spirits and owners of ware- 
houses. 

March 10, 1869 Edward A. Rollins 
resigned as Commissioner as Ulysses 
Grant assumed the Presidency. 

March 11, 1869 Columbus 
Delano, an Ohio Congressman, 
became Commissioner. 

March 12, 1869 Former Commis- 
sioner George S. Boutwell became 
the 28th Secretary of the Treasury. 

April 14, 1869 The Commissioner 
issued an order disallowing deduc- 
tions for leakage of spirits when 
removed from bond. 

April 1869 The Commissioner 
established a policy requiring rev- 
enue stamps to be placed on the 
item being taxed so as to display 
the entire face of the stamp. This 
was to prevent frauds perpetrated 
by placing one stamp over another, 
which allowed taxpayers to deceive 
the tax collector by cutting the 
stamps in half. 

AUGUST 3, 1869 The Commis- 
sioner issued Circular 79 which pro- 
vided that no claim or application for 
refunding of taxes would be consid- 
ered by the Commissioner unless it 
was filed within two years from the 
date of payment of tax. 



September 6, 1869 An attempt was 
made to assassinate revenue detective 
James J. Brooks in Philadelphia for 
which two men were convicted and 
sentenced to prison for seven years. 

November 10, 1869 The New York 
Times reported that it hoped efforts 
to repeal the income tax would not 
succeed. 

December 10, 1869 The New York 
Tribune continued to oppose the 
income tax, writing, "We do not 
believe there is a tax levied by the 
Government so onerous upon so large 
a class of people as the Income Tax." 

December 20, 1869 David A. 
Wells presented his report as Special 
Commissioner of the Revenue to the 
Secretary of the Treasury. Shortly 
thereafter, President Grant dis- 
missed Wells because he objected to 
his advocacy of tariff reform. 

1869 Customs revenue again 
exceeded internal revenue. 

1869 The Treasury Building was 
completed. 

1869 The Supreme Court again 
ruled that the income tax was not a 
direct tax in the case of Veazie Bank 
v. Fenno. Chief Justice Chase, in 
delivering the opinion in this case, 
stated, "the words 'direct taxes,' as 
used in the Constitution, compre- 
hended only capitation taxes, and 
taxes on land, and perhaps taxes on 
personal property by general valua- 
tion and assessment of the various 
descriptions possessed within the 
several States." 



^7 



45 



1869 The Prohibition Party, which 
supported legislative prohibition of 
the manufacture, transportation, and 
sale of alcoholic beverages, was 
formed in Chicago. 

April 5, 1870 Commissioner 
Columbus Delano forbade tax asses- 
sors from furnishing lists of taxpayers 
for publication. 

April 26, 1870 The New York Times 
argued that "a moderate and a prop- 
erly collected income tax will be the 
most satisfactory and just of any that 
can be devised, and we hope the 
House of Representatives will firmly 
resist the effort of the Senate to keep 
it at the present figure..." 

May 1870 Ways and Means Com- 
mittee Chairman Robert Schenck of 
Ohio introduced a bill to reduce some 
internal taxes and to repeal the 
wartime inheritance tax. 

June 22, 1870 Both the Solicitor of 
Internal Revenue and the Solicitor of 
the Treasury were transferred to the 
newly organized Department of Jus- 
tice. 

June 30, 1 870 The Office of the 
Special Commissioner of the Rev- 
enue expired. 

July 14, 1870 Congress passed a 
revenue act which preserved the 
income tax but lowered the rates to 
214 percent on incomes over $2,000. 
The tax was limited to the years 1870 
and 1871, "and no longer." 

Administrative changes brought 
about by this law affected the publi- 
cation of income tax returns in the 
first official confidentiality provisions 



to the income tax law. During the 
Civil War there had been little objec- 
tion to this practice, but following the 
war strong objection arose from the 
conservative press, resulting in the 
prohibition of publication of income 
tax returns. The law stated "that no 
collector... shall permit to be pub- 
lished in any manner such income 
returns or any part thereof, except 
such general statistics, not specifying 
the names of individuals or firms..." 

Also, no penalties for refusal or 
neglect to make a return or an 
increase of assessment could be made 
or imposed without due notice to the 
person charged. This act also repealed 
the tax on legacies and successions. 

October 1, 1870 Sugar inspectors 
employed by the Bureau were 
required to determine the bounty on 
beet sugar. This provision was 
repealed in 1894. 

October 1, 1870 The tax on gross 
receipts, sales (other than sales paid 
by stamps and sales of tobacco, spirits, 
and wines), legacies, successions, arti- 
cles in Schedule A, passports, and the 
special tax on boats, barges, and flats 
was repealed. 

October 31,1 870 The commis- 
sion to collect the direct tax in South 
Carolina was dissolved. 

1870 In Day v. Buffington, the 
U.S. Circuit Court of the District of 
Massachusetts held that the salary of 
a judge of a state court was not tax- 
able by the United States. An appeal 
to the Supreme Court sustained the 
decision of the lower court. 



7T- 



46 



1870 During this year, federal 
officers seized the tobacco manufac- 
turing establishment of Elias C. 
Boudinot, a Cherokee Indian, oper- 
ating inside the boundary of the 
Cherokee Nation for nonpayment of 
taxes. The District Court of the 
United States for the Western Dis- 
trict of Arkansas upheld this action. 
Boudinot later won his case in the 
Court of Claims, recovering the sum 
of $3,272.25, the value of his prop- 
erty seized and sold. 

January 2, 1871 Columbus Delano 
resigned as Commissioner to become 
Secretary of the Interior. 

January 3, 1871 Alfred Pleasanton 
became Commissioner. Pleasanton 
had been Collector of Internal Rev- 
enue in New York and his appoint- 
ment as Commissioner was made 
against the advice of Secretary of 
the Treasury George Boutwell. 
Pleasanton was seen as compliant to 
the wishes of various big business 
groups, especially those whose claims 
were furthered by Samuel Ward of 
New York, the ablest lobbyist of the 
day. In the end, Boutwell removed 
Pleasanton after he had served only 
seven months. 

January 1 9, 1 87 1 The New York 
Times reversed its earlier opinion by 
stating that "the income tax has been 
unpopular from the moment of its 
enactment... let Congress redeem the 
session from utter barrenness by 
averting the vexation and unpopular- 
ity which will inevitably arise from 
the continued infliction of the impost 
i.e., income tax." 



January 20, 1871 Commissioner 
Pleasanton sent a communication to 
Samuel Hooper of the Ways and 
Means Committee in which he said 
that the income tax was "most obnox- 
ious to the genius of our people," was 
inquisitorial, exposed "the most pri- 
vate pecuniary affairs of our citizens," 
was not productive of great revenue, 
and should be unconditionally 
repealed. Pleasanton was soon contra- 
dicted by Secretary of the Treasury 
Boutwell. 

February 7, 1871 Samuel Hooper 
moved that the House rules be sus- 
pended so that a bill to repeal the 
income tax might be passed. This 
motion was defeated 117-91. The 
Senate passed a bill to repeal the 
income tax, but this was returned by 
the House without consideration, 
because under the Constitution, rev- 
enue measures could not originate in 
the Senate. 

March 1, 1871 The First, Second, 
and Third Districts of New York 
were consolidated into the First Dis- 
trict. The Fourth and Sixth Districts 
of New York were consolidated into 
the Second District. The Fifth and 
Seventh Districts of New York were 
consolidated into the Third District. 

April 1,1871 The First and Sec- 
ond California Districts were consoli- 
dated into the First District. The 
First and Second Districts of Ohio 
were consolidated into the First Dis- 
trict. The First and Third Districts of 
Pennsylvania were consolidated into 
the First District. 



ir- 



47 



May 1, 1871 The repeal of special 
taxes, except those relating to spirits, 
tobacco, fermented liquors, and the 
special tax on boats, barges, and flats, 
went into effect. 

July 1, 1871 The Second and Third 
Districts of Wisconsin were consoli- 
dated into the Second District. 

August 8, 1871 Alfred Pleasanton 
resigned as Commissioner. 

August 9, 1871 John W. Douglass 
of Pennsylvania became Commis- 
sioner. 

December 1, 1871 The First and 
Second Districts of Maryland were 
consolidated into the First District. 

1871 Justice Strong, member of the 
U.S. Circuit Court for the Eastern 
District of Pennsylvania, upheld the 
constitutionality of the income tax 
imposed by the June 30, 1864 act. 

January 2, 1872 The Second and 
Fourth Districts of Pennsylvania were 
consolidated into the Second District. 

March 1, 1872 The Fourth and 
Fifth Districts of Wisconsin were con- 
solidated into the Third District. 

March 6, 1872 The number of 
internal revenue agents was increased 
to 25 and the number of supervisors 
reduced to 10. 

June 1, 1872 The Twenty-Seventh 
and Thirty-First Districts of New 
York were consolidated into the 
Twenty-Seventh District. 



June 6, 1872 An act authorized the 
Secretary of the Treasury to employ 
not more than three persons to assist 
in discovering and collecting any 
money belonging to the United States 
under such terms and conditions as he 
deemed best for the interests of the 
United States. 

This allowed the Secretary of the 
Treasury to enter into contracts with 
individuals outside the Bureau of 
Internal Revenue to collect taxes. 
These individuals were to be paid 
from the monies and property they 
collected rather than from govern- 
ment funds. Authority was also given 
to pay rewards of 10 percent of 
monies collected to informants. 

This act also required a reduction 
of the number of internal revenue dis- 
tricts to not more than 80. This act 
also reduced the price of stamps for 
rectified spirits and wholesale liquor 
dealers' packages from 25 cents to 10 
cents, effective August 1, 1872. Alco- 
hol taxes were raised from 50 to 70 
cents per gallon. This act also 
imposed a uniform rate of taxation of 
20 cents per pound on all tobacco 
products except snuff which was 
taxed at the rate of 32 cents per 
pound. The bonded warehouse sys- 
tem for the storage of tobacco 
intended for export was repealed. 

Taxes on banks and bankers 
became assessable on the first of June 
and December, respectively. Special 
taxes were payable on May 1 of each 
year. A statute of limitations for claim- 
ing refunds of taxes alleged to have 
been paid in error was set at two 
years. Documentary stamp duties 
under Schedule B were repealed with 
the exception of two cent stamps on 
bank checks, drafts, or orders. 



77 



48 



June 8, 1872 The Secretary of the 
Treasury signed an agreement grant- 
ing 50 percent of the gross amount of 
taxes collected by contract employees 
of the Bureau of Internal Revenue to 
the employee. This action ultimately 
led to much dissatisfaction among 
regular employees of the Bureau of 
Internal Revenue, whose salaries 
were set at a specific level, in no case 
to exceed $3,500. Thus, no matter 
how much tax revenue a collector 
brought in, he could not hope to 
match the potential profits reaped by 
a contract tax collector. 

August 13, 1872 Secretary of the 
Treasury Boutwell contracted with 
John D. Sanborn of Massachusetts to 
collect taxes from 39 "distillers, 
rectifiers, and purchasers of whiskey." 
Sanborn received 50 percent of what 
he collected. 

Additional contracts with Sanborn 
were made in October 1872, March 
1873, and July 1873. During his 
tenure Sanborn collected $213,500. 

The Commissioner objected to this 
manner of collecting taxes to no avail. 
These contracts became the subject 
of a congressional investigation in 
February 1874, in which it was 
decided that although the contracts 
were improper, the Secretary of the 
Treasury had not acted corruptly. 
The investigation report also stated 
that the Bureau of Internal Revenue 
could have collected the money more 
ably itself. 

October 1, 1872 All stamp taxes 
except those on bank checks were 
repealed. 



December 24, 1872 In response to 
the report from the Special Revenue 
Commission, Congress enacted legis- 
lation which abolished the offices of 
assessors and assistant assessors and 
transferred their duties to collectors. 
This action was to be completed 
before June 30, 1873. Most assessor's 
offices were closed by May 20, 1873. 

December 27, 1872 Alaska became 
part of the Oregon District. 

1872 All income taxes enacted dur- 
ing the Civil War years expired. The 
tariff of 1872 reduced tariff rates by 
10 percent. The total amount collec- 
tion in income taxes for the years 
1863-1874 was approximately $274 
million. An additional $67 million was 
collected from taxes on corporate 
incomes and dividends and interest 
on United States securities. Together, 
these tax receipts accounted for just 
under 20 percent of total tax revenues 
for this period. Over $617 million was 
collected from alcohol and tobacco 
taxes while another $641 million 
came from various other excise and 
occupational taxes, accounting for 
over 70 percent of total internal rev- 
enue collections for this period. The 
number of individual income tax 
returns received during this period 
fluctuated widely, ranging from a high 
of 276,661 in 1870 to only 72, 949 by 
1872. Changing tax rates and exemp- 
tion levels accounted for the differ- 
ence. 

1 872 The job title of "detective" 
was changed to "agent" and the Com- 
missioner was given hiring authority 
for fraud agents. 



^7 



49 



1872 An act was passed to permit 
former owners or their heirs of lands 
seized as a result of the direct tax 
laws of the Civil War in the states in 
secession to reclaim their former 
property, then held by the United 
States, if within two years they pre- 
sented satisfactory proof of their for- 
mer ownership and paid the taxes, 
penalty, costs, and interest at 10 per- 
cent per year from the date of assess- 
ment of the tax. 



1872 A legal opinion in the case of 
Erskine v. Van Arsdale permitted the 
accrual of interest on a disputed 
refund from a collector from the 
time of payment to the time of judg- 
ment. 



50 




Revenue Stamps were used widely throughout this period. 



'873-1885 

Years of Consolidation: 

Alcohol and Tobacco Remain 

Revenue Mainstays 



The consolidation of internal revenue offices around the country continued as 
the country retreated from the use of internal taxes to raise revenue. By the 

mid-1870s, the only remaining internal taxes were those on alcohol and 

tobacco. Enforcement of regulations for the operation of distilleries and other 

brewing facilities required that the Bureau of Internal Revenue establish 

laboratories to measure the alcoholic content of various liquors. 



January 1, 1873 The First and 
Third Connecticut Districts were 
consolidated into the First District. 

MAY 20, 1873 The First and 
Third California Districts were 
consolidated into the First District. 

July 1, 1873 All offices of assessor 
and assistant assessor were abol- 
ished by this date. 

November 1, 1873 The Second 
and Fourth Districts in Connecti- 
cut were consolidated into the 
Second District. 

November 15, 1873 The First 
and Second Districts in Rhode 
Island were consolidated into the 
First District. 

1873 Financial panic during this 
year caused a period of uncon- 
trolled credit, inflation, wild specu- 
lation, and over-expansion. The 
country found itself entangled in 
unemployment, scandals, and cor- 
rupt practices. This and recurrent 
depressions which plagued the 
country through the 1890s fostered 
the rise of the Populist or People's 
Party. Made up of farmers and city 
labor groups, the Populists advo- 
cated an income tax not only as a 
source of revenue, but also as a 
symbol of reform and a means of 
regulating the economy. 

1873-1879 Fourteen different 
income tax bills were introduced in 
Congress by Congressmen from the 
Midwest and the South. None were 
passed. 



-? 



1873-1885 The Bureau of Inter- 
nal Revenue issued special tax 
stamps for taxes levied on various 
categories or classes of dealers and 
manufacturers of tobacco. 

January 29, 1874 The number of 
deputy collectors was decreased 
from three to two. 

February 1, 1874 The First, Sec- 
ond, and Third Districts of Ver- 
mont were consolidated into the 
Second and Third Districts. 

February 13, 1874 The House 
of Representatives passed a resolu- 
tion asking the Secretary of the 
Treasury to transmit "copies of all 
contracts made..." for the collection 
of taxes out of concern that such 
contracts provided for abuses in the 
collection of the revenue. 

April 1, 1874 The Eighth and 
Ninth Districts of New York were 
consolidated into the Fourth District. 

June 1, 1874 The First and Sec- 
ond Districts of Kentucky were 
consolidated into the Second 
District. 

JUNE 18, 1874 Congress 
exempted institutions doing busi- 
ness solely as savings banks from 
taxation on deposits. 

JUNE 22, 1874 After an investiga- 
tion, Congress repealed the use of 
contracts with private individuals to 
assist Bureau employees in discov- 
ering and collecting delinquent 
taxes. The Secretary of the Trea- 
sury was directed to revoke and 
annul all contracts for the collection 



52 



of taxes made under the original pro- 
visions. 

While the investigation developed 
no specific evidence of corruption, 
the investigating committee deter- 
mined that a large percentage of the 
taxes collected by the the contract 
employee Sanborn were not a proper 
subject of a contract under the law. 
This practice had also caused much 
dissatisfaction on the part of the 
Bureau's salaried personnel who 
often ended up assisting contract 
employees in obtaining the overdue 
revenue but not sharing in the 50 
percent profit. 

December 1, 1874 The First and 
Second Districts of Texas were 
consolidated into the First District. 

December 19, 1874 The First 
and Second Districts of Virginia 
were consolidated into the Second 
District. 

1874 The Supreme Court upheld 
the constitutionality of Civil War 
federal inheritance taxes in Scholey 
v. Rew on the ground that the inher- 
itance tax was an excise tax or duty 
but not a direct tax as prohibited by 
the constitution. 

1874 The National Women's 
Christian Temperance Union 
(W.C.T.U.) was formed in Cleve- 
land to promote prohibition. 

January 1, 1875 The Seventh 
and Ninth Districts of Pennsylva- 
nia were consolidated into the 
Ninth District. 



-7T 



February 8, 1875 Congress 
passed an act which provided for 
allowances to be paid to collectors 
of internal revenue for their salaries 
and the salaries of their deputies. 
As a result, the Treasury Depart- 
ment ceased payment of commis- 
sions to collectors. 

March 1, 1875 The three collec- 
tion districts of Mississippi were 
consolidated into the First and Sec- 
ond Districts. 

March 3, 1875 The President 
signed a new tariff bill which 
repealed the 10 percent reductions 
and increased rates on several 
items. Taxes on tobacco products 
increased from 20 to 24 cents per 
pound and taxes on distilled spirits 
increased from 70 to 90 cents per 
gallon. (This rate was actually more 
than four times the cost of produc- 
tion.) 

April 1, 1875 The ten collection 
districts of Massachusetts were 
reduced to five, numbered the 
First, Third, Fifth, Eighth, and 
Tenth. The Fifth District of Vir- 
ginia was reorganized. 

May 14, 1875 John W. Douglass 
resigned as Commissioner. 

May 15, 1875 Daniel D. Pratt of 
Indiana became Commissioner. 

May 18, 1875 The Commissioner 
established a Division of Revenue 
Agents, relieving Supervisors of the 
Revenue of all responsibility in 
relation to directing Revenue 
Agents. 



53 



August 1, 1875 The First and 
Second Districts of Pennsylvania 
were consolidated into the First 
District. 

AUGUST 31, 1875 The Commis- 
sioner abolished the services of 
special clerks, having determined 
that there was no authority for their 
employment. 

October 1, 1875 The Fifth Dis- 
trict of Indiana was abolished. 

November 1, 1875 The Twenty- 
Fifth and Twenty-Eighth Districts 
of New York were consolidated 
into the Twenty-Eighth District. 

December 1, 1875 The Fourth 
and Fifth California Districts were 
consolidated into the Fourth Dis- 
trict. 

December 10, 1875 The First, 
Second, and Third Districts of 
New Hampshire were consolidated 
into the First District. 

December 15, 1875 The Second 
and Third Districts of Vermont 
were consolidated into the Second 
District. 

1 875 Secretary of the Treasury 
Bristow investigated and broke up 
the conspiracy of distillers and 
internal revenue officials known 
as the "Whiskey Ring." Orville 
Babcock, the President's private 
secretary was indicted while Presi- 
dent Grant was implicated in this 
scandal. In the end, more than $3 
million in taxes was recovered and 
238 persons were indicted and 110 
convicted. 



January 1, 1876 The Third Dis- 
trict of Arkansas was formed with 
the consolidation of the previous 
First, Second, and Third Districts 
of Arkansas into one collection dis- 
trict. 

The Second and Sixth Districts 
of Illinois were consolidated into 
the Second District. The Tenth 
and Twelfth Districts of Illinois 
were consolidated into the Tenth 
District. 

The Second and Third Districts 
of Indiana were consolidated into 
the Second District. The Sixth and 
Eighth Districts of Indiana were 
consolidated into the Sixth District. 
The Ninth and Tenth Districts of 
Indiana were consolidated into the 
Tenth District. The Fifth and 
Eleventh Districts of Indiana were 
consolidated into the Eleventh 
District. 

The Second and Third Districts 
of Maine were consolidated into 
the Second District. The Fourth 
and Fifth Districts of Maine were 
consolidated into the Fourth District. 

The Third and Fifth Districts of 
Maryland were consolidated into 
the Third District. 

The Fourth and Fifth Districts 
of New Jersey were consolidated 
into the Fifth District. 

The Eleventh and Thirteenth 
Districts of New York were consoli- 
dated into the Eleventh District. 
The Tenth and Twelfth Districts 
of New York were consolidated 
into the Twelfth District. The 
Fourteenth and Eighteenth Dis- 
tricts of New York were consoli- 
dated into the Fourteenth District. 
The Fifteenth and Sixteenth Dis- 
tricts of New York were consoli- 
dated into the Fifteenth District. 



7~- 



54 



The Seventeenth and Twentieth 
Districts of New York were consoli- 
dated into the Twentieth District. 
The Twenty-First and Twenty- 
Second Districts of New York were 
consolidated into the Twenty-First 
District. The Twenty-Third and 
Twenty-Fourth Districts were con- 
solidated into the Twenty-Fourth 
District. The Nineteenth and 
Twenty-Sixth Districts of New 
York were consolidated into the 
Twenty-Sixth District. The 
Twenty-Ninth and Thirtieth Dis- 
tricts of New York were consoli- 
dated into the Thirtieth District. 

The First and Second Districts 
of North Carolina were consoli- 
dated into the Second District. 

The Fourth and Fifth Districts 
of Ohio were consolidated into the 
Fourth District. The Ninth and 
Tenth Districts of Ohio were con- 
solidated into the Tenth District. 
The Eleventh and Twelfth Dis- 
tricts of Ohio were consolidated 
into the Eleventh District. The 
Thirteenth and Fourteenth Dis- 
tricts of Ohio were consolidated 
into the Thirteenth District. The 
Fifteenth and Sixteenth Districts 
of Ohio were consolidated into the 
Fifteenth District. The Seven- 
teenth, Eighteenth, and Nine- 
teenth Districts of Ohio were 
consolidated into the Eighteenth 
District. 

The Fifth and Sixth Districts of 
Pennsylvania were consolidated into 
the Fifth District. The Eighth and 
Tenth Districts of Pennsylvania were 
consolidated into the Eighth District. 
The Twelfth and Thirteenth Dis- 
tricts of Pennsylvania were consoli- 
dated into the Twelfth District. 

The Fifth and Sixth Districts of 



Tennessee were consolidated into 
the Fifth District. 

January 3, 1876 The Seventh 
and Eighth Districts of Tennessee 
were consolidated into the Eighth 
District. 

January 5, 1876 The Seventh 
and Eighth Districts of Ohio were 
consolidated into the Seventh 
District. 

January 7, 1876 The First and 
Second Districts of New Jersey 
were consolidated into the First 
District. 

January 8, 1876 The Fourth and 
Fifth Districts of Kentucky were 
consolidated into the Fifth District. 

January 9, 1876 The Eleventh 
and Thirteenth Districts of Illinois 
were consolidated into the Thir- 
teenth District. 

January 20, 1876 The Fourth and 
Ninth Districts of Illinois were con- 
solidated into the Fourth District. 

February 1, 1876 The Third and 
Fourth Districts of North Carolina 
were consolidated into the Fourth 
District. 

June 1, 1876 The First and Third 
Districts of South Carolina were 
consolidated into the Third District. 

July 31, 1876 Daniel D. Pratt 
resigned as Commissioner. 



77 



55 



£ August 2, 1876 Green B. Raum 

- of Illinois became Commissioner. 

h 

o AUGUST 15, 1876 An appropria- 

te tions act provided for the transmittal 

of revenue stamps to collectors by 
effx registered mail and dispensed with 
^ the "gauging of packages of distilled 
spirits filled on the premises of 
wholesale liquor-dealers" and pro- 
vided that such packages "shall 
thereafter be stamped under such 
regulations as the Commissioner of 
Internal Revenue may prescribe." 
Under the provisions of this act, the 
duties of the gauger and storekeeper 
could be combined into one position 
for the first time. This act also called 
for a reduction of the number of col- 
lection districts to 131. 

September 8, 1876 The First and 
Third Districts of Massachusetts 
were consolidated into the Third 
District. 

September 16, 1876 The Six- 
teenth and Seventeenth Districts of 
Pennsylvania were consolidated 
into the Sixteenth District. 

September 20, 1876 The Second 
and Third Districts of Michigan 
were consolidated into the Third 
District. 

The Third and Fourth Districts 
of Missouri were consolidated into 
the Fourth District. 

October 2, 1876 Nine Maryland 
counties became part of the Delaware 
Collection District. The District of 
Columbia became part of the Third 
District of Maryland. 

The Thirteenth District of Illi- 
nois was abolished and the Fourth 



District was reestablished with new 
boundaries. 

The Second, Sixth, and Seventh 
Districts of Indiana were abolished. 

The First, Second, and Fourth 
Districts of Iowa were abolished 
and reconstituted as the Second 
and Fourth Districts. The First and 
Second Districts of Maine were 
consolidated into the First District. 

The First and Third Districts of 
Maryland were abolished. The 
Twentieth and Twenty-First Dis- 
tricts of New York were consoli- 
dated into the Twenty-First 
District. The Seventh, Thirteenth, 
and Eighteenth Districts of Ohio 
were abolished. 

The Fourteenth and Eighteenth 
Districts of Pennsylvania were con- 
solidated into the Fourteenth Dis- 
trict. The Twenty-Second and 
Twenty-Third Districts of Pennsyl- 
vania were abolished. 

The Third, Fourth, and Fifth 
Districts of Tennessee were con- 
solidated into the Fifth District. 

The Fifth and Sixth Districts of 
Virginia were consolidated into the 
Sixth District. 

The First and Third Districts of 
West Virginia were consolidated 
into the First District. 

October 1 1 , 1 876 The Third and 
Sixth Districts of Iowa were consoli- 
dated into the Third District. 

The First and Second Districts 
of Tennessee were consolidated 
into the Second District. 



56 



November 1, 1876 The Second 
and Fourth Districts of Georgia were 
consolidated into the Second District. 

The Second and Third Districts 
of Kentucky were consolidated into 
the Second District. 

The Second and Third Districts 
of South Carolina were abolished 
and the state was constituted as the 
South Carolina District. 

December 1, 1876 The First and 
Third Districts of Georgia were con- 
solidated into the Third District. 

The Fifth and Eighth Districts of 
Virginia were consolidated into the 
Fifth District. 

1876 The number of deputy com- 
missioners was decreased from two 
to one and supervisors of internal 
revenue were abolished. The Com- 
missioner divided the country into 
18 revenue agents' districts, assign- 
ing one revenue agent to each. 

1876 A prohibition amendment to 
the constitution was introduced in 
the House of Representatives. 

January 1, 1877 The Eighth and 
Tenth Districts of Massachusetts 
were consolidated into the Tenth 
District. 

The Sixth and Seventh Districts 
of North Carolina were consoli- 
dated into the Sixth District. 

February 9, 1877 Lieutenant 
Mclntire was killed in Georgia 
while enforcing laws against illicit 
distilling. 

March 1, 1877 The Third Dis- 
trict of Alabama was abolished and 
consolidated with the realigned 



-? 



First and Second Districts of 
Alabama. 

The First and Fifth Districts of 
Michigan were consolidated into 
the First District. 

March 3, 1877 An appropriations 
act authorized the establishment of 
special bonded warehouses for the 
storage of brandy made from grapes 
for a period of three years before 
payment of tax was due. The act 
also reduced the number of collec- 
tion districts to 126 and transferred 
responsibility for the printing of all 
internal revenue stamps, except 
adhesive and proprietary stamps, 
stamps on checks, and stamps on 
tin-foil tobacco wrappers, to the 
Bureau of Engraving and Printing. 

March 1877 Commissioner 
Raum established a system of 
inspection of collector's offices 
which ranked each office against a 
uniform standard of a "First Class 
Office." 

June 1, 1877 The First, Second, 
and Third Districts of Louisiana 
were consolidated into the District 
of Louisiana. 

June 18, 1877 Two Virginia coun- 
ties were added to the territory of 
the Delaware Collection District. 

June 19, 1877 The Second Dis- 
trict of Virginia was reorganized. 

July 1, 1877 The First and 
Fourth Districts of Maine were 
consolidated into the First District. 

The First and Second Districts 
of Mississippi were consolidated 
into the First District. 



57 



The Second District of New 
York was reorganized and the 
Thirty-Second District of New 
York was abolished. 

AUGUST 17, 1877 The number of 
relatives who could be employed in 
each Internal Revenue district was 
limited. 

October 4, 1877 The stock of 
revenue stamps was transferred 
from the New York Bank Note 
Company as the Bureau of Engrav- 
ing and Printing took over the 
printing of internal revenue stamps 
for tobacco, spirits, and beer for the 
Bureau of Internal Revenue. 
Stamps were delivered directly to 
the Bureau of Internal Revenue for 
storage and shipment to the various 
Collection districts. Prior to this, the 
printing and shipment of revenue 
stamps except for those on bank 
checks and tin foil tobacco wrap- 
pers was handled by the American, 
Continental, and National Bank 
Note Companies of New York. 

1877 In response to growing 
problems with states arresting rev- 
enue agents and the U.S. Marshals 
assisting them and concerned about 
its revenues, Congress passed a law 
to protect revenue agents from 
arrest for acts taken in the dis- 
charge of their responsibility to col- 
lect taxes. 

1877 Six internal revenue officers 
were killed in the line of duty, 
including Lt Mclntire, 3 guides, 
and 2 others, in Georgia, Ten- 
nessee and Virginia. Six others 
were wounded, in New Jersey, 
North Carolina, and Virginia. 



March 28, 1878 A joint resolution 
extended the bonded period for dis- 
tilled spirits to three years. In 
response, distillers founded the 
National Distillers and Liquor Deal- 
ers Association to seek changes in 
Internal Revenue regulations. 

April 1878 Deputy Marshal 
Rufus H. Springs was killed in an 
ambush while accompanied by a 
posse of deputy collectors in a 
search for an illicit still in South 
Carolina. 

June 19, 1878 An appropriation 
act included $75,000 for "detecting 
and bringing to trial and punish- 
ment, persons guilty of violating 
the internal revenue laws, or acces- 
sory to the same, included pay- 
ments for information and 
detection..." 

AUGUST 9, 1878 Deputy Collector 
Cooper of Knoxville, Tennessee, 
was killed. 

AUGUST 1878 In Overton County, 
Tennessee, a posse of 11 internal 
revenue officers had stopped at a 
farmer's house for the night and 
were attacked by a band of armed 
illicit distillers who kept up the 
attack through the night. By the 
next morning the force of attackers 
numbered nearly 200. The officers 
took shelter in a log house where 
they were besieged for 42 hours. 
Three internal revenue officers 
were wounded during this period. 
Although Commissioner Raum 
ordered a force to assist the officers, 
the officers were released before 
the rescue force arrived. 



7 



58 



1878 To facilitate the export of 
distilled liquors, the government 
removed the tax on all export 
liquor, replacing it with a ten cents 
a barrel export stamp. 

March 1, 1879 The Secretary 
of the Treasury was authorized to 
set the salaries of collectors and 
deputy collectors and to pay them 
from United States funds. One of 
the purposes of this change was to 
halt the payment of commissions 
based on the amount of taxes col- 
lected to collectors and their 
deputies. The minimum salary was 
set at $2,000, if annual collections 
were $2,500 or less, and a maxi- 
mum salary of $4,500 if annual col- 
lections amounted to $1,000,000 or 
more. 

The total number of authorized 
revenue agents was increased from 
25 to 35. The tax rate on snuff was 
lowered from 32 to 16 cents per 
pound while the tax rate on tobacco 
was lowered from 24 cents to 16 
cents per pound. The tax on ciga- 
rettes and cigars was not reduced. 
A redemption period of three years 
was allowed for check stamps or 
imprinted stamps. An act of this 
date authorized the use of a process 
of vaporizing alcohol in the manu- 
facture of vinegar. 

March 3, 1879 Congress autho- 
rized the Commissioner, with the 
approval of the Secretary of the 
Treasury, to exempt distillers 
whose distilleries had a daily pro- 
ducing capacity of less than 30 gal- 
lons of proof spirits from the 
provisions of existing law which 
required the process to be carried 
on through continuous closed ves- 



sels and pipes or which required 
the cisterns to be connected with 
the outlet of the worm. 

JULY 21, 1879 The largest dis- 
tillery in the United States was put 
into operation in the fifth district of 
Illinois. 

October 15, 1879 The work of 
printing documentary and propri- 
etary stamps was transferred from 
the American Bank Note Company 
of New York to the Bureau of 
Engraving and Printing. Printing of 
check stamps remained with the 
Graphic Company of New York 
City and printing of stamps on tin 
foil wrappers for tobacco with the 
John J. Crooke and Company of 
New York. 

1879 The Supreme Court upheld 
the 1877 legislation protecting rev- 
enue agents from arrest by state 
authorities in Tennessee v. Davis, 
after U.S. Marshal and Deputy Col- 
lector of Internal Revenue James 
Davis was indicted for murder after 
killing J. B. Haynes after Haynes 
shot at him while Davis was 
destroying an illegal still. 

1879 The Commissioner pub- 
lished a compilation of all internal 
revenue laws and statutes to be 
used by judges, district attorneys, 
marshals, and officers of internal 
revenue. He also directed the revi- 
sion and enlargement of the Rev- 
enue Agents' Manual. 



7T 



59 



May 28, 1880 Congress passed an 
act repealing all charges on stamps 
for rectified spirits and wholesale 
liquor dealers' packages. The rate 
had been 10 cents per stamp since 
1872. Allowances for loss of dis- 
tilled spirits while in the warehouse 
were authorized. 

July 1, 1880 Responsibility for 
the appointment of storekeepers, 
gaugers, and tobacco inspectors was 
shifted from the Commissioner of 
Internal Revenue to the Secretary 
of the Treasury. 

January 1881 Beginning this 
month, distilleries producing 100 
bushels or less each day were 
placed under the control of a single 
storekeeper-gauger. Before this, 
the cutoff had been distilleries pro- 
ducing 60 bushels or less each day. 

July 16, 1881 For the first time, 
the Bureau of Internal Revenue 
required applicants for positions of 
storekeeper, gauger, inspector, or 
other subordinate positions to sub- 
mit applications in writing, includ- 
ing age, legal residence, place of 
birth, service in the Army or Navy, 
names of relatives employed in the 
government, experience, and previ- 
ous work, accompanied by recom- 
mendations. 

July 20, 1881 Deputy Collector 
Thomas L. Brayton was killed in 
Pickens County, South Carolina by 
John McDow, an illicit distiller 
whose still he had seized and he 
was attempting to arrest. 



7 



AUGUST 8, 1881 The Indian Ter- 
ritory became part of the Kansas 
Collection District. 

November 2, 1881 Taylor Love 
was killed in Habersham County, 
Georgia, for giving information to 
internal revenue officers about 
illicit distilling operations. 

1881 In Springer v. United States, 
the Supreme Court upheld the 
constitutionality of the 1862 income 
tax. The Court stated that Congress 
never intended it as the direct tax 
prohibited by the Constitution. 

March 13, 1882 Deputy Collec- 
tor James M. Davis was killed in 
McMinnville, Warren County, 
Tennessee in an ambush after leav- 
ing court. 

March 1882 Lee Turner was 
killed in Swinnett County, Georgia 
for informing internal revenue 
officers about illicit stills. 

May 5, 1882 Through legislation 
enacted on this date, all Chinese 
laborers were required to apply to 
the Commissioner of Internal Rev- 
enue for certificates of residence 
and the Bureau was expected to 
enforce this legislation. 

AUGUST 7, 1882 An act of Con- 
gress required the Commissioner to 
make a detailed statement of all 
miscellaneous expenditures in the 
Bureau of Internal Revenue. 

February 10, 1883 Deputy Col- 
lector Henry F. Walker was shot 
and killed by David Fraley in Stan- 
ley County, North Carolina while 



attempting to seize an illegal dis- 
tillery. 

March 3, 1883 All internal taxes, 
except those on tobacco products, 
distilled spirits, fermented liquors, 
and on the dealers of these prod- 
ucts were repealed through legisla- 
tion enacted this date. Stamp taxes 
were also repealed by this act, 
effective July 1, 1883. Taxes on 
tobacco products were cut in half to 
a rate of 8 cents per pound. The 
Secretary of the Treasury was 
authorized to audit and pay the 
claims of the original owners of 
lands which were sold for non-pay- 
ment of direct taxes. 

April 30, 1883 Green B. Raum 
resigned as Commissioner. 

May 1, 1883 Reduced tobacco tax 
rates took effect. 

May 21, 1883 Walter Evans of 
Kentucky became Commissioner. 

June 15, 1883 The repeal of the 
tax on bank checks resulted in the 
cancellation of the contract with 
the Graphic Company of New York 
City which had supplied stamps 
imprinted on bank checks. 

June 25, 1883 An Executive 
Order of the President outlined a 
consolidation plan for collection 
districts, reducing the total number 
of districts from 126 to 85. The 
Bureau estimated an annual savings 
of $125,000 as a result of these 
reductions. 



July 1, 1883 All stamp taxes not 
previously abolished were repealed. 
This included adhesive stamp taxes 
on proprietary medicines, bank 
checks, and friction matches. 

July 2 1 , 1 883 The Second District 
of North Carolina was consolidated 
with the Fourth District of North 
Carolina. 

July 25, 1883 The Twenty-Fourth 
and Twenty-Sixth Districts of New 
York were consolidated with the 
Twenty-First District of New York. 
The Seventh District of Ohio was 
consolidated with the Eleventh Dis- 
trict of Ohio. 

August 1, 1883 The Third District 
of Illinois was consolidated with the 
Second District of Illinois. 

The First District of Indiana was 
consolidated with the Seventh Dis- 
trict of Indiana. The Fourth District 
of Indiana was consolidated with the 
Sixth District of Indiana. 

The Third and Fourth Districts of 
Maryland were consolidated into the 
Maryland District. 

The Fifth Massachusetts District 
was consolidated with the Third Dis- 
trict of Massachusetts. 

The Second Missouri District was 
consolidated with the First Missouri 
District. 

The Eleventh District of New 
York was consolidated with the Four- 
teenth District of New York. The 
Twelfth District of New York was 
consolidated with the Fifteenth Dis- 
trict of New York. 

The Third District of Ohio was 
consolidated with the Sixth District of 
Ohio. The Fourth District of Ohio 
was consolidated with the Tenth Dis- 



vr- 



61 



trict of Ohio. The Fifteenth District 
of Ohio was consolidated with the 
Eighteenth District of Ohio. 

The Twentieth District of Penn- 
sylvania was consolidated with the 
Nineteenth District of Pennsylvania. 

The First and Second Districts of 
West Virginia were consolidated into 
the West Virginia District. 

August 7, 1883 The Second and 
Third Districts of Georgia were con- 
solidated into the Georgia District. 

The Tenth District of Indiana was 
consolidated with the Eleventh 
District of Indiana. 

The Ninth Kentucky was consoli- 
dated with the Seventh and Eighth 
Districts of Kentucky. 

The Third and Sixth Districts of 
Michigan were consolidated with 
the First and Fourth Districts of 
Michigan. 

The First and Second Districts of 
Minnesota were consolidated into 
the Minnesota District. 

The Fifth District of Missouri was 
consolidated with the Sixth District 
of Missouri. 

The Thirtieth District of New 
York was consolidated with the 
Twenty-Eighth District of New 
York. 

August 10, 1883 The Eighth Dis- 
trict of Tennessee was consolidated 
with the Fifth District of Ten- 
nessee. 

\i GUST 15, 1883 Wyoming 
became part of the Colorado Collec- 
tion District. 

The First and Second Alabama 
Districts were consolidated into the 
Alabama District. 



The Eighth District of Pennsylva- 
nia was consolidated with the First 
and Ninth Districts of Pennsylvania. 
The Fourteenth District of Pennsyl- 
vania was consolidated with the 
Twelfth District of Pennsylvania. 
The Sixteenth District of Pennsyl- 
vania was consolidated with the 
Twenty-Second and Twenty-Third 
Districts of Pennsylvania. 

The Third District of Virginia was 
consolidated with the Second and 
Sixth Districts of Virginia. The Fifth 
District of Virginia was consolidated 
with the Fourth District of Virginia. 

August 20, 1883 Idaho and Utah 
became part of the Montana Collec- 
tion District. 

Dakota (became North and South 
Dakota in 1891) became part of the 
Nebraska Collection District. 

The Fifth District of Iowa was 
consolidated with the Second and 
Fourth Iowa Districts. 

September 1, 1883 The Territory 
of Washington became part of the 
Oregon Collection District. 

The First and Second Connecti- 
cut Districts were consolidated into 
the Connecticut District. 

The Seventh District of Illinois 
was consolidated with the Eighth 
District of Illinois. 

September5. 1883 Arizona 
became part of the New Mexico 
Collection District. 

OCTOBER 1, 1883 Nevada was con- 
solidated with the Fourth California 
District. 



77 



62 



October 13, 1883 The First and 
Third Districts of Wisconsin were 
consolidated into the First District. 

November 1883 The work of can- 
celing and redeeming stamps 
imprinted upon checks and return- 
ing them to claimants was sus- 
pended because the appropriation of 
the Bureau of Engraving and Print- 
ing was not sufficient to continue 
this work. The work began again in 
February 1884 after Congress made 
an additional appropriation. 

January 1, 1884 The tax on bank 
deposits and capital ceased. 

May 17, 1884 Congress passed an 
act authorizing the governor of the 
territory of Alaska to issue permits 
for the sale of liquor for medicinal, 
mechanical, or scientific purposes. 

July 7, 1884 Congress approved an 
act providing appropriations for fiscal 
year 1885 which reduced the num- 
ber of authorized revenue agents 
from 35 to 20 and limited their com- 
pensation to $7 per day. Instead of 
allowing them actual and necessary 
travel expenses, a per diem 
allowance of $3 per day was estab- 
lished. 

July 31, 1884 Nevada was sepa- 
rated from the California Collection 
District while Utah was separated 
from the Montana District. 

1884 The Attorney General put 
forth an opinion allowing owners of 
distilled spirits in bond, upon which 
the excise tax was due or would soon 
be due, an extension of seven 
months during which the owner 



=* 



could export to avoid payment of the 
tax. 

1884 The need for control of prac- 
titioners was recognized as early as 
this year when Congress authorized 
the Secretary of the Treasury to pre- 
scribe rules for recognition of attor- 
neys and agents and to disbar or 
suspend any incompetent or disrep- 
utable person. 

1884 One employee of the Bureau 
was killed during seizure of an illicit 
still. 

1884 The Anti-Monopoly Party 
joined with the Greenback-Labor 
Party to form the People's Party, 
which supported many liberal mea- 
sures, including a graduated income 
tax. 

March 19, 1885 Walter Evans 
resigned as Commissioner. 

March 20, 1885 Joseph S. Miller 
of West Virginia became Commis- 



March 30, 1885 The Oklahoma 
Territory was attached to the Kansas 
Collection District. 

April 1885 Attorney General A. H. 
Garland concluded that the law pro- 
tecting revenue agents from arrest 
by state authorities did not apply to 
U.S. Marshals. 

1885 One employee of the Bureau 
was killed in a raid on an illicit still. 



63 



1885 The consolidation of collec- 
tors' offices that took place over the 
last ten years resulted in the elimi- 
nation of 98 separate offices. From a 
high of 225 collectors' offices in 
1873, the Bureau of Internal Rev- 
enue ended this era with only 127 
collectors' offices. As a dramatic 
example of these reductions, the 
State of New York began this period 
with 32 offices and ended with only 
7 collectors' offices. 



v*7 

64 




The Supreme Court justices in 1895 who ruled the income tax provisions 
of the Wilson tariff bill unconstitutional. 



1886 -1895 

Revenue Experimentation: 

Regulatory Taxes, Expanding Duties, 

and Supreme Court Rulings 

^77 



Even without an income tax to collect and enforce, the Bureau of Internal 

Revenue remained busy with other duties during these years. Congress passed 

the first regulatory tax aimed more at regulating the production of margarine 

than raising revenue while an attempt to revive the income tax in the 1890s 

was knocked down as unconstitutional by the Supreme Court in 1895. 



June 30, 1886 All check and propri- 
etary revenue stamps had to be 
redeemed by this date. 

AUGUST 2, 1886 The Oleomargarine 
Tax was passed, representing the first 
regulatory tax, aimed primarily at 
keeping margarine from competing 
with butter. Instead, oleo production 
doubled in five years and almost $1 
million was collected in taxes during 
the first year. 

An offshoot of this legislation was 
the establishment of an Analytical and 
Chemical Division in the Bureau and 
the authorization to hire a chemist 
and a microscopist. 

The tax defined butter and 
imposed a tax on manufacture, sale, 
importation, and exportation of oleo- 
margarine. The tax was set at a rate of 
2 cents per pound or fraction thereof, 
and special license taxes of $600 were 
placed on manufacturers, $480 upon 
wholesale dealers, and $48 upon retail 
dealers. 

A tax of 15 cents per pound, in 
addition to the duty, was placed 
on imported oleomargarine. The act 
legalized the adulteration of butter 
with "additional coloring matter." 
This act went into effect October 31, 
1886. 

October 1 , 1 886 The Office of 
Inspector of Tobacco was abolished 
in the Bureau of Internal Revenue. 
These duties were transferred to col- 
lectors in the district offices. 

November 1886 The Bureau estab- 
lished a laboratory in response to pas- 
sage of the oleomargarine tax to test 
margarine samples. 



1886 One employee of the Bureau 
was wounded in a raid on an illicit 
still. 

1886-1972 Special tax stamps were 
issued by Internal Revenue. After 
1972, occupational taxes were con- 
trolled by IRS Forms 4732 and 4733 
(Special Tax Stamp). 

February 23, 1887 Congress passed 
an act prohibiting the importation of 
opium into the United States by Chi- 
nese. This act also made it a misde- 
meanor for United States citizens to 
traffic in opium in China. 

March 3, 1887 Congress passed an 
act providing for the redemption and 
sale of school-farm lands held by the 
United States acquired under the 
direct tax laws in Beaufort County, 
South Carolina. There were 18 of 
these school farms owned by the 
United States which had been rented 
from year to year by the Collector of 
Internal Revenue. 

March 3, 1 887 The Tucker Act 
provided that actions against the 
United States for payment of 
refunds of taxes paid in dispute 
could only be brought if the amount 
in controversy did not exceed 
$10,000. Such cases could be 
brought either in district courts or 
the Court of Claims. In a Court of 
Claims decision, no jury trial was 
available and no monetary limitation 
was imposed as a condition of juris- 
diction. 

March 24, 1887 The Bureau 
issued regulations for the redemp- 
tion and sale of school-farm lands 
describing the manner in which the 



7*7 



66 



original owners, heirs-at-law, or 
grantees could obtain redemption. 

May 2 1 , 1 887 By Executive order 
President Cleveland reduced the 
number of internal revenue districts 
from 84 to 62. Various changes 
between 1887 and 1914 brought the 
total number of districts up to 67. 

June 30, 1887 Nine Maryland and 
two Virginia counties were separated 
from the Delaware Collection District. 

July 1, 1887 Nevada became part 
of the California Collection District 
once again. 

Rhode Island became part of the 
Connecticut Collection District. 

Delaware and the District of 
Columbia became part of the Mary- 
land Collection District. 

Maine and Vermont became part 
of the New Hampshire Collection 
District. 

Mississippi became part of the 
Louisiana Collection District. 

Utah became part of the Montana 
Collection District once again. 

1887 Deputy Marshall John D. 
Trammell was killed and Revenue 
Agent W. H. Chapman was 
wounded in raids on illicit stills. 

July 1, 1888 Congress prohibited 
the expenditure of any judicial funds 
for revenue collection. 

October 12, 1888 Congress 
passed an act "to prevent the manu- 
facture or sale of adulterated food or 
drugs in the District of Columbia." 
This act gave the Bureau of Internal 
Revenue the duty of analyzing all 
samples submitted for inspection. 



1888 Deputy Marshal Russell 
Wireman was killed in a raid on 
an illicit still while Deputy Collec- 
tor B. B. Bouldin and Deputy Mar- 
shal O. F. Hightower were 
wounded in a raid. 

March 2, 1889 An act of Congress 
extended the time for redemption of 
school-farm lands held by the 
United States in Beaufort County, 
South Carolina until March 2, 1890. 

March 20, 1889 Joseph S. Miller 
resigned as Commissioner. 

March 2 1 , 1 889 John W. Mason of 
West Virginia became Commissioner. 

AUGUST 14, 1889 Deputy Collector 
Frank Weller was killed in a raid on 
an illicit still. 

January 28, 1890 The Senate 
passed a bill to credit and pay to the 
states and territories and the District 
of Columbia all monies collected 
under the direct tax levied by Con- 
gress on August 5, 1861. 

February 25, 1890 Revenue 
Agent Sanford Kirkpatrict was 
wounded in a raid on a illicit still. 

April 10, 1890 The Internal Rev- 
enue laboratory at Chicago was trans- 
ferred to the Treasury Department 
building in Washington, D.C. The 
new laboratory was ready for occu- 
pancy by July 1890. 

September 25, 1890 The time for 
redemption of school-farm lands in 
South Carolina was again extended 
to September 25, 1892. 



7^7 



67 



October 1, 1890 The McKinley 
Tariff Act increased protectionist tar- 
iff rates. The act imposed a tax of $10 
per pound on opium manufactured in 
the United States for smoking pur- 
poses and provided that no person 
could engage in such manufacture 
who was not a citizen of the United 
States and who had not paid the bond 
required by the Bureau. 

Payment of the tax was indicated 
by affixing a special tax stamp to the 
package of opium. The act required 
that all manufacturers engaged in 
preparing opium for smoking do so 
under the surveillance of the Com- 
missioner of Internal Revenue. This 
act also imposed a duty of $12 per 
pound on imported opium, but 
admitted the importation of crude or 
unmanufactured opium free of duty. 

Tobacco taxes were reduced from 8 
to 6 cents per pound and all special 
taxes imposed upon dealers, manufac- 
turers, and sellers of tobacco were 
repealed effective May 1, 1891. 
Wholesale dealers of oleomargarine 
were required to keep books and sub- 
mit returns. 

A bounty on producers of sugar 
from beets, sorghum, or sugarcane 
grown in the United States was 
included as part of this act. The 
bounty was to be determined by the 
Bureau of Internal Revenue. Despite 
protests from the Commissioner that 
this duty was not connected with the 
duties with which the Bureau was 
ordinarily charged, and his recommen- 
dation that it be transferred to the Sec- 
retary of Agriculture, the provision was 
retained and administered by the 
Bureau until its repeal on August 26, 



1894. This was the first tariff to 
include a complete schedule of pro- 
tective duties on agricultural products. 

This tariff act also brought many 
changes in the laws relating to inter- 
nal revenue procedures, although it 
did not affect the organization of the 
Bureau. Popular indignation over the 
increased tariff rates was reflected at 
the polls as McKinley was defeated 
for reelection and less than 90 of 332 
Congressmen elected to the 52nd 
Congress were Republicans. 

October 1, 1890 The dates of the 
special tax year were changed from 
May 1 -April 30 to July 1-June 30, to 
conform to the fiscal year. 

December 19, 1890 Deputy Collec- 
tor C. D. Alexander and Deputy Mar- 
shal JO. Thompson were wounded in 
a raid on an illicit still. 

March 2, 1891 Monies collected 
from the direct tax act of June 6, 
1862 were returned to the states by 
an act of this date. 

March 3, 1891 Congress author- 
ized the Commissioner of Internal 
Revenue to employ not more than 
12 inspectors to inspect sugar upon 
which a bounty was required to be 
paid. These inspectors were paid 
$5 a day. 

This act also authorized the use 
of alcohol tax free in the manufac- 
ture of sugar from sorghum and 
included a provision for the with- 
drawal of distilled spirits from dis- 
tillery warehouses, free of tax, to be 
used solely in the manufacture of 
sugar from sorghum. 



77 



68 



March 20, 1891 Special employee 
R.I. Barnwell was killed and Deputy 
Marshal T. L. Brim was wounded in 
a raid on an illicit still. 

April 28, 1891 A train wreck on 
the Baltimore and Ohio Railroad 
destroyed a shipment of internal rev- 
enue stamps valued at over $29,000. 
Because there was no provision in 
the law authorizing the Treasury 
Department to credit the accounts of 
the Bureau with stamps destroyed 
under such circumstances, this event 
prompted the Bureau to request that 
Congress enact such a law. 

July 1, 1891 The bounty on sugar 
enacted as part of the October 1890 
tariff act became available to sugar 
producers. 

July 1891 The Populist or Peo- 
ples' Party put forward an economic 
platform calling for the free and 
unlimited coinage of silver, a gradu- 
ated income tax, postal savings 
banks, government ownership of 
railroads, and telephone and tele- 
graph operations, prohibition of alien 
land ownership, immigration restric- 
tion, and an 8 hour work day at their 
first national convention in Omaha. 



seven temporary laboratories in 
Lehi, Utah; Norfolk, Nebraska; Fort 
Scott, Kansas; Sugarlands, Texas; St. 
Cloud, Florida; Syracuse, New York; 
and Montpelier, Vermont. The gen- 
eral laboratory in Washington, D.C. 
was also enlarged. 

February 13, 1892 The large 
increase of chemical analysis work 
resulting from the provisions of the 
McKinley Tariff Act of October 1, 
1890, led to the establishment of the 
Division of Chemistry on this date. 

May 1, 1892 A new method of 
gauging distilled spirits was insti- 
tuted, changing from rod or caliper 
measurement to weight. 

May 5, 1892 An act required that all 
Chinese laborers in the United States 
apply to collectors of Internal Rev- 
enue for a certificate of residence. 

March 1, 1893 Congress passed 
the California Debris Control Act, 
imposing a tax on hydraulic mining, 
the debris from which flowed into or 
was in whole or in part restrained by 
dams or other works erected for the 
detention of debris by the California 
Debris Commission. 



December 28, 1891 An official 
audit of the revenue stamps main- 
tained in the vaults of the Bureau 
was initiated. 

December 29, 1891 Deputy Mar- 
shal D. C. C. Jackson was wounded 
by illicit distillers in Dekalb County. 

1891-1892 The Bureau established 
two new permanent laboratories in 
San Francisco and New Orleans and 



April 18, 1893 John W. Mason 
resigned as Commissioner. 

April 19, 1893 Joseph S. Miller of 
West Virginia became Commissioner 
for a second time. 

October 1893-January 1894 The 
House Ways and Means Committee 
explored the possibilities and desir- 
ability of an income tax in a series of 
hearings and discussions. 



vt7 



69 



November 3, 1893 Congress 
passed an amendatory act to the Chi- 
nese Exclusion Act of May 5, 1892 
prohibiting the entrance of Chinese 
persons into the United States. The 
responsibility for registering Chinese 
laborers remained with the Bureau of 
Internal Revenue. A supporting act 
required Chinese laborers to apply for 
certificates of residence through their 
local internal revenue office. 

December 9, 1893 The Treasury 
Department appointed a committee 
to conduct an inventory of internal 
revenue stamps in the vaults of the 
Stamp Division. The inventory was 
conducted from December 27, 1893 
through January 3, 1894. 

December 19, 1893 Representative 
John L. Bretz of Indiana introduced a 
bill which called for an income tax. 

December 1893 President Grover 
Cleveland bowed to party sentiment 
and in his annual message to Con- 
gress gave a surprise endorsement to a 
"small tax" on corporate income. 

1 893 Deputy Collector S. D. 
Mather and General Deputy Collec- 
tors J. L. Spurrier and S. C. Cardwell 
were killed in Tennessee during raids 
on illicit stills. 

1893 The Bureau issued revised 
regulations providing for the analysis 
of milk samples in the District of 
Columbia to be conducted by the 
health office of the District, under the 
supervision and control of the Bureau. 
This action was taken in response to 
an increasing number of samples 
requiring analysis under the 1888 law 
which prevented the sale or manufac- 



7 



ture of adulterated food or drugs in 
the District of Columbia for which 
the Bureau's laboratories were not 
equipped to handle. 

1894-1913 Income from customs 
and internal revenue were roughly 
equal during these years. 

January 2, 1894 The House Ways 
and Means Committee agreed with a 
7-4 vote to impose a tax of 2 percent 
on all net incomes of corporations and 
individual incomes over $4,000. This 
marked the beginning of debate over 
the new tariff bill. 

January 8, 1894 Wa/s and Means 
Committee Chairman William L. 
Wilson of West Virginia opened the 
debate on the Wilson tariff bill. 

January 29, 1894 A proposal to 
amend the Wilson tariff bill to include 
an income tax provision levying a 
2 percent tax on all income above 
$4,000 for both individuals and corpo- 
rations was put forth in the House of 
Representatives. Only one in every 
100 Americans was wealthy enough to 
pay the tax at this rate. 

January 30, 1894 The House voted 
175-56 in favor of adding the income 
tax provision to the Wilson tariff bill. 

February 1, 1894 The Internal 
Revenue amendment was formally 
passed by the House with a vote of 
182-48. All but 10 Republicans 
refrained from voting. The Wilson 
tariff bill as a whole passed the House 
with a vote of 204-140, with 8 not vot- 
ing, after a rousing speech by Ways 
and Means Chairman Wilson saying, 
"This is not a battle over percentages, 



70 



over this or that tariff schedule; it is a 
battle for human freedom." 

April 2, 1 894 The Wilson tariff bill 
was introduced into the Senate 
Finance Committee by Senator 
Daniel W. Voorhees of Indiana. 

May 3, 1894 The Bureau com- 
pleted its work associated with the 
registration of Chinese laborers. 
Over 106,000 registration certificates 
were applied for between the enact- 
ment of the Chinese Exclusion Act 
in November 1893 and this date. 

July 3, 1894 The Senate passed 
the Wilson Tariff Act. This act 
revived the income tax, with a flat 
rate of 2 percent on corporate and 
individual incomes over $4,000. 
Withholding was used for certain 
corporation dividends and the 
salaries of government employees. 
The final vote for approval was 
204-140 in the House and 39-34 in 
the Senate. The income tax provi- 
sions of this bill included confiden- 
tiality protections, stating that "it 
shall be unlawful for any collector... 
to divulge or to make known in any 
manner whatever not provided by 
law to any person... the amount or 
source of income, profits, losses, 
expenditures, set forth or disclosed 
in any income return by any person 
or corporation." 

August 8, 1894 Deputy Collector 
Wiley C. Lewis was wounded in 
Stokes County, North Carolina. 

August 28, 1894 President 
Cleveland allowed the Wilson Tariff 
Act to become law without his signa- 
ture. In addition to reinstating the 



income tax, the act reduced the duty 
on imported opium from $12 to $6 
per pound and provided that manu- 
facturers using alcohol in the arts or 
medicinal compounds could receive 
a rebate or repayment of the tax paid 
on this alcohol. 

This act allowed storekeepers and 
gaugers to perform the separate duties 
of a storekeeper at any distillery or to 
perform any of the duties of a gauger. 
The sugar bounty was repealed. The 
tax rate on distilled liquors increased 
from 90 cents to $1.10 per gallon and 
the tax on playing cards was set at two 
cents per pack. 

OCTOBER 6, 1894 The Secretary of 
the Treasury advised the Commis- 
sioner to take no action to enforce the 
provisions of the Wilson Tariff Act 
because Congress had appropriated 
no funds for its enforcement. 

December 22, 1894 The constitu- 
tional challenge to the income tax 
began with a bill filed in the Superior 
Court of the District of Columbia to 
restrain the Commissioner of Internal 
Revenue from collecting the tax 
imposed by the law on John G. 
Moore. 

1894 The Bureau of Internal Rev- 
enue abolished the office of the 
Microscopist, leaving the entire work 
of the laboratory upon the Chemist. 

January 1 1, 1895 The second chal- 
lenge to the consitutionality of the 
income tax began with the filing of 
Hyde v. Continental Trust. 

January 19, 1895 The case of 
Pollock v. Farmers' Loan and Trust 
Company was brought in challenge to 



7*7 



71 



the income tax. Three constitutional 
grounds were cited for the challenge, 
1) that it constituted a direct tax 
which did not meet the requirement 
that such measures be apportioned 
among the states on the basis of pop- 
ulation, 2) that the exemption of 
incomes below $4,000 violated the 
requirement that taxes be uniform, 
and 3) that it impinged on the rights 
of state and local governments by tax- 
ing the interest on obligations issued 
by these bodies. 

January 25, 1895 Congress appro- 
priated $245,095 to defray the 
expenses of enacting and collecting 
the income tax in the Urgent 
Deficiency Bill. Shortly thereafter, an 
Income Tax Division was established 
in the Bureau of Internal Revenue. 

January 28, 1895 The Supreme 
Court agreed to accept all three cases 
filed against the income tax (Moore, 
Hyde, Pollock). 

February 21,1 895 A Joint Resolu- 
tion extended the deadline for pay- 
ment of income taxes enacted in 
the 1894 tariff bill from March 1 
to April 15. 

March 1, 1895 Congress prohibited 
the sale of "spirituous, vinous, or malt 
liquors" and other intoxicating bever- 
ages in the Indian Territory. 

March 2, 1895 Congress passed an 
act to "regulate the sale of milk in the 
District of Columbia" which relieved 
the Division of Chemistry- laboratory 
in Washington, D.C. of its duties 
related to the sale of milk. Congress 
also renewed the bounty paid to 
sugar producers. 



March 7, 8, 1 1 , 1 2, 1 3, 1 895 The 
first hearings on the income tax cases 
were held before the Supreme Court. 

March 15, 1895 Deputy Marshal 
W. N. Somers and Guide S. H. Coffey 
were wounded. 

April 8, 1895 With a 5-4 vote, the 
Supreme Court ruled that the 
income tax was unconstitutional on 
the grounds that it was a direct tax 
and had not been apportioned 
equally according to population as 
the Constitution prescribed. 

April 15, 1895 A rehearing of the 
income tax case was requested by 
Joseph H. Choate and his associates. 

April 25, 1895 Deputy Marshal S. 
H. Stalcup was killed. 

May 6-8, 1 895 The Supreme Court 
reheard the income tax case. 

May 20, 1895 The Supreme Court 
upheld its original decision striking 
down the constitutionality of the 
income tax. In a surprise move, one 
judge reversed his position in favor 
of the tax, which in effect rendered 
every section of the 1894 income tax 
law unconstitutional. 

November 6, 1895 Deputy Collec- 
tor J. R. Ware was wounded in Har- 
ris County, Georgia. 

1895 Before the end of the year, a 
constitutional amendment to legiti- 
mize an income tax and overturn the 
recent Supreme Court decision was 
introduced in Congress. This effort 
was not successful. 



v*- 



72 




Employees of the Bureau of Internal Revenue count revenue stamps for distribution to field offices 
where they would be sold to local businessmen. 



i8g6~igog 



The Rebirth of the Income Tax: 

Congress Proposes a Constitutional 

Amendment 

7T7 



The economic demands of the Spanish-American War prompted Congress to 

raise excise taxes on alcohol, tobacco, and other manufactured goods but did 

not prompt an immediate return to the income tax. Under the leadership 

of President Theodore Roosevelt, popular support for an income tax was 

revived in the first years of the twentieth century and by 1909 Congress had 

passed an amendment to the Constitution which would allow for an income 

tax without apportionment among the states. Only one state ratified 

the proposed amendment that year. 



March 9, 1896 Deputy Collectors 
Walter F. Davis and James S. Smith 
were wounded at Kernersville, 
North Carolina. 

April 6, 1 896 Congress passed a 
joint resolution providing for the 
destruction of income tax returns, 
copies, statements, and all related 
records from the Civil War income 
tax. 

May 5, 1896 The Commissioner 
delivered all income tax returns and 
related documents to a committee 
appointed by the Secretary of the 
Treasury which promptly destroyed 
the records by burning them. 

May 6, 1896 The position of inter- 
nal revenue agent was brought into 
the classified Civil Service through a 
revision of the civil service rules. 

JUNE 3, 1896 The act authorizing a 
rebate on alcohol used in the arts or 
for medicinal purposes was repealed. 

June 6, 1896 A act defined cheese 
and imposed a tax of one cent per 
pound on the manufacture, sale, 
importation, and exportation of filled 
cheese. Imported filled cheese was 
taxed at the rate of eight cents per 
pound. 

JULY 13, 1896 Deputy Collector E. 
T. McAfee was wounded in an 
ambush while on raid near Buford, 
Guinnett County. 

AUGUST 7, 1896 The Division of 
Sugar Bounty was discontinued. 



~? 



October 2, 1896 Deputy Marshal 
J.C. Parish and Chief of Police of 
Florence, South Carolina, were 
wounded by B. L. Jones, an illicit 
distiller resisting arrest. 

November 26, 1896 Joseph S. 
Miller resigned as Commissioner. 

November 27, 1896 William St. 
John Forman of Illinois became 
Commissioner. 

December 4, 1896 Deputy Collec- 
tor Moffitt was killed by illicit dis- 
tiller Lee Turner in Montgomery 
County, North Carolina. 

1896 The Supreme Court upheld 
the constitutionality of state inheri- 
tance taxes in United States v. 
Perkins. 

1896 The income tax was a major 
issue in this year's presidential elec- 
tion with William J. Bryan running 
against William McKinley. 

January 30, 1897 Congress 
enacted a law prohibiting the sale of 
intoxicating beverages to Indians in 
the Indian Territory. 

March 4, 1897 In his inaugural 
address, President McKinley stressed 
the immediate need to maintain gov- 
ernment credit by securing an ade- 
quate income through a system of 
taxation, external or internal, or both. 

July 24, 1897 The Dingley Tariff 
Bill imposed a duty of $1 per pound 
on imported opium, crude or unman- 
ufactured; a tax of $3 per thousand 
on large cigars and cigarettes; $1 per 
thousand on cigarettes and small cig- 



74 



ars. This was the first act that distin- 
guished between cigarettes and cig- 
ars, defining a cigar as a cigarette 
wrapped in tobacco. Previous acts 
referred to "tobacco cigarettes." 

July 27, 1897 President McKinley 
issued an Executive Order except- 
ing 438 deputy collectors in the 
Bureau of Internal Revenue, the 
Bureau of Customs, and other offices 
of the Treasury Department from 
civil service laws. 

July 27, 1897 Posseman F. T. 
Harper was wounded near Kingston, 
North Carolina. 

November 30, 1897 Deputy Col- 
lector A. A. Phillips and Posseman 
D. B. Stewart were wounded near 
Greenville, North Carolina. 

December 31, 1897 William St. 
John Forman resigned as Commis- 
sioner. 

January 1, 1898 Nathan B. Scott 
of West Virginia became Commis- 
sioner. 

April 25, 1898 Chairman of the 
Ways and Means Committee Nelson 
Dingley of Maine introduced a war 
revenue measure that he estimated 
would produce an additional $100 
million. It included excise taxes, the 
sale of war bonds, but no income tax. 

Special taxes were imposed on 
bankers and brokers, but also on the- 
aters, circuses, bowling alleys, bil- 
liard parlors. Rates were doubled on 
tobacco, beer, and liquor, while 
stamp taxes were instituted on bank 



checks, stocks, bonds, insurance 
policies, legal documents, chewing 
gum, and wine. 

April 29, 1898 Congressmen Joseph 
W. Bailey and Benton McMillan led 
an effort to add an income tax amend- 
ment to Dingley's revenue bill, but it 
was rejected 134-171. 

June 13, 1898 Congress passed the 
War Revenue Act to provide revenue 
to support the Spanish-American 
War. The act doubled taxes on beer 
and tobacco products. Tobacco taxes 
were increased from 6 to 12 cents per 
pound; taxes on large cigars and ciga- 
rettes were increased from $3 to 
$3.60 per thousand and from $1 to 
$1.50 on small cigarettes. 

Special taxes on tobacco manufac- 
turers, dealers, and sellers were reim- 
posed. This act imposed a tax upon 
documents, instruments, and special 
taxes on bankers, proprietors of the- 
aters, museums, concert halls, cir- 
cuses, bowling alleys and billiard 
rooms. User fees were imposed on 
federal recreational facilities. This 
act also imposed a tax on chewing 
gum at a rate of 4 cents per $1 of 
value, defined mixed flour and 
imposed a tax upon its manufacture, 
sale, importation and exportation. 

Despite this act, the major portion 
of war expenses were paid through 
loans rather than taxes. The Secre- 
tary of the Treasury was authorized 
to issue up to $100 million in 
certificates of indebtedness and up 
to $400 million in 3 percent 10 to 20 
year bonds. 

June 27, 1898 The Bureau issued 
regulations relating to the tax on 
chewing gum, requiring that a pro- 



77 



75 



prietary stamp be affixed to each 

- package of gum. 

h 

3 AUGUST 27, 1898 Deputy Marshals 

< B. F. Taylor and Joe Dobson were 

killed while Possemen Clay Renfrow 

fS and Sie Lawrence were wounded in 

*** Pope County, Arkansas. 

September 9, 1898 Possemen J. A. 
Robertson and J.F. Miller were 
wounded in Polk County, NC. 

1898 The Supreme Court upheld 
the constitutionality of state inheri- 
tance taxes in Magoon v. Illinois 
Trust and Savings Bank. 

February 28, 1899 Nathan B. 
Scott resigned as Commissioner. 

March 1, 1899 George W. Wilson 
of Ohio became Commissioner. 

April 1 7, 1 899 Deputy Marshall 
Taylor Harris was wounded in Hay- 
wood County, NC. 

April 21, 1899 Sheriff J.S. Dawson 
was killed in Haywood County, NC. 

April 24, 1899 Associated Press 
dispatches announced the seizure of 
hundreds of thousands of cigars 
manufactured at Lancaster, Pennsyl- 
vania, by the Jacobs and Kendig 
firm, bearing counterfeit revenue 
stamps. The discovery of counterfeit 
stamps was made by an internal rev- 
enue employee in Washington, 
D.C., and not in the districts in 
which these cigars were located. 
William M. Jacobs and W. L. Kendig 
were arrested. This was the first case 
of counterfeiting cigar stamps in the 
history of the Bureau. 



June 7, 1899 A shortage in the 
stamp account of the Bureau was 
caused by the theft of beer stamps 
amounting to $10,000. 

July 5, 1899 The United States 
District Court in the District of 
Kentucky upheld the position of the 
government and the Bureau of 
Internal Revenue to not release tax 
documents, furnish copies of 
returns, or testify. 

August 1899 The United States 
District Court, Eastern District of 
Pennsylvania, ruled in the case of 
U.S. v. Dougherty that the oleomar- 
garine tax was constitutional and 
that the primary object of the oleo- 
margarine law was to raise revenue. 
Dougherty had contended that 
rather than being a revenue mea- 
sure, the oleomargarine law was a 
police regulation which Congress 
had no power to enact. 

1899 The United States District 
Judge in Connecticut ruled that a 
collector of the revenue could not 
compel a taxpayer to appear and 
testify before him as to the correct- 
ness of returns made under the 
oleomargarine law, judging that the 
provisions granting the collector 
the authority to summon persons 
before him for examination applied 
to objects of taxation upon which 
the tax was collected by the 
method of return and assessment 
and not to those upon which the 
tax paid by a stamp. 

1899 A tax was levied on all opium 
manufactured in the United States 
for smoking purposes. 



76 



April 9, 1900 The Supreme Court 
ruled that Collector's records were 
executive documents of the United 
States and not releasable outside the 
Department of the Treasury. 

April 16, 1900 The Supreme 
Court decided that express compa- 
nies were not forbidden to shift the 
burden of the stamp tax by a reason- 
able increase in rates. The question 
arose under the provisions of the 
War Revenue Act of 1898 as to 
whether the shipper or the carrier 
had to pay for the stamp required on 
transported goods. 

April 30, 1900 The Collection 
Distrct of Hawaii was established in 
Honolulu. 

May 14, 1900 The Supreme Court 
ruled that legacy taxes were consti- 
tutional. The tax was held not to be 
a direct tax within the meaning of 
the Constitution, but rather, a duty 
or excise. 

November 27, 1900 George W. 
Wilson resigned as Commissioner. 

November 29, 1900 Deputy Col- 
lectors John H. Chapman and 
Charles Gee were wounded in a raid 
in Northampton County, North 
Carolina. 

December 12, 1900 Deputy Col- 
lector John F. Lanier was wounded 
during a raid in Alabama and died 
from his wounds on December 24. 

December 20, 1900 John W. 
Yerk.es of Kentucky became Com- 
missioner. 



1900 An additional deputy com- 
missioner was authorized. 

JANUARY 1901 An inventory of all 
revenue stamps in the Treasury 
Department vault was made for 
accounting purposes. 

March 2, 1901 Congress passed the 
War Revenue Reduction Act which 
reduced or repealed most taxes 
imposed during the Spanish-Ameri- 
can War, but retained legacy taxes, 
excise taxes on oil and sugar refining 
companies, and special annual duties 
on bankers and brokers. This act 
reduced taxes on cigars and cigarettes 
and provided for a 20 percent dis- 
count on revenue stamps to manufac- 
turers of tobacco and snuff. Most of 
the tax reductions of this act took 
effect July 1,1902. 

March 21, 1901 Deputy Marshal 
W. A. Hoss was wounded and Deputy 
Marshal A.S. Whiteley was killed dur- 
ing a raid in Lincoln County, Georgia. 

July 1, 1901 North and South 
Dakota were detached from the 
Nebraska Collection District and con- 
stituted as the North and South 
Dakota Collection District. 

July 23, 1901 PossemanCord 
Mackie and Deputy Marshal Price 
were wounded in a raid in Putnam 
County, Tennessee. 

January 11, 1902 Deputy Marshall 
Holsonback was killed in a raid in 
Marshall County, Alabama. 

January 31, 1902 Representative 
Sereno E. Payne of New York, Chair- 
man of the House Ways and Means 



=77 



77 



Committee, introduced a bill to 
repeal all Spanish-American War rev- 
enue taxes. 

MARCH 8, 1902 Congress passed "an 
act temporarily to provide revenue for 
the Philippine Islands, and for other 
purposes." The act stated, in part, 
"that all the duties and taxes collected 
in the I'nited States upon articles 
coming from the Philippine Archipel- 
ago... shall. not be covered into the 
general fund of the Treasury of the 
United States but shall be held as a 
separate fund and paid into the trea- 
sury of the Philippine Islands to be 
used and expended for the govern- 
ment and benefit of said islands." 

April 12, 1902 The bill to repeal all 
war revenue taxes became law. All 
legacy taxes were repealed as part of 
this measure. This bill reduced the 
tax on tobacco and snuff to 6 cents per 
pound and provided for a rebate of tax 
to manufacturers or dealers on all orig- 
inal and unbroken factory packages of 
smoking and manufactured tobacco 
and snuff held by them on the effec- 
tive date of this act, July 1, 1902. 

April 12, 1902 An act of this date, 
to take effect on July 1, 1902 set the 
rate of tax on tobacco, snuff, cigars, 
and cigarettes as follows: 6 cents per 
pound on smoking and chewing 
tobacco and snuff; $3 per thousand on 
large cigars; 54 cents per thousand on 
small cigars; $1.08 per thousand on 
small cigarettes; and $3 per thousand 
on large cigarettes. 

May 9, 1 902 The amendatory Oleo- 
margarine Act, effective July 1, 1902, 
abolished the previous tax rate of two 
cents per pound on oleomargarine 



and established two new tax rates. 
The act placed a tax of 10 cents per 
pound on oleomargarine that was 
artificially colored. The act also pro- 
vided for a tax of one-fourth of one 
cent per pound on oleomargarine pro- 
duced free from artificial coloration 
that caused it to look like butter of 
any shade of yellow. 

June 27, 1902 Congress passed an 
act authorizing the refund of taxes 
collected upon bequests for legacies 
for uses of a religious, literary, charita- 
ble, educational character, or for the 
encouragement of art, etc., under the 
act of June 13, 1898. 

July 1, 1902 Special taxes on the 
occupations of manufacturers and 
dealers in tobacco were abolished. 

September 1, 1902 The state of 
Washington and the territory of 
Alaska were detached from the Ore- 
gon Collection District and consti- 
tuted as the Washington Collection 
District. 

1902 Legal opinion in the case of 
Patton v. Brady held that if a collector 
died while suit was pending an action 
could be revived against his estate. 

February 14, 1903 Congress 
approved an act creating the Depart- 
ment of Commerce and Labor, to 
include the Commissioner-General of 
Immigration. This new organization 
assumed responsibility for the regis- 
tration of Chinese persons, which had 
been conducted by the Bureau of 
Internal Revenue. 



78 



July 1, 1903 All records, duplicate 
certificates of Chinese residency etc., 
from the Bureau of Internal Revenue 
were transferred to the Commis- 
sioner-General of Immigration. 

November 22, 1903 Deputy Col- 
lector George T. Rives was seriously 
wounded while on a raid for the 
seizure of illicit stills near 
Marysville, Virginia. 

February 10, 1904 At the request 
of the Commissioner, the Treasury 
Department appointed three expert 
accountants to make a count of the 
revenue stamps retained in the 
Treasury Department vault and to 
verify all books and accounts. 

May 31, 1904 The Supreme Court 
upheld the constitutionality of the 
oleomargarine act of May 2, 1902 in 
the case of Leo W. McCray v. The 
United States. 

October 1904 The Supreme 
Court held that "when any sub- 
stance, although named as a possible 
ingredient of oleomargarine, sub- 
stantially serves only the function of 
coloring the mass... is an artificial 
coloration," in upholding the consti- 
tutionality of the oleomargarine tax 
statutes. 

1904 The United States initiated 
an international movement to sup- 
press the growing opium traffic. 

1905 Posseman John Carver was 
shot and killed while on a raid with 
Deputy Collector Spears for seizure of 
an illicit distillery near the Tennessee- 
North Carolina state line. 



Vr, 



July 4, 1906 President Theodore 
Roosevelt announced his support for 
graduated income and inheritance 
taxes in a speech celebrating the lay- 
ing of the cornerstone for the new 
House of Representatives building. 

June 7, 1906 Congress passed an 
act providing that alcohol could be 
denatured, free of tax, only in dena- 
turing bonded warehouses located 
on the distillery premises where the 
alcohol was produced. Under this 
law, only large distillers who pro- 
duced alcohol from grain or molasses 
were able to take advantage of this 
privilege. The act took effect Janu- 
ary 1, 1907 and was commonly 
referred to as the "free alcohol bill." 

September 26, 1906 The Bureau of 
Internal Revenue issued the first of a 
series of explanatory circulars regard- 
ing the denatured alcohol act of June 
7, 1906. This circular explained that 
small distilleries which had been ren- 
dered useless for producing alcohol 
for beverage purposes by reason of 
local prohibitory laws might be 
profitably employed in the distillation 
of spirits for denaturation. 

1906 The Analytical and Chemical 
Division was transferred to the 
Bureau of Chemistry in the Agricul- 
ture Department. 

1906 President Theodore Roosevelt 
brought the deputy collectors of the 
Bureau of Internal Revenue into the 
classified civil service system. 

March 2, 1907 Congress approved 
an act allowing the establishment of 
small farm distilleries, with a daily 
capacity of not more than 100 proof 



79 



gallons. Distilleries of this elass were 
exempt from many of the require- 
ments relating to grain and fruit dis- 
tilleries. This aet also authorized the 
use of denatured alcohol in the manu- 
facture of ether or chloroform and 
other chemical substances where 
the alcohol used was changed 
into some other chemical sub- 
stance. This act amended the act 
of June 7, 1906 and went into effect 
on September 1, 1907. 

April 30, 1907 John W. Yerkes 
resigned as Commissioner. 

June 5, 1907 John G. Capers of 
South Carolina became Commis- 
sioner. 

June 1907 President Theodore 
Roosevelt declared that "most great 
civilized countries have an income tax 
and an inheritance tax. In my judg- 
ment both should be part of our sys- 
tem of federal taxation." 

November 25, 1 907 The Second 
and Fifth Districts of Tennessee 
were consolidated. 

1907 Alabama and Georgia adopted 
state prohibition laws. 

J ANl IARY 31,1 908 President Roo- 
sevelt recommended passage of a 
direct income and inheritance tax in 
his presidential address. 

May 27, 1908 The American Opium 
Commission was established. A prob- 
lem arose when it was realized that 
despite its efforts to curtail opium 
traffic, the United States still allowed 
the importation of smoking opium as 
long as the appropriate taxes were 



paid. This led to the Opium Exclu- 
sion Act the following year. 

June 1, 1908 The state of Missis- 
sippi was added to the Alabama Col- 
lection District. Prior to this, 
Mississippi had been attached to the 
Louisiana Collection District. 

July 21 -September 8, 1908 Com- 
missioner John Capers and Chief 
Chemist Crampton travelled to 
Europe to gather information on 
laws concerning the tax-free use of 
alcohol for industrial purposes in 
other countries. 

1908 By this year, Democratic and 
Socialist party members called for an 
income tax while the Roosevelt-Taft 
wing of the Republican party 
expressed sympathy for the idea. 

February 4, 1909 An act this date 
provided that any article containing 
alcohol brought from Puerto Rico into 
the United States for consumption or 
sale would be taxed at the rate of 
$1.10 per proof gallon to be collected 
at the port of entry by the collector of 
internal revenue. 

February 9, 1909 Congress 
approved the Opium Exclusion Act 
which prohibited the importation and 
use of opium for other than medicinal 
purposes after April 1, 1909. 

March 17, 1909 Ways and Means 
Committee Chairman Payne reported 
a bill that reinstated the federal inher- 
itance tax. This bill passed the House 
by a vote of 217-161 on April 9. 



7T 



80 



March 25, 1909 Senator Thomas P. 
Gore of Oklahoma introduced a reso- 
lution for an income tax amendment 
into the Senate. 

March 29, 1909 Tennessee Rep- 
resentative Cordell Hull appealed 
for immediate adoption of an income 
tax as "the fairest, the most equi- 
table system of taxation that has yet 
been devised." 

April 15, 1909 Democratic Sena- 
tor Joseph W. Bailey of North Car- 
olina introduced an amendment to 
the tariff bill that copied the 1894 
revenue act except for stipulating a 
3 percent tax on incomes over $5,000 
and exempting state, county, and 
municipal bonds. This was followed 
soon by a Republican proposal for a 
graduated tax ranging from 2 percent 
on incomes over $5,000 to 6 percent 
on those over $100,000. 

April 28, 1909 Senator Norris 
Brown of Nebraska introduced a res- 
olution for an income tax amend- 
ment into the Senate. He introduced 
a second resolution on June 11, 
1909, but the Senate Finance Com- 
mittee buried these and Senator 
Gore's resolutions. 

May 7, 1909 Ex-Deputy Marshal 
A. W. Holden was killed on a raid on 
an illicit distillery near Port Towson, 
Oklahoma. 

May 1909 Republican insurgents 
and Democrats agreed to unite 
behind a comprehensive plan that 
was close to Bailey's original pro- 
posal for an income tax. This group 
included all Democrats and 
19 Republicans. 



June 16, 1909 President Taft sent 
a message to Congress stressing the 
dangers to popular confidence in the 
Supreme Court which would arise if 
Congress were to enact a general 
income tax in the hope that the 
Court would reverse itself. He sug- 
gested the adoption of a joint resolu- 
tion proposing to the states a federal 
income tax amendment to the Con- 
stitution. He also proposed a 
2 percent excise tax on the net 
incomes of all corporations except 
national banks, savings banks, and 
building and loan associations. 

June 17, 1909 In response to 
Taft's message, Norris Brown intro- 
duced a third resolution for a consti- 
tutional amendment which read, 
"the Congress shall have the power 
to lay and collect direct taxes on 
incomes without apportionment 
among the several states according 
to population." The Senate Finance 
Committee amended this by striking 
out the word "direct" and adding 
"from whatever source derived" 
after "incomes." These changes 
were introduced by Senator Nelson 
Aldrich of Rhode Island. 

June 28, 1909 Senator Aldrich 
reported the Finance Committee's 
resolution of the income tax amend- 
ment to the Senate. 

July 1, 1909 The Sixth District of 
California was formed. 

July 5, 1909 The Senate approved 
the constitutional amendment pro- 
posal with a vote of 77-0. 



^77 



81 



JULY 8, 1909 The Senate passed 
the Payne-Aldrich tariff bill which 
included a corporation excise tax by 
a vote of 45-34. This bill included a 
specific provision that such returns 
be made public... "the return... shall 
constitute public records and be 
open to inspection as such." The 
public nature of the returns was 
short-lived — it was changed in 1910. 
The Senate version of this bill con- 
tained 847 amendments to the 
Payne bill with the inheritance tax 
feature deleted. 

July 12, 1909 After only four hours 
of debate, the House approved the 
proposed constitutional amendment 
by a vote of 318-14. 

July 3 1 , 1 909 The President 
signed the Payne-Aldrich Act. 

August 5, 1909 The Corporation 
Excise Tax became law, marking the 
beginning of our modern system of 
corporate income taxation. It was 
called an "excise on the privilege of 
doing business," and imposed a tax of 
1 percent on net corporation incomes 
above $5,000. A Corporation Tax 
Division was organized to handle col- 
lections for the new levy. 

Outgoing President Roosevelt had 
persuaded Congress to enact this 
excise tax on corporate income. The 
tax brought in $1 1 million the first 
year and remained in effect until 
1912. This new law also authorized 
state tax officials to inspect federal 
corporate tax returns and provided 
for the collection of internal revenue 
taxes on the tobacco, cigars, and cig- 
arettes imported into the United 
States from the Philippine Islands. 



August 10, 1909 Alabama became 
the first and only state this year to 
ratify the 16th Amendment. It 
would take until 1913 to achieve 
sufficient state votes to add the 
amendment to the Constitution. 

August 31, 1909 John G. Capers 
resigned as Commissioner. 

September 1, 1909 Royal E. Cabell 

of Virginia became Commissioner. 

September 2, 1909 Special 
employee D. A. Kanipe was shot and 
wounded on a raid near Tryon, 
North Carolina. 

December 22, 1909 Deputy Col- 
lector L. C. Hill was shot and 
wounded on a raid on Laurel Creek, 
Kentucky by an accidentally dis- 
charged rifle. 

December 24, 1909 President Taft 
issued his decision in a prolonged 
controversy as to what composed 
whiskey, to be effective July 1, 1910. 

1909 Virginia enacted a state 
income tax, but huge numbers of its 
citizens refused to pay it. Tax agents 
travelled into rural counties to col- 
lect it and some were never heard 
from again. The tax was repealed in 

1910 after less than $100,000 was 
collected. 

1909 Chairman of the House Ways 
and Means Committee Payne 
warned that the imposition of a fed- 
eral income tax would turn America 
into a "nation of liars." 

1909 Tennessee passed a prohibi- 
tion law. 



7T- 



82 




Taxpayers crowd into their local internal revenue collectors office to fill out new tax forms to 
meet the filing deadline of March 15. 



I()I0-I9l8 



Revenue Expansion: 

A Constitutional Amendment and World 

War I Provide the Push 

~7T7 



Four years after its proposal, enough states ratified the 16th amendment to 
make it part of the Constitution. Within a few months Congress enacted a new 

income tax featuring progressive rates of one to seven percent on incomes 
above $3,000. The average annual income that year was $800. As a result, very 

few Americans faced paying the income tax. In addition to reinstating the 
income tax, the year 1913 saw the birth of the 1040 form. 



March 1, 1910 The first corporate 
income tax returns were due on or 
before this date. The tax was to be 
assessed on or before June 1 and the 
amount of tax collectible on or 
before June 30, 1910. 

March 17-18, 1910 Fifteen cases 
filed by corporations challenging the 

1909 corporation tax's constitutional- 
ity were consolidated as Flint v. 
Stone Tracy Company and sched- 
uled for argument before the Supreme 
Court this month. They were rear- 
gued in January 1911 since the 
Court could not arrive at a decision. 

April 13, 1910 Deputy Collector 
W. A. Anderson was killed on a raid 
in Walker County, Alabama. Posse- 
man Putnam was shot and wounded 
in the hip during the same raid. 

J i \i 25, 1910 The Deficiency 
Appropriation Act authorized the 
Commissioner to appoint internal 
revenue agents and inspectors, with 
the approval of the Secretary, to 
carry out the provisions of the Cor- 
poration Excise Tax Act of 1909. 
These appointments were required 
to be made in accordance with civil 
service regulations. 

DECEMBER 19, 1910 Deputy Col- 
lector T. H. Baker was accidentally 
shot and wounded at Memphis, 
Tennessee. 

1910 The Appropriations Act of 
1910 provided that "any and all such 
returns shall be open to inspection 
only upon the order of the President 
under rules and regulations to be pre- 
scribed by the Secretary of the Trea- 
sury and approved by the President." 



1910 Representative David Foster 
of Vermont introduced three mea- 
sures to eliminate the non-medical 
use of narcotics. Together, the bills 
amended previous legislation pro- 
hibiting the importation of opium 
and other narcotics for nonmedical 
uses by imposing taxes and new reg- 
ulations on their manufacture and 
distribution. The measure died in 
the Ways and Means Committee. 

1910 The tax on the manufacture 
of filled cheese under the act of 
June 6, 1896, was discontinued. 

February 6, 1911 Oklahoma was 
detached from the District of 
Kansas and established as a separate 
district. 

March 2, 191 1 An act authorized 
acceptance of certified checks 
drawn on national and state banks 
for payment of internal revenue 
taxes. This act formalized a long 
accepted practice. 

March 13, 1911 The Supreme 
Court sustained the constitutionality 
of the corporation excise tax law in 
Flint v. Stone Tracy Company. The 
Court ruled unanimously that the 
1909 corporation tax was constitu- 
tional and not a direct tax, but "an 
excise on the particular privilege of 
doing business in a corporate capac- 
ity" and that the excise was on prop- 
erty measured by income of the 
parties subject to the tax. 

APRIL 17, 1911 Accountants 
employed by the Bureau of Internal 
Revenue were brought into the 
classified civil service system by an 
executive order and appointed as 



84 



revenue agents under the corpora- 
tion tax law. 

May 29, 191 1 The Attorney General 
approved the Bureau's ruling that the 
1909 act prohibiting the importation 
of opium for other than medicinal 
purposes did not repeal the provisions 
of the 1890 act which provided for the 
manufacture and taxation of opium 
for smoking purposes. 

June 29, 191 1 Posseman G.S. 
Marsh was shot and wounded in a 
raid in Van Buren County, Ten- 
nessee. 

AUGUST 17, 1911 Deputy Collector 
Henry was shot during a raid on an 
illicit distillery in Wilkes County, 
North Carolina. 

November 1, 1911 The Bureau 
adopted a new system of gauging 
spirits by weight rather than by rod. 

1911 Since this year, collections 
from internal revenue have always 
exceeded customs revenue. 

January 9, 1912 A disastrous fire 
occurred in a large office building in 
New York City destroying the 
records of many corporations. Thus, 
it was impossible for such corpora- 
tions to make complete returns of 
annual net income within the period 
prescribed by law. 

April 9, 1912 A prohibitive tax on 
white phosphorous matches was 
passed. 

October 1, 1912 As a result of 
legislation limiting the number of 
collection districts to not more than 



63, four districts were consolidated 
with other districts. These included 
the Fourth California, the Twelfth 
Pennsylvania, South Carolina, and 
the Fourth Texas. 

February 3, 1913 The minimum 
number of states finally ratified the 
Sixteenth Amendment under which 
Congress received constitutional 
authority to levy taxes on the 
income of individuals and corpora- 
tions. The amendment authorized 
Congress "to lay and collect taxes on 
incomes, from whatever source 
derived, without apportionment 
among the several states, and with- 
out regard to any census or enumera- 
tion." By March, a total of 42 states 
had ratified the amendment — 
six more than required. The 36th 
state to ratify, which provided the 
% majority needed, was Wyoming. 

February 25, 1913 The Sixteenth 
Amendment officially became part 
of the Constitution. States voting for 
ratification included Alabama (1909); 
Georgia, Illinois, Kentucky, Mary- 
land, Mississippi, Oklahoma, South 
Carolina, and Texas (1910); 
Arkansas, California, Colorado, 
Idaho, Indiana, Iowa, Kansas, Michi- 
gan, Missouri, Montana, Nebraska, 
Nevada, North Carolina, North 
Dakota, Ohio, Oregon, Tennessee, 
Washington, and Wisconsin (1911); 
Arizona, Louisiana, Minnesota, and 
South Dakota (1912); Delaware, 
Maine, New Hampshire, New Jer- 
sey, New Mexico, Vermont, West 
Virginia, and Wyoming (1913). 

March 4, 1913 In his inaugural 
address, President Woodrow Wilson 
charged that the tariff, "cuts us off 



77 



85 



from our proper part in the com- 
merce of the world, violates the just 
principles of taxation, and makes the 
government a facile instrument in 
the hands of private interests." On 
his first day in office, the President 
called a special session of Congress 
to take up tariff reform. 

April 8, 1913 President Wilson 
addressed a joint session of Congress 
on the need for tariff reform. 

April 12, 1913 Ways and Means 
Committee Chairman Oscar W. 
Underwood of Alabama introduced a 
bill which provided for lowering tar- 
iff rates from the 40 percent level of 
the Payne-Aldrich Tariff to approxi- 
mately 29 percent. To offset the loss 
of revenue, the bill included an 
income tax provision, the first to be 
written under the 16th amendment. 

April 27, 1913 Royal E. Cabell 
resigned as Commissioner. 

April 28, 1913 William H. Osborn 
of North Carolina became Commis- 
sioner. 

May 8, 1913 The House passed 
the Underwood tariff bill and sent it 
to the Senate Finance Committee. 
No attempt was made to remove the 
income tax provision from the bill. 
This led to the first income tax to go 
into effect since the expiration of 
Civil War income taxes in 1872. 

May 1913 Deputy Collector U.C. 
McFarland was wounded at a dis- 
tillery in Meshack Creek Hollows, 
Kentucky. Posseman J. W. Ison was 
wounded at a distillery in North Car- 
olina this same month. 



July 1, 1913 The tax on white 
phosphorous matches took effect. 

AUGUST 1, 1913 The Fourth Dis- 
trict of Iowa was consolidated with 
the Third District of Iowa. 

September 1, 1913 The District of 
South Carolina was reestablished. 
Previously South Carolina had been 
part of the Fourth District of North 
Carolina. 

September 9, 1913 The Senate 
approved the Underwood-Simmons 
tariff bill. This also marked the first 
surtaxes ever enacted by Congress. 

October 3, 1913 The Underwood- 
Simmons tariff bill, with income tax 
sections drafted by Representative 
Cordell Hull, became law with Pres- 
ident Wilson's signature. The tax 
was 1 percent on net personal 
incomes over $3,000 ($4,000 for mar- 
ried couples), with a surtax of up to 
6 percent on incomes over $500,000. 
The maximum rate of tax on indi- 
viduals was 7 percent on taxable 
income over $500,000. 

This bill also repealed the corpo- 
ration tax of 1909 and imposed a 
new tax of 1 percent on the net 
income of corporations. This act 
authorized the appointment by the 
Commissioner, with the approval 
of the Secretary of the Treasury, of 
all necessary agents and inspectors 
to carry out the income tax laws. 
The concept of total secrecy for 
individual tax returns was new 
with this act. 

The average American worker, 
putting in 12 hours a day and earn- 
ing $800 a year, remained unaf- 
fected by the tax. Federal judges, 



77 



86 



state officials, and the President 
of the United States were exempt 
from paying the tax on their public 
salaries. 

October 22, 1913 All deputy col- 
lectors of internal revenue were 
excepted by statute from the civil 
service laws. 

November 1, 1913 Collection of 
tax at the source (withholding) 
began with 1 percent of taxable net 
income to be withheld. 

1913 The Commissioner was given 
the power to revoke the exempt sta- 
tus of any organization that failed to 
meet the exemption requirements of 
the code. 

1913 Upon passage of the income 
tax law of 1913, a Personal Income 
Tax Division was established in 
the Bureau of Internal Revenue. 
A Correspondence Unit with 
30 employees was created to answer 
a flood of questions about the law 
and its enforcement. Also, a special 
division was established within the 
General Counsel area to prepare 
opinions interpreting the internal 
revenue laws. By the end of fiscal 
year 1913 the administrative force in 
Washington, D.C. numbered 277 
employees while the field force 
numbered 3,723. 

January 5, 1914 The Treasury 
Department unveiled the filing form 
for the new income tax. Together 
with its instructions, it was four 
pages long. The form was numbered 
1040 in the ordinary stream of num- 
bering forms in sequential order by 
the Bureau of Internal Revenue. In 



^7 



the first year, no money was to be 
returned with the forms. Instead, 
each taxpayer's calculations were 
verified by field agents, who sent out 
bills on June 1. Tax payments were 
due by June 30. 

January 5, 1914 PossemanC.E. 
McRight was wounded in a raid on a 
distillery near Allsboro, Alabama. 

January 7, 1914 The Secretaries of 
State, Treasury, and Commerce 
issued joint regulations to limit the 
exportation of opium and cocaine 
and any salt derivative or prepara- 
tions of ether, only to those coun- 
tries which had laws regulating the 
handling of narcotic drugs. Exporta- 
tion was only permitted upon proper 
certification of the purchaser's 
qualifications. 

January 17, 1914 Congress passed 
the Narcotic Drugs Import and 
Export Act which prohibited the 
importation, exportation, transship- 
ment of opium for other than medi- 
cinal purposes in an attempt to 
regulate the manufacture of smoking 
opium within the United States. 
This act repealed the provisions of 
the McKinley Tariff Act relating to 
the taxation of smoking opium and 
increased the rate of tax from $10 to 
$300 per pound and the bond 
required of opium manufacturers 
from not less than $5,000 to not less 
than $100,000. 

May 9, 1914 A new method of 
counting stamps was initiated for 
stamps received from the Bureau of 
Engraving and Printing. This pro- 
vided an accurate count of all stamps 
before they were shipped to Col- 



87 



lectors. The change increased the 
counting capacity of the 
16 counters by 50 percent. 

JULY 1, 1914 The Comptroller of 
the Treasury ruled that the practice 
of forwarding to the Treasury Audi- 
tor the book stamps and coupons 
returned from collectors which were 
not charged to the official who had 
received them be changed so that 
such stamps and coupons would be 
held by and charged to the Commis- 
sioner, whose certificates would be 
accepted by the Auditor as sufficient 
evidence upon which to give credit 
to collectors for stamps returned to 
the Treasury. 

July 16, 1914 The number of dis- 
tricts was limited to 64. 

August 18, 1914 The Secretary of 
the Treasury delegated to the Com- 
missioner the execution of the 
United States Cotton Futures Act 
enacted on this date. This act was 
designed to tax the privilege of deal- 
ing on exchanges, boards of trade, 
and similar places in contracts of sale 
of cotton for future delivery. 

September 4, 1914 President Wil- 
son urged Congress to raise an addi- 
tional $100 million through internal 
taxes to meet the loss in revenue 
brought on by World War I financing. 

October 1, 1914 The number of 
collectors increased to 64 as part of 
the appropriations act approved in 
July 1914. 



October 22, 1914 Congress 
responded to President Wilson by 
passing the War Revenue Tax Act of 
1914, which levied various internal 
excise taxes to make up for lost rev- 
enue from diminished customs 
receipts as a result of World War I. 
The bill was in large part a renewal 
of the Spanish-American War Rev- 
enue Act and provided for excises on 
fermented liquors, wines, toilet arti- 
cles, and chewing gum. It also 
imposed special taxes on bankers, 
brokers, tobacco dealers and manu- 
facturers, owners of amusement 
places, and reintroduced stamp taxes 
on legal documents, telegraph and 
telephone messages. 

These taxes were set to expire on 
December 31, 1915. Bankers were 
required to pay a tax of $1.00 for 
each $1,000 of capital used or 
employed. Stamp taxes of 5 cents on 
each $100 of face value, or fraction 
thereof, of certificates of stock were 
also part of this law. 

October 23, 1914 Taxes on 
wines, grape brandy, and fermented 
liquors became effective. 

November 1, 1914 Special taxes 
enacted as part of the War Revenue 
Tax Act became effective. 

December 1, 1914 Stamp taxes on 
articles enumerated on Schedules A 
and B enacted as part of the War 
Revenue Tax Act became effective. 

December 13, 1914 The contents 
of the two stamp vaults in the Trea- 
sury Building were moved to 
unfinished vaults in the Auditors' 
Building, where the vault section of 
the Stamp Division had been located. 



77 



88 



December 17, 1914 Congress 
passed the Harrison Anti-Narcotics 
Act to regulate the sale of opium. 
Under this act, all persons engaged 
in the importation, manufacture, or 
sale of narcotics were required to 
register and pay an occupational tax 
as well as a commodity tax on drugs 
imported or manufactured in the 
United States. 

The internal revenue tax on 
opium was set at 1 cent per ounce, 
with the tax paid by the importer, 
manufacturer, or producer by means 
of stamps purchased from a revenue 
agent and affixed to seal the con- 
tainer closed. The special occupa- 
tional taxes established for handling 
of opium ranged from $24 per year 
for importers to $1 per year for 
physicians, dentists, veterinarians, or 
persons engaged in research. Other 
rates included $12 per year for 
wholesale dealers and $3 per year for 
retail dealers. This act gave the 
Commissioner responsibility for reg- 
ulating the domestic manufacture 
and use of some narcotics and 
opium. 

1914 The Bureau of Internal Rev- 
enue eliminated the practice of 
destroying sheet revenue stamps 
returned in broken lots by Collec- 
tors. Instead, such stamps were 
stored in the stamp vaults and reis- 
sued to Collectors. 

February 10, 1915 J.S. West, act- 
ing as posseman, was killed while 
raiding a still in Putnam County, 
Tennessee. 

March 1, 1915 The Harrison Anti- 
Narcotics Law took effect. 



April 13, 1915 O.B. Byrd, an 
informer on a still operation in 
Campbell County, Tennessee, was 
killed. 

May 14, 1915 C.P. Phlegar, 
Deputy United Sates Marshal, was 
killed while on a raid acting as a pos- 
seman in Patrick County, Virginia. 

June 30, 1915 The responsibility for 
issuing the contract for internal rev- 
enue stamp paper passed from the 
Commissioner to the Director of the 
Bureau of Engraving and Printing. 

September 14, 1915 Posseman A. 
A. Holder was injured during a raid 
near Howard's Saw Mills, James 
County, Tennessee. 

October 3, 1915 The persons 
appointed to carry out the provisions 
of the income tax law under the act 
passed two years earlier were cov- 
ered into the classified civil service. 

November 5, 1915 Special 
employee J. A. Galloway and Posse- 
man A. L. Owen were seriously 
injured while returning from a raid 
in Jackson County, North Carolina. 

December 17, 1915 Congress 
passed a resolution to extend the 

1914 War Revenue Tax Act which 
had been scheduled to expire 
December 31, 1915. 

1915 By the end of fiscal year 1915, 
the personnel of the Bureau of 
Internal Revenue had increased to 
530 in Washington and 4,200 in the 
field. 



V^7 



1915 Some congressmen experi- 
enced difficulty in filling out their 
income tax returns, charging that the 
instructions were too confusing. 
They turned to the House Sergeant- 
at-Arms who thus became one of 
America's pioneer tax preparers. 
One congressmen, trying to explain 
why the tax law was getting more 
complicated, said, "I write a law. 
You drill a hole in it. I plug the hole. 
You drill a hole in my plug." The 
remark is widely reported, and a new 
tax word — loophole — entered the 
language. 

1915 The Bureau began to issue 
sheet stamps rather than coupon 
stamps with stubs to oleomargarine 
manufacturers. 

July 5, 1916 Representative 
Claude Kitchin of North Carolina, 
Chairman of the Ways and Means 
Committee, introduced a bill to raise 
$200 million in additional revenue 
for defense appropriations. 

July 10, 1916 The House passed 
the tax bill by a vote of 238-142. 

September 6, 1916 The Senate 
passed the revenue bill after two 
months of debate with a vote of 42-16. 

September 8, 1916 The President 
signed the Emergency Revenue Act 
of 1916, repealing the Emergency 
Revenue Act of October 22, 1914. 
The income tax doubled from 1 to 2 
percent on incomes above $4,000 for 
married persons and $3,000 for sin- 
gles. The surtax on incomes above 
$20,000 was increased on a gradu- 
ated scale to a maximum rate of 15 
percent. This act granted exemp- 



7 



tions from the tax to the incomes of 
the President, state and local govern- 
ment employees, and federal judges. 
The tax on net corporate income dou- 
bled from 1 to 2 percent. 

For the first time, taxpayers could 
report income on other than the cash 
method of accounting. Estates and 
trusts were taxed for the first time 
while the class of organizations 
exempt from tax was substantially 
increased. This act, which taxed 
income "from any lawful business," 
was amended by eliminating the word 
lawful — thereby clearing the way for 
taxing such activities as bootlegging, 
gambling and other illegal enterprises. 

Collection at the source (withhold- 
ing) was repealed with "information 
at the source" substituted for this pro- 
vision. This act also defined "divi- 
dend" for the first time and required 
taxpayers receiving stock, dividends to 
include the value in their taxable 
income. In Eisner v. Macomber, the 
Supreme Court held that this aspect 
of the 1916 act was unconstitutional, 
arguing that stock dividends did not 
constitute income within the meaning 
of the 16th Amendment. This case 
established the requirement that 
income must be "realized" to be tax- 
able. 

This act created the U.S. Tariff 
Commission as an independent 
agency to advise the President and 
Congress on trade matters. 

September 9, 1916 The estate tax 
law became effective with a due date 
of one year after a decedent's death. 

1916 The first "Statistics of 
Income" report was prepared this 
year, as required by the Revenue 
Act of 1916. The report was released 



90 



in 1918 and contained information 
for 1913-1915. 

1916 Two cases challenging the 
income tax came before the Supreme 
Court — Brushaber v. Union Pacific 
Railroad Company and Stanton v. 
Baltic Mining Company. Stockhold- 
ers in these companies brought these 
suits to prevent their corporations 
from complying with the 1913 income 
tax law. 

1916 Fewer than 500,000 individ- 
ual tax returns were filed this year. 

1916 Michigan, Montana, Nebraska, 
South Dakota, and Utah prohibited 
the sale of alcoholic drinks. By this 
time, 24 states had enacted prohibi- 
tionary laws. 

1917 Approximately 3.5 million 
individual tax returns were filed. 

March 2, 1917 The act providing 
for a civil government for Puerto Rico 
stated that all taxes collected under 
the internal revenue laws of the 
United States on articles produced in 
Puerto Rico and transported to 
the United States or consumed on 
the island would be returned into the 
treasury of Puerto Rico. 

March 3, 1917 Congress passed a 
revenue measure, signed by President 
Wilson on this date, which never 
went into effect because events 
quickly required its replacement. 
Nonetheless this act was important as 
a pathbreaker in American finance 
during World War I for introducing 
the excess profits tax. The Senate 
approved the much changed revenue 
bill by a vote of 69-4. 



7T 



September 25, 1917 William H. 
Osborn resigned as Commissioner. 

September 26, 1917 Daniel C. 
Roper of South Carolina became 
Commissioner. 

October 3, 1917 The War Rev- 
enue Act of 1917 became law. This 
was a sweeping measure dealing 
with income, excess profits, bever- 
ages, tobacco and tobacco manufac- 
turers, public utilities and insurance, 
excises, admissions and dues, stamp 
taxes, and estate taxes. The bill also 
completely reorganized the adminis- 
trative forces of the Internal Rev- 
enue Bureau. 

This act created a tax gathering 
task of greater magnitude than had 
ever before been undertaken by any 
nation. Complexities in the language 
gave rise to serious questions as to 
whether the most important provi- 
sions of the law were administrate. 
As a result of the provisions of this 
act, the administrative force in 
Washington was increased from 585 
personnel to 2,243. 

The bill imposed a 2 percent tax 
on incomes greater than $1,000 for 
singles and 2 percent on incomes 
greater than $2,000 for married cou- 
ples, with graduated surtaxes up to 
63 percent. A tax of 4 percent was 
added to the existing tax on corpora- 
tions and excess profits rates were 
graduated from 20-60 percent. The 
graduated rates for estate taxes were 
raised with the exemption of estates 
of decedents dying while serving in 
the military or naval forces. 

October 10, 1917 Congress 
passed an act prohibiting the manu- 
facture of distilled spirits for bever- 



91 



age purposes beginning November 
10, 1917. By this time, 29 states had 
prohibition laws. 

November 1, 1917 Taxes on 
admissions to entertainments, club 
dues, facilities furnished by public 
utilities such as transportation on 
trains or vessels, of oil by pipeline, 
and on telephone messages and 
telegrams, and on insurance became 
effective. 

December 1, 1917 Stamp taxes on 
bonds of indebtedness, issues of 
capital stock, sales or transfers of 
capital stock, sales of produce on 
exchange, drafts or checks, promis- 
sory notes, parcel post packages, pas- 
sage tickets, and a tax on playing 
cards became effective. 

December 8, 1917 The amount of 
food or feed material used in the 
production of fermented liquor was 
limited to 70 percent of the normal 
consumption for this purpose by 
presidential proclamation. 

1917 In response to increased 
responsibilities required by the War 
Revenue Act of 1917, the Bureau 
placed the field forces operating 
under the immediate supervision of 
the 64 internal revenue collectors 
and 31 internal revenue agents 
under the control and direction, 
respectively, of a Supervisor of Col- 
lectors and the Chief Revenue 
Agent, who were made equal in rank 
to the existing three Deputy Com- 
missioners. 

1917 The Internal Revenue 
Bureau launched a special public 
education program to help citizens 



understand the new tax burden. A 
nationwide campaign of education 
and publicity was organized. A spe- 
cial effort was made to popularize 
the war taxes by emphasizing the 
needs of the country and appealing 
to national pride and patriotism. 

1917 The war created popular 
acceptance of the income tax by 
making the paying of it a patriotic 
duty. Government speakers known 
as "Four-Minute Men" fanned out 
across the nation, preaching about 
the importance of "defeating the 
Hun" by paying taxes promptly and 
fully. 

1917 For this tax year, require- 
ments for withholding tax on 
incomes were amended to provide 
for withholding only from incomes 
from sources within the United 
States paid to nonresident aliens and 
on incomes of citizens, residents, 
and nonresident aliens from interest 
on tax-free covenant bonds. 

1917 In an effort to encourage 
philanthropy, Congress authorized 
the deduction of charitable contribu- 
tions from taxable income. 

1917 The Internal Revenue train- 
ing program began this year, mark- 
ing it as one of the oldest formal 
training programs in the federal gov- 
ernment. 

1917 An official law library was 
authorized for the Bureau of Internal 
Revenue Bureau. 

1917 The Council of National 
Defense requested the Secretary of 
the Treasury to have the Bureau's 



TTT 



92 



laboratory undertake the investiga- 
tion of the chemical synthesis of 
glycerine. 

1917-1920 The federal government, 
whose annual expenditures had never 
reached $1 billion before 1917, spent 
approximately $35 billion on war- 
related expenses during these years, 
slightly less than $10 billion of which 
went for loans to the Allies. President 
Wilson expressed the hope that the 
cost could be "sustained by the pre- 
sent generation" through a program of 
"well conceived taxation." Eventu- 
ally, tax revenues paid for approxi- 
mately one-third of the war's cost, the 
remainder by government borrowing. 

January 30, 1918 The first delega- 
tion .to collectors of authority to audit 
individual income tax returns was pro- 
vided in Mimeograph 1755, allowing 
for the audit of all Forms 1040-A in 
the field offices of collectors. 

March 1918 Evidence of the 
increasing prevalence of narcotic 
addiction in the United States 
together with difficulties encoun- 
tered by the Bureau of Internal 
Revenue in administering the Nar- 
cotic Drugs Import and Export Act 
led the Secretary of the Treasury 
to appoint a committee to make a 
thorough study of the narcotic drug 
problem. The report was published 
as "Traffic in Narcotic Drugs: 
Report of the Special Committee 
of Investigation, appointed March 
25, 1918, by the Secretary of the 
Treasury." 

April 4, 1918 Congress authorized 
the acceptance of United States Lib- 
erty Bonds bearing interest at a higher 



rate than 4 percent annually in pay- 
ment of estate or inheritance taxes, if 
the bonds had been owned continu- 
ously by the decedent for at least six 
months prior to the date of death. 

May 27, 1918 President Wilson 
appeared before a joint session of 
Congress in his famous "politics is 
adjourned," speech to urge higher 
income taxes, excess profits taxes, 
and excises. 

June 1, 1918 The Statistics of 
Income report for tax year 1916 was 
published. 

June 5, 1918 The Secretary of the 
Treasury wrote to Congress outlin- 
ing the views of the Department as 
to the principal sources from which 
additional revenues could be sought 
and the manner in which the tax 
should be applied. 

June 1918 The Supreme Court 
declared the 1916 child labor law 
unconstitutional by a vote of 5-4. 

September 16, 1918 The use of 
food or feed material in the produc- 
tion of fermented liquors was pro- 
hibited after December 1, 1918 by 
presidential proclamation. 

November 21, 1918 The war pro- 
hibition amendment to the agricul- 
tural act of this date prohibited the 
sale of intoxicating liquors manufac- 
tured after May 1, 1919 for beverage 
purposes and designated the Com- 
missioner of Internal Revenue as the 
officer who should regulate the man- 
ufacture and use of alcohol for non- 
beverage purposes. The constitution- 
ality of this wartime prohibition act 



-7T~ 



93 



was upheld in U.S. v. Ranier Brew- 
ing Company in 1920. 

1918 Individual returns with 
income not exceeding $5,000 filed 
for this year were audited by collec- 
tors in the field for the first time. As 
a result, 80 percent, or 3.5 million 
income and profits tax returns, were 
examined in the 64 collectors' 
offices. 

1918 The Bureau of Internal Rev- 
enue instituted a policy of specializ- 
ing auditors within industrial 
classifications to increase the 
benefits of centralized auditing out 
of the Washington office. 



1918 The Secretary of the Treasury 
selected a group of prominent busi- 
ness and professional men to assist 
the Commissioner in drafting excess 
profits tax regulations. These men 
served as "Excess Profits Tax Advis- 
ers." This group was superceded by 
the "Excess Profits Tax Reviewers," 
which reviewed specific tax cases. 



94 




Throughout the years of Prohibition there were repeated attempts to repeal the 18th amendment. Some of these 
efforts used the loss of tax revenues from alcohol sales as an argument in favor of repeal. 



1919-1925 



Prohibition, Appeals, and Decentralization: 

The Bureau Faces an Increasingly Complex 

System of Taxation 

^7 



The national experiment with prohibition involved the Bureau of Internal 
Revenue as the designated enforcer of the Volstead Act. Faced with this new 

and demanding responsibility, the Bureau hired and trained hundreds 

of Prohibition agents to enforce the law. The Bureau's activities in other areas 

of law enforcement expanded during these years with the addition of an 

Intelligence Staff to track tax fraud and other abuses. 



January-June 1919 The Bureau 
of Internal Revenue hired over 
1,000 auditors during a massive 
recruitment effort. 

February 3, 1919 The House 
passed the Revenue Act of 1918. 

February 13, 1919 The Senate 
passed the Revenue Act of 1918. 

February 24, 1919 The Revenue 
Act of 1918 became law. This act 
codified all existing tax laws and 
included income tax provisions that 
imposed a normal and surtax rate 
structure that went up to 77 per- 
cent. The act also included new 
excess profits and estate taxes and a 
tax on anyone who employed child 
labor — an attempt to ban child 
labor through taxation. A Child 
Labor Tax Division was set up in 
the Internal Revenue Bureau to 
administer this portion of the law. 

Also, as a forerunner of today's 
exempt organization law, this act 
listed 14 categories of organizations 
exempt from income taxation. The 
filing deadline was also extended 
for individuals from March 1 to 
March 15. The act provided amorti- 
zation allowances to permit manu- 
facturers who invested in special 
war equipment to write off the cost. 
The Commissioner was authorized 
to require inventories when he 
believed they were necessary to 
properly reflect income. 

For the first time, corporations were 
granted an exemption of $2,000, but 
corporate tax rates were raised to 12 
percent of net taxable income. A 
profits tax escalating from 30-80 per- 
cent of excess or "war" profits was 
instituted for corporations. 



The Appeals function originated 
with this act with the formation of 
an Advisory Tax Board, consisting 
of six non-government members 
appointed by the Commissioner 
and approved by the Secretary of 
the Treasury. This new group 
replaced the Excess Profits Tax 
Reviewers. 

The Commissioner had the author- 
ity to submit any case involving 
income war profits and excess profits 
tax law issues to the Advisory Tax 
Board 30 days after the Income Tax 
Unit had completed its examination. 
The Board's recommendations were 
subject to the personal approval of the 
Commissioner. 

Payment of taxes by quarterly 
installment was authorized and the 
number of deputy commissioners 
was increased to five. The number 
of internal revenue agents was 
hereafter limited only by the 
amount of the appropriation avail- 
able to pay them. 

February 1919 A Civil Division 
was established under the office of 
the Solicitor of Internal Revenue 
with responsibility for trial prepara- 
tion of all civil internal revenue 
cases. 

February 1919 Upon the enact- 
ment of the Revenue Act of 1918, 
the Bureau created a position for a 
deputy commissioner in charge of a 
new Sales Tax Division, charged 
with interpretation and administra- 
tion of the taxes on transportation, 
telegraph, telephone, radio, cable, 
and other facilities, insurance poli- 
cies, soft drinks and other bever- 
ages sold in closed containers, ice 
cream, admissions and dues, manu- 



96 



facturers, works of art and jewelry, 
motion-picture films, toilet and 
medicinal articles, motor boats and 
stamp taxes. 

February 1919 Treasury Deci- 
sion 2788 was issued, providing the 
procedures under which high proof 
spirits could be distributed for non- 
beverage purposes, including medi- 
cinal and sacramental purposes. 

March 1, 1919 Prior to this date, 
a very simple accounting system of 
single-entry bookkeeping was 
employed in collectors' offices. On 
this date, a new system of double- 
entry accounting was instituted in 
collectors' offices. 

March 13, 1919 The Advisory 
Tax Board was organized and 
immediately began to analyze and 
interpret those provisions of the 
Revenue Act of 1918 whose appli- 
cation gave rise to complex ques- 
tions. 

April 1, 1919 Due to delays in 
the printing and distribution of tax 
forms under the Revenue Act of 
1918, the filing deadline for returns 
was extended from March 1 to April 
1 this year. 

April 25, 1919 Title XII of the 
Revenue Act of 1918 placed a tax 
upon the employment of child 
labor. The basis for the tax was 
employment in a mine or quarry of 
a child under 16 years old, or in a 
mill, cannery, workshop, factory, or 
manufacturing of establishment of a 
child under 14 years old, or of a 
child between the ages of 14 and 
16 for more than eight hours a day 



or more than six days a week, or 
before 6:00 a.m. or after 7:00 p.m. 
The amount of tax was 10 percent 
of the annual net profits of the tax- 
payer. 

May 1, 1919 The Beverage Spirits 
Division and the Non-Beverage and 
Industrial Alcohol Division were 
established as separate branches of 
the technical unit of the Bureau. 

June 7, 1919 A general examina- 
tion of about 3,000 field deputies 
was held simultaneously in all col- 
lection districts to discover the 
special qualifications and deficien- 
cies of collectors; to eliminate 
incompetent employees; and to 
provide a basis for more intelligent 
review of the recommendations of 
collectors in connection with per- 
sonnel matters. 

June 27, 1919 An Executive 
Order created 10 new collection 
districts in Maine, Vermont, Rhode 
Island, Delaware, Mississippi, 
North Dakota, Wyoming, Idaho, 
Utah, and New Mexico. 

With this action, every state 
except Nevada had its own collec- 
tion district and collector of internal 
revenue. To retain the total number 
of districts within the 64 allowed 
by law, the following collection 
districts were abolished: Second, 
Sixth, Seventh, and Eighth Districts 
of Kentucky; the Seventh District 
of Indiana; the Fifth and Thir- 
teenth Districts of Illinois; the First 
District of Wisconsin; the Ninth 
District of Pennsylvania; and the 
Fifth District of North Carolina. 




97 



JULY 1, 1919 The Bureau of Inter- 
nal Revenue established the Intelli- 
gence Unit to root out and prevent 
tax fraud. Many serious complaints 
had reached Commissioner Roper 
concerning alleged tax frauds and 
dishonest employees. Since he had 
served as Postmaster General and 
was familiar with Post Office 
inspector work, Roper decided to 
create the Intelligence Unit within 
the Bureau. Six Post Office inspec- 
tors were transferred to Internal 
Revenue on this date. 

JULY 1919 Instructions were 
issued to collectors of internal rev- 
enue to confer with United States 
attorneys and local health authori- 
ties in their districts to devise plans 
whereby bona fide narcotics cases 
might be properly treated. 

OCTOBER 1, 1919 The Advisory Tax 
Board was dissolved because its mem- 
bers preferred to return to their for- 
mer occupations. This was replaced 
by the Committee on Appeals and 
Review — a quasi-judicial appellate 
body staffed with five members from 
the Bureau of Internal Revenue. 

OCTOBER 27, 1919 Shortly after the 
ratification of the Eighteenth Amend- 
ment, Congress passed the National 
Prohibition Enforcement Act, also 
known as the Volstead Act, over Pres- 
ident Wilson's veto. The act prohib- 
ited the manufacture, sale, and use of 
intoxicating beverages and gave the 
Commissioner of Internal Revenue 
primary responsibility for investigat- 
ing and enforcing prohibition. The 
( Commissioner was given authority to 
issue permits for the manufacture, 
sale, and transportation of alcoholic 



7 



liquors for medicinal, industrial, and 
religious uses. 

The implementation of Prohibi- 
tion prompted the need to develop 
a whole new concept of revenue 
collection and enforcement. From 
1868 through 1913, nearly 90 per- 
cent of internal revenue came from 
taxes on distilled spirits, tobacco, 
and fermented liquor. Almost 
immediately, bootleggers began 
operating around the country. 

October 28, 1919 As the 
National Prohibition Act became 
effective, all distilleries and indus- 
trial distilleries producing alcohol 
were required to requalify as indus- 
trial alcohol plants. 

November 8, 1919 A committee 
appointed by the Commissioner 
immediately after the passage of the 
Volstead Act submitted a recommen- 
dation to create a new unit, one 
branch of which was to enforce the 
penal and regulatory provisions of the 
law and the other to supervise the 
permissive features of the law. 

NOVEMBER 12, 1919 The Com- 
missioner and the Secretary of the 
Treasury approved the establish- 
ment of the Prohibition Unit within 
the Bureau of Internal Revenue. 

December 1, 1919 The Tobacco 
and the Miscellaneous Divisions 
were placed under the jurisdiction 
of the Sales Tax Unit. 

December 22, 1919 The Prohibi- 
tion Unit was formed within the 
Bureau of Internal Revenue with an 
appropriation of $2 million under the 
Volstead Act. 



98 



1917-1919 The personnel of the 
Washington office of the Bureau of 
Internal Revenue increased from 
585 to 4,088 in this period. 

1919 The Bureau of Internal Rev- 
enue proposed a campaign to train 
and recruit women for work "hith- 
erto done exclusively by men" 
because the personnel ranks had 
been depleted by wartime demands. 

1919 The chemical laboratory of 
the Bureau was expanded and 
established as the Division of 
Technology. 

1919 The Bureau experimented 
with giving collectors in field offices 
responsibility for reviewing and ver- 
ifying all 1918 returns with incomes 
up to $5,000. 

1919 The Bureau initiated a ser- 
vice of providing information relat- 
ing to income and profits taxes in 
the form of printed bulletins and 
monthly digests. 

1919 The Bureau of Internal Rev- 
enue, in Commissioner's Mimeo- 
graphed Published Opinion 2228, 
formally announced that it was lim- 
iting rulings to completed transac- 
tions and would require a full 
statement of facts and the names of 
all interested parties. This was the 
first published statement by the 
IRS concerning its ruling policy and 
was the result of the number and 
complexity of questions arising 
under the Revenue Act of 1918. 



-7T, 



1919 The Bureau of Internal Rev- 
enue appointed a committee to 
study the simplification of tax forms. 

1919 The close work between the 
Personnel Division and the Train- 
ing Division in the recruitment of 
auditors and technicians for the 
Income Tax Division led to the 
combination of these two functions 
into a single division — the Staff 
Division. 

The Audit and Administration 
Division was divided into two inde- 
pendent divisions — the Adminis- 
tration Division, responsible for 
mails and files, space, equipment, 
and supplies, and the Internal Audit 
Division, responsible for auditing 
all but specialized returns. 

The Income Tax Unit estab- 
lished the Field Audit Division 
responsible for the field forces 
engaged in investigation of income 
and profits tax cases. Prior to this, 
the field forces were under the 
direction of the Chief of Revenue 
Agents, who reported directly to the 
Commissioner. 

1919 A Charitable Bequest Sec- 
tion was organized as part of the 
Estate Tax Division to consider 
deductions allowed under the Rev- 
enue Act of 1918. 

January 1, 1920 An order went 
into effect requiring that appoint- 
ments to clerical positions in the 
field would be made from a register 
of eligibles obtained as a result of 
Civil Service Commission examina- 
tions or by transfer from other 
classified positions. 



99 



January 7, 1920 The Tobacco Divi- 
sion and the Miscellaneous Division 
were consolidated into the Tobacco 
and Miscellaneous Division. 

January 16, 1920 Prohibition 
went into effect. 

January 26, 1920 A stenographic 
reserve was created in the Prohibi- 
tion Unit to which all stenographers 
and typists not engaged in special 
duties or those with free time were 
assigned. 

February 1920 The position of 
Supervisor of the Narcotic Field 
Force was created. 

February 1920 Importers and 
manufacturers as well as wholesale 
dealers registered under the Harri- 
son Narcotic Act were required to 
render monthly returns of transac- 
tions in narcotics. 



MARCH 31, 1920 Daniel C. Roper 
resigned as Commissioner. 

April 1, 1920 William M. 
Williams of Alabama became Com- 
missioner. 

April 1, 1920 An order provided 
that all supervisory office positions 
would be filled by promotion of 
classified office or field employees, 
by selection from civil-service 
certificates, or by transfer of 
classified employees from other 
branches of the government service. 

April 1920 The Bureau of Inter- 
nal Revenue hosted a conference of 
all agents-in-charge in Washington, 
D.C. 

May 1, 1920 A central mail control 
facility was established for the Pro- 
hibition Unit through which all 
incoming and outgoing mail passed. 



March 1, 1920 The Solicitor's 
Office underwent a complete reor- 
ganization, resulting in five divi- 
sions: Interpretative Division I, 
Interpretative Division II, Penal 
Division, Civil Division, and 
Administrative Division. 

March 6, 1920 Congress passed 
an act which required warehouse 
agents to be stationed at bonded 
warehouses throughout the United 
States to guard stored spirits. 

March 1 1 , 1 920 The Sixth Vir- 
ginia District was consolidated with 
the Second Virginia District. 



May 1, 1920 On this date, all 
qualified, unassigned storekeeper- 
gaugers who had been performing 
guard duty at bonded warehouses 
were transferred to the position of 
warehouse agents. 

May 1920 The Solicitor of Inter- 
nal Revenue organized a Confer- 
ence Committee, with the Assistant 
Solicitor serving as Chairman, and 
the four Assistant Solicitors in 
charge of the divisions. 

July 1, 1920 The Accounts Unit 
was reorganized and a budget sys- 
tem of accounting was installed. A 
Revenue Collection Division was 
created to deal with all internal rev- 
enue receipts, all certificates of 



v*7 



100 



deposit issued to collectors of inter- 
nal revenue by Federal Reserve 
banks and branches thereof, all 
quarterly accounts, and all statistical 
work. A Disbursement Division was 
created to handle all matters relat- 
ing to accounts of disbursing agents. 
An officer designated as the Super- 
visor of Accounts had control over 
these two divisions and was respon- 
sible for the preparation of esti- 
mates of appropriations submitted 
to Congress. 

July 1, 1920 The Office of Counsel 
and the Legal Division of the Prohi- 
bition Unit were consolidated. 

July 1 , 1 920 The office of the 
Internal Revenue Agent-in-Charge 
at Little Rock, Arkansas was moved 
to Oklahoma City, Oklahoma to be 
nearer the large oil fields furnishing 
the major portion of its work. 

July 1, 1920 The Second Collec- 
tion District was established in 
Texas. 

August 1, 1920 The Review 
Division of the Income Tax unit 
was created to meet the demands of 
the increased workload since the 
passage of the income tax law in 
1913. 

August 1, 1920 Beginning on this 
date, all capital-stock and child- 
labor tax returns requiring field 
investigation were handled by a 
force of deputy collectors specially 
trained for the work. 

October 15, 1920 The Industrial 
Alcohol and Chemical Division was 
organized, taking over a portion of 



the work formerly administered by 
the Division of Technology. 

October 19, 1920 The Permit 
Division of the Prohibition Unit 
was created by dividing the Divi- 
sion of Technology into the Permit 
Division and the Industrial Alcohol 
and Chemical Division. 

December 13-16, 1920 A second 
conference of agents-in-charge of 
all divisions except Honolulu was 
held in Washington, D.C. 

December 1920 The Sales Tax 
Bulletin Service was established in 
an effort to make immediately 
available to officers and employees 
of the IRS and to others concerned, 
important rulings bearing upon 
those provisions of the revenue acts 
grouped as sales taxes. 

1920 By the end of the fiscal year, 
the Bureau established 11 new col- 
lection districts. These included 
districts in the states of Maine, Ver- 
mont, Rhode Island, Delaware, Mis- 
sissippi, North Dakota, Wyoming, 
Idaho, Utah, New Mexico, and 
Nevada. This also completed the 
Bureau's program to provide at least 
one collection district in each state. 

1920 The Internal Revenue legal 
office was organized into five spe- 
cialized divisions. 

1920 The American Mining Con- 
gress urged the establishment of a 
board or committee to hear appeals 
of tax cases in dispute. 



w 



101 



1920s The business boom during 
the 1920s enabled taxes to be cut 
five times while receipts remained 
high. 

January 1, 1921 Tax rate 
decreases provided by the Revenue 
Act of 1921 became effective. 

February 1, 1921 The office of 
the Internal Revenue Agent-in- 
Charge at Columbia, South Carolina 
was moved to Greenville, South 
Carolina due to the inability to 
obtain suitable space in Columbia. 

March 4, 1921 Warren Harding 
stressed the need to put "our public 
household in order," in his inau- 
gural address. A first step in that 
direction, Harding insisted, lay in 
lighter tax burdens. The new Secre- 
tary of the Treasury, Andrew 
Mellon, became the architect of 
that tax reduction program. 

April 11, 1921 William M. 
Williams resigned as Commissioner. 

May 27, 1921 David H. Blair 
of North Carolina became Com- 
missioner. 

May 1921 The Fordney Emer- 
gency Tariff Act reinstated protec- 
tive tariffs on wool and a large 
variety of agricultural products. 

July 1, 1921 Fifteen counties in the 
second collection district of Texas 
were transferred to the first district of 
Texas and two counties from the first 
to the second district. This was an 
effort to make the two Texas districts 
more nearly equal in size and to have 
the boundaries of the collection dis- 



tricts conform more nearly to judicial 
district boundary lines. 

AUGUST 4, 1 92 1 Secretary of the 
Treasury Andrew Mellon appeared 
before the Ways and Means Com- 
mittee to recommend repeal of the 
excess profits tax, reduction of the 
maximum income surtax from 65 
percent to 32 percent, retention of 
normal income tax rates of 4 per- 
cent and 8 percent. He ended up 
with a bill that reduced surtax rates 
to 40 percent and reduced the 
excess profits tax. 

AUGUST 9, 1921 Prohibition 
Mimeograph 201 stipulated that all 
criminal information, indictments, 
injunctions, libels, and search war- 
rants in brewery cases, with sup- 
porting affidavits, be prepared in 
the Prohibition Unit and filed 
through the Department of Justice. 

November 23, 1921 The Revenue 
Act of 1921 became law, substan- 
tially reducing individual and corpo- 
rate tax rates. The tax rate in the 
highest bracket was 73 percent. This 
act permitted taxpayers to appeal 
cases prior to assessment, but after 
determination of deficiency. 

Before any additional assessment 
could be made, the taxpayer was 
given 30 days to file an appeal and 
show cause as to why the additional 
tax should not be paid. Jurisdiction 
of the district courts in hearing cases 
regarding refunds of taxes paid in 
dispute was expanded from the pre- 
vious limit of cases involving not 
more than $10,000 to unlimited 
amounts if the collector had died 
before action was commenced. 



=7T 



102 



This act also established a Tax 
Simplification Board to investigate 
the administration of the internal 
revenue laws. The Board consisted 
of three members appointed by the 
President to represent the public 
and three members from within the 
Bureau of Internal Revenue. 

This act prohibited unnecessary 
examinations or more than one 
inspection of a taxpayer's books for a 
taxable year unless the taxpayer 
requested the additional audit or the 
Commissioner, after investigation, 
notified the taxpayer that the addi- 
tional examination was necessary. 
The excess profits tax enacted in 
1917 was repealed. 

November 23, 1921 Congress 
enacted the Willis-Campbell Act, 
supplementing the national prohibi- 
tion act by prohibiting the dispens- 
ing of malt liquors on physicians' 
prescriptions and prohibiting the 
further importation and manufac- 
ture of distilled spirits, except alco- 
hol, until the quantities in storage 
in the United States were reduced 
to an amount which, in the opinion 
of the Commissioner, was insuf- 
ficient for any but lawful uses. 

December 1921 Congress made a 
significant additional appropriation 
to enable the Bureau to recruit 300 
auditors for the consolidated returns 
subdivision, 75 engineers for the 
natural resources division and the 
amortization section, and 300 
clerks. Authorization was also made 
to recruit 600 field auditors and 120 
field clerks. 



~? 



1921 Congress authorized the tax- 
ation of capital gains at a lower rate. 

1921 The Statistical Division 
issued the Statistics of Income 
report for 1919 and the preliminary 
report for 1920. 

1921 The personnel of the Commit- 
tee on Appeals and Review were 
increased from five to ten members 
due to the increasing volume of work. 

1921 Legal opinion in the case of 
Smietanka v. Indiana Steel Com- 
pany held that a suit had to be 
maintained against the collector 
who was in office when the tax was 
collected, even if at the time the 
suit was commenced the collector 
had left office. 

1921 Suboffices of the Field Audit 
Division were opened in Houston, 
Dallas, Wichita Falls, Texas; Bridge- 
port, Connecticut; and Memphis, 
Tennessee. 

1921 During the year, the 
Supreme Court ruled that the muni- 
tions tax was valid; that gains real- 
ized from the sale of capital assets 
were taxable income; that state 
inheritance taxes could not be 
deducted from the gross estate 
before computing the federal estate 
tax; and that the estate tax act of 
1916 was constitutional. 

1921 During the year a prohibition 
patrol service was organized consist- 
ing of six boats of the submarine 
chaser type, assigned at various 
points along the Atlantic coast for 
the suppression of smuggling. Five 
motor patrol boats were placed on 



103 



the Great Lakes to apprehend liquor 
smuggled from Canada. 

May 15, 1922 The Supreme Court 
deelared the child labor tax law 
unconstitutional and the Child- 
Labor Fax Division went out of 
existence. 

May 23, 1922 In accordance with 
a recommendation from the Tax 
Simplification Board, the Accounts 
Unit and the Office of the Supervi- 
sor of Collectors' Offices were abol- 
ished and these duties were 
transferred to a new unit known as 
the Accounts and Collections Unit. 
This also resulted in field employ- 
ees formerly designated as "assis- 
tant supervisors of collectors' 
offices" as "supervisors of accounts 
and collections." 

May 26, 1922 Congress passed the 
Narcotic Drugs Import and Export 
Act of 1922 which prohibited the 
importation of smoking opium and 
opium used in the manufacture of 
heroin. These prohibitions were also 
extended to other narcotics such as 
coca leaves and morphine. This act 
authorized the Commissioner of Nar- 
cotics to determine the legitimate lev- 
els of imports needed for medical and 
scientific purposes and prohibited all 
other imports. Tougher Treasury 
Department regulations, however, 
provided greater controls on illegal 
drug trafficking. 

1922 The Bureau of Internal Rev- 
enue introduced form letters to 
increase the speed and accuracy of 
correspondence with taxpayers. 



VK 



1922 The General Audit Division 
was reorganized into two divisions, 
the Personal Audit Division and the 
Corporation Audit Division. The Nat- 
ural Resources Division was created 
from the former subdivision of that 
name of the Special Audit Division. 

1922 Membership on the Com- 
mittee for Tax Appeals was 
increased from five to ten. 

1922 In the Administration Divi- 
sion, the Returns Control and Files 
Sections were combined and their 
functions transferred to the newly 
created Records Subdivision. 

1922 Senator Atlee Pomerene of 
Ohio introduced a bill to create a 
"United States Court of Appeals on 
Internal Revenue Questions." 

January 19, 1923 Instructions 
were issued to collectors outlining a 
procedure whereby they were 
required to file monthly reports 
showing the amounts outstanding 
of all classes of tax by years. 

February 1923 The Prohibition 
Unit issued an annotated compila- 
tion of "Laws Relating to Prohibi- 
tion Enforcement." 

March 10, 1923 The head of the 
Narcotics Division was designated 
Secretary of the Federal Narcotics 
Control Board and began to admin- 
ister the permissive provisions of 
the Narcotic Drugs Import and 
Export Act, known as the Jones- 
Miller Act and directed the disposi- 
tion of drugs seized thereunder. 



104 



March 1923 Congressman 
William Green of Iowa, Chairman 
of the Ways and Means Committee, 
requested that Secretary of the 
Treasury Andrew Mellon appoint 
an ad hoc committee to study revi- 
sion of the Revenue Act of 1921 
and make recommendations to 
remove "inequalities" in tax law, to 
close "loopholes," and to "simplify" 
tax administration. 

April 1, 1923 An additional collec- 
tion district was established in New 
York City, comprising that portion of 
Manhattan Island from Twenty- 
Third Street North. This district was 
designated as the Third Internal 
Revenue District of New York. 

April 16, 1923 A commission on 
the importation of wine and expor- 
tation of spirits held its first session. 

April 1923 The field supervisors' 
force of the Prohibition Unit was 
reorganized and the employees 
were assigned to duty under the 
supervision of the Chief, General 
Prohibition Agents. 

May 29, 1923 A Special Commit- 
tee on Appeals and Review was 
formed to consider and dispose of 
the large number of smaller cases 
with tax controversies of over $2,500. 

May 1923 The Bureau of Internal 
Revenue created a special section 
to consider and recommend the 
assertion of fraud penalties. Known 
as the Special Adjustment Section, 
this organization functioned inde- 
pendently from the Penal Division. 



^77 



June 16, 1923 The Sales Tax 
Division was consolidated with 
the Estate Tax and Capital Stock 
Tax Unit. 

June 19, 1923 The President 
signed an Executive order transfer- 
ring administration of the national 
prohibition act in the Virgin Islands 
from the Secretary of the Treasury 
to the Secretary of the Navy. 

August 18, 1923 The first move 
toward decentralization of tax pro- 
cessing work from Washington, 
D.C. to the field offices was made 
when revenue agents-in-charge 
were directed to retain reports of 
investigations in their offices for a 
period of 20 days and were autho- 
rized to consider protests of taxpay- 
ers filed with them within that 
period. 

November 10, 1923 The Mellon 
Plan of 1923 was presented to the 
Ways and Means Committee, 
proposing a reduction of the normal 
income tax rates by one-fourth, 
reduction of the surtax to 25 per- 
cent, and creation of a Board of Tax 
Appeals independent of the Bureau 
of Internal Revenue to hear tax 
cases. This plan was the result of 
the committee created in March to 
investigate current tax law. 

December 16, 1923 The Tobacco 
and Miscellaneous Division was 
consolidated under the Miscella- 
neous Tax Unit. 

December 17, 1923 Secretary 
Mellon sent draft legislation to the 
Ways and Means Committee to 
implement his recommendations of 



105 



the past month, which included cre- 
ation of a Board of Tax Appeals. Six 
months later, the Revenue Act of 
1924 became law, providing some 
of the most sophisticated tax legis- 
lation to date. 

1923 Mabel G. Reinecke was 
appointed to the Office of the Col- 
lector of Internal Revenue in 
Chicago — the first woman to 
achieve this status. 

1923 Membership on the Com- 
mittee for Tax Appeals was 
increased from 10 to 20. Prior to this 
year, hearings before the Commit- 
tee could only be held in Washing- 
ton, D.C. This year a field 
Committee was established to hold 
hearings for taxpayers west of the 
Mississippi. 

1923 President Coolidge's first 
annual message to Congress 
announced support for a World 
Court, enforcement of Prohibition, 
and lower taxes. At some point 
during his Presidency, Coolidge 
made the memorable statement, 
"Collecting more taxes than is 
absolutely necessary is legalized 
robbery." 

JANUARY 1, 1924 In a further move 
towards decentralization and to elimi- 
nate unnecessary handling of returns, 
all individual income tax returns filed 
on Form 1040 showing gross income 
under $15,000 were retained in the 
offices of the collectors of internal rev- 
enue and audited using the same pro- 
cedures in effect for the audit of 
returns filed on 1040-A. This elimi- 
nated forwarding several thousand 
returns to Washington, D.C. 



March 14, 1924 Hearings in an 
investigation into the Bureau of 
Internal Revenue by a select com- 
mittee of the United States Senate 
began under the authority of Senate 
Resolution No. 168. The hearings 
were indefinitely adjourned on 
April 9, 1924. 

April 1, 1924 Most of the func- 
tions of the Stamp Division were 
transferred to the Bureau of 
Engraving and Printing. This 
included transferring all stamps in 
the vaults of the Division with the 
exception of tobacco stamps 
imprinted on tin-foil wrappers. 

May 16, 1924 A Central Commit- 
tee of the Prohibition Unit was 
appointed to consider major ques- 
tions and to ensure that all work 
relating to permits was coordinated 
and kept up-to-date. 

May 26, 1924 In the case of 
Lynch v. Tilden Produce Company, 
the Supreme Court rendered a deci- 
sion holding that the Commissioner 
was without authority to specify by 
regulation that butter containing 16 
percent or more of moisture was 
adulterated, based solely upon that 
fact. This meant that in order to 
sustain a case under section 4 of the 
act, insofar as the moisture content 
of butter was concerned, it had to 
be shown that some material or 
process was used with the intent or 
effect of causing the absorption of 
abnormal quantities of moisture. 

June 2, 1924 President Coolidge 
signed the Revenue Act of 1924 into 
law, significantly reducing income 
tax levels and creating a Board of 



106 



Tax Appeals. This act eliminated 
the requirement for a taxpayer to 
present his protest against the pay- 
ment of taxes either prior to or with 
the tax payment. With this act, suit 
could be commenced after a claim 
for a refund was denied or after six 
months from the filing of the claim, 
whichever was sooner. 

The act required that the name, 
address, and tax payment of every 
taxpayer be made available to the 
public. Congressional committees, 
state officials, and upon order of the 
President, the public, were given 
access to tax returns. 

Estate tax rates were increased 
and the first gift tax was imposed as 
part of this act. The income tax law 
became Title 26 of the United 
States Code. Prior to this, tax laws 
had simply been published in 
"Statutes at Large." 

This act abolished the Commit- 
tee on Appeals and Review and 
established the Board of Tax 
Appeals, the predecessor of the Tax 
Court, to provide taxpayers with an 
independent review of asserted 
deficiencies. 

Taxpayers were required to pay 
taxes by quarterly installments. 
Interest did not accrue on the 
installments, except to the extent 
that payments became delinquent, 
in which case the balance could be 
demanded by the Commissioner. 
Special taxes on proprietors of the- 
aters, public exhibitions, shows for 
money, and circuses were repealed, 
effective June 30, 1924. 

June 30, 1924 The Bureau of 
Internal Revenue revised its regula- 
tions for the administration of Title 
III of the National Prohibition Act, 



Vr, 



transferring control of the distribu- 
tion, warehousing, and denaturing 
of alcohol to prohibition administra- 
tors, and leaving internal revenue 
collectors with the responsibility of 
collecting the tax. 

July 2, 1924 President Coolidge 
selected the first 12 members of 
the Board of Tax Appeals, seven 
from the public and five from the 
Bureau of Internal Revenue. 

JULY 15, 1924 The Reviews Divi- 
sion of the Office of the Solicitor 
was created, taking over functions 
previously exercised by the Com- 
mittee on Appeals and Review and 
the Special Committee on Appeals 
and Review. Its function was to 
hear and determine all protests 
against the action of the Income 
Tax Unit wherein a deficiency of 
tax had been determined. 

July 16, 1924 The United States 
Board of Tax Appeals, created by 
the Revenue Act of 1924, was for- 
mally organized to hear appeals from 
additional assessments after June 2, 
1924, in cases involving income, 
excess-profits, estate, and gift taxes. 
A total membership of up to 28 was 
authorized for a period of two years. 
On this date, the first 12 members of 
the Board of Tax Appeals were 
sworn in. The Committee on 
Appeals and Review was abolished 
by Treasury Decision 3616. 

September 1, 1924 Field offices of 
the Income Tax Unit were allocated 
up to eight supervisory districts and 
a supervising internal revenue agent, 
acting in an advisory capacity to the 
deputy commissioner in charge of 



107 



the Income Tax Unit, to supervise 
the work of each of the districts. 
Also, the office of the assistant 
deputy commissioner in charge of 
field divisions was abolished. 

NOVEMBER 1924 After testing in 
eight field offices, the Bureau of 
Internal Revenue decentralized the 
audit of income tax returns, leaving 
only the duty of review to the 
Washington, D.C. office. 

December 1, 1924 The Income 
Tax Unit adopted a procedure 
whereby the taxpayer was requested 
to file protests or appeals with the 
local agent-in-charge in all cases. 

December 29, 1924 The gross 
income limit for income tax returns 
retained and audited in the field 
was raised from $15,000 to $25,000, 
effective January 1, 1925. 

1924 The Bureau of Internal Rev- 
enue abandoned the policy of provid- 
ing specialized auditors in industrial 
classifications. 

The Special Audit, Natural 
Resources, and Administration Divi- 
sions of the Income Tax Unit were 
abolished. The Consolidated Returns 
Subdivision was made a division and 
the Records Division and the Service 
Division were created from the for- 
mer Administration Division. 

1924 Senate Resolution 168 of the 
68th Congress appointed a commit- 
tee to investigate the Bureau of 
Internal Revenue. 



1924 The Board of Tax Appeals 
ruled that Certified Public Accoun- 
tants and attorneys were the only 
representatives qualified to appear 
before them on behalf of taxpayers. 

January 1925 A Sacramental 
Wine Withdrawal Section was 
established to guard against abuse 
of the privilege of using wine for 
sacramental and religious obser- 
vances. 

February 24, 1925 Dollar limita- 
tions on cases involving payment of 
refunds on taxes in dispute were 
removed if at the time the suit was 
commenced the collector was out 
of office. 

March 18, 1925 The membership 
of the Board of Tax Appeals was 
increased by four, to a total of 16. 

April 24, 1925 The Appeals Divi- 
sion was established in the Solici- 
tor's Office to alleviate the growing 
workload of the Board of Tax 
Appeals. Its initial staff included 26 
lawyers and 5 assistants. 

May 2, 1925 The Metals and 
Nonmetals Valuation Sections of 
the Engineering Division were 
abolished and replaced with a sin- 
gle section designated as the Metals 
and Nonmetals Valuation Section. 

May 6, 1925 Personal Section No. 
6 of the Personal Audit Division 
was abolished and their work trans- 
ferred to the remaining five audit 
sections. 



W 



108 



May 11, 1925 A Supreme Court 
decision in the case of Lewellyn v. 
Frick held that life insurance 
payable to specific beneficiaries 
who had been named prior to the 
1918 revenue act could not be 
taxed. 

May 1925 The first division of the 
Board of Tax Appeals was sent out- 
side the Washington, D.C. area to 
hear appeals from taxpayers in 
other parts of the country. This 
field session visited Milwaukee, St. 
Paul, Seattle, Portland, San Fran- 
cisco, and Los Angeles. 

July 1, 1925 The Staff Division 
was abolished and its work and 
responsibilities distributed to various 
other units. An Efficiency- Record 
Section and a Field-Procedure Sec- 
tion were created and were attached 
to the Office of the Assistant Deputy 
Commissioner. 

July 1, 1925 The Bureau of Inter- 
nal Revenue initiated a policy of 
assigning engineers to certain field 
divisions to advise and assist super- 
vising internal revenue agents and 
agents-in-charge of field work. 
These individuals were designated 
as engineer revenue agents and 
worked directly under the supervis- 
ing internal revenue agent. 

October 19, 1925 Secretary of 
the Treasury Mellon appeared 
before the Ways and Means Com- 
mittee to recommend further tax 
reduction, including lowering the 
surtax to 20 percent and repealing 
federal estate and gift taxes. 



October 1925 A second division 
of the Board of Tax Appeals visited 
St. Louis and Kansas City. 

November 1, 1925 The head- 
quarters of supervisory field Dis- 
trict No. 3 was moved from 
Baltimore to Philadelphia. 

November 23, 1925 Coal valua- 
tion and the metals and non-metals 
sections of the Engineering Divi- 
sion were combined and designated 
as the Mining Section. 

November 30, 1925 To ensure 
that the benefits of the Training 
Section were accessible to all 
employees of the Bureau, the 
Training Subsection of the field- 
Procedure Section was abolished 
and its functions transferred to 
the Training Section of the 
Appointment Division. 

December 1, 1925 The Pitts- 
burgh Division was withdrawn from 
supervisory Field District No. 3 and 
established as the headquarters of 
supervisory Field District No. 2. 
Also on this day, the State of 
Florida was withdrawn from the 
boundaries of the Atlanta Division 
and a new division with headquar- 
ters at Jacksonville was created. 
This action was considered neces- 
sary due to the rapid increase of 
land values in Florida. 

1925 Senator James Couzens of 
Michigan charged that millions of 
tax dollars were being lost through 
the favorable treatment of large cor- 
porations by the Bureau of Internal 
Revenue. 



77 



109 



1925 By the end of this period 
calls for construction of a new facil- 
ity to house the Bureau of Internal 
Revenue became more pro- 
nounced. While the Commissioner 
and the Intelligence Unit were 
located in the main Treasury 
Department building, the remain- 
der of the Bureau's Washington, 
D.C. -based employees were 
housed in 10 separate buildings. 
The Income Tax Unit alone 
worked out of six buildings. Many 
of the units were located in tempo- 
rary structures erected during 
World War I and intended for 
emergency use only. This year, the 
Commissioner issued an urgent 
plea for funding and support for a 
new consolidated building. 



y*7 



110 




The new building for the Bureau of Internal Revenue was built between 1929 and 1933 as one of the first 
structures in the new "Federal Triangle" area of Washington, D.C. 



1926-1934 



Depression and Organized Crime: 
Tax Rates and Gangsters Fall 



vT7 



The downfall of Al Capone for income tax evasion is probably the most famous 

coup in the history of internal revenue criminal tax enforcement. During the 

years of the Depression, the Bureau of Internal Revenue continued its tax 

collection and enforcement responsibilities even though the economic 
conditions throughout the country resulted in decreases in most tax rates. 



January 2, 1926 A Prior Year Audit 
Section was created within the Per- 
sonal Audit Division, with responsi- 
bility to audit all open returns for tax 
years 1917-1919. 

January 15, 1926 The Affiliations 
Section and the Production Commit- 
tee of the Consolidated Returns 
Audit Division were abolished and 
their functions combined with the 
Administrative Section of the same 
division. 

January 15, 1926 The headquar- 
ters of supervisory Field District No. 
7 was relocated from Atlanta to 
Louisville. 

February 26, 1926 The Revenue 
Act of 1926 lowered surtaxes on 
higher incomes, lowered tax rates on 
large estates, and repealed the gift 
tax. The gift tax was replaced with a 
provision that treated all gifts made 
within two years of death as being 
part of a decedent's estate. Income 
tax rates were reduced to VA percent, 
3 percent, and 5 percent, and exemp- 
tions were increased. These reduc- 
tions were possible due to the 
Revenue Act of 1924 "producing 
more revenue than was necessary to 
carry on the functions of the Govern- 
ment." 

This act also slightly increased the 
rates on corporations, introduced 
installment reporting, and repealed 
the "publicity provisions" of the 1924 
act. A list of names and addresses of 
those filing returns was still made 
available for public inspection. 

Congress also directed the creation 
in the Treasury Department of the 
Office of General Counsel for Internal 
Revenue and abolished the Office of 



Solicitor of Internal Revenue in the 
Department of Justice. 

Congress authorized a depletion 
allowance of 27.5 percent for oil and 
gas resources. This "oil depletion 
allowance" came under almost con- 
stant attack for the next half-century 
as a tax loophole for the rich. This act 
enlarged the jurisdiction of the Board 
of Tax Appeals and provided a 
method of appeal from its decisions 
by either the Commissioner or the 
taxpayer to a circuit court of appeals 
or to the Court of Appeals of the Dis- 
trict of Columbia. 

A special congressional committee 
was appointed to investigate the 
administration of the Bureau of Inter- 
nal Revenue, in a continuation of 
work begun by Senator James 
Couzens of Michigan. The Joint 
Committee on Internal Revenue 
Taxation was to consist of five mem- 
bers from the House Ways and Means 
Committee and five from the Senate 
Finance Committee, including six 
majority and four minority members. 

March 1, 1926 As a result of the 
repeal of various taxes by the Rev- 
enue Act of 1926, the Miscellaneous 
Division was organized, taking over 
the work of the former Sales Tax 
Division and the administration of 
the miscellaneous taxes from the 
Tobacco and Miscellaneous Divi- 



MARCH 27, 1926 A prior year Audit 
Section was established in the Cor- 
poration Audit Division to audit all 
open excess profits returns. 

April 30, 1926 The Records Divi- 
sion was abolished and the Statistical 
Division redesignated as the Statisti- 



-7. 



112 



cal Section. A new Clearing Division 
and a new Records Division were 
established. The Clearing Division 
was charged with reviewing the 
classification placed on tax returns 
and the final closing of those returns 
designated as "accepted." 

May 24, 1926 The Public Buildings 
Act of 1926 authorized construction 
funding for the Federal Triangle. 

May 26, 1926 President Coolidge 
announced the names of the 16 men 
he would appoint to the Board of 
Tax Appeals. 

June 2, 1926 The terms of office of 
the original members of the Board of 
Tax Appeals expired. Members 
appointed after this date would be 
appointed for ten year terms. 

July 1, 1926 The Capital Stock 
Tax was repealed. 

July 26, 1926 A decision was made 
to proceed as soon as possible with 
construction of both the Internal Rev- 
enue and Department of Commerce 
buildings in an attempt to alleviate 
dangerous conditions which threat- 
ened both employees and records in 
the temporary buildings. 

August 1, 1926 The Service Divi- 
sion was abolished and its work and 
personnel transferred to a new Ser- 
vice Section. 

AUGUST 26, 1926 Elliot Ness 
joined the Prohibition Service. 

November 12, 1926 Instructions 
were issued directing that all rev- 
enue agents' reports, copies of audit 



correspondence, and memorandum 
be filed with the returns. 

December 18, 1926 Mimeograph 
3498 withdrew all 1040 returns from 
the collectors and left them with the 
1040-A returns only for audit, effec- 
tive January 1, 1927. 

1926 The Bureau of Internal Rev- 
enue prepared Bulletin A which con- 
tained all the income-tax forms 
under the Revenue Act of 1926 and 
Bulletin B, "Withholding of Income 
Tax at the Source and Information 
at the Source." 

January 1, 1927 The field service of 
the Income Tax Unit was reorganized 
with the discontinuance of the eight 
supervisory districts. Each division 
was constituted as an independent 
organization, with each revenue 
agent-in-charge responsible to the 
head of the unit in Washington, D.C. 

February 1, 1927 The Fourth 
Collection District of Michigan in 
Grand Rapids was consolidated with 
the first Collection District in 
Detroit. 

April 1, 1927 The Prohibition Unit 
was transferred to the Treasury 
Department and became the Prohibi- 
tion Bureau by Public Act 951. 

May 10, 1927 The Supreme Court 
reversed a lower court's decision and 
ruled that profits from crime were 
taxable. "We see no reason to doubt 
the interpretation of the [Revenue] 
Act, or any reason why the fact that a 
business is unlawful should exempt 
it from paying the taxes that if lawful 
it would have to pay." 



113 



May 31, 1927 The Engineering 
Division was abolished and a new 
Engineering Section was established 
and assigned to the Consolidated 
Returns Audit Division. 

June 10, 1927 The audit of all 
transportation and public utilities 
cases was centralized in the Consoli- 
dated Returns Audit Division. 

July 1, 1927 The Special Assess- 
ment Section was transferred from 
the Income Tax Unit to the Corpo- 
ration Audit Division. 

July 1, 1927 The Office of the 
Internal Revenue Agent-in-Charge 
in Trenton, New Jersey was moved 
to Newark and the Internal Revenue 
Agent-in-Charge in San Antonio was 
moved to Dallas. 

July 1, 1927 The administrative 
organization of many collector's 
offices was changed to eliminate the 
chief office deputy and chief field 
deputy positions and instead have a 
single position, known as the Assis- 
tant to the Collector, to direct the 
activities of both the office and field 
forces. 

July 28, 1927 A Special Advisory 
Committee was formed as part of 
the Commissioner's Office to help 
alleviate the workload of over 18,000 
cases pending before the Board of 
Tax Appeals. The Committee was 
composed of a Chairman and 12 
members in Washington, D.C., 
assisted by 20 revenue agent confer- 
ees throughout the country. These 
conferees held conferences with tax- 
payers and examined the reasons 
underlying the accumulation of 



pending income tax cases in the 
Bureau. The functions and person- 
nel of the 60-day conference unit of 
the corporation and personal audit 
divisions were transferred to this 
Committee. This Committee was a 
forerunner of the Appeals function. 

July 1927 An Audit Section was 
established in the Income Tax Divi- 
sion of the office of each field collec- 
tor of internal revenue. The 
responsibility for the initial audit of 
tax returns was shifted to the field 
with the Washington, D.C. office 
reserving authority to verify field 
actions. 

August 1, 1927 The Corporation 
Audit Division, Personal Audit Divi- 
sion, and the Special Assessment 
Section were abolished and the 
Field Audit Review Division was 
created. 

October 1927 The Bureau 
adopted overassessment procedures 
for the collection of estate taxes simi- 
lar to those used in income tax cases. 

November 21, 1927 Ground was 
broken for the Internal Revenue 
building in Washington, D.C. 

1927 Organizational changes dur- 
ing the year included merging the 
Personnel Office and the Efficiency 
Records Section into a Personnel 
Section, abolishment of the adminis- 
trative section of the Consolidated 
Returns Audit Division, transfer of 
the Photostat Laboratory from the 
Income Tax Unit to the administra- 
tive function, and abolishment of 
the Distribution Section of the 
Records Division. 



7! 



114 



1927 The Bureau initiated the use 
of form letters to request that the 
taxpayer appear in the office of the 
special agent-in-charge with his 
records for an office audit. 

1927 To shorten procedures and 
economize, the Bureau issued instruc- 
tions that certified copies of tax 
returns and related papers requested 
by taxpayers would be furnished by 
the Records Division of the Income 
Tax Unit in Washington. Previously, 
this responsibility had been split 
between the Income Tax Unit and 
the General Counsel, resulting in 
duplication of effort. 

January 3 1 , 1 928 The Review 
Section of Consolidated Returns 
Audit Division was abolished with 
the personnel and functions of this 
section transferred to other sections 
of the Division. 

February 13, 1928 The Distribu- 
tion Section of the Records Division 
was abolished. 

March 12, 1928 The Capital 
Stock Tax Division of the Miscella- 
neous Tax Unit was abolished and a 
Capital Stock Tax Section was cre- 
ated in the Miscellaneous Division. 

April 10, 1928 The Field Service 
was transferred to the immediate 
supervision of the deputy commis- 
sioner in charge of the Income Tax 
Unit. 

April 10, 1928 The Photostat Sub- 
section, Service Section, was trans- 
ferred from the Income Tax Unit 
and placed under the supervision 
and control of the Administrative 



Division, of the Commissioner's 
Office. 

April 12, 1928 A new section, des- 
ignated as the Personnel Section, 
was created in the Deputy Commis- 
sioner's Office, comprised of the for- 
mer Office of the Personnel Officer 
and the Efficiency Records Section 
which were abolished. 

May 1, 1928 A new field division 
known as the Upper New York Divi- 
sion was established, including part 
of the New York Division north of 
23rd Street and New York City. The 
former New York City Division was 
designated the Second New York 
Division. 

May 1, 1928 The Consolidated 
Returns Audit Division and the 
Field Audit Review Division were 
abolished and replaced with a new 
division designated as the Audit 
Review Division. 

May 20, 1928 The Review Section 
of the Appeals Division of the Office 
of the General Counsel was created 
to consider appealed cases with the 
goal of reaching settlement without 
a hearing before the board. 

May 29, 1928 The Revenue Act of 
1928 became law. Income and surtax 
rates remained unchanged from 
1926 (IVz, 3, and 5 percent); corpo- 
rate net income tax rates were 
reduced from 13.5 percent to 12 per- 
cent; the excise tax of 3 percent on 
manufacturers prices of passenger 
autos was repealed. Employee plan 
rules began with this act as did the 
first failure to pay penalty, with a flat 
rate of 25 percent of the tax due on 



7*7 



115 



the return as the penalty regardless 
of how late it was. 

June 29, 1928 The tax on grape 
brandy or wine spirits used for the 
fortification of wines was reduced 
from 60 cents to 10 cents per proof 
gallon effective this date. Wines 
could be removed or sold for the 
production of vinegar or dealco- 
holized wines tax free and the tax on 
dealcoholized wines containing less 
than one-half of 1 per cent of alcohol 
was repealed. 

July 1, 1928 The special tax on 
retail dealers in narcotic drugs was 
reduced from $6 to $3 a year. 

July 19, 1928 The General Coun- 
sel's office created a Review Divi- 
sion as the successor to the Review 
Section of the Appeals Division. 
This unit had the mission of trying 
to settle cases pending before the 
Board of Tax Appeals. 

1928 By this year, 257 Prohibition 
employees of the Bureau of Internal 
Revenue had been prosecuted and 
706 removed from their positions 
for violations of the law or corrupt 
practices. 

1928 Branch offices of the General 
Counsel's office were established in 
the field to bring about closer coop- 
eration with United States attorneys, 
collectors of internal revenue, and 
revenue agents in the handling of 
federal tax matters. Permanent rep- 
resentatives were assigned to New 
York, Chicago, Pittsburgh, Boston, 
Miami, Los Angeles, and Seattle. 
Later, an additional representative 
was assigned to St. Paul. 



1928 A Legislative Research Sec- 
tion was created in the Internal Rev- 
enue Bureau. 

1928-1936 Construction of Internal 
Revenue building. 

March 5, 1929 The Interpretative 
Division was abolished in the Gen- 
eral Counsel's office. 

March 14, 1929 An Executive 
Order required the Review Division 
to allow taxpayer's hearings and gave 
this organization responsibility for 
preparing the public decision, upon 
claims for refund, credit, or abate- 
ment of income, war-profits, excess- 
profits, estate and gift taxes, when 
the allowance exceeded $20,000. 

April 1, 1929 A central waiver file 
was established in the Bureau to 
safeguard these important docu- 
ments and institute a system that 
would permit notification of auditors 
60 days in advance of waivers on file 
which were about to expire. 

May 31, 1929 David H. Blair 
resigned as Commissioner. 

June 21, 1929 Robert H. Lucas of 
Kentucky became Commissioner. 

October 8, 1929 Ralph Capone 
was arrested with a warrant signed 
by Arthur P. Madden, Agent-in- 
Charge of the Intelligence Unit in 
Chicago. 

December 16, 1929 President 
Hoover signed a new revenue act 
providing for a $160 million cut in 
the income tax. This act lowered 
income tax rates to Vz, 2, and 4 per- 



77 



116 



cent and lowered corporate tax 
rates from 12 to 11 percent. 

1929 A legal division was estab- 
lished with the duty of reviewing 
cases involving substantial amounts 
of tax refunds. 

1929 The Bureau instituted a sys- 
tem of punched cards to develop sta- 
tistical data from additional taxes 
assessed. 

1929 The National Tax Founda- 
tion estimated that the average 
American worked 19 minutes each 
day to pay his or her federal income 
taxes. 

1929 In the case of Mellon v. 
United States, it was held that in the 
absence of statute, no interest would 
be paid on a disputed refund after 
the issuance of certificate requiring 
the United States to pay judgment 
against the collector. The United 
States became liable for the refund 
but not the interest. 

1929 The Treasury Department 
announced plans to improve Prohi- 
bition enforcement. 

January 16, 1930 The IRS estab- 
lished a Welfare Fund to assist 
employees in financial need. 

February 1, 1930 The Sixth Cali- 
fornia Collection District was with- 
drawn from the boundaries of the 
San Francisco Division and a new 
division, the Los Angeles Division, 
was established. 



March 16, 1930 The state of Ari- 
zona was withdrawn from the bound- 
aries of the Denver Division and 
annexed to the Los Angeles Division. 

JUNE 1, 1930 The main section of 
the new Internal Revenue building 
was completed and occupied. The 
building was built on Constitution 
Avenue as part of the Federal Trian- 
gle complex of government build- 
ings at a cost of approximately $10 
million. The design was inspired by 
Somerset House on London's 
Strand, which houses Britain's tax 
collection agency. 

The contract was completed 16 
months ahead of schedule with a 
total construction cost of 
$6,395,026.33. Designed for 4,500 
workers, the building was originally 
occupied by 3,391 Internal Revenue 
employees, 147 from the Board of 
Tax Appeals, 22 from the Customs 
Court and Patent Appeals, and 252 
from the Public Buildings and Pub- 
lic Parks Commission. 

June 16, 1930 The Audit Review 
Division was reorganized upon a geo- 
graphical basis rather than on a type 
of return basis. 

June 17, 1930 President Hoover 
signed the Hawley-Smoot Tariff Act 
which imposed the highest rates in 
American tariff history. 

JULY 1, 1930 The Valuation Divi- 
sion was created, with five sections: 
appraisal, mining, oil and gas, tim- 
ber, and securities. Personnel from 
the Miscellaneous Tax Unit and the 
Income Tax Unit involved in the 
determination of values were trans- 
ferred to this new Division. 



W 



117 



J i I v 2, 1 930 The role of the Spe- 
cial Advisory Committee was 
expanded to include cases involving 
legal questions, estate tax cases, 
income tax cases, and profits tax 
cases. 

August 15, 1930 Robert H. Lucas 
resigned as Commissioner. 

AUGUST 20, 1930 David Burnet of 
Ohio became Commissioner. 

1930 The Justice Department took 
over primary enforcement duties for 
Prohibition from the Prohibition Unit 
of the Treasury Department. The 
duty remained with Justice until the 
repeal of Prohibition in 1933. 

1930 The "George M. Cohan 
Rule" came into effect when a 
court ruled in favor of the Broadway 
star that the Bureau of Internal 
Revenue had to accept his word 
that some entertainment deduc- 
tions were part of his business even 
though he could not produce 
records or receipts. 

February 9-13,1 93 1 The 3 1 rev- 
enue agents-in-charge in the field 
offices of the Income Tax Unit met in 
Washington, D.C. for a conference. 

March 13, 1931 Al Capone was 
indicted for income tax evasion. 
The statute of limitations on the 
charges against Capone would have 
expired on March 15. 

May 1931 A Grand Jury brought 
additional indictments against Al 
Capone for tax years 1924-1929. 



June 5, 1931 The indictment against 
Al Capone was returned on this day 
and Capone turned himself in. 

June 16, 1931 Al Capone appeared 
before Judge James H. Wilkerson 
and pled guilty to all charges, includ- 
ing income tax evasion and prohibi- 
tion charges. 

July 19, 1931 Capone's counsel 
withdrew his guilty plea after 
charges were made that a deal had 
been struck with the court for a 
reduced sentence. 

September 28, 1931 The Securities 
Section of the Valuation Division was 
charged with assembling all pertinent 
facts and relevant data concerning 
corporate reorganizations. 

October 6, 1931 Al Capone's trial 
for income tax evasion began. 

October 17, 1931 Al Capone was 
convicted of evading income taxes. 

1931 The Wickersham Commis- 
sion reported that enforcement of 
the Eighteenth Amendment was 
breaking down and recommended 
revision, but not repeal, of the Prohi- 
bition law. 

June 6, 1932 In the midst of the 
Depression, Congress passed the 
Revenue Act of 1932, raising tax 
rates, lowering exemption levels, 
and reinstating excise taxes on many 
manufacturers. This act was an 
attempt to balance the federal bud- 
get and uphold national credit by 
providing one of the greatest 
increases in taxation ever enacted in 
peacetime. 



77 



118 



The rates rose to 4 percent on the 
first $4,000 of income above the 
exemption level and 8 percent on 
income over $4,000. Corporate tax 
rates were also increased. Surtaxes 
climbed to a maximum of 55 per- 
cent, estate tax rates were increased, 
and the gift tax was restored. 

This act removed the tax credit 
for a taxpayer's "earned" income 
and initiated a one cent federal gaso- 
line tax. Excise taxes were also intro- 
duced on motor vehicles, radios, 
phonographs, long distance telephone 
calls and telegrams, and checks. The 
federal deficit for fiscal year 1931 
was $903 million. 

December 31, 1932 The Travel 
Unit of the Audit Review Division 
was abolished and examiners were 
transferred to field divisions. 

1932 The income tax law was 
amended to provide that U.S. presi- 
dents were liable for the tax on their 
salaries. Franklin Roosevelt became 
the first president since Lincoln to 
pay federal income tax on his presi- 
dential salary. 

1932 President Hoover and his sup- 
porters had put forth a proposal for a 
national sales tax, but the measure 
was defeated in the House of Repre- 
sentatives by a vote of 236-160. 

March 22, 1933 An act legalized 
the sale of fermented liquors with 
alcoholic content of not more than 
3.2 percent alcohol by weight. 

May 12, 1933 Congress enacted the 
Agricultural Adjustment Act (AAA). 
This act sought to restore agricultural 
purchasing power by restricting pro- 



duction and raising farm prices. The 
AAA countered the problem of farm 
surpluses by paying rentals for 
acreage withdrawn from production or 
by subsidizing restricted crops. 

The funds for this program were 
raised by a tax on the processors of 
those farm products. The Bureau of 
Internal Revenue was given the duty 
of collecting the taxes authorized on 
wheat, cotton, field corn, hogs, rice, 
tobacco, and milk products. 

June 10, 1933 The House of Rep- 
resentatives authorized a Ways and 
Means Committee investigation to 
fortify and simplify the tax system. 
The final report of the investigation, 
with extensive recommendations to 
close loopholes, was issued in 
December 1933. 

June 16, 1933 The National 
Industrial Recovery Act became 
law, levying a 5 percent tax on divi- 
dends to be deducted and withheld 
at the source, an excess profits tax, 
and numerous changes to the 
income tax provisions of the Rev- 
enue Act of 1932. 

June 23, 1933 Orders were issued 
directing the Income Tax Unit to 
administer the provisions of section 
213 of the National Industrial Recov- 
ery Act (the excise tax on dividends). 

June 1933 The Miscellaneous 
Division was abolished and a new 
Sales Tax Division was established 
to administer the new excise taxes 
imposed by the Revenue Act of 
1932. 



-n 



119 



July 1 -November 15, 1933 The 
settlement of tax cases was carried 
on by a Special Advisory Committee 
prior to the creation of the Technical 
Staff. 

JULY 5, 1933 A committee was 
organized in the office of the Gen- 
eral Counsel known as "the General 
Counsel's Committee," and com- 
posed of six members, including the 
General Counsel. The purpose of 
the committee was to expedite final 
decisions in cases and to coordinate 
rulings to minimize conflicting 
results in similar cases in different 
sections of the office. 

July 9, 1933 The Secretary of 
Agriculture announced the first pro- 
cessing tax under the Agricultural 
Adjustment Act. This was a tax of 
30 cents per bushel of 60 pounds on 
the first domestic processing of 
wheat. 

September 1, 1933 The Confer- 
ence Unit of the Audit Review 
Division was established as an inde- 
pendent section operating under 
the immediate supervision of the 
office of the Deputy Commissioner. 
The Conference Section was 
designed to act as the settlement 
body for the unit with responsibility 
and authority similar to that of the 
Technical Staff. 

October 10, 1933 A Presidential 
order issued on June 10, 1933 
became effective, allowing the Civil 
Division of the Office of the Gen- 
eral Counsel to gradually turn over 
all civil internal revenue cases aris- 
ing in federal district courts, the 
United States Court of Claims, and 



the Supreme Court of the District 
of Columbia, to the Department of 
Justice. 

November 16, 1933 The Special 
Advisory Staff was abolished and 
succeeded by the Technical Staff 
which had as its primary purpose 
settling tax disputes in cases dock- 
eted by the United States Board of 
Tax Appeals and cases in "90-day" 
status. The Technical Staff was 
given authority to bind the Commis- 
sioner to any settlement involving a 
deficiency of $5,000 or less for any 
year. 

December 6, 1933 The 21st 
amendment to the Constitution took 
effect, resulting in the repeal of Pro- 
hibition. 

December 31, 1933 President 
Roosevelt issued a proclamation ter- 
minating the provision of the 
National Industrial Recovery Act 
which imposed a five percent excise 
tax on dividends. 

1933 The Beer and Wine Revenue 
Bill became law. This bill legalized 
the manufacture and sale of beer 
and light wine and also levied a $5 
tax on 31 -gallon containers of beer, 
wine, lager bill, ale, and porter. 

1933 The gasoline excise tax was 
raised to 1 Vz cents per gallon. 

March 10, 1934 The office of 
Commissioner of Industrial Alcohol 
was abolished by Executive Order 
and the functions and duties of this 
position were transferred to the 
Commissioner of Internal Revenue. 
By the same order, the functions 



vT7 



120 



and personnel of the Alcoholic Bev- 
erage Unit of the Division of Inves- 
tigation, Department of Justice, 
were transferred to the Bureau of 
Internal Revenue. This executive 
order took effect on May 10, 1934. 

May 15, 1933 David Burnet 
resigned as Commissioner. 

June 6, 1933 Guy T. Helvering of 
Kansas became Commissioner. He 
served the longest tenure of any 
Commissioner — over 10 years — 
until October 1943. 

November 16, 1933 The Techni- 
cal Staff began to provide a more 
direct and expeditious procedure to 
settle its tax disputes. 

1933 The Internal Revenue 
Bureau received broad legislative 
authority under which it could real- 
locate items of income, deductions, 
credit or allowances between related 
organizations. This is now Section 
482 of the Internal Revenue Code. 

January 1, 1934 The Department 
of Justice established a Tax Division. 

January 11, 1934 Congress passed 
a Liquor Taxing Act raising the tax 
on distilled liquors from $1.10 to 
$2.00 per gallon and increasing taxes 
on wine. 

January 16-18, 1934 Internal rev- 
enue agents-in-charge in the field 
were called to Washington, D.C. for 
a general conference with Bureau 
officials. 



February 16, 1934 Agents-in- 
charge were directed to assign cases 
for examination to avoid continued 
referral of particular cases to the 
same officer for successive years. 

February 27, 1934 A committee 
was designated to develop procedures 
for coordinating the work of the 
Income Tax Unit and the Miscella- 
neous Tax Unit in the examination of 
excess-profits tax returns and capital- 
stock tax returns to insure a proper 
administration of section 216 of the 
National Industrial Recovery Act. 

February 28, 1934 Treasury Deci- 
sion 4422 was issued to clarify 
depreciation deductions. The House 
Ways and Means Committee had 
issued a report in late 1933 indicat- 
ing that many claims for deprecia- 
tion were excessive. Treasury 
Decision 4422 was an effort to 
resolve this issue without additional 
legislative action. 

March 10, 1934 Prohibition was 
officially repealed. The Bureau of 
Prohibition turned over its responsi- 
bilities from the Department of Jus- 
tice to a newly created Alcohol Tax 
Unit within the Bureau of Internal 
Revenue. 

March 27, 1934 An act required 
businesses awarded contracts to 
build naval vessels or aircraft to pay 
any profits in excess of 10 percent of 
the contract price into the Treasury. 
This law also provided that if this 
"excess profits tax" was not volun- 
tarily paid it would be collected 
under the internal revenue laws in 
the same manner as income taxes. 



7\- 



121 



April 21, 1934 Congress passed 
the Bankhead Cotton Act which 
taxed the ginning of cotton effective 
June 1, 1934 and provided for pay- 
ment of this tax by exemption 
certificates issued to cotton produc- 
ers by the Secretary of Agriculture. 
Payment of the tax was shown by 
tags affixed to bales of cotton. 

May 10, 1934 The Revenue Act of 
1934 became law, with the primary 
purpose of preventing tax avoidance 
and evasion. The act imposed a flat 
tax rate of 4 percent on the first 
$4,000 of individual net income. The 
act also changed surtax brackets by 
increasing the rates on upper incomes 
and graduated the taxes on capital 
gains. 

The most controversial provision 
was a 35 percent tax on the undistrib- 
uted profits of personal holding com- 
panies. This act revived the excess 
profits tax at a rate of five percent of 
income in excess of 12.5 percent of 
the adjusted declared value of the 
capital stock of corporation income. 

Section 512 created the basic legal 
organization of the Treasury Depart- 
ment — the Office of the General 
Counsel of the Treasury. Also, the 
Office of the Assistant General Coun- 
sel for Internal Revenue was con- 
ceived. The first General Counsel for 
Internal Revenue was Robert H. 
Jackson, later to become a justice of 
the Supreme Court. 

The statutory period for filing a 
petition was extended from 60 to 90 
days after issuance of a deficiency 
notice. A publicity amendment, spon- 
sored by Senator Robert LaFollette, 
Jr., authorized the release to the pub- 
lic of each taxpayer's name, address, 
total gross income, total deductions 



and credits, and tax payment, while 
not authorizing release of the income 
tax returns themselves. 

MAY 10, 1934 The Bureau of 

Industrial Alcohol was consolidated 
with the Bureau of Internal Rev- 
enue. The Alcohol Tax Unit was 
established in the Bureau, charged 
with the administration of internal 
revenue laws relating to the produc- 
tion, warehousing, and tax payment 
of distilled spirits, alcohol, wines, 
fermented liquors, cereal beverages, 
denatured alcohol. 

May 18, 1934 Congress enacted 
legislation which made killing a fed- 
eral officer a federal offense. 

June 4, 1934 By order of the Com- 
missioner, offers in compromise 
involving income tax liability were 
transferred to the Technical Staff. 

June 4, 1934 The constitutional- 
ity of new federal firearms regula- 
tions was upheld by the U.S. 
District Court for the Southern 
District of Florida in U.S. v. Joseph 
H. Adams, et al. 

June 12, 1934 The Reciprocal 
Trade Agreement Act of 1934 was 
signed into law. This was actually 
an amendment to the existing 
Smoot-Hawley Tariff of 1930. The 
new law authorized the President to 
negotiate bilateral trade agreements 
to raise or lower existing tariff rates 
by as much as 50 percent. 

The law marked a turning point 
in tariff history with Congress dele- 
gating to the executive branch the 
authority for rate-setting that it had 
controlled for over 150 years. 



7T- 



122 



June 18, 1934 Congress approved 
three acts relating to the taxation of 
alcohol, including laws relating to the 
regulation of production, marking, 
and sale of containers of less than five 
wine gallons, the control of materials 
commonly used in the production of 
illicit spirits and the repeal of sections 
of internal revenue laws which for- 
bade the erection of a rectifying plant 
within 600 feet of a distillery. 

June 19, 1934 The Silver Purchase 
Act of 1934 provided for the imposi- 
tion of a tax equal to 50 percent of the 
net profit realized on the transfer of 
an interest in silver bullion. This tax 
was payable by stamp. 

June 26, 1934 The National 
Firearms Act became law, aimed at 
preventing criminals from acquiring 
and using machine guns, silencers, 
sawed-off shotguns, etc. The act 
imposed special taxes on manufac- 
turers, importers, and dealers in 
firearms as well as transfers of cer- 
tain firearms. The act also regulated 
the importation and exportation and 
interstate transportation of such 
firearms and required the registra- 
tion of all firearms as defined by the 
act on or before September 24, 1934 
and a report of all transfers of such 
firearms on or after the effective 
date of that act. 

The Alcohol, Tobacco, and Tax 
Division became responsible for inves- 
tigation and detection of violations of 
this act. This represented the first fed- 
eral gun control law. 

June 28, 1934 Congress passed the 
Kerr-Smith Tobacco Control Act 
which taxed the sale of leaf tobacco. 
The tax was set at 25 percent of the 



^7T 



sale price of the tobacco, established 
by proclamation of the Secretary of 
Agriculture. 

Effective July 1, 1935, the rate 
was fixed at one-third of the sale 
price. Adhesive stamps were pro- 
vided by the Bureau as evidence of 
payment of the tax. The tax was not 
applicable to Maryland and Virginia 
sun-cured tobacco and cigar-leaf 
tobacco. 

June 30, 1934 The Assistant Gen- 
eral Counsel for the Bureau of Inter- 
nal Revenue was delegated the 
functions and duties of the former 
General Counsel for Internal Rev- 
enue (delegated authority came 
from the newly established General 
Counsel for the Department of the 
Treasury). 

July 22, 1934 John Herbert 
Dillinger was gunned down by three 
FBI agents outside the Biograph 
Theater in Chicago. This marked 
the beginning of a new effort by the 
federal government to control some 
of the most violent criminal activity 
witnessed in the nation. 

JULY 1934 The Silver Tax Division 
was organized to administer the tax 
imposed under the Silver Purchase 
Act of 1934. 

September 12, 1934 By proclama- 
tion of the President, the processing 
and related taxes with respect to 
sugar under the Agricultural Adjust- 
ment Act were made applicable to 
the Philippine Islands, thus widen- 
ing the geographic scope of the act. 



123 



September 25, 1934 The Reorga- 
nization Section of the Office of the 
Assistant General Counsel was 
established to protect the claims and 
interest of the U.S. in corporate reor- 
ganization proceedings instituted 
under the National Bankruptcy Act. 

September 1934 Bruno Richard 
Hauptmann was arrested in the 
Lindbergh kidnapping case after an 
intensive investigation in which the 
Intelligence Unit of the Bureau of 
Internal Revenue provided assistance. 

September 1934 A committee of 
Internal Revenue agents-in-charge 
met in Washington, D.C. to review 
the organization and procedures in 
the field divisions of the Income 
Tax Unit. 

October 1, 1934 The processing 
and compensating taxes of the Agri- 
cultural Adjustment Act were made 
applicable to peanuts. 

November 1, 1934 The first of 
several special projects to investigate 
evasions of manufacturers' excise 
taxes on jewelry, radios, furs, sport- 
ing goods, and cosmetics and taxes 
on admissions, dues, and documen- 
tary stamps began in the Third New 
York Collection District. 

November 1, 1934-June 16, 1935 
Under the provisions of Executive 
Order No. 6166, the function of dis- 
bursing was transferred from collec- 
tors' offices to regional offices of the 
Division of Disbursement, Treasury 
Department. 



November 16, 1934 Tax Unit 
Orders Numbers 297 and 301 pre- 
scribed a standardized organization 
for field divisions of the Income Tax 
Unit. These orders provided stan- 
dard methods for assigning income 
tax returns for verification and the 
preparation of reports by agents on 
the income tax liability of taxpayers; 
established uniform methods for the 
preparation of monthly production 
reports and annual efficiency ratings; 
and revised the descriptions of all 
positions in the field service. 

1934 The Bureau created a Legisla- 
tive and Regulations Division to assist 
in the development of tax legislation 
and regulations. 

1934 The Silver Purchase Act of 
1934 imposed a tax equal to 50 per- 
cent of the net profit realized on the 
transfer of an interest in silver bul- 
lion, with certain exemptions and 
rights of abatement. 

1934 The statute of limitations to 
assess additional taxes for returns 
filed for 1934 and beyond was 
increased from two to three years. 



-7~ 



124 




Taxpayers line the halls of the new National Office of the Bureau of Internal Revenue waiting for tax assistance. 



1935- W 1 



Social Security and Firearms Control: 

New Responsibilities for the 

Tax Collector 

T 7TF 



The repeal of Prohibition did not reduce the responsibilities of the Bureau 

of Internal Revenue. In 1935, Congress passed the Social Security Act, with 

the Bureau given the task of collecting payroll taxes and turning them over 

to the Social Security Trust Fund. Added responsibilities came with the 

Federal Firearms Act which gave the Alcohol and Tobacco Tax Division 

of the Bureau of Internal Revenue the job of enforcing violations 

of firearms registration requirements. 



January 1, 1935 The tax on 
checks was repealed. 

January 1, 1935 The Capital Stock 
Tax Division was created, succeed- 
ing the Capital Stock Tax Section of 
the Sales Tax Division. The enact- 
ment of Section 701 of the Revenue 
Act of 1934 made administration of 
the capital stock tax a permanent 
and major function of the Bureau, 
necessitating creation of a division- 
level function to administer this tax. 

January 22, 1935 The Reorganiza- 
tion Section of the Office of the 
Assistant General Counsel was con- 
solidated with the Bankruptcy and 
Receivership Section. 

February 26, 1935 The Technical 
Staff took over handling applications 
for extension of time to pay income 
tax and deficiencies in income tax. 

March 1, 1935 All breweries were 
required to install beer meters on or 
before this date so that the tax could 
be collected on the basis of meter 
readings. 

March 7, 1935 A Ways and Means 
Committee report recommended 
that Section 55(b) of the Revenue 
Act of 1934 (commonly referred to as 
the 'pink slip' section) be repealed. 
This section provided for publishing 
the name, address, gross and net 
income, deductions, credits, and tax 
payable of individuals. 

April 1, 1935 The processing and 
compensating taxes of the Agricul- 
tural Adjustment Act were made 
applicable to rice. 



May 1, 1935 The Valuation Divi- 
sion was reorganized and renamed 
the Engineering and Valuation Divi- 
sion. The Oil and Gas Section and 
the Mining Section were combined 
into the Natural Resources Section. 
The Timber Section was abolished 
and its work transferred to the Nat- 
ural Resources Section. A Public 
Utilities Section was created. 

May 1, 1935 The Bureau of Inter- 
nal Revenue hired 300 new revenue 
agents. Training schools were estab- 
lished in Brooklyn, Chicago, Cleve- 
land, Dallas, Detroit, Manhattan, 
Newark, Philadelphia, and San 
Francisco. 

June 19, 1935 President Roosevelt 
sent Congress a message recom- 
mending drastic changes to the fed- 
eral system of taxation to prevent 
concentration of wealth and eco- 
nomic power. Roosevelt criticized 
the existing revenue system and rec- 
ommended increasing surtaxes on 
high incomes, inheritance taxes, and 
graduated corporate income taxes. 

June 30, 1935 The part of the 
upper New York division included 
in the fourteenth collection district 
of New York, with the exception of 
Bronx and Westchester Counties, 
was assigned to the Buffalo division, 
relieving the upper New York divi- 
sion agent-in-charge of extraterritor- 
ial responsibilities, and permitting 
his full attention to be given to the 
New York City area. 

July 31, 1935 President Roosevelt 
held a press conference in which he 
informed the public that 58 persons 
reporting incomes over $1 million 



77 



126 



in 1932 had paid no federal taxes 
on 37 percent of their net incomes, 
primarily through holding tax 
exempt securities. 

August 14, 1935 Roosevelt signed 
the Social Security Act. Employers 
and employees originally paid one 
percent of the first $3,000 of salaries 
and wages to finance the benefits. 
This new law introduced a new 
system of tax withholding and the 
Bureau of Internal Revenue was 
given responsibility to collect the 
payroll taxes and turn them over to 
the Social Security Trust Fund. The 
law also created a program of unem- 
ployment compensation, funded by 
a federal payroll tax to be adminis- 
tered by the individual states. 

August 30, 1935 The Revenue 
Act of 1935, also known as the 
"Wealth Tax Act," became law and 
increased surtax rates on net 
incomes above $50,000, from 63 to 
79 percent. The act also established 
a graduated income tax on corpora- 
tions and increased gift and estate 
taxes. The rate of interest on unpaid 
federal taxes was set at 6 percent 
and an inheritance tax was imposed. 

August 30, 1935 Congress 
approved the Coal Act which imposed 
an excise tax of 15 percent upon the 
sale or other disposal of all bituminous 
coal produced in the United States. 

August-September 1935 The 
Bureau of Internal Revenue began 
administering two Works Progress 
Administration projects, including a 
"survey of miscellaneous taxes" and 
an income tax project. 



^r 



September 1, 1935 The Bureau 
began an inspection of retail liquor 
dealers in 91 cities to ensure that the 
dealers complied with the require- 
ments of the law. 

October 1, 1935 The Social Secu- 
rity Division was created to adminis- 
ter the taxes imposed under the 
Carriers Taxing Act and the Social 
Security Act (title VIII). 

1935 The right to inspect individ- 
ual tax returns was extended to state 
tax officials for the first time. This 
provision was not formalized until 
1950. 

1935 The Federal Alcohol Adminis- 
tration Act (FAA) was passed, creating 
licensing and permit requirements 
and establishing regulations designed 
to ensure an open and fair market- 
place to the legal businessman and 
consumer. 

1935 The Bureau of Internal Rev- 
enue emphatically restated its policy 
against answering questions with 
respect to proposed transactions, 
noting that such rulings would only 
be issued where required by law. 

January 1, 1936 The Social Secu- 
rity tax took effect. The tax was 
essentially an excise on employers 
with eight or more employees, with 
a rate of one percent on wages for 

1936 with provision for credit not 
exceeding 90 percent of the tax for 
contributions to state unemploy- 
ment funds. The tax was due on 
January 31 following the close of 
the year. 



127 



January 6, 1936 The Supreme 
Court, in United States v. Butler, 
ruled that the Agricultural Adjust- 
ment Act and the taxes imposed by 
it were unconstitutional. The tax on 
processors of agricultural commodi- 
ties was determined to be an integral 
part of an improper regulatory 
scheme that took money from one 
group to benefit another. The collec- 
tion of processing taxes was immedi- 
ately suspended. 

JANUARY 20, 1936 Internal Revenue 
agents-in-charge and other field 
officials of the Bureau met in Wash- 
ington, D.C. for a conference with 
Bureau officials to discuss plans to 
accelerate work on 1934 income tax 
returns and other significant issues. 

February 10, 1936 Congress 
repealed the Kerr Tobacco Act, the 
Bankhead Cotton Act, and the 
Potato Act. 

March 3, 1936 Roosevelt called 
for new taxes to produce $1 billion 
in revenue through three new taxes: 
the windfall profits tax, a temporary 
agricultural products processing tax, 
and a graduated tax on undistributed 
corporate income. 

March 27, 1936 The Cleveland 
Division was authorized to issue 
statutory notices of deficiency (90- 
day letters) beginning April 1, 1936 
with the revenue agent-in-charge 
designated to represent the Com- 
missioner, assuming the usual duties 
of the Income Tax Unit in Washing- 
ton, D.C, in negotiations for settle- 
ment. 



This was the first major effort to 
decentralize the work of the Bureau 
and to provide a more convenient 
and less costly method for taxpayers 
dispose of their income tax cases. 

April 10, 1936 The National 
Firearms Act was amended to 
exclude any rifle having a caliber of 
.22 or smaller, if the length of its bar- 
rel was 16 inches or more, from the 
provisions of the act. 

May 18, 1936 The Supreme Court 
declared the coal act and the taxes 
imposed by this act invalid. 

JUNE 22, 1936 The Revenue Act of 
1936 levied an undistributed profits 
tax and imposed surtaxes known as 
the "accumulated earnings tax" 
ranging from 7 to 27 percent on 
undistributed profits from corporate 
incomes. Title III of this act 
included the Unjust Enrichment 
Tax which imposed a tax of 80 per- 
cent on certain sources of income. 

The Income Tax Unit was given 
responsibility for collecting these 
taxes. The failure to pay penalty was 
changed to 5 percent per month 
with a maximum of 25 percent. The 
penalty could be waived if failure to 
file was due to reasonable cause and 
not due to willful neglect. 

June 26, 1936 The Liquor Tax 
Administration Act of 1936 permit- 
ted withdrawals of distilled spirits 
for tax payment in packages and 
tank cars direct from distillery cis- 
tern rooms and from internal rev- 
enue bonded warehouses. 



128 



The Federal Alcohol Administra- 
tion was separated from the Trea- 
sury Department and set up as an 
independent establishment of the 
government by this act. 

This act also prescribed and 
defined penalties for the possession 
of machine guns and devices to pro- 
duce smoke screens while violating 
any law relating to liquors. 

August 19, 1936 The Audit Review 
Division was abolished and the sec- 
tions making up that division were 
established as independent divisions 
designated as Divisions A to E. This 
was part of an ongoing effort to 
increase cooperation between the 
field and Washington divisions of the 
Unit. The Review Unit of the Audit 
Review Division was designated as 
the Review Division. 

December 1936 The first overseas 
representative of the Bureau of 
Internal Revenue arrived in Manila. 

April 1, 1937 An automatic exten- 
sion for filing social security taxes for 
1937 was granted until this date for 
all taxpayers. The normal due date 
was January 31. 

April 26, 1937 Congress approved 
the Bituminous Coal Act of 1937, 
imposing an excise tax of 1 percent 
per ton of 2,000 pounds upon the 
sale or other disposal of bituminous 
coal produced within the United 
States when disposed of by the pro- 
ducer and an additional excise tax 
equal to 19.5 percent of the sale 
price at the mine of coal disposed 
of by nonmembers of the Bitumi- 
nous Coal Code. The tax took effect 
June 21, 1937. 



May 12, 1937 The Revenue 
agents-in-charge of divisions in the 
field assembled in Washington, D.C. 
for a three-day conference with Trea- 
sury and Bureau officials to study 
issues confronting the field forces and 
to recommend improvements. 

May 24, 1937 The Supreme Court 
held that taxes imposed by Titles 
VIII and IX of the Social Security 
Act were valid. 

June 1, 1937 Roosevelt sent a mes- 
sage to Congress citing the problem 
of tax evasion and requested legisla- 
tion to make "the present tax struc- 
ture evasion-proof." 

June 29, 1937 The Carriers Taxing 
Act was approved to collect employ- 
ers' and employees' taxes. 

July 1, 1937 The Bureau of Inter- 
nal Revenue completed plans to 
establish a Social Security Tax 
Unit, to be responsible for adminis- 
tration of taxes imposed by Titles 
VIII and IX of the Social Security 
Act and the Carriers Taxing Act of 
1937. 

August 26, 1937 The Revenue 
Act of 1937 raised tax rates on 
undistributed adjusted net income 
of personal holding companies. 
This was seen as a step toward 
closing some loopholes in the 
income tax laws. This act also 
introduced constructive ownership 
rules for determining stock owner- 
ship, to prevent deductions arising 
from "family" transactions. 



77 



129 



September 1, 1937 The tax 
imposed on manufactured sugar 
took effect. 

OCTOBER 1, 1937 The Marihuana 
Tax Act of 1937 became effective 
and imposed an occupational tax 
upon certain dealers in marihuana 
and transfer taxes upon certain deal- 
ings in marihuana. This law was 
administered jointly by the Bureau 
of Internal Revenue and the Bureau 
of Narcotics. 

November 1, 1937 Responsibility 
for the final audit of social security 
tax returns was transferred to the 
field from the headquarters office in 
Washington, D.C. 

1937 The first union of employees 
of the Bureau of Internal Revenue, 
the National Association of Internal 
Revenue Employees (NAIRE), was 
formed in the Milwaukee District. 

1937 The Railroad Retirement 
Tax Act of 1937 placed a tax on the 
compensation of railroad employees 
and required the employer to with- 
hold the tax, providing a new use of 
withholding. 

J wiARY 1, 1938 A system of quar- 
terly returns for collecting social secu- 
rity taxes was adopted, replacing the 
previous 14 returns required each year 
from employers under title VIII of the 
Social Security Act. 

January 14, 1938 The Ways and 
Means Subcommittee on Internal 
Revenue Taxation submitted a report 
recommending changes in taxes and 
the administration of the tax system. 



January 1938 The Bureau of 
Internal Revenue and the Social 
Security Board approved a plan for 
coordination between the two 
organizations. 

March 1, 1938 An experimental 
program of decentralization of func- 
tions of the Bureau of Internal Rev- 
enue began with the establishment 
of the Los Angeles Division of the 
Technical Staff. The head of this 
Division was given authority to act 
for the Commissioner in settling cer- 
tain income and profits tax cases of 
taxpayers located in southern Cali- 
fornia and Arizona. 

April 1, 1938 The Accounts and 
Collections Unit assumed responsi- 
bility for administration of the taxes 
under the Social Security Act and 
the Carriers Taxing Act of 1937, 
assuming responsibilities previously 
performed by the Social Security 
Tax Unit. 

April 26, 1938 The Revenue Act 
of 1938 overhauled corporate tax 
rates and altered the method of tax- 
ing capital gains. The act reduced 
taxes on large corporations while 
increasing taxes on small corpora- 
tions. The excise tax on furs was 
repealed. 

May 23, 1938 The Supreme Court 
held state employees subject to the 
federal income tax. 

May 28, 1938 The Revenue Act of 
1938 became law without the Presi- 
dent's signature. Roosevelt 
expressed disapproval of the large 
tax break it provided for large corpo- 
rations. This act curtailed the wind- 



7*~- 



130 



fall profits tax and reduced capital 
gains taxes. Congress approved a 
provision allowing for the inspection 
of federal tax records by designated 
state tax officials. 

June 12, 1938 A new division was 
established in the Income Tax Unit 
to administer claims for refund of 
processing taxes and related floor 
stock tax claims requiring field 
investigation beginning July 1, 1938. 
Such claims had been administered 
by the Processing Tax Division of 
the Miscellaneous Tax Unit. 

June 25, 1938 The Railroad 
Unemployment Insurance Act was 
approved, to be administered by the 
Railroad Retirement Board. This act 
provided exclusion from the tax 
imposed by title IX of the Social 
Security Act of compensation for ser- 
vice performed for an employer 
defined in the act. 

June 25, 1938 Provision was made 
in the Second Deficiency Appropria- 
tion Act for refunding taxes col- 
lected under the Bankhead Cotton 
Act of 1934, the Kerr Tobacco Act, 
and the Potato Act of 1935. 

June 30, 1938 The Federal 
Firearms Act became law. This act 
was designed to regulate the inter- 
state traffic in firearms and ammuni- 
tion by making it a federal crime for 
felons and fugitives to receive 
firearms in interstate commerce. 
The Alcohol and Tobacco Tax Divi- 
sion was responsible for investiga- 
tion and detection of violations. The 
act required licensed dealers to 
maintain purchase and sales records 
of all firearms transactions. 



July 1, 1938 The decentralization 
of the Technical Staff began with 
the creation of the Pacific Staff Divi- 
sion and was completed with the 
establishment of the Atlantic Staff 
Division on May 1, 1939. A total of 
10 staff divisions were created. The 
number was raised to 12 in 1948. 

September 3, 1938 The final audit 
of returns under the Carriers Taxing 
Act of 1937 was transferred from the 
Bureau headquarters in Washington 
to field collectors because it was 
believed that such audit could be 
conducted more efficiently through 
closer contact with taxpayers. 

1938 The Bureau of Internal Rev- 
enue opened an overseas office in 
Paris. This was the second interna- 
tional post put in operation. 

1938 Legislation authorized the 
Bureau of Internal Revenue to enter 
into formal closing agreements with 
a taxpayer under which both parties 
were legally bound to the interpreta- 
tion agreed upon for the particular 
transaction. 

February 10, 1939 Internal rev- 
enue laws were codified as the 
"Internal Revenue Code of 1939," 
bringing logic and simplification to 
the tax system. 

March 1939 The Bureau of Inter- 
nal Revenue and the Railroad 
Retirement Board adopted a plan for 
coordination similar to that in effect 
between the Bureau and the Social 
Security Board to achieve uniformity 
and consistency in the interpretation 
and application of similar provisions 
of the Carriers Taxing Act of 1937. 



v*7 



131 



April 12, 1939 The Public Salary 
Tax Act of 1939 amended the 
income tax code to provide for taxa- 
tion of compensation of state and 
local employees, teachers in Alaska 
and Hawaii, and judges of the courts 
of the United States who took office 
on or before June 6, 1932. 

JUNE 29, 1939 Congress enacted the 
Revenue Act of 1939, which revised 
the two-year net operating loss carry- 
forward for corporations from the 
1920s, increased corporate tax rates to 
a flat rate of 18 percent on those with 
incomes above $25,000, and extended 
the excise taxes scheduled to expire 
in 1939 for two years. This act failed 
to extend the undistributed-profits 
tax beyond 1939, in effect abolishing 
the windfall profits tax. 

July 1, 1939 Appointive power for 
deputy collectors was transferred 
from collectors to the Secretary of 
the Treasury. 

August 10, 1939 The Social Secu- 
rity Act Amendments retitled the pay- 
roll tax "insurance contributions" 
under the Federal Insurance Contri- 
butions Act (FICA) as part of the 
Internal Revenue Code (Subchapter 
A of Chapter 9) and Subchapter C as 
the Federal Unemployment Tax Act. 
Taxes imposed in these areas were 
now generally referred to as "employ- 
ment taxes." 

September 6, 1939 In continua- 
tion of the effort to decentralize 
operations, the jurisdiction over 
offers in compromise of income, 
profits, and unjust enrichment taxes 
was delegated to the field divisions 
of the Technical Staff. 



* 



September 14, 1939 The Com- 
missioner issued a mimeograph gov- 
erning the functions and jurisdiction 
of the field divisions of the Techni- 
cal Staff, creating 10 field divisions. 

1939 The National Office Techni- 
cal Staff was formed, under the 
direction of Aubrey R. Marrs. 

1 939 The Public Salary Tax Act 
extended the income tax to federal, 
state, and local judges and federal 
judges who had taken the oath of 
office before 1932. 

1939 The National Tax Founda- 
tion estimated that the average 
American worked 40 minutes every 
day to pay his or her federal taxes, 
more than double the 19 minutes 
estimated 10 years earlier. 

The average American blue-collar 
worker paid no income tax at all; the 
average lawyer or doctor paid about 
$25 a year; a highly successful busi- 
nessman with an annual net income 
of $16,000 owed the federal govern- 
ment less than $1,000. 

June 25, 1940 The Revenue Act of 

1940 raised the federal debt limit to 
$4 billion in order to authorize the 
issuance of defense bonds. This act 
increased federal surtaxes on most 
individual income tax brackets by 
imposing a defense supertax of 10 
percent on most existing internal 
revenue taxes. Personal exemptions 
were reduced by 60 percent and cor- 
porate tax rates increased only 
slightly in anticipation of a new 
excess profits tax. 

This act also raised excise taxes 
on distilled spirits, wines, cigarettes, 
and playing cards. This act imple- 



132 



merited the use of the gross rather 
than net income to determine the 
need to file an income tax return. 
This act increased tax rates on cor- 
porations, individual surtax rates, 
and nonresident aliens. This act 
imposed a flat tax of 10 percent of 
the tax computed, designated as a 
"Defense Tax," effective for a five- 
year period. 

June 30, 1940 The Federal Alco- 
hol Administration merged with 
the Alcohol Tax Unit of the Bureau 
of Internal Revenue to combine 
related law enforcement and regu- 
latory authorities as a result 
of the Federal Alcohol Administra- 
tion Act. 

July 1, 1940 President Roosevelt 
sent a special message to Congress 
requesting immediate enactment of 
"a steeply graduated excess profits 
tax, to be applied to all individuals 
and all corporate organizations with- 
out discrimination." This was in 
accordance with Roosevelt's promise 
of May 22, that "not a single war 
millionaire will be created as a result 
of the war disaster." 

October 8, 1940 Congress enact- 
ed the second Revenue Act of 1940 
which increased corporate tax rates 
and imposed a graduated excess 
profits tax on corporations with rates 
up to 50 percent. 

October 17, 1940 Congress enact- 
ed the Soldiers' and Sailors' Civil 
Relief Act of 1940 which provided 
that no sale of property of a person 
in military service shall be made, or 
any proceeding or action com- 
menced, to enforce the collection of 



taxes, if such person showed that by 
reason of such military service his 
ability to pay the tax was affected. 

1940 The first series of articles pre- 
pared by the Bureau of Internal 
Revenue for publication in newspa- 
pers under the title "Your Federal 
Income Tax," appeared this year. 
The success of this publication 
established the taxpayer publica- 
tions program as a major part of the 
effort to provide taxpayer assistance. 

1940 The Bureau of Internal Rev- 
enue began informing taxpayers by 
letter, when an inquiry was made, of 
the position it would take if a closing 
agreement were entered into. This 
marked the birth of the private letter 
ruling process. 

March 7, 1941 Congress amended 
the Excess Profits Tax Act of 1940, 
providing relief for certain items not 
covered by the original act. 

April 23, 1941 An Executive 
Order placed deputy collectors 
under classified civil service laws. 
This order was issued under the 
authority of the Ramspeck Act of 
November 26, 1940. At this time 
about 8,000 persons were holding 
positions with the title of Deputy 
Collector. 

July 1, 1941 As of this date, all 
appointments to positions of 
Deputy Collector of Internal Rev- 
enue were to be made in accor- 
dance with civil service rules. Prior 
to this, appointments to these posi- 
tions were made without regard to 
civil service rules. Positions of col- 
lector were still political appointees. 



vf 



133 



5 August 4, 1941 The House of 

Representatives passed a tax bill put 

o5 forth by Representative Robert L. 

Doughtons of North Carolina which 

< eventually became the Revenue Act 

of 1941. 



AUGUST 9, 1941 A position for an 
executive assistant was established 
in the office of the Commissioner. 
This individual was responsible for 
supervising and coordinating the 
activities of the Administrative and 
Personnel Divisions. 

August 29, 1 94 1 The Alcohol Tax 
Unit was given responsibility for 
administering the Federal and 
National Firearms Acts. 

September 20, 1941 The Revenue 
Act of 1941 became law and was 
hailed by the New York Times as "by 
far the heaviest and most broadly 
based tax levy ever adopted by this 
country." This act was the largest 
single revenue measure passed in 
American history to this time and 
increased the income tax by raising 
surtax rates and corporate rates, 
bringing total government revenue 
to $13 billion. The act made the 10 
percent Defense Tax permanent, 
imposed a variety of new excise 
taxes, and increased overall rates. 



October 1, 1941 The Bureau creat- 
ed a Miscellaneous Division with 
responsibility for administering docu- 
mentary stamp taxes, taxes on oleo- 
margarine, narcotics and marihuana, 
bituminous coal, silver, hydraulic min- 
ing, transportation of oil by pipe line, 
admissions, dues, safe deposit boxes, 
telephone, telegraph, radio and cable 
facilities, processing of coconut oil 
and other vegetable oils, and the 
administration of the National 
Firearms Act and the Federal 
Firearms Act. The administration of 
these taxes was transferred from the 
Sales Tax Division and the Process- 
ing lax Division. The Processing 
Tax Division was abolished. 

December 26, 1941 The termina- 
tion date of the taxes on sugar was 
postponed from June 30, 1942 to 
June 30, 1945. 

1941 The Bureau of Internal Rev- 
enue adopted a new and shorter 
income tax 1040 return. 

1941 The standard deduction 
was introduced in the tax tables this 
tax year. 



VT? 



134 



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/// /£></i. Congress passed an additional tax, known as the Victory Tax, which was to be paid 
along with regular income taxes on the 1040 form for that year. 



1942-1949 



World War II and the Income Tax: 

A Marriage of Convenience 

that Survived 

vh 7 



The entry of the United States into World War II placed heavy economic 

demands on the country. To raise revenues, Congress dropped the threshold 

for payment of income taxes to the lowest level ever, bringing over 50 

million new taxpayers into the system for the first time. To educate these 

new taxpayers, the Bureau of Internal Revenue launched a major educational 

campaign. This resulted in widespread acceptance of the income tax into 

virtually all American households for the first time. 



January 24, 1942 Congress 
authorized the withdrawal of dis- 
tilled spirits without payment 
of tax under certain circumstances 
during World War II. 

March 7, 1942 Congress extend- 
ed under certain circumstances the 
time for filing income tax returns 
and the payment of income taxes in 
the case of individuals in the armed 
forces and civilian officers and 
employees of any department or 
agency of the United States. 

March 28, 1942 The Public Debt 
Act of 1942 removed tax exemption 
privileges on dividends, earnings, 
or other income or gain from 
shares, certificates, stock, or other 
evidences of ownership issued on 
or after March 28, 1942 by the 
United States or any agency or 
instrumentality thereof. 

April 28, 1942 Congress made 
the services of the Bureau of Inter- 
nal Revenue available to the War 
and Navy Departments and the 
Maritime Commission to the extent 
determined by the Secretary of the 
Treasury for the purposes of mak- 
ing examinations and determina- 
tions with respect to profits derived 
from the renegotiation of certain 
government contracts. 

October 2, 1942 The Salary Sta- 
bilization Act amended the Emer- 
gency Price Control Act of 1942 and 
became law. This act authorized 
and directed the President to issue 
an order stabilizing wages and 
salaries on the basis of the levels 
which existed on September 15, 
1942. 



Wages and salary regulations of 
the Economic Stabilization Direc- 
tor conferred authority upon the 
Commissioner of Internal Revenue 
to administer the provisions relat- 
ing to the stabilization of certain 
salaries. 

October 8, 1942 Production of 
distilled spirits for beverage pur- 
poses was discontinued, with the 
exception of brandy and rum. 

OCTOBER 21, 1942 President Roo- 
sevelt called the 1942 Revenue Act 
"the greatest tax bill in American 
history." The act sharply increased 
most existing taxes, introduced the 
Victory Tax (a 5 percent surcharge 
on all net income over $624 with a 
postwar credit), lowered exemp- 
tions, began provisions for medical 
and dental expenses and investors' 
expense deductions, and began in a 
small way the collection at the 
source procedure which was later to 
be carried out on a larger scale. 

Increased tax rates in this act were 
applicable to earnings for the year 
1942. Overall, this act added enor- 
mous complexities to the tax system 
and broadened the tax base by over 
100 percent. The Secretary of the 
Treasury recorded that President 
Roosevelt said, "The bill might as 
well have been written in a foreign 
language." The Board of Tax 
Appeals became the Tax Court. 

December 11, 1942 Congress 
passed the Opium Poppy Control 
Act of 1942 which provided for 
domestic control of the production 
and distribution of the opium 
poppy and its products through 
licensing. Because of widespread 



77 



136 



use of opium to relieve the pain of 
wounded soliders in World War II, 
Congress deemed it unwise to pro- 
hibit production of opium com- 
pletely at this time. 

1942 A Gallup Poll revealed that 
of the 34 million Americans subject 
to the income tax for the first time, 
fewer than 15 percent were setting 
aside money to make the payment. 

1942 The Bureau of Internal Rev- 
enue created a special section to 
handle collection and compromise 
matters in bankruptcy and receiver- 
ship proceedings. 

1942-1969 The Board of Tax 
Appeals became the Tax Court of 
the United States. The organiza- 
tion was given jurisdiction over 
refunds of certain processing taxes. 

JUNE 9, 1943 The Current Tax 
Payment Act of 1943 was passed 
and provided for a 20 percent with- 
holding tax after July 1, 1943 with 
forgiveness of 75 percent of the 
lesser of 1942 or 1943 tax liability. 
The act provided a permanent sys- 
tem of withholding and quarterly 
estimated tax payments from cer- 
tain sources of income. This act 
eliminated installment payments 
and introduced prepayment of tax 
obligations in the form of the esti- 
mated tax. 

July 1, 1943 Withholding of 
wages and salaries went into effect 
and put taxpayers on a pay-as-you- 
go basis. 



7 



October 8, 1943 Guy T. Helvering 
resigned as Commissioner. 

October 9, 1943 Robert E. Han- 
negan of Missouri became Com- 
missioner. 



November 1, 1943 A Processing 
Division, under the Accounts and 
Collection Unit, was established 
in New York City to provide a cen- 
tralized organization for performing 
new tax collection tasks — using 
electronic typewriters and key-dri- 
ven booking machines to match 
withholding forms to returns on a 
limited basis. This was the first 
recognition of the potential benefits 
of centralized, modern data process- 
ing techniques in the Bureau. 

December 22, 1943 Congress 
amended the Internal Revenue Code 
to suspend automatic increases in 
social security tax rates under the 
Federal Insurance Contributions Act 
for the first two months of 1944. 

1943 A five percent Victory Tax 
was withheld at the source during 
the first six months of the year. 

1943 The Supreme Court sanc- 
tioned the validity of using the 
"net worth theory" in investigating 
criminal tax cases in United States 
v. Johnson. This decision did not 
specify acceptable procedures for 
conducting net worth investiga- 
tions, leading to additional ques- 
tions regarding this investigative 
technique through the mid-1950s. 

1943 The Bureau of Internal Rev- 
enue provided taxpayer assistance 
on an informal basis by broadcasting 



137 



tax information over public address 
systems in federal buildings. 

January 22, 1944 Robert E. 
Hannegan resigned as Commissioner. 

JANUARY 1944 President Roosevelt 
recommended tax simplification in his 
1944 budget message to Congress. 
Ways and Means Committee Chair- 
man Robert Doughton of North 
Carolina promised simplification 
would be the top priority. 

FEBRUARY 22, 1944 President 
Roosevelt vetoed the Revenue Act 
of 1943 — the first veto of a revenue 
bill in American history. Roosevelt 
referred to this bill as "not a tax 
bill, but a tax relief bill, providing 
relief not for the needy but for the 
greedy." 

February 24-25, 1944 The 
House (299-95) and the Senate (72- 
14) overrode the President's veto 
and enacted the Revenue Act of 
1943, making this act the first rev- 
enue bill to become law over a 
presidential veto. This act repealed 
the earned income credit and the 
victory tax credit, reduced the vic- 
tory tax rate from 5 to 3 percent, 
increased the excess profit tax rate 
from 90 to 95 percent, increased 
many excise taxes, and made many 
other changes in the tax code. 

March 1, 1944 Joseph D. Nunan, 
Jr., of New York became Commis- 
sioner. 

April 1, 1944 The tax rate on fer- 
mented malt liquors was increased 
from $7 to $8 a barrel. 



May 29, 1944 The President 
signed the Individual Income Tax 
Act of 1944. This act simplified the 
income tax for persons with small 
incomes, replaced the Victory Tax 
with a new 3 percent normal tax on 
net income, lowered tax rates, and 
increased surtaxes. 

Adoption of the standard deduc- 
tion of 10 percent and uniform per- 
sonal exemptions of $500 were part 
of this act, which expanded the tax 
base to cover nearly all Americans. 
Tax rates ranged from 20 to 91 per- 
cent with taxes withheld directly 
from paychecks. 

June 9, 1944 The Public Debt 
Act of 1944 reduced the war tax rate 
on amounts paid at cabarets, roof 
gardens, etc., from 30 percent to 20 
percent. 

June 20, 1944 Congress repealed 
the tax on sugar after June 30, 1947. 

June 30, 1944 Congress extended 
the provisions of the wage and 
salary stabilization program through 
June 30, 1945. 

December 22, 1944 Congress 
authorized collectors of internal rev- 
enue to receive certified, cashiers' and 
treasurers' checks drawn upon 
National and State banks and trust 
companies, and U.S. postal, bank, 
express, and telegraph money orders 
in payment for internal revenue taxes. 

1944 Permission was granted for 
taxpayers with income from wages of 
less than $5,000 to have their tax com- 
puted by the Bureau of Internal Rev- 
enue. Phis limit was increased to 
$10,000 in 1969. 



7*7 



138 



July 31, 1945 The Tax Adjust- 
ment Act of 1945 provided for 
speedy tax refunds and relieved 
smaller businesses of some of the 
burdens of the excess profits tax. 

September 1945 The Alcohol 
Tax Unit began an intensive inves- 
tigative program to register machine 
guns, machine pistols, and other 
firearms under the purview of the 
National Firearms Act. 

November 8, 1945 The Revenue 
Act of 1945 was passed to improve 
"the cash position of business by 
advancing the time of payment 
of postwar tax refunds and credits... 
"the major thrust of this bill was to 
speed refunds from net operating 
loss carrybacks. This act provided 
tax reductions for individuals and 
businesses. 

December 16, 1945 A new division 
was formed in the Miscellaneous Tax 
Unit, known as the Tobacco and Cap- 
ital Stock Tax Division, assuming the 
duties formerly performed by the 
Tobacco Division and the Capital 
Stock Tax Division. This new divi- 
sion was concerned with adminis- 
tration of laws relating to taxes on 
the manufacture, sale, or removal 
of tobacco, snuff, cigars, and cig- 
arettes, etc. 

1945 The first planning office for 
Internal Revenue was established, 
called the "Management Staff and 
directed by an assistant to the com- 
missioner. 



Vr, 



1945 The Bureau of Internal Rev- 
enue began selling a booklet 
explaining how to fill out Form 
1040 titled, "Your Federal Income 
Tax." 

1941-1945 The Roosevelt admin- 
istration hoped to pay for at least 
half the cost of World War II by 
increased taxation. Wider ranging 
tax laws and the new policy of with- 
holding taxes from paychecks led to 
a doubling of individual returns 
during this period. Still, the goal of 
meeting 50 percent of the war's cost 
by taxation was not met. Approxi- 
mately 43 percent was raised 
through taxes. 

January 1, 1946 The Revenue 
Act of 1945 repealed the excess 
profits tax effective this date. 

March 8, 1946 Congress amend- 
ed the Internal Revenue Code to 
include among the narcotic drugs 
taxable and otherwise controlled 
under the Code, any opiate found 
to have addiction-forming or addic- 
tion-sustaining properties similar to 
morphine or cocaine; and to permit 
producers of fiber or fiber products 
to secure supplies of the plant 
Cannabis sativa L, from which mar- 
ihuana was produced, without pay- 
ment of the tax on the transfer of 
marihuana. 

March 25, 1946 The Employ- 
ment Tax Unit was created to 
administer employment taxes under 
the Internal Revenue Code. Prior to 
this, the work was performed by the 
Accounts and Collections Unit. 



139 



April 1, 1946 The Commissioner 
proposed that the Bureau create a 
board to administer the excess 
profits tax. 

May 25, 1946 The Excess Profits 
Tax Council was established as a 
field group within the Technical 
Staff to supervise and settle cases 
pending before the Bureau of Inter- 
nal Revenue with respect to applica- 
tions for relief under the provisions 
of Section 722 of the Code. The 
original membership of the commit- 
tee was limited to 15. 

July 16-17, 1946 The Excess 
Profits Tax Council held its first 
organizational meetings. 

July 25, 1946 Congress extended 
the provisions of the wage stabili- 
zation program through June 1947. 

September 1, 1946 Elmer Irey 
retired as Chief of the Bureau's 
Intelligence Unit. Irey had served 
in this position since 1919. 

October 7-9, 1946 The roots of the 
reorganization of tax administration 
took hold when Treasury Secretary 
John W. Snyder called a meeting of 
key revenue officials to plan for 
streamlining and modernizing the 
Bureau of Internal Revenue and to 
start a management improvement 
program to ease the transition to 
peacetime operations. This was the 
first such conference held in Wash- 
ington, D.C. in a decade. 



October 31, 1946 The Secretary 
of the Treasury addressed a letter to 
all Bureau chiefs urging the stream- 
lining of operations and other 
administrative improvements. 

October 1946 The Excess Profits 
Tax Council began reviewing 
specific taxpayer cases. 

November 15, 1946 A Special 
Committee on Administration in 
the Bureau of Internal Revenue was 
appointed to appraise the ideas and 
suggestions submitted by key 
officials at the October manage- 
ment conference. This Committee 
submitted its final report in August 
1947. 

November 9, 1946 The President 
terminated all wage and salary con- 
trols provided for by the Stabiliza- 
tion Act of 1942. 

December 12, 1946 The President 
transferred the functions of the 
National Wage Stabilization Board 
to the Department of the Treasury. 

December 16, 1946 The Com- 
missioner delegated part of his 
responsibilities in the area of audit to 
the collectors in a mimeograph issued 
this date. This included authority for 
investigation and audit of all individ- 
ual returns with adjusted gross 
income of less than $7,000 and busi- 
ness returns less than $25,000. This 
also included authority to make 
refunds in connection with returns 
retained for audit of less than $1 ,000. 



T7 



140 



1946 An internal proposal advocat- 
ed a return to the old policy of ruling 
only on completed transactions, but 
the informal procedure established 
in 1940 continued throughout the 
1940s and into the 1950s. 

January 14, 1947 The Treasury 
Secretary set up a Committee on 
Employee Awards, inviting all 
employees to send in ideas and sug- 
gestions for improving operations. 
The program included cash incen- 
tive awards for employees whose 
ideas resulted in economies. 

March 7, 1947 The functions of 
the National Wage Stabilization 
Board were transferred from the 
Treasury Department to the Com- 
missioner of Internal Revenue. 

March 11, 1947 Congress 
approved the Excise Tax Act of 

1947 which continued the increases 
in excise and other miscellaneous 
tax rates made by the Revenue Act 
of 1943. 

March 25, 1947 The Treasury 
Department sent another letter to 
Bureau heads urging accelerated 
efforts to improve management and 
reduce expenses. 

May 23, 1947 In an effort to com- 
bat the importation of thousands of 
dangerous war trophies by military 
personnel (semiautomatic firearms, 
grenades, land mines, projectiles, 
etc.) the Treasury, Navy, Army, Air 
Force, National Rifle Association, 
Customs, and Coast Guard com- 
bined efforts to develop a public 
relations program to bring to the 
attention of the public the danger 



of possessing and handling these 
items. 

May 29, 1947 The functions, 
duties, and powers of the Secretary 
of Agriculture relating to the 
enforcement of agricultural wage 
and salary regulations under the Sta- 
bilization Act of 1942 were trans- 
ferred to the Secretary of the Trea- 
sury. In turn, this responsibility was 
transferred to the Commissioner of 
Internal Revenue. 

June 6, 1947 President Truman 
vetoed a tax reduction bill, arguing 
that it was "the wrong tax reduction 
at the wrong time." A House motion 
to override the veto failed by two 
votes. A new bill was passed which 
delayed the tax cuts from July 1, 
1947 to July 1, 1948. Truman vetoed 
this bill and the House overrode the 
veto, but the Senate sustained the 
veto by two votes. 

June 11, 1947 Effective at mid- 
night, sugar rationing was discontin- 
ued and sugar controls were there- 
after limited to an allocation system 
applying to industrial users, whole- 
salers, and retailers. 

June 30, 1947 Joseph D. Nunan, 
Jr. resigned as Commissioner. 

June 30, 1947 The Stabilization 
Act of 1942 expired. The Salary Sta- 
bilization Unit in the Bureau of 
Internal Revenue continued to 
process cases involving wages and 
salaries. 

June 1947 The Bureau of Inter- 
nal Revenue initiated a work sim- 
plification program with a "pilot" 



^ 



141 



installation in the collector's office 
in St. Paul, Minnesota. 

July 1, 1947 George J. Schoene- 
man of Rhode Island became Com- 
missioner. 

JULY 1,1947 Title I of Public 
Law 147 (Treasury Department 
Appropriation Act of 1948) autho- 
rized and directed the Joint Com- 
mittee on Internal Revenue Taxa- 
tion to study enforcement of inter- 
nal revenue laws to determine the 
number of deputy collectors, rev- 
enue agents, and other personnel 
needed to ensure the maximum net 
return from internal taxes. 

August 14, 1947 Mimeograph 
6176 extended the collectors' audit 
jurisdiction over individual 1040 
returns to include all returns clas- 
sified as worthy of field examina- 
tion or office audit. 

August 1947 The Special Com- 
mittee on Administration issued its 
final report, adopting over 100 of 
the ideas or plans resulting from 
the October 1946 conference. 

November 1, 1947 The Wage 
and Excise Tax Division was 
formed in collector's offices by 
combining the Miscellaneous and 
Employment Tax Divisions and 
the Withholding Tax Subdivision 
of the Income Tax Division, per- 
mitting the consolidation of some 
forms and records. 

1947 The Bureau began a micro- 
filming program aimed at preserv- 
ing permanent records as well as 
saving space and equipment. 



1947 The Processing Branch 
moved to Kansas City. 

February 20, 1948 A report by 
the House Committee on Appropri- 
ations made a number of recom- 
mendations for improving the oper- 
ations of the Bureau of Internal 
Revenue. Consequently, the Secre- 
tary of the Treasury instructed the 
Commissioner to implement broad- 
scale management improvements. 

March 23, 1948 An organizational 
meeting of the Treasury Department 
Management Committee was held. 
This Committee was to act as a con- 
sulting organization for improving 
management throughout the Depart- 
ment. 

April 2, 1948 The Revenue Act 
of 1948 was passed over the Presi- 
dent's veto. This act embodied a 
desire to equalize the tax burden of 
those who did and did not reside in 
community property states, giving 
married couples the option of filing 
joint returns and increasing the 
standard deduction for joint 
returns. 

Overall, the law reduced individ- 
ual and estate tax rates. This law 
also allowed an additional exemp- 
tion for a taxpayer or spouse of a 
taxpayer age 65 and older or who 
was blind. 

April 22, 1948 The Commissioner 
established a management staff to 
improve management throughout 
the Bureau. 



77 



142 



APRIL 1948 The Advisory Group 
to the Joint Committee on Internal 
Revenue Taxation released a report 
with a number of recommendations, 
including decentralization of routine 
work to field offices, establishment 
of a management staff in the Com- 
missioner's Office, improvements in 
tax return forms, the use of modern 
sampling techniques to measure the 
adequacy of enforcement methods, 
and the employment of outside 
management specialists to study the 
organization and operations of the 
Bureau. 

June 14, 1948 Congress provided 
that the term "employee" in regard 
to Federal insurance contributions 
did not include any individual who 
hajd the status of an independent 
contractor or any individual who 
was not an employee under such 
rules. 

June 30, 1948 Congress amended 
section 3150(a) of the Internal Rev- 
enue Code providing that the tax 
imposed on beer and other fer- 
mented liquor was applicable also 
to beer, etc., imported into the 
United States. 

JULY 2, 1948 The Secretary of the 
Treasury established a Committee 
to Direct the Management Studies 
of the Bureau of Internal Revenue 
to study the management problems 
of the Bureau and to recommend 
improvements. A.L.M. Wiggins 
was named chairman of this group, 
composed of leaders from both 
inside and outside the government. 



Jr 



September 30, 1948 The man- 
agement firm of Cresap, McCormick, 
and Paget was hired to make a 
comprehensive analysis of organiza- 
tion and procedures in collectors' 
offices around the country, with rec- 
ommendations for improvement. 

September 1948 Officers in 
charge of field offices were autho- 
rized to approve most personnel 
actions for their offices, eliminating 
much paperwork in the central office 
of the Bureau in Washington, D.C. 

October 22, 1948 The member- 
ship of the Excess Profits Tax 
Council was increased from 
15 to 25, including a five member 
executive committee vested with 
final authority over issues arising 
under section 722. 

1948 Commissioner Nunan 
testified before the House Appro- 
priations Committee that taxes 
brought in through the investiga- 
tive and enforcement activities of 
the Bureau of Internal Revenue 
were being collected at the rate of 
$20 for each $1 spent. This 20:1 
ratio was used to justify personnel 
increases, but this comparison ulti- 
mately resulted in acceptance of a 
quota system. 

1948 The first step in using mod- 
ern data processing equipment was 
taken when the Bureau of Internal 
Revenue introduced punch card 
equipment to process notices. The 
computation of income tax liability 
on Form W-2 returns was tested in 
the Cleveland collector's office. 



143 



1948 Taxpayer records and 
returns as well as excise tax returns 
were shifted from Washington, 
D.C. to collector's offices for man- 
agement and retention. 

1948 The Miscellaneous and 
Employment Tax Divisions and 
the Withholding Tax Subdivision 
in each collector's office were com- 
bined into the Wage and Excise 
Tax Division. 

1948 The Paris Office of Internal 
Revenue reopened. World War II 
had closed all three overseas 
offices. Also, the Bureau of Inter- 
nal Revenue conducted a survey of 
Americans living in foreign loca- 
tions which revealed a low level of 
compliance due to lack of taxpayer 
assistance. 

1948 The first formal long-range 
planning of organization, person- 
nel, and budgeting began with a 
study made by the Advisory Group 
of the Joint Committee on Internal 
Taxation. 

1948 The Bureau rewrote the 
booklet "Your Federal Income 
Tax," in nontechnical language and 
it became a bestseller. Instructions 
to taxpayers enclosed with income 
tax return forms were clarified so the 
taxpayer would know not only what 
to report but what was legally omis- 
sible or deductible. 

1948 The Bureau introduced a 
new short form 1040A. 



1948 Photocopying was intro- 
duced in many offices to reduce 
the typing workload and relieve 
the shortage of typists and steno- 
graphers. 

1948 The Estate and Gift Tax 
Division was transferred from the 
Miscellaneous Tax Unit to the 
Income Tax Unit. 

January 29, 1949 The Bureau 
received the final report of the 
management consulting firm 
Cresap, McCormick and Paget 
on its study of collectors' offices. 
The next month, the same man- 
agement consulting firm was 
engaged to study the overall organi- 
zation of the Bureau of Internal Rev- 
enue. 

April 1, 1949 The Bureau trans- 
ferred the Estate Tax Division to 
the Income Tax Unit and changed 
its designation to Estate and Gift 
Tax Division. 

April 1949 The Bureau of Inter- 
nal Revenue began a pilot program 
to exchange abstracts of audit 
information between collector's 
offices and state tax departments. 

May 1949 The retention of per- 
sonnel and retirement accounts 
and records was decentralized to 
eight field offices in the New York 
City area as an experiment to 
determine the feasibility and 
advisability of transferring this 
paperwork to the field. After a suc- 
cessful test period, the transfer of 
retirement record maintenance was 
decentralized to all field offices 
later this year. 



7*7 



144 



AUGUST 23, 1949 Tax-stamp 
machines were introduced for the 
payment of taxes on fermented 
liquors. 

August 1949 The management 
consulting firm Cresap, McCormick, 
and Paget submitted its report on 
the organization of the Bureau. 
The findings and recommendations 
of the report presaged many of the 
results of the 1952 reorganization. 
The consulting firm recommended 
the replacement of political 
appointees with career civil servants, 
the establishment of six regional 
offices (San Francisco, Atlanta, 
Kansas City, New York City, Dallas, 
and Chicago), and the creation of an 
executive development program. 
The separate field structure of audit 
and collection functions would 
remain intact. It would take the 
scandals of the early 1950s to bring 
action on many of these recommen- 
dations. 

Fall 1949 The Processing Divi- 
sion in Kansas City began to insert 
and mail income tax forms and 
instructions for several collector's 
offices using mass production 
methods. 

November 14, 1949 The Com- 
missioner defined the authority 
and responsibilities of the two 
assistant commissioners. One was 
given supervision over the operat- 
ing activities of the Bureau and 
one was given responsibility for 
the technical functions of the 
Bureau. 



Vr 



December 16, 1949 Collectors 
were authorized to make refunds 
under $10,000 rather than having 
requests for review and scheduling 
of refunds sent to Washington, D.C. 

1949 The Bureau revised its pro- 
cedures for preliminary review of 
individual tax returns so that returns 
for taxable years after 1947 were 
reviewed and classified in the field 
rather than in Washington, D.C. 
The preliminary review of other 
returns continued in the Income 
Tax unit in Washington, D.C. 

1949 The use of key punch 
equipment was extended to seven 
additional collection districts from 
the original installation in Cleve- 
land. From use only on 1040A 
returns in 1948, the experiments 
were extended to 1040 returns, 
1040ES returns, and related docu- 
ments. 

1949 The National Tax Founda- 
tion estimated that the average 
American worked one hour and 
16 minutes of each work day to pay 
his or her federal taxes — up from 
40 minutes 10 years earlier. 

1949 The Bureau initiated an 
audit control program to improve 
enforcement of the tax laws by 
sampling a selection of individual 
income tax returns for field investi- 
gation. Examination was made of 
162,000 individual income tax 
returns for 1948 in an effort to 
determine how best to deploy the 
examining force of the Bureau and 
on what types of returns. 



145 



1949 Collectors were authorized 
to assert delinquency penalties for 
late filing on all types of returns as 
well as authority for handling all 
requests for certified copies of 
individual income tax returns and 
for the transcript service for the 
states with such returns. 

1949 The Bureau began to exper- 
iment with electric typewriters, 
continuous forms, dual roller 
platens, and posting machines for 
processing individual income tax 
returns. 



TT? 



146 




The hallways of the National Office doubled as office space in the 1950s. 



19 5° ' J 953 

Investigation and Turmoil: 
The Depoliticization of Tax Collection 

tt7 



Congressional investigations into alleged fraud on the part of Bureau of Inter- 
nal Revenue employees reached a zenith during these years. By the conclusion 
of the investigations, several hundred Bureau employees had left the agency, 
either voluntarily or under indictment for offenses against the tax laws. The 
result was a sweeping reorganization plan developed by President Harry 
Truman which transformed the Bureau from an organization whose top 
positions were filled with political appointees to one in which only one posi- 
tion, that of the Commissioner, was a political appointee. 



January-April 1950 Electronic 
computers were used with punch 
card tabulating equipment for calcu- 
lating tax liability on income tax 
returns during the filing season. 

January 1, 1950 Federal Insurance 
Contributions Act (FICA) and 
income tax withholdings were com- 
bined in a single form (Form 941), 
and the depository receipt system 
was extended to FICA taxes. The 
depository receipt system was also 
revised to permit use of a new punch 
card receipt for deposits made 
directly with Federal Reserve banks 
or through authorized local banks. 

February 6, 1950 Initial arrange- 
ments for the exchange of tax data 
were made with North Carolina and 
Wisconsin and were expanded to 
include Colorado, Kentucky, and 
Missouri over the next two years. 

February 7, 1950 Congress 
amended the Federal Firearms Act 
to provide for the seizure, forfeiture, 
and disposition of any firearm or 
ammunition involved in any viola- 
tion of the act or its regulations. 

February 21, 1950 Congress 
amended the Internal Revenue 
Code to provide for the use of tax- 
stamp machines or other devices for 
paying the tax on domestic distilled 
spirits and alcohol and prescribed 
penalties for fraudulent acts relating 
to tax-stamp machines. 

March 16, 1950 Section 2301 of 
the Internal Revenue Code relating 
to the tax on oleomargarine and the 
occupational tax on manufacturers of 
oleomargarine was repealed. 



~? 



April 1, 1950 The administration 
of withholding income taxes from 
wages was transferred from the 
Income Tax Unit to the Employ- 
ment Tax Unit. 

August 28, 1950 The Social Secu- 
rity Amendments Act of 1950 
amended the old-age and survivors 
insurance provisions of the Social 
Security Act by extending coverage 
to many persons not previously cov- 
ered, including most self-employed 
except farmers, certain domestic 
workers in private homes, regularly 
employed agricultural workers, etc. 

September 1, 1950 Bulk gauging 
tanks were installed in Internal 
Revenue bonded warehouses, 
which saved considerable time for 
storekeeper-gaugers. Numerous pro- 
cedures for simplified reporting of 
alcohol taxes were instituted. 

September 23, 1950 The Revenue 
Act of 1950 provided new, elaborate 
avoidance provisions dealing with 
tax-exempt organizations and chari- 
table trusts and capital gains and 
losses. This act also raised individual 
and corporate tax rates and reduced 
wartime excise taxes. 

September 23, 1950 The Internal 
Security Act of 1950 provided that 
no deduction for federal income tax 
purposes and no exemption under 
section 101 of the Internal Revenue 
Code (non-profit organizations) would 
be allowed for any organization reg- 
istered by the Subversive Activities 
Control Board as a Communist 
organization. 



148 



October 30, 1950 The Bureau 
stopped preparing separate reports 
of concurrent examinations of 
income tax returns covering two 
years or more. 

November 1950 The California 
Crime Commission charged the 
Bureau of Internal Revenue with 
failing to prosecute tax-dodging 
racketeers. 

December 13-20, 1950 The Joint 
Committee on Internal Revenue 
Taxation held executive session 
hearings in Washington, D.C. with 
top Bureau officials. 

December 27-28, 1950 The Joint 
Committee on Internal Revenue 
Taxation held executive session 
hearings in New York concerning 
the Office of the Collector of Inter- 
nal Revenue for the third district of 
New York. 

1950 The Bureau began an audit 
control program with the examination 
of a scientifically selected sample of 
1948 individual income tax returns. 

1950 The House Ways and Means 
Committee voted out a bill provid- 
ing for withholding of tax at a rate of 
10 percent on dividends. Ultimately, 
this bill did not pass. 

1950 The Bureau tested a new sys- 
tem of numbering tax returns, using 
an alphabetical prefix to designate 
the classification of the returns in 
seven of its field offices. 

1951-1952 A series of investiga- 
tions by the Subcommittee on 
Administration of the Internal Rev- 



enue Laws of the House Committee 
on Ways and Means erupted into a 
major corruption and embezzlement 
investigation which ultimately impli- 
cated 167 Internal Revenue employ- 
ees and led to a major administrative 
reorganization in 1952. 

January 2, 1951 The Bureau 
established an office of Budget and 
Finance responsible for budget 
operations and internal accounting 
work pursuant to the Budget and 
Accounting Procedures Act of 1950. 
The first three regional finance 
offices were established during the 
year in Boston, Philadelphia, and 
Richmond to provide better and 
more economical fiscal service. 

January 3, 1951 Congress enacted 
the Excess Profits Tax Act of 1950 to 
raise revenue through taxing the 
excess profits of corporations and 
increasing the corporate tax rate by 
two percent. This was eliminated 
after the Korean War ended in 1953. 

January 15, 1951 A Legislative 
and Operative Planning Task Com- 
mittee began operating under the 
Income Tax Unit, with the primary 
responsibility of studying legislative 
problems affecting the administra- 
tion of the revenue laws. 

January 1951 The Bureau institut- 
ed an operational cost system in col- 
lectors' offices, providing data for 
businesslike cost control in collec- 
tors' offices, making it possible to 
staff offices on the basis of workload. 



vr- 



149 



February 5, 1951 Senator John J. 
Williams of Delaware demanded 
the removal of Collector James W. 
Johnson of New York for inefficiency, 
citing the conviction of eight deputies 
in Johnson's office on bribery charges 
since 1946. 

February 20, 1 95 1 Deputy Col- 
lector W.D. Malloy of San Francisco 
was fired. 

February 27, 1951 Commissioner 
Schoeneman testified that 50 to 60 
employees were fired each year for 
taking bribes and announced the 
creation of a special fraud section in 
the Bureau. 

February 28, 1951 Congress 
amended the Internal Revenue 
Code relating to the powers of 
the Joint Committee on Internal 
Revenue Taxation to obtain data 
directly from the Bureau of Internal 
Revenue, executive departments, 
and independent establishments. 

March 20, 1951 Two San Francis- 
co employees were indicted (Ernest 
M. Schino and Patrick Mooney). 

April 4, 1951 The St. Louis Col- 
lector, James P. Finnegan, resigned 
from the first district of Missouri. 

April 12, 1951 The Civil Service 
Commission requested the dismissal 
of B.D. Murphy, Chief Deputy Col- 
lector of the Syracuse Office. 

April 27, 1951 The Special Tax 
Fraud Drive was created to investi- 
gate known racketeers for compli- 
ance with the Internal Revenue 
Code. 



May 1951 The Subcommittee on 
Administration of Internal Revenue 
Laws began its investigation of the 
Bureau of Internal Revenue. 

May 7, 1951 Delaware Senator 
Williams charged that the St. Louis 
grand jury investigating Collector 
Finnegan's office was not given all 
the facts. 

June 27, 1951 Collector Dennis W. 
Delaney of Boston was suspended. 

June 30, 1951 Deputy Collector 
Sidney Jacobs and Mrs. Ann B. 
McAdoo Serge of the New York col- 
lector's office were arrested. 

July 1, 1951 New systems for 
appropriation accounting and admin- 
istrative control over budget and 
expenditures were placed in effect 
in the offices of those collectors who 
handled their own accounting. 

July 1, 1951 The Bureau of Inter- 
nal Revenue adopted a uniform 
stock control system to provide bet- 
ter control of inventories and requi- 
sitions. Decentralized stationery pro- 
curement was implemented to sim- 
plify procurement. 

JULY 2, 1951 Collector James W. 
Johnson of New York was fired. 

July 16, 1951 Collector Delaney of 
Boston was fired. 

July 19, 1951 President Truman 
authorized the establishment of an 
Inspection Service in the Bureau of 
Internal Revenue. The position of 
Director of the Inspection Service 
was also established. 



^ 



150 



July 31, 1951 George J. Schoene- 
man resigned as Commissioner citing 
health reasons. 

AUGUST 1951 A joint investigation 
was begun by the Subcommittee on 
Administration of Internal Revenue 
Laws and the Bureau of Internal 
Revenue of the income tax returns 
and activities of various high ranking 
Bureau officials. 

August 1, 1951 John B. Dunlap of 
Texas became Commissioner. 

August 4, 1951 Assistant Commis- 
sioner Daniel A. Bolich cited health 
reasons for requesting a transfer. 

August 8, 1951 James B.E. Olson, 
District Supervisor, Alcohol Tax 
Unit, District 2, New York and 
Puerto Rico, resigned. 

August 17, 1951 Monroe D. 
Dowling succeeded James W. John- 
son as Collector of Internal Revenue 
for the third district of New York. 

August 29, 1951 Seven employees 
from the Wisconsin Office were sus- 
pended for violating the Hatch Act. 

September 10-12, 1951 James 
B.E. Olson testified in public hear- 
ings in New York that he was paid 
$750 a month by American Litho- 
fold, a St. Louis printing firm, while 
he was head of the New York Alco- 
hol Tax Unit. 

September 14, 1951 Collector 
Delaney of Boston was indicted for 
accepting bribes. 



September 27, 1951 Collector 
James F. Smyth of San Francisco 
and eight others in his office were 
suspended. 

September 1951 A report on the 
management improvement efforts of 
the Bureau was completed. 

October 1, 1951 The Inspection 
Service of the Bureau of Internal 
Revenue was created to inspect field 
offices for efficiency and integrity. 

October 3, 1951 Secretary of the 
Treasury John W. Snyder agreed to 
let the House investigating commit- 
tee circulate a questionnaire among 
Internal Revenue employees on 
their income. The Committee had 
made this request in July. Commis- 
sioner Dunlap ordered the examina- 
tion of the income tax returns of all 
Bureau employees. 

October 4, 1951 Several rev- 
enue agents resigned rather than 
fill out the questionnaires. Senator 
Blair Moody of Michigan put forth 
charges of irregularities in the Detroit 
collector's office. 

October 5, 1951 Carroll E. Mealey, 
Deputy Commissioner in charge of 
the Alcohol Tax Unit, resigned citing 
health reasons. The House Commit- 
tee widened its probe of Bureau activ- 
ities to include St. Louis, Boston, 
New York, and Philadelphia. 

October 10, 1951 Treasury Secre- 
tary Snyder testified that he advised 
Finnegan to quit in August 1950. 
Senator Williams charged that the 
scandals will "reach right into Wash- 
ington" and revealed that Schoene- 



77 



151 



man had testified in the spring that 
there was nothing wrong in St. Louis 
or San Francisco. 

OCTOBER 1 1 , 1 95 1 St. Louis Col- 
lector Finnegan was indicted on 
bribery charges. 

October 15, 1951 Dominic Vita of 
the Alcohol Tax Unit in Newark, was 
suspended. 

October 19, 1951 The Bureau of 
Internal Revenue denied a slowdown 
in the handling of tax evasion cases. 
Congressmen ask why more tax eva- 
sion cases are not brought to trial. 

October 20, 1951 President 
Truman signed the Revenue Act of 
1951, raising individual and corpo- 
rate tax rates as well as many excise 
taxes. The act included a provision 
for additional withholding upon 
agreement between the employer 
and employee as well as numerous 
special tax benefits, including 
deduction of medical expenses for 
the elderly, mine exploration 
expenses, unharvested crops and 
depletion allowances for clam and 
oyster shells. 

October 21, 1951 Commissioner 
Dunlap called all field chiefs to 
Washington for a three-day confer- 
ence. Nashville Collector Lipe 
Henslee was suspended for health 
reasons. 

October 23, 1951 Joseph P. Mar- 
celle, Collector for the first district of 
New York, was fired. 

October 24, 1951 Two more New 
York agents were suspended. 



October 31, 1951 Lipe Henslee 
resigned as Collector of Internal 
Revenue for Tennessee. 

October 1951 In response to the 
widening scandals, two new require- 
ments are announced for Internal 
Revenue employees. First, income 
tax returns of all officials and various 
enforcement personnel would be 
subjected to special examination and 
second, all high grade and enforce- 
ment personnel must submit finan- 
cial statements. 

November 1, 1951 Congress 
passed new wagering tax laws, pro- 
viding a tax on organized gambling. 
These taxes were challenged as 
unconstitutional but were ultimately 
upheld. 

November 1, 1951 President 
Truman announced that he would ask 
Congress to place all Collectors 
under the Civil Service system. 

November 1, 1951 Increases in 
excise taxes on alcoholic beverages, 
cigarettes, gasoline, automobiles, and 
related products under the Revenue 
Act of 1951 went into effect. 

November 2, 1951 Joseph Fried- 
man, New York agent, was arrested. 
The House committee accused a 
U.S. attorney in San Francisco of 
refusing to cooperate with the inves- 
tigation. 

November 2, 1951 The Income 
Tax Unit was reorganized to reduce 
the number of organizational 
units from 13 to 5, eliminating 
1 13 positions. 



77 



152 



November 6, 1951 The House 
Committee announced the probe 
into Bureau management issues 
would be extended to North Caroli- 
na and Michigan. 

November 7, 1951 The Treasury 
Department created a Special Board 
of Inquiry and Review to investigate 
the handling of tax fraud cases. 

November 14, 1951 All tobacco 
tax functions were transferred from 
the Excise Tax Division to the Alco- 
hol Tax Unit and the Unit's designa- 
tion was changed to the Alcohol and 
Tobacco Tax Division (AT&T), 
consolidating field inspection and 
enforcement activities in one staff. 

November 19, 1951 Assistant 
Commissioner Daniel A. Bolich 
resigned. 

November 29, 1951 James G. 
Smyth was dismissed as Collector of 
Internal Revenue for the first district 
of California. 

December 5, 1951 Charles 
Oliphant resigned as Chief Counsel 
for the Bureau of Internal Revenue. 

December 7, 1951 The Treasury 
Department revised regulations 
relating to tax practitioners to 
require their periodic re-enrollment. 

December 7, 1951 The Technical 
Staff was renamed the Appellate 
Staff and the Technical Staff District 
became the Appellate Staff District. 

December 11, 1951 The proce- 
dure for consideration of criminal 
fraud cases was revised by eliminat- 



=* 



ing the health of the taxpayer as a 
basis for refraining from recom- 
mending criminal prosecution for tax 
violations. 

1951 Assistant to the Commissioner 
T.C. Atkeson told the House Appro- 
priations Committee that "we should 
get away from the 20 to 1 ratio...," 
referring to the quota system. 

1951 The Bureau initiated a proce- 
dure to provide an alphabetical prefix 
in the classification and numbering 
of income tax returns to provide for 
quick identification of the class of 
return and simplify numbering. 

1951 Beginning this tax year, the 
Bureau used punch card tabulating 
machines to prepare a punch card 
bill form for "Estimated Income Tax 
Installment Due Notices," used for 
39 percent of all such accounts. 

1951 Authority for audit of Form 
940 was decentralized to collectors, 
expediting the process by allowing 
collectors to deal directly with state 
unemployment compensation agen- 
cies. 

1951 The Bureau installed a new 
method of processing monthly 
returns of manufacturers of tobacco 
products and annual accounts of 
dealers in leaf tobacco. 

1951 The Bureau received author- 
ity from the Civil Service Commis- 
sion to make probational appoint- 
ments rather than temporary 
indefinite appointments to positions 
of internal revenue agent, special 
agent (tax fraud), and engineer spe- 
cial agent. 



153 



JANUARY 8, 1952 The Secretary of 
the Treasury announced revised pro- 
cedures for handling criminal tax 
fraud cases, providing for the direct 
referral of such cases from the field to 
the Department of Justice. 

J wiary 10, 1952 The Secretary 
of the Treasury ordered abandon- 
ment of the former policy under 
which criminal prosecution was not 
recommended in cases where tax- 
payers made voluntary disclosures 
of intentional violation of internal 
revenue laws prior to initiation of 
investigation by the Bureau. 

January 14, 1952 President 
Truman submitted Reorganization 
Plan #1 of 1952 to Congress, calling 
for a comprehensive reorganization 
of the Bureau of Internal Revenue. 
Key elements of the reorganization 
plan included replacement of the 
patronage system with a career ser- 
vice; improving the coordination 
process; decentralizing service to 
the taxpayers; restoring the integri- 
ty of and public confidence in the 
Bureau; creation of an independent 
Inspection Service. 

January 30, 1952 The House 
approved Truman's Reorganization 
Plan and the Bureau established ten 
task forces to work, out details of 
plans and procedures to implement 
the plan. 

1952-1959 During this period the 
Chief Counsel was appointed by the 
Secretary of the Treasury. 

February 12, 1952 Frank Scofield 
resigned as Collector of Internal Rev- 
enue for the first district of Texas. 



March 13, 1952 The Senate 
approved President Truman's Reor- 
ganization Plan #1 after voting down 
the last motion to defeat the plan. 

March 15, 1952 Reorganization 
Plan #1 took effect. The Plan orga- 
nized the Bureau of Internal Rev- 
enue along functional lines; aban- 
doned the system of political 
appointments to positions below the 
Commissioner; integrated most field 
revenue programs under district 
directors; established a system of 
regional administration under 
regional commissioners; consolidat- 
ed inspection functions under the 
Inspection Service. This reorganiza- 
tion established the basis for a three- 
tiered structure of organization — 
the National Office; regional offices; 
and district offices. 

March 17, 1952 Monroe D. 
Dowling, Collector of Internal Rev- 
enue for the third district of New 
York, resigned. 

March 1952 For the first time, a 
manufactured flat package of tax 
forms and instructions was used for 
two states, Indiana and Massachu- 
setts. This test demonstrated that 
higher manufacturing costs were off- 
set by savings in labor costs. 

April 1952 A standard mail-opening 
system was installed in all collectors' 
offices, providing a more rapid and 
efficient handling of mail and remit- 
tances. 

May 15, 1952 The Appellate Staff 
became the Appellate Division. 



7T 



154 



May 20, 1952 The Midwest Region 
was established as the Office of the 
District Commissioner of Internal 
Revenue, Chicago District, with juris- 
diction over district headquarters in 
Chicago and Springfield. 

May 20, 1952 A gradual reorganiza- 
tion of field offices began as provid- 
ed by the Reorganization Plan No. 1 
of 1952. Audit work formerly per- 
formed by collectors was transferred 
to the new audit division in each 
director's office. 

July 1 , 1 952 The Office of the 
District Commissioner for New York 
was established. 

July 11, 1952 Ernest E. Killen 
resigned as Collector of Internal Rev- 
enue for the district of Delaware. 

August 4, 1952 An Internal Rev- 
enue Manual system, adapted to the 
new plan of organization, was estab- 
lished in a revisable looseleaf style 
to provide a single authoritative 
compilation of the policies and pro- 
cedures having continuing effect on 
the administration and operation of 
the Bureau. 

August 11, 1952 The complete 
reorganization of the National Office 
on a functional basis rather than on 
the former type-of-tax basis took 
effect. The reorganization of Inter- 
nal Revenue abolished the Office of 
the Director of the Inspection Ser- 
vice and this position was given 
higher status by establishing the 
Office of the Assistant Commission- 
er (Inspection). A position of Admin- 
istrative Assistant to the Commis- 
sioner was established reporting 



directly to the Commissioner and 
positions of Assistant District Com- 
missioner (Administration) were 
established in each district office. 

October 6, 1952 The Northeast 
Region was established as the Office 
of the District Commissioner of 
Internal Revenue, Boston District, 
comprised of Connecticut, Maine, 
Massachusetts, New Hampshire, 
Rhode Island, and Vermont. 

October 21, 1952 Wisconsin was 
added to the Chicago District. 

October 23, 1952 The Southeast 
Region was established as the Office 
of the District Commissioner of 
Internal Revenue, Atlanta District, 
comprised of Florida, Georgia, 
North Carolina, South Carolina, and 
the Panama Canal Zone. 

November 12, 1952 The Mid- 
Atlantic Region was established as 
the Office of the District Commis- 
sioner of Internal Revenue, 
Philadelphia District, comprised of 
Delaware, New Jersey, and Pennsyl- 
vania, with jurisdiction over districts 
in Wilmington, Camden, Newark, 
Scranton, Philadelphia, and Pitts- 
burgh. 

November 18, 1952 John B. 
Dunlap resigned as Commissioner. 

November 19, 1952 The South- 
west Region was established as the 
Office of the District Commissioner 
of Internal Revenue, Dallas District, 
comprised of Texas and Oklahoma. 



77 



155 



December 1, 1952 By this date, 17 
offices of Regional Commissioners 
had been established under the reor- 
ganization plan. A total of 25 such 
offices were planned. The established 
offices included Atlanta, Baltimore, 
Birmingham, Boston, Buffalo, Chica- 
go, Cleveland, Dallas, Denver, 
Detroit, Los Angeles, Louisville, 
New York City, Philadelphia, St 
Louis, St Paul, and Seattle. 

Under this reorganization, the 
Appeals function changed from a 
national organization to a regional 
organization. The major field pro- 
grams, including alcohol and tobacco 
tax enforcement, were integrated 
under district directors. The appellate 
program and the permissive alcohol 
and tobacco tax functions were placed 
in the offices of regional commission- 
ers. In the National Office all activi- 
ties were placed under three assistant 
commissioners (inspection, opera- 
tions, and technical); an assistant to 
the commissioner; and an administra- 
tive assistant to the commissioner. 

1952 The Appellate Division 
received jurisdiction over federal 
estate taxes and employment taxes. 

1952 The issuance of enrollment 
cards good for a period of five years 
for persons entitled to practice 
before the IRS began. Before this, 
cards were issued for unlimited 
duration. 

1952 Forms 1040 and 1040A 
were revised to include a uniform 
exemption schedule designed 
to focus attention on dependency 
tests. Also during this filing season, 
a "package" mailing unit for distribu- 
tion of the 1040 was tested and 



approved for full implementation in 
the 1953 filing season. This involved 
combining the instructions and tax 
returns in book form and mailing the 
entire assembly in a flat package with 
an envelope. 

1952 Albert Einstein made the 
statement, "The hardest thing in the 
world to understand is income taxes." 

1952 There was a movement in 
Congress to require that the IRS 
make public all rulings issued to tax- 
payers. Instead, the IRS made a 
commitment to publish all com- 
munications to taxpayers and field 
offices involving substantive ques- 
tions and procedures affecting the 
rights and duties of taxpayers in the 
Internal Revenue Bulletin. 

January 9, 1953 The Office of the 
Director of Practice was established 
by order of the Secretary of the 
Treasury to assume functions relat- 
ing to enrollment and disbarment of 
tax practitioners before the Treasury 
Department (excluding custom- 
house brokers), formerly performed 
by the Treasury Department's Com- 
mittee on Practice and the Attorney 
for the Government. The Director 
of Practice was placed under the 
supervision of the Commissioner of 
Internal Revenue. 

January 1953 A kit containing a 
teaching text, enlarged copies of tax 
return forms, and regular return 
forms, was mailed to 30,000 junior 
and senior high school principals and 
school superintendents in the begin- 
ning of what became known as the 
"Teaching Taxes" program. 



7v 



156 



February 4, 1953 T.Coleman 
Andrews of Virginia became Com- 
missioner. 

April 10, 1953 The organizational 
structure of the National Office was 
revised and strengthened. A position 
for a Deputy Commissioner and a 
staff was established in the Office of 
the Commissioner. 

The staff was comprised of five 
assistant commissioners — adminis- 
tration, planning, operations, techni- 
cal, and inspection. The positions of 
Administrative Assistant to the 
Commissioner and Assistant to the 
Commissioner were abolished. 

April 1953 A new procedure was 
established for issuing and recording 
special occupational tax stamps, 
using an inexpensive printed stamp 
rather than more expensive 
engraved stamps formerly issued. 
The new stamps were issued begin- 
ning July 1, 1953. 

May 1953 The Secretary of the 
Treasury approved plans to stream- 
line the overall administrative setup 
in the regional offices, including a 
reduction in the number of regional 
offices from 17 to 9 and a change in 
title from District Commissioner of 
Internal Revenue and office of 
Director of Internal Revenue to 
Regional Commissioner of Internal 
Revenue and District Director of 
Internal Revenue respectively. 

June 12, 1953 The responsibility 
for processing claims to reward 
informers was transferred from the 
Audit Service Branch of the Audit 
Division in Washington to the dis- 
trict directors. 



June 1953 The Assistant Commis- 
sioner (Administration) met with all 
Assistant Regional Commissioners 
(Administration) to outline program 
objectives and standards of perfor- 
mance expected during the next 
year. 

July 1, 1953 Treasury Department 
Order 150-26 formally enacted sever- 
al organizational refinements, includ- 
ing reducing the number of regions 
from 25 to 9 and establishing the 
position of Deputy Commissioner. 

New regional offices were estab- 
lished in Cincinnati, Omaha, and 
San Francisco while offices in Balti- 
more, Birmingham, Buffalo, Cleve- 
land, Denver, Detroit, Los Angeles, 
Louisville, St Louis, St Paul, and 
Seattle were abolished. The others 
were designated as Regional Com- 
missioners of Internal Revenue. 

The Central Region was estab- 
lished as Office of the Regional 
Commissioner of Internal Revenue in 
Cincinnati, comprised of Indiana, 
Kentucky, Ohio, Virginia, and West 
Virginia with jurisdiction over district 
offices in Indianapolis, Louisville, 
Cincinnati, Cleveland, Columbus, 
Toledo, Richmond, and Parkersburg. 
The Western Region was established 
as the Office of the Regional Com- 
missioner of Internal Revenue in San 
Francisco, comprised of Arizona, 
Utah, California, Nevada, Hawaii, 
Idaho, Montana, Oregon, Washington, 
and Arkansas. 

The field operations of Alcohol and 
Tobacco Tax were centralized at the 
regional level while the delinquent 
accounts and returns program was 
transferred from the Audit Division in 
District Offices to the Collection 
Division. 



77 



157 



July 1, 1953 Authority to reject 
offers in compromise was delegated 
to district directors. Also transferred 
to the district directors were many 
functions previously performed in 
the Collection and Audit Divisions 
of the National Office and the Office 
of the Chief Counsel. 

July 7, 1953 Commissioner's Reor- 
ganization Order No. 17 officially 
redesignated the Bureau Headquar- 
ters as the National Office. 

July 9, 1953 Treasury Department 
Order 150-29 officially changed 
the name from Bureau of Internal 
Revenue to Internal Revenue Ser- 
vice. 

September 30, 1953 This marked 
the end of the first quarter in which 
excise taxes were paid on Form 720, 
a quarterly return rather than the 
previous system of monthly returns. 

September 1953 The first classes 
were held in the Advanced Training 
Center established under contract 
with the School of Business Admin- 



istration at the University of Michi- 
gan. The contract was awarded to 
the University of Michigan after 
soliciting proposals from institutions 
of higher learning. 

November 1953 Inspection field 
offices were consolidated into 9 
offices, each headed by a regional 
inspector. 

December 31, 1953 The excess 
profits tax enacted during the Kore- 
an War expired. 

1953 The procedure of informing 
taxpayers by mail of the IRS posi- 
tion on proposed agreements devel- 
oped into the two-part private letter 
ruling program. 

1953 The Supreme Court upheld 
the wagering tax law, clarifying the 
obligation of those involved in gam- 
bling activities to purchase registra- 
tion stamps and pay the 10 percent 
excise tax on gross amount wagered 
monthly. 



-T7 



158 




In an early version of today's busy taxpayer service telephone lines, IRS employees work 
directly with taxpayers to answer questions over the telephone. 



1954-1959 

Rebuilding a Reputation: 
Service" Becomes more than 
just a Name 



V[7 



In the aftermath of the 1952 reorganization, the Bureau of Internal Revenue 
struggled to improve its public image. Focusing on the positive impact of 
service to the taxpayer, the Bureau began to rebuild its reputation. A new 
organizational structure replaced the network of Collector's Offices with 
District Offices operating under the intermediate supervision of Regional 
Offices. Another important change during this period was the new designation 
of the agency as the Internal Revenue Service. 



January 1, 1954 The Federal 
Insurance Contribution Act rates rose 
from 1.5 to 2 percent on employees 
and employers. 

March 31, 1954 President Eisen- 
hower signed the Excise Tax Reduc- 
tion Act which cut rates in half on 
most items and retained surtaxes on 
automobiles, liquor, and tobacco. 

June 2, 1954 The Committee on 
Appeals and Review and the Special 
Committee were abolished. 

July 30, 1954 Jury trials were 
authorized for cases involving 
refunds of taxes paid in dispute. All 
dollar restrictions on such cases were 
removed. 

August 16, 1954 The new Inter- 
nal Revenue Code of 1954 was 
enacted to encourage structural tax 
reform. This was the first complete 
revamping of tax laws since the 
enactment of the income tax in 1913 
and was called the most monumen- 
tal revision of tax law in history, 
making some 3,000 changes in 
income tax rules. 

A new title under the Code of 
Federal Regulations was established 
and designated "Title 26 — Internal 
Revenue, 1954," under which all of 
the regulations and Treasury Deci- 
sions pertaining to the 1954 Code 
appeared. 

September l, 1954 The Social 

Security Amendments of 1954 
required that the unemployment 
tax applied to employers of four or 
more persons, instead of eight or 
more as in prior years, extending 
the employment and self-employ- 



ment taxes to several million addi- 
tional taxpayers, beginning with the 
1956 tax year. 

December 6, 1954 The Supreme 
Court handed down four decisions 
which set forth the Court's conclu- 
sions that the "net worth theory" 
was a valid investigative technique 
in pursuing criminal tax evasion, 
thereby endorsing a technique used 
by special agents for many years. 

1954 Child care expenses became 
deductible for widows, single par- 
ents, and certain other taxpayers. 

1954 In Revenue Ruling 54-172, 
the IRS issued the first published 
guidance concerning the private let- 
ter ruling process. 

1954 A standardized badge was 
adopted for all IRS special agents. 

January 1955 The shift from a 
stamp to a return basis for the pay- 
ment of beer and wine taxes began 
with the introduction of Form 2034 
for beer and Form 2050 for wine this 
month. 

April 15, 1955 This was the first 
year that individual income tax 
returns could be filed on this date 
instead of the traditional date of 
March 15 which was retained for cor- 
poration and all income tax returns 
other than individual returns. 

June 30, 1955 A Memorandum of 
Agreement was signed between the 
Secretary of the Treasury and the 
Attorney General for carrying out 
the provisions of Public Law 725 



W 



160 



which provided for investigation by 
the FBI of certain criminal cases. 

August 22, 1955 A Foreign Opera- 
tions District was established with 
its headquarters in Washington, 
D.C. as a division of the Internal 
Revenue District in Baltimore. 

October 4, 1955 Two service 
centers were established through 
an Internal Revenue Mimeograph 
(#55-116) this date, including 
the Kansas City (Midwest) and 
Lawrence (Northeast) Service Cen- 
ters. The Kansas City Service Cen- 
ter was the first service center to be 
opened on a pilot basis. 

October 31, 1955 T. Coleman 
Andrews resigned as Commissioner. 

December 5, 1955 Russell C. 
Harrington of Rhode Island became 
Commissioner. 

December 15, 1955 Renovation to 
space for the Northeast Service Cen- 
ter in Lawrence, Massachusetts, was 
completed and the building was 
occupied on this date. 

1955 The IRS purchased an elec- 
tronic computer to be operated joint- 
ly with the Bureau of the Census. 
This was used to compile the Statis- 
tics of Income publication. 

1955 Since automated equipment 
required a large-scale operation, test- 
ing of the centralization of returns 
processing using tabulating equip- 
ment and IBM 650 computers to 
process all 1040A tax returns 
received in the Omaha Region 
began this year in the processing 



branch at the Midwest Service Cen- 
ter. This marked the first time any 
major processing operation was 
attempted on a region-wide basis. 
In fiscal year 1955, 1.1 million 
1040As from the 10 districts of the 
Omaha Region were processed in 
this manner. 

1955 The Office of International 
Operations (OIO) was established 
under the Assistant Commissioner 
for Compliance. Responsibility for 
tax administration in all areas of the 
world except the continental United 
States, Alaska, and Hawaii was cen- 
tralized in this new function. Previ- 
ously, these responsibilities were 
divided among all district and 
regional offices as well as the 
National Office. 

1955 The Bloch brothers — Henry 
and Richard — set up a company in 
Kansas City, Missouri, to help peo- 
ple prepare their tax returns. 

February 7, 1956 The Treasury 
Department published its interpreta- 
tion of its rules of practice set forth in 
Circular 230 in the Federal Register. 

March 19, 1956 The inspection 
function assumed responsibility for 
conducting Federal Tort Claim 
investigations in cases requiring for- 
mal investigations. This function 
was previously performed by the 
Alcohol and Tobacco Tax Division. 

May 1, 1956 The Foreign Opera- 
tions Division was transferred to the 
Assistant Commissioner for Opera- 
tions in the National Office from the 
Baltimore District. 



7*7- 



161 



JUNE 25, 1956 The first tax treaty 
with a Latin American country was 
signed on this date with Honduras. 

June 1956 The first 11 participants 
in the Executive Development Pro- 
gram graduated from the six-month 
training program and were placed in 
assistant district director or equiva- 
lent executive positions. 

July 1, 1956 A new tobacco tax 
return, required to be filed monthly 
by manufacturers and importers of 
cigars, became effective. 

July 1956 Congress passed the 
Social Security Act Amendments of 
1956. This act increased the rate of 
tax on self-employment income by 
% of 1 percent and the rates of the 
employee tax and the employer tax 
were each increased by l A of 1 per- 
cent. These changes resulted in a 
large increase in the total number of 
returns filed during the year. The 
extension of FICA coverage to more 
workers, particularly farm laborers, 
was responsible for most of the rise. 

August 1, 1956 The Panama 
Canal Zone was removed from the 
Internal Revenue District, Jack- 
sonville and Puerto Rico and the 
Virgin Islands were removed from 
Internal Revenue District, Lower 
Manhattan, and placed under the 
International Operations Division. 

September 1956 The Western 
Service Center in Ogden, Utah was 
activated at the U.S. Army's Utah 
General Depot. 



1956 The Kansas City Service 
Center was reorganized as the Mid- 
west Service Center and the 
Lawrence, Massachusetts facility 
was designated as the Northeast Ser- 
vice Center. 

1956 A new excise tax, the high- 
way use tax on trucks and buses, was 
levied as part of the huge federal 
highway construction program 
authorized by Congress this year. 

1956 Provisions for a comprehen- 
sive long-range operational and 
financial planning system were 
established in the IRS. 

1956 The IRS launched the Blue 
Ribbon Program — a major effort to 
improve the caliber and productivity 
of its work force. This was basically 
a college recruitment and training 
program. 

1956 Several forms were revised 
during the year, including the elimi- 
nation of payments and refunds of 
less than one dollar on the 1040 and 
reduction of Form 1120, U.S. Corpo- 
ration Income Tax Return, from 
legal to letterhead size. Form 1040A 
allowed the taxpayer to have the 
IRS compute his or her tax. 

1956 The IRS published a 64-page 
booklet entitled "Farmers' Tax 
Guide," for the first time this year. 
This booklet was prepared in colla- 
boration with the U.S. Department 
of Agriculture Extension Service. 
One million booklets were distrib- 
uted to farmers during the year. 



77 



162 



1956 Corporate taxes were 
payable in two equal installments 
for the first time for tax year 1955. 
Until 1950 corporate taxes were 
paid in four equal installments 
when the portion of taxes paid in 
the first two installments was grad- 
ually increased until all taxes were 
paid in two installments. 

January 1, 1957 The first income 
tax treaty between the United States 
and a Latin American country took 
effect between the United States 
and Honduras. 

January 2, 1957 Accounting for tax 
payments received through banks 
under the depository receipt system 
was improved as a result of a new 
system under which the Bureau of 
Accounts of the Treasury Depart- 
ment performed centralized 
accounting for these payments 
instead of through the 64 district 
offices performing this work. 

1957 The IRS entered into a 
cooperative agreement with Min- 
nesota for the exchange of tax data. 
This agreement differed from a 
1950 pilot and was designed to cre- 
ate a truly operative federal-state 
cooperative program. Other state 
agreements were made as follows: 
California (1961); Colorado (1951); 
Indiana (1961); Iowa (1962); Kansas 
(1960); Kentucky (1961); Maryland 
(1963); Minnesota (1957); Missouri 
(1962); Montana (1960); North Car- 
olina (1960); Ohio (1961); Oregon 
(1961); Utah (1961); West Virginia 
(1962); Wisconsin (1958). 

1957 The IRS initiated the Major 
Violator Program to concentrate 



investigative work on major violators 
of liquor tax laws. 

1957 The House Ways and Means 
Committee launched a review of the 
accomplishments of the 1952 reorga- 
nization of the IRS. 

1957 The Tax Rate Extension Act 
of 1957 extended existing corporate 
income tax rates and the rates of cer- 
tain excise taxes which otherwise 
would have been reduced on April 1, 
1957 to July 1, 1958. 

1957 The training function was sep- 
arated from the personnel function 
and established as a separate division 
in the National Office. 

1957 Several organizational 
changes in the National Office 
occurred this year. The position 
of Assistant Commissioner (Adminis- 
tration) was changed to Administra- 
tive Assistant to the Commissioner 
and made a part of the Commission- 
er's personal staff. The position of 
Assistant Commissioner (Planning) 
was changed to Assistant to the Com- 
missioner and transferred to the Com- 
missioner's staff with additional 
duties in the management planning 
and reporting field. Finally, the Fis- 
cal Management Division was sepa- 
rated from other administrative 
offices so that it reported directly to 
the Commissioner. 

February 11, 1958 Congress 
required taxpayers to make special 
deposits of trust fund monies from 
withheld income and social security 
taxes, and excise taxes on facilities 
and services, providing the IRS with 
more authority in combating tax 



TT- 



163 



delinquencies. In essence, this law 
required separate accounting for cer- 
tain taxes when the person who col- 
lected them failed to pay the taxes 
over to the government. 

May 19, 1958 The Office of Plan- 
ning and Research, headed by an 
Assistant Commissioner, was created 
to bring together the previously frag- 
mented areas of research, planning, 
and policy formulation. The new 
office included the Plans and Policy 
Division, the Research Division, the 
Systems Development Division, and 
the Statistics Division. 

June 30, 1958 The Tax Rate 
Extension Act of 1958 took effect, 
extending until July 1, 1959, the pre- 
sent corporation income tax rate and 
the rates of certain excise taxes and 
repealing taxes on the transportation 
of property. 

July 7, 1958 The Government 
Employees Training Act opened 
new avenues for strengthening train- 
ing programs in the government. 

August 28, 1958 Congress enacted 
the Social Security Amendments of 
1958, increasing the rates of self- 
employment income tax and the 
FICA tax on employees and employ- 
ers beginning January 1, 1959. The 
income tax base for these taxes was 
raised from $4,200 to $4,800. 

September 2, 1958 The Technical 
Amendments Act of 1958 was enact- 
ed, requiring U.S. citizens residing 
in foreign countries to file U.S. tax 
returns and report all income, even 
though no tax was due. 



~? 



Also, the law eliminated many 
unintended benefits and hardships 
in existing income, estate, and gift 
tax provisions of the internal rev- 
enue code. This act authorized the 
Commissioner to send deficiency 
notices by either certified or regis- 
tered mail. Previously, such notices 
could only be sent via registered 
mail. 

September 22, 1958 Congress 
enacted the Excise Tax Technical 
Changes Act of 1958. This act incor- 
porated IRS recommendations for 
modernizing the distilled spirits pro- 
visions of the code and other revi- 
sions of wine, beer, and tobacco 
statutes. 

September 30, 1958 Russell C. 
Harrington resigned as Commis- 
sioner. 

October 1958 Payroll processing 
for the entire IRS workforce was 
automated and consolidated in the 
Western Service Center in Ogden, 
Utah. 

November 5, 1958 Dana Latham 
of California became Commissioner. 

December 1, 1958 For the first 
time, all major tax forms were avail- 
able in IRS offices by this date. 

December 1958 The IRS released 
the first issue of "Tax Analysis of 
Individual Income Tax Returns." 

December 1958 The Planning and 
Research Staff prepared a "Summary 
of Operational Plans for Electronic 
Data Processing" for the develop- 
ment of a data processing system for 



164 



the IRS. The plan consisted of a tax 
processing system installed on com- 
puters and a series of service centers, 
a permanent identification number for 
each taxpayer, and a centrally located 
and maintained master file to serve as 
a computerized data base. 

1958 A Technical Amendments 
Act added the subchapter S rules to 
permit income to be taxed at the 
shareholder rate rather than at the 
corporate rate. 

1958 The title "Collection Officer" 
was changed to "Revenue Officer" 
to identify these positions more 
closely with the IRS and to show 
that the primary concern of these 
positions was with the revenue. 

1958 A program for preappointment 
investigations of trainees selected 
for revenue agent and revenue 
officer positions began in an effort to 
eliminate unsuitable candidates 
prior to appointment. 

1958 The Pittsburgh and Phoenix 
Districts developed and tested a 
new organizational alignment of the 
collection division, which included 
a Taxpayer Service Branch, con- 
centrating all taxpayer inquiries rel- 
evant to collection functions in one 
central area for the first time. Even- 
tually, this arrangement was imple- 
mented in all district offices. 

1958 A Work Planning and Control 
System installed in the collection 
divisions of all district offices to pro- 
vide for control over the processing 
phase of the collection activity. 



1958 The IRS held its first formal 
classroom training for estate and gift 
tax examiners. 

1958 An IBM 650 computer was 
installed at the Northeast Service 
Center. 

1958 The Columbia and Jack- 
sonville District offices moved into 
new buildings, designed speci- 
fically for their use, while the Cam- 
den District moved into new quar- 
ters as well. 

1958 The IRS ruled that taxpayers 
with expense accounts had to itemize 
unreimbursed expenses on the 
returns, providing the first big push to 
use credit cards in the United States. 
To avoid tedious record-keeping, 
many corporations provided credit 
cards for their executives. Ninety days 
after the ruling, Diners Club reported 
60,000 new members — the biggest 
membership surge in its history. 

1958 The Personnel Division of 
the National Office established an 
Employee Relations Branch. 

March 15, 1959 Revised Treasury 
Department rules governing the 
practice of attorneys, agents, and 
other persons before the IRS took 
effect. The revised rules permitted 
unenrolled persons to represent tax- 
payers in district directors' offices on 
returns prepared by them for the 
taxpayer and permitted special 
enrollment through a simplified 
examination procedure of experi- 
enced persons not eligible under 
general enrollment rules. 



77 



165 



March 16, 1959 The House of 
Representatives passed a bill to 
encourage the establishment of vol- 
untary pension plans by self- 
employed individuals. 

March 1959 The Secretary of the 
Treasury and Congress approved IRS 
plans to proceed with the installation 
of a nationwide automatic data pro- 
cessing system. 

May 1959 Changes in the organi- 
zational structure of district audit divi- 
sions were authorized to provide 
greater flexibility, a more effective 
span of control, and better use of 
supervisory and technical personnel. 

May 1959 The Atlanta Region was 
selected as the test region for the 
automated data processing program. 

June 17, 1959 The Advisory Group 
to the Commissioner of Internal Rev- 
enue was established. This 12-mem- 
ber committee represented profes- 
sional and other private groups con- 
cerned with federal taxation and was 
to serve as a clearinghouse for sugges- 
tions from practitioners and the public 
for improvements in tax administra- 
tion. 

June 24, 1959 The IRS instituted a 
semi-monthly return system for the 
payment of federal taxes on alcohol 
and tobacco products, eliminating the 
use of stamps for this purpose. The 
abolition of the historic stamp system 
(in use since 1868) marked a signi- 
ficant change in the method of col- 
lecting these taxes. This year had 
marked a peak in revenue stamp use 
with 20 billion stamps used on ciga- 
rette packages. 



June 24 & 25, 1959 Approximately 
2,100 applicants took a special exam 
to become enrolled agents under new 
rules established in March 1959. 

June 25, 1959 Congress passed a 
law providing a new set of rules and 
a permanent formula for taxation of 
life insurance companies. 

June 30, 1959 Congress enacted 
the Tax Rate Extension Act of 1959, 
extending the corporate income tax 
rate and some excise taxes to July 1, 
1960 and reducing the tax on trans- 
portation of persons from 10 percent 
to 5 percent, effective July 1, 1960 
and terminated the tax on general 
telephone service effective July 1, 
1960. 

September 21, 1959 Congress 
passed the Federal Aid Highway Act 
of 1959, imposing an additional one- 
cent tax on gasoline, diesel fuel, and 
special motor fuels for a 21 month 
period, beginning October 1, 1959. 

September 22, 1959 Congress 
amended the Internal Revenue 
Code to provide for appointment of 
the Chief Counsel by the President, 
restoring this position to its pre-1952 
status. 

November 12, 1959 A manage- 
ment study report by a task group 
appointed by the Assistant Commis- 
sioner (Operations) recommended 
creating an organization to imple- 
ment the automated data processing 
plan in three phases (transitional, 
intermediate, ultimate). 



77 



166 



November 24, 1959 The Assistant 
Commissioner (Operations) announ- 
ced that Phase I of the automated 
data processing plan would proceed. 

1959 The IRS prepared a Long- 
Range Plan for the first time this 
year to provide an overall view of the 
Service's long-term program objec- 
tives and resource requirements. 

1959 The IRS designed a emblem 
to be given to retirees with at least 10 
years of IRS employment. 

1959 The IRS initiated studies of 
large-scale electronic data processing 
equipment to determine availability 
of types having potential application 
to IRS procedures and to determine 
the feasibility of adapting and modi- 
fying existing operations to use such 
equipment. 

1959 Publications distribution 
activities of the National Office were 
moved from the basement of the 
headquarters to a suburban ware- 
house, reducing the average length 
of time to fill requisitions from three 
weeks to one week. 

1959 The IRS established a safety 
award program in the service centers 
to encourage accident prevention 
through a competition between the 
three service centers. 

1959 A new office building for the 
Baltimore District was completed. 

1959 A public service documentary 
film was produced and distributed 
for booking through IRS field 
offices. "Since the Beginning of 
Time" was selected for showing at 



^t: 



the International Film Festival in 
Edinburgh, Scotland and was select- 
ed by television stations in the U.S. 
as one of the 50 best films in the 
news and documentary categories. 

1959 Form 1 120S, U.S. Small Busi- 
ness Corporation Return, was issued 
to implement subchapter S of Chap- 
ter 1 of the Code as added by the 
Technical Amendments Act of 1958. 

1959 The 1040A was revised to 
permit use by individuals with 
incomes up to $10,000. The previous 
limit had been $5,000. 

1959 The IRS created a separate 
taxpayer service function within the 
Collection operation to handle tax- 
payer inquiries — to increase effec- 
tiveness and better serve the public. 
Up to this time, the IRS had used 
revenue agents and revenue officers 
for this purpose. 

1959 The IRS began a Coordinat- 
ed Evaluation Program to determine 
how effectively regional offices were 
carrying out their responsibilities 
and to determine how the National 
Office could be of more assistance. 

1959 A voluntary Servicewide 
Health Maintenance Program was 
inaugurated this year with the goals 
of protecting the health and well- 
being of employees, improving 
employee morale, and increasing 
work accomplishments. 

1959 The IRS published a policy 
statement stating its position in 
regard to quality and production of 
work in an effort to eliminate refer- 



167 



ences to quotas and to emphasize 
quality standards. 

1959 The National Office Intelli- 
gence Division was expanded from 
two to four branches and the Intelli- 
gence function in New York City 
was decentralized from the regional 
to the district level to achieve uni- 
formity of organization nationally. 

1959 IBM 650 Computers were 
installed at the Kansas City and 
Ogden Service Centers. 

1959 The success of the East 
Coast Plan and the Major Violator 
Program spawned the establishment 
of the "Junior East Coast Program," 
to be used against violators who did 
not come within the category cov- 
ered by the parent program. 

1 959 The I RS created the 1 040W 
form — "U.S. Individual Income 
Tax Return-Optional Short Form for 
Wages and Salary Income and Not 
More Than $200 of Interest and 
Dividends," designed for use by tax- 
payers who did not require the more 
detailed 1040 form. 



1959 The IRS created Form 2688, 
"Application for Extension of Time 
to File U.S. Income Tax Return." 

1959 The IRS began to provide 
television announcements through- 
out the entire year as well as during 
the filing period. 

1959 The National Tax Founda- 
tion estimated that the average 
American worked one hour and 36 
minutes each day to pay his or her 
federal income taxes — up from one 
hour and 16 minutes 10 years earlier. 

1959-1963 The "Untouchables" 
television series aired 118 episodes 
during this period. 



77 



168 




Row upon row of tax processing employees worked in large warehouse environments 
to process the growing number of tax returns. 



I96O -^64 



Computerization and International Aid: 

The IRS Gears up to Support the Global 

Reach of the United States 

vT7 



The vast increase in the number of tax returns filed during the years following 

the expansion of the income tax base in World War II required the IRS to 

develop innovative processing methods. The IRS found itself at the forefront 

of the automated data processing revolution as it established a series of 

"service centers" around the country with the primary job of processing tax 

returns. The expanding global responsibilities of the United States also 

prompted the IRS to assist many third world nations in establishing their own 

internal tax collection systems during these years. 



1960s The IRS began to track 
error statistics to look at ways to pre- 
vent common errors made by tax- 
payers. 

January 1, 1960 The IRS consoli- 
dated several district offices to 
improve operating efficiency. The 
Upper Manhattan and Lower Man- 
hattan Districts in New York City 
were combined to form the Manhat- 
tan District. The four Ohio districts 
were merged into two — Toledo into 
the Cleveland District and Colum- 
bus into the Cincinnati District. 

January 1, 1960 Organizational 
changes in the National Office 
included realignment of the Audit 
Division into six branches instead of 
three; assignment of responsibility 
for implementing and operating the 
automated data processing system of 
IRS to the Collection Division; and 
reorganization of the Intelligence 
Division into four branches instead 
of two. 

Januarys, 1960 Detailed 
specifications developed by 
the Planning and Research Staff, 
the Collection Division, and the 
management consulting firm of 
McKinsey and Company for the 
automated data processing system 
were sent to 42 manufacturers. 

January 11, 1960 An Executive 
Council was formed to coordinate 
and approve activities of the auto- 
mated data processing plan. The 
Council included Robert Jack, 
Bertrand Harding, William Smith, 
Robert Hall, and Bruce Rohrbacker. 



-r. 



February 11, 1960 IRS executives 
recommended that the proposed 
centralized computer center be 
located within easy commuting dis- 
tance of Washington, D.C. 

February 26, 1960 Announce- 
ments for openings in automated 
data processing positions were circu- 
lated throughout the IRS. 

February 26, 1960 The former 
Engineering and Valuation Branch 
of the Assistant Commissioner 
(Technical) was abolished. In its 
place three engineering branches — 
Natural Resources, Appraisal, and 
Court Defense — were established. 

March 29, 1960 A comprehensive 
study of personnel problems exper- 
ienced by other organizations facing 
change on the scale of automated 
data processing implementation in 
the IRS was undertaken jointly by 
the Collection and Personnel Divi- 
sions. 

Spring, 1960 An initial cadre of 
employees were recruited and 
trained as systems analysts for the 
automated data processing system. 

April 14, 1960 The IRS recom- 
mended locating the computer cen- 
ter outside the 20-mile national 
security limit established by 
Defense Mobilization Order 1-19. 

April 1960 The IRS received 
proposals for the automated data 
processing system from six 
companies. 



170 



May 1960 The IRS created a 
Reports Division to develop and 
coordinate the policies, procedures, 
and standards for a Servicewide 
Reports Program. 

June 28, 1960 The IRS proposed 
a location in the eastern panhandle 
of West Virginia for the computer 
center. 

June 30, 1960 Congress passed the 
Public Dept and Tax Rate Exten- 
sion Act of 1960 which postponed 
reductions in tax rates on corporate 
incomes, termination of the excise 
tax on telephone service, and other 
excise tax rates until July 1, 1961. 

July 1, 1960 Robert H. Terry was 
named director of the yet to be 
located service center for the Atlanta 
Region. 

July 20, 1960 The IRS announced 
the contract award to IBM for model 
1404 computers to be installed in 
the new service centers and IBM 
7070s for the National Computer 
Center for the automated data pro- 
cessing system. 

July 20, 1960 The IRS announced 
the selection of Martinsburg, West 
Virginia, as the site for the Comput- 
er Center. 

August 1, 1960 Programmer train- 
ing classes began at the IBM Wash- 
ington Training Center. 

August 1960 The International 
Operations Division was redesig- 
nated the Office of International 
Operations. 



September 1, 1960 The Office of 
the Chief Counsel underwent its 
first major organizational change 
since 1952 by streamlining and con- 
solidating litigation and technical 
functions under two Associate Chief 
Counsels. 

September 8, 1960 The President 
vetoed a tax bill that would have 
allowed filing a tax refund claim after 
the statute of limitations had expired. 

September 13, 1960 Congress 
passed the Social Security Amend- 
ments of 1960 which extended and 
improved coverage and raised the 
tax rate on employers from 3 to 3.1 
percent. 

September 1960 Administrative 
activities in the National Office were 
regrouped and placed at the Assis- 
tant Commissioner level and a new 
Assistant Commissioner (Adminis- 
tration) was created. 

September 1960 Programmer 
classes began in Washington, D.C. 
in the "Digital Computer Systems 
Programmer Course." 

October 10, 1960 Authority to 
approve trade names to be used 
under the Federal Alcohol Adminis- 
tration Act was delegated from the 
National Office to the Assistant 
Regional Commissioner, Alcohol 
and Tobacco Tax. 

October 1960 The IRS held an 
executive seminar with 23 top officials 
to orient management to the role and 
capabilities of the new automated 
data processing system. 



77 



171 



November 15, 1960 Atlanta was 
selected as the site of the new auto- 
mated data processing service center. 

December 19, 1960 The IRS initi- 
ated the "Poison Moonshine Public- 
ity Program" to warn the public of 
health hazards associated with the 
consumption of illegally manufac- 
tured alcohol. 

December 29, 1960 The IRS 
announced initiation of Phase II of 
the automated data processing plan 
and establishment of the new Auto- 
mated Data Processing Division in 
the National Office. 

1960 A major study of the taxpayer 
service function was undertaken 
which showed that errors could be 
avoided through outreach efforts. 
This resulted in the issuance of the 
"Mr. Businessman" kit and the addi- 
tion of joint seminars with the Small 
Business Administration. 

1960 The Trust and Partnership 
Income Tax Revision Act of 1960 
became law. 

1960 A budget committee appoint- 
ed early in the year reviewed the 
financial management system of the 
IRS and made recommendations for 
change, including improving con- 
trols and formalizing financial man- 
agement policies and procedures. 

1960 Payroll systems at the North- 
east and Western Service Centers 
were converted to IBM 650 electron- 
ic data processing machines. 



-? 



1960 The IRS produced its second 
documentary film, "The Inevitable 
Day," as well as a short documentary 
film of President Kennedy's visit to 
the National Office for internal use. 

1960 The first tax model was 
developed using individual income 
tax returns from this year. This con- 
sisted of a sample of tax return data 
recorded on magnetic tape that 
could be readily manipulated by 
computer to yield estimates of the 
revenue impact of various changes in 
the tax laws. 

January 6, 1961 The Anchorage 
District was established. 

January 18, 1961 The Chief 
Counsel established branches for all 
National Office divisions. 

January 20, 1961 Dana Latham 
resigned as Commissioner. 

January 22, 1961 The Collection 
Division reorganized into two new 
divisions — the Collection Division 
and the Automated Data Processing 
Division. The ADP Division was 
given responsibility for implementa- 
tion of the data processing system, 
returns processing, revenue account- 
ing, and service center operations. 
Robert L. Jack was selected as the 
first Director of the ADP Division. 

February 7, 1961 Mortimer M. 
Caplin of Virginia became Commis- 
sioner. 

March 13, 1961 President Kennedy 
proposed his Alliance for Progress, a 
ten-year cooperative effort of hemi- 
spheric development for Latin Ameri- 



172 



ca. This program involved land, tax, 
and other reforms. 

March 30, 1961 The IRS pub- 
lished ADP Redeployment Guide- 
line Number 1 with information on 
personnel policies in regard to indi- 
viduals expected to be displaced 
through implementation of the new 
ADP system. 

April 3, 1961 The Operating 
Facilities Division was reorganized 
and became the Facilities Manage- 
ment Division. 

April 5, 1961 Sealed bids for con- 
struction of the National Computer 
Center were opened. Scott S. Bair, 
an investment broker of Westmin- 
ster, Maryland, received the contract 
to construct and lease to the govern- 
ment a $750,000 facility on five acres 
formerly part of the Veterans 
Administration hospital grounds. 

April 20, 1961 President Kennedy, 
in his tax message to the Congress, 
recommended enactment of a tax pro- 
gram aimed at stimulating economic 
recovery, removing tax advantages for 
American overseas investments, and 
removing defects in the income tax 
structure. 

May 3 1 , 1 96 1 The I RS announced 
selection of the Philadelphia area as 
the site of a new service center. 

May 2, 1961 Internal management 
instructions were issued to establish 
a Major Violator Program in each 
region, after a successful beginning 
in the Southeast Region. The pro- 
gram involved identification and list- 
ing of major violators of alcohol and 



VK 



tobacco taxes in each area and the 
concentration of investigative effort 
toward their apprehension. 

May 1961 The IRS offered a new 
course in "ADP Installation Man- 
agement" for the first time. 

June 1, 1961 Ground was broken 
for the National Computer Center in 
Martinsburg, West Virginia. The 
building was completed in record 
time, with full occupancy on 
November 1, 1961. 

June 30, 1961 Congress passed the 
Social Security Amendments of 1961 
which increased the self-employment 
tax rates and the Federal Insurance 
Contributions Act tax rates. 

July 14, 1961 ADP Redeployment 
Guideline Number 2 — Position 
Classification was published and the 
Civil Service Commission autho- 
rized special personnel procedures 
to facilitate conversion to automatic 
data processing. 

July 7, 1961 John E. Stewart, 
Chief of the Programming Branch in 
the ADP Division, was appointed 
the first Director of the National 
Computer Center. He served ten 
years in this position, until 1971. 

July 1961 The Assistant Regional 
Commissioner (Administration) was 
detailed through the Agency for 
International Development to par- 
ticipate in the U.S. Operations Mis- 
sion to Chile to set up a tax adminis- 
tration school in Santiago. 



173 



July 1961 The National Office 
Administrative Intern Program 
began under a training agreement 
with the Civil Service Commission. 

August 1961 The position of 
Assistant Regional Commissioner 
(Data Processing) was created in the 
Atlanta Region. Wayne S. Kegerreis 
was selected for this new position. 

August 1961 Ground was broken 
for the new Atlanta Service Center. 
Computer equipment was delivered 
to the temporary site. Pending com- 
pletion of the new facility, the 
Atlanta Service Center was estab- 
lished in a former furniture ware- 
house as a pilot center to test the 
new data processing system. Opera- 
tions were also conducted out of the 
old Georgia Power Company build- 
ing until 1962. 

August 1961 The Commissioner 
appointed a Special Training Advi- 
sory Committee to survey the collec- 
tion training program and develop a 
comprehensive career training plan. 

September 1, 1961 The computer 
room of the National Computer 
Center was completed in time for 
the delivery of the IBM computer 
equipment on September 5. 

September 13, 1961 Congress 
enacted a provision to prohibit travel 
or transportation in commerce in aid 
of racketeer enterprises, including 
businesses involving liquor on which 
the federal excise tax has not been 
paid. Authority over investigations of 
violations of the act involving liquor 
was delegated to the IRS. 



September 15, 1961 The Assistant 
Commissioner (Operations) was 
redesignated the Assistant Commis- 
sioner (Compliance). 

September 19, 1961 Less than a 
year after its establishment as a sep- 
arate division, the Automatic Data 
Processing Division became the 
Office of Assistant Commissioner 
(Data Processing). 

September 27, 1961 Robert Jack 
was named the Assistant Commis- 
sioner (Data Processing). 

September 1961 The National 
Computer Center completed thir- 
teen reels of tape, comprising the 
first phase of the business master 
file, and forwarded them to the 
Atlanta Service Center. 

October 1961 Commissioner 
Caplin and Deputy Commissioner 
Harding attended the Inter-Ameri- 
can Conference on Tax Administra- 
tion in Buenos Aires, Argentina. 

October 23, 1961 A nationwide 
IRS conference was called to discuss 
the effects of automated data pro- 
cessing on the federal tax system 
and taxpayers. More than 600 busi- 
ness leaders attended. 

November 6, 1961 The National 
Computer Center in Martinsburg, 
West Virginia, officially opened with 
a dedication ceremony on this day. 

November 1961 The "ADP 
News" publication made its debut. 



77 



174 



December 20, 1961 The Fiscal 
Management Division was trans- 
ferred from the Office of the Com- 
missioner to the Office of the Assis- 
tant Commissioner (Administration). 

December 1961 A training task 
force concluded that the training 
demands of the 1960s could be met 
by establishing national and regional 
training centers. 

1961 Congress passed a law requir- 
ing taxpayers to use their social 
security number as a Taxpayer Iden- 
tification Number (TIN) and requir- 
ing business taxpayers to use a num- 
ber assigned by the IRS. 

1961 The IRS began an experi- 
mental summer employment pro- 
gram for college students to encour- 
age them to seek employment with 
the Service upon graduation. 

1961 Deputy Commissioner 
Bertrand M. Harding was selected 
by the National Civil Service 
League as one of the top ten federal 
employees in the country. He was 
the first IRS employee to receive 
this honor. 

1961 Group supervisors were pro- 
hibited from keeping quota system 
data on employees. 

1961 President Kennedy pro- 
posed 20 percent withholding on 
interest and dividend payments. 
This proposal passed the House in 

1962 but the Senate substituted 
expanded information reporting on 
interest and dividends for with- 
holding. This led to the use of Tax- 
payer Identification Numbers 



(TIN) and a $10 penalty for failure 
to provide the correct number. 

1961 A drive to ferret out corrup- 
tion in the IRS was initiated by the 
Inspection function as a result of 
continuing complaints and rumors 
that some IRS employees, tax practi- 
tioners, and others were defrauding 
the IRS. 

1961 The Northeast Service Cen- 
ter processed 1,960 individual 
income tax returns on its new mag- 
netic tape computers and submitted 
refund data on magnetic tape to the 
Chicago Regional Disbursing Office. 

1961 The Office of Chief Counsel 
reorganized, resulting in the division 
of operations into two principal func- 
tions: litigation and technical. 

1961 Commissioner Caplin 
launched the "New Direction" of 
tax administration with three main 
objectives: 1 ) better service to tax- 
payers, 2) vigorous but reasonable 
enforcement, and 3) curbing of abus- 
es. The underlying purpose of this 
new program was to reaffirm public 
confidence in the tax system. 

1961 The Administrative Intern 
program began. Each year 20-25 
individuals were selected to partici- 
pate in this year-long training pro- 
gram. 

1961 The government's Organized 
Crime Drive began, resulting in iden- 
tification of many major racketeers as 
subjects for IRS investigation. 



=77 



175 



January 1, 1962 The Philadelphia 
Regional Service Center was estab- 
lished. Hereafter, service centers 
dealing with automated data process- 
ing systems were known as regional 
service centers and all others were 
known as area service centers, includ- 
ing Midwest, Northeast, and Western. 

January 1962 The IRS received 
special requests from the govern- 
ments of Peru and Chile for assis- 
tance with their computer systems. 
In response, the IRS sent a systems 
analyst to these countries. Also this 
month, three representatives from 
the Brazilian Finance Ministry came 
to the U.S. to participate in IRS rev- 
enue agent training. 

January 1962 Automated data pro- 
cessing was officially put into opera- 
tion in the IRS as the truly revolu- 
tionary stage of mechanical process- 
ing was reached with the introduc- 
tion of high speed electronic com- 
puters capable of handling up to 
680,000 characters per second. 

It was during this month that the 
processing of business returns in the 
Atlanta Service Center and National 
Computer Center began. Starting 
with 5,000 Forms 940, "live" data 
was converted to tape by the Atlanta 
Service Center and forwarded to the 
National Computer Center. The 
Computer Center posted the data to 
the new master file and returned it 
to Atlanta on February 6. 

February 16, 1962 The IRS 
announced several personnel deci- 
sions for the new Assistant Commis- 
sioner (Data Processing) organiza- 
tion: Garrett DeMotts was the Exec- 
utive Assistant; Clinton Walsh was 



the Director, Operations Division; 
Lawrence Doss was the Assistant 
Director, Operations Division; 
Monroe H.O. Berg was the Director, 
Systems Division; and Donald 
Elsberry was the Assistant Director, 
Systems Division. 

February 1962 The first master 
file, the Business Master File, was 
established at the National Comput- 
er Center with 505,000 accounts 
from the Atlanta Service Center. 

Early 1962 The IRS began reorga- 
nizing and expanding the role of its 
public information program to keep 
taxpayers informed of their rights and 
duties and to build respect for the 
self-assessment system. 

March 1, 1962 A committee was 
established to study the industrial 
alcohol and liquor tax laws in an 
effort to encourage simplification in 
revenue control and tax determina- 
tion. 

April 2, 1962 The IRS announced 
selection of the Philadelphia Indus- 
trial Park in the northeast section of 
Philadelphia as the permanent site 
of the service center. 

May 1, 1962 The Foreign Tax 
Assistance Staff was established 
while the International Tax Rela- 
tions Division was abolished. 

June 1, 1962 A building designed 
and constructed for the Atlanta 
regional service center at Chamblee, 
Georgia, was completed and occu- 
pied. 



77 



176 



June 1962 The Chief Counsel 
established a Summer Student 
Assistant program, which included 
second year law students for tempo- 
rary employment. 

October 16, 1962 President 
Kennedy signed the Revenue Act of 
1962. This act was intended to "revise 
and reform" the tax system. It added 
entertainment expense rules and set 
forth the first "information reporting" 
system to report dividends, interest, 
and patronage dividends exceeding 
$10 annually per recipient. 

The law mandated that the IRS 
develop the Income Information 
Document Matching Program to 
determine whether a taxpayer had 
reported all income to identify indi- 
viduals who had never filed a tax 
return. It also included a provision for 
an investment tax credit. 

October 24, 1962 Special agents 
of the IRS Investigation Section 
were given statutory arrest authority 
under IRC 7608B, Public Law 87- 
863. Prior to this, special agents 
relied on U.S. Marshals to serve 
arrest warrants. 

December 17, 1962 The Commit- 
tee on Resources Utilization submit- 
ted a report to the Commissioner 
with 72 recommendations relating to 
the organization and procedures of 
the IRS. 

1962 The IRS initiated the Tax- 
payer Compliance Measurement 
Program (TCMP) to measure tax- 
payer compliance with the tax laws. 



1962 The Patman Committee, 
chaired by Congressman Wright 
Patman of Texas, investigated the 
activities of tax exempt organiza- 
tions and privately controlled chari- 
table foundations. 

1962 Congress passed comprehen- 
sive legislation dealing with con- 
trolled foreign corporations (50 per- 
cent or more owned by U.S. persons 
or corporations) designed to bring 
"tax-haven" abuses under control. 
This action was based on IRS 
research conducted under a directive 
from President Kennedy. 

1962 The IRS developed a book- 
let, "Careers in Tax Work," to be 
distributed through the "Teaching 
Taxes" course. 

1962 A Treasury-IRS Committee 
on Statistics was established to 
advise tax officials on current needs 
for tax data for the principal users of 
Statistics of Income. 

January 1, 1963 The Cincinnati 
Regional Service Center (Covington, 
KY) and the Dallas Regional Service 
Center (Austin, TX) were established. 

January 24, 1963 In a message to 
Congress, President Kennedy recom- 
mended reducing individual and cor- 
porate income tax rates as well as 
structural revision and reform of the 
tax system. 

May 17, 1963 Secretary of the 
Treasury Douglas Dillon approved 
the IRS field office realignment 
plan, to be effective January 1, 1964. 



77 



177 



JUNE 30, 1963 The Treasury-IRS 
Committee on Statistics was termi- 
nated. 

JUNE 1963 A committee of four 
distinguished training consultants 
appointed by the Secretary' of the 
Treasury to review the total training 
effort of the IRS submitted its report 
which described the program as 
"very commendable." 

July 1, 1963 The IRS instituted a 
year-round Taxpayer Assistance 
Program and Taxpayer Service was 
established as a branch in the Col- 
lection Division in the National 
Office. 

July 18, 1963 President Kennedy 
announced a series of actions to 
reinforce the administration's pro- 
gram to correct the United States 
balance of payments deficit, includ- 
ing a request for an Interest Equal- 
ization Tax. This was a special 
temporary excise tax to remain in 
effect through 1965. This propos- 
al was enacted into law on Septem- 
ber 2, 1964. 

September 13, 1963 The Direc- 
tor of Practice was transferred from 
the IRS to the Office of the Secre- 
tary of the Treasury, under the 
immediate supervision of the Gen- 
eral Counsel. 

1963 The Atlanta Regional Ser- 
vice Center began processing indi- 
vidual tax returns on computer 
tape. The Philadelphia Regional 
Service Center began processing 
business master file returns. 



1963 Major changes were made to 
the 1040 form, reducing the number 
of pages from four to two, with all 
tax computations included on page 1. 

1963 The Civil Service Commis- 
sion authorized special salary rates 
for revenue agents and internal audi- 
tors (GS-5 through 9) in California. 

1963 The IRS established the 
Commissioner's Award as the Ser- 
vice's first exclusive honor award. 

1963 The Atlanta District Direc- 
tor, Aubrey Ross, presented the first 
individual income tax refund check 
processed by the new automated 
data processing system to a taxpayer 
in a special ceremony at the Atlanta 
Service Center. 

1963 The IRS, in cooperation with 
the Agency for International Devel- 
opment, initiated a program to assist 
foreign governments in modernizing 
their tax administration systems. 
This program was known as the For- 
eign Tax Assistance Program and 
was an outgrowth of needs identified 
in the 1961 Charter of Punta-del- 
Este, which established the Alliance 
for Progress. 

1963 Revenue officers delivered 
over 100,000 "Mr. Businessman's 
Kits" to new businessmen in con- 
junction with their other duties in an 
effort to acquaint them with their 
obligations under the federal tax 
laws. 



-K- 



178 



1963 Southwest Regional Commis- 
sioner B. Frank White received the 
National Civil Service League's 
Career Service Award as one of the 
10 leading government administra- 
tors. 

1963 The Self-Employed Individ- 
ual Tax Retirement Act of 1962 
(Public Law 87-792) necessitated 
the preparation of the new Form 
2950SE to reflect the self-employed 
retirement deduction. 

1963 The Alcohol, Tobacco, and 
Firearms Division staged the first 
phase of Operation Dry-Up in 
South Carolina. 

1963 The IBM 7070 computer sys- 
tem at the National Computer Cen- 
ter was converted to a IBM 7074 
system and a second IBM 7074 com- 
puter was installed to provide addi- 
tional processing capacity for new 
service centers opening in 1964. 

1963 Construction began on 
regional service center buildings in 
Austin and Philadelphia. 

January 1, 1964 The number of 
regions was reduced to eight and the 
number of district offices was 
reduced from 62 to 58. Districts in 
Camden, Kansas City, Scranton, and 
Syracuse were discontinued. The 
Omaha Region was abolished. The 
designation "area service center" 
was replaced by the organizational 
identification Boston-New York 
Regional Service Center, Chicago 
Regional Service Center, and the 
San Francisco Regional Service Cen- 
ter (located respectively in 
Lawrence, Massachusetts; Kansas 



v*T 



City, Missouri; and Ogden, Utah). 
The boundaries of the Cincinnati 
Region were realigned to include 
Indiana, Kentucky, Michigan, Ohio, 
West Virginia, and jurisdiction was 
established over Internal Revenue 
districts in Indianapolis, Louisville, 
Detroit, Cincinnati, Cleveland, and 
Parkersburg. The Cincinnati Region 
became the Central Region. 

January 8, 1964 President Johnson 
said in his State of the Union 
address, "The most damaging thing 
you can do to any businessman in 
America is to keep him in doubt, 
and to keep him guessing, on what 
our tax policy is." 

February 1 1, 1964 The IRS 
modified the titles of Internal Rev- 
enue regions. The Atlanta Region 
became the Southeast Region; the 
Boston Region became the North- 
east Region, etc. 

Service Centers were redesignat- 
ed as IRS Center, Austin; IRS Cen- 
ter, Chamblee, etc. There were a 
total of seven service centers at this 
time. (Austin, Atlanta, Cincinnati, 
Kansas City, Lawrence, Ogden, and 
Philadelphia). 

February 26, 1964 President 
Johnson signed the Revenue Act of 
1964 which reduced taxes with the 
goal of stimulating consumption and 
investment. This bill called for a $14 
billion tax reduction and introduced 
moving expense deductions. The 
reduction of tax rates in this act 
required the preparation of new tax 
rate tables. 



179 



February 1964 President Johnson 
met with top IRS executives at the 
White House. During this meeting 
the President stated that taxpayers 
"have every reason to expect from 
the men of the Internal Revenue 
Service total integrity... but the price 
of integrity is eternal vigilance." 

April 1, 1964 The National Office 
Chief Counsel organization was 
realigned by eliminating the inter- 
mediate supervisory level between 
the Chief Counsel and the directors 
of the two technical divisions by 
abolishing the associate and assistant 
chief counsel (technical) positions 
and establishing an executive assis- 
tant position. 

May 15, 1964 The Tax Return 
Forms Committee was redesignated 
the Tax Forms Coordinating Com- 
mittee and placed in the Office of 
the Commissioner. Committee 
membership consisted of a chairman 
appointed by the Commissioner and 
a representative from each Assistant 
Commissioner and Chief Counsel. 
This Committee also assumed the 
duties of the discontinued Forms 
Letter Committee. 

JULY 10, 1964 Mortimer M. Caplin 
resigned as Commissioner. 

September 2, 1964 Congress 
passed the Interest Equalization 
Tax Act. 



September 8, 1964 The first 
Honeywell H-200 computer was 
delivered to replace the IBM 1401 
computers in the service centers. 

November 5, 1964 William E. 
Palmer was selected as the first 
director of the IRS Data Center in 
Detroit. 

1964 Based on the results of a 
lease-purchase study, the three com- 
puters at the North-Atlantic, Mid- 
west, and Western Service Centers 
and the two large-scale computers 
and support equipment at the 
National Computer Center were 
purchased this year. 

1964 Two new service centers 
(Austin and Cincinnati) began pro- 
cessing business master file returns. 
Service centers began issuing a 
machine generated "follow-up" 
notice on individual income tax 
accounts. This replaced the notice 
previously issued manually by dis- 
trict offices. 

1964 The IRS developed exhibits 
of unserviceable firearms depicting 
the six categories subject to registra- 
tion and control under the National 
Firearms Act and notations as to the 
provisions of the act and the role 
played by the IRS in its administra- 
tion and enforcement, was manufac- 
tured and shipped to each region 
earlier in the year. 



77 



180 




Computer rooms became standard features of the new IRS service centers throughout the country. 



1965 -I969 



ADP, IMF, BMF, FTD, DDES, DIF, IDRS: 

Tax Collection Becomes 
Alphabet Soup 

^7T7 



The application of automated data processing to tax return processing spawned 

a new language of computerized functions. For the first time, the IRS had 

access to a "master file" of information on both individual and corporate 

taxpayers, vastly easing the work of processing returns, auditing returns, and 

matching other computerized data to returns. By the end of the 1960s, the IRS 

had seven service centers in operation and all tax processing had moved from 

district offices to these new facilities. 



January 1965 Some 300,000 resi- 
dents in the Southeast Region 
received requests for help in correct- 
ing service center records, which 
claimed they had filed in 1962 but 
not in 1963. 

January 1, 1965 The Business 
Master File became operational 
nationwide. 

January 1, 1965 For the first time, 
taxpayers in the Southeast Region 
could file their individual returns 
directly with the service center if 
they expected a refund. Over four 
million taxpayers used this option 
this year. 

January 1, 1965 The IRS began 
using high speed microfilm readers. 
Taxpayer directories, returns and 
document indexes, and settlement 
registers were provided on microfilm 
for master file taxpayers in the 
Southeast and Mid-Atlantic Regions. 
This became available in all district 
offices on July 1, 1965. 

January 4, 1965 The number of 
regions was reduced to seven with 
the abolishment of the Northeast 
Region. This region became the 
North-Atlantic Region with head- 
quarters in New York City. 

January 25, 1965 Sheldon S. 
Cohen of Maryland became Com- 
missioner. 

March 31, 1965 IRS executives 
met with President Johnson in the 
Fast Room of the White House. 
During the meeting, the President 
praised the IRS for its efforts to 
economize and stated that he 



desired "an alert, vigorous group of 
officials in the IRS." 

April 1965 The IRS Chief Coun- 
sel function initiated a Professor Tax 
Law Program. 

May 1965 A regional conference 
on tax administration in Latin Amer- 
ica was held in Miami under the 
joint sponsorship of the IRS 
and the Agency for International 
Development. 

June 10, 1965 The service centers 
were redesignated as IRS Service 
Center, Central Region; IRS Service 
Center, Mid-Atlantic Region, etc. 

June 21, 1965 The Excise Tax 
Reduction Act of 1965 became law. 
This law represented a comprehen- 
sive overhaul of the Federal excise 
tax structure. 

When the reductions became fully 
effective on January 1, 1969, excises 
were limited to three general 
groups — 1 ) alcohol and tobacco taxes, 
2) highway user and air transportation 
taxes, automobile taxes, and fishing 
equipment taxes, and 3) regulatory 
taxes on narcotics, phosphorous 
matches, and wagering. 

This act eliminated the 10 percent 
luxury tax on such items as jewelry, 
furs, cosmetics and rolled back manu- 
facturers' taxes on appliances, sport- 
ing goods, business machines, auto 
parts, etc. 

June 1965 A Distilled Spirits Stan- 
dards and Labeling Survey Commit- 
tee was established to reappraise the 
various regulations issued under the 
Federal Alcohol Administration Act. 



7FF 



182 



July 1, 1965 The IRS Data Center 
opened in Detroit. 

July 1965 The Technical organi- 
zation in the National Office was 
realigned by type of tax rather than 
by function. 

AUGUST 25, 1965 President Johnson 
announced the introduction of a new 
Planning-Programming-Budgeting 
(PPB) System throughout the Execu- 
tive Branch. This new system 
replaced the Long-Range Plan. 

October 1965 The second phase 
of Alcohol, Tobacco, and Firearms 
Operation Dry Up was staged in 
northern Georgia. 

December 31, 1965 The IRS 
hosted a reunion of former and pre- 
sent members of the Commissioner's 
Advisory Group. Of 73 living alum- 
nae, 70 attended. 

December 1965 The Ogden Ser- 
vice Center moved to its new facility 
adjacent to the Defense Depot, 
Ogden. The facility was not officially 
dedicated until March, 1967. 

1965 The IRS instituted the first 
centralized toll-free telephone site. 

1965 A magnetic tape reporting 
pilot was made available to employers 
for Form W-2 and 1099 information 
and a computerized tape library sys- 
tem was installed nationwide. As 
a result, an operational tape reporting 
program began for 1965 payment 
information in the 1966 filing season 
with 591 entities. 



1965 The IRS established a 
nationwide Intelligence career pro- 
gram. 

1965 The IRS began validating 
taxpayer social security numbers 
against social security information. 

1965 The Office of International 
Operations was restructured and the 
Research, Tax Treaty, and Techni- 
cal Services Division was established 
in the National Office. 

1965 The position of Deputy 
Chief Counsel was created as part 
of the National Office reorganization. 
Also, the Operations and Planning 
Branch was created. 

1965 IBM 7070-7074 computers at 
the National Computer Center were 
replaced with IBM 360-65 computers. 

1965 The title of settlement officer 
was changed from "Technical Advi- 
sor" to "Appellate Conferee." 

1965 The Newark District 
and Chapter 60 of the National 
Association of Internal Revenue 
Employees (NAIRE) negotiated 
a collective bargaining agreement 
covering all employees of the district 
except management officials, tech- 
nical employees, and investigative 
personnel. This was the first sub- 
stantive union agreement negotiated 
in the IRS. 

1965 The IRS established an 
Exempt Organization Master File 
System to cope with the rise in the 
number of organizations and pension 
trusts seeking tax exemption. 



7*7 



183 



January 1, 1966 Individual Mas- 
ter File operations were introduced 
in the Southwest, Central, and 
Western Service Centers. The 
Detroit Data Center also began 
operations on this date. 

January 1, 1966 The tax on manu- 
factured tobacco (smoking and 
chewing tobacco and snuff) that 
had been in existence for 103 years 
was repealed. 

March 16, 1966 President Johnson 
approved the Tax Adjustment Act of 
1966, which provided for withholding 
of personal income taxes at graduated 
rates beginning May 1, 1966, and sped 
up the collection of corporate taxes. 

May 5, 1966 President Johnson 
stated that "the campaign against 
racketeering must not only be contin- 
ued but it must be accelerated." In 
response, the Intelligence Division 
established an Organized Crime 
Drive as an integral part of regular dis- 
trict operations. 

May 1966 A Seminar for Directors- 
General of Taxation was held in 
Washington as the first step in pro- 
viding a permanent forum for the 
exchange of ideas, concepts, and 
experiences for the improvement of 
tax administration among executives 
of tax administration agencies in the 
Western hemisphere. This led to the 
creation of the Inter-American Cen- 
ter of Tax Administrators in 1967. 

Junk 5, 1966 The Civil Service 
Commission authorized increases in 
the pay rates for GS-5, 7, and 9 
accountants, auditors, and internal 
revenue agents to overcome handi- 



caps in recruiting because of higher 
private sector salaries. This authority 
also permitted the IRS to hire accoun- 
ting students under work-study agree- 
ments and offer career-conditional 
appointments noncompetitively after 
a six-month training period. 

JULY 18, 1966 Congress enacted a 
law providing payment of some legal 
costs in favor of the taxpayer. 

July 1966 The IRS instituted the 
large case audit program to replace 
the "one man, one case" practice 
that had dominated corporation 
audit techniques. 

AUGUST 8, 1966 The Beatles' 
recording of "The Tax Man" was 
released in the United States on the 
album "Revolver." 

November 2, 1966 Congress passed 
a law which stated that taxpayers 
could be required to file returns 
directly with a service center instead 
of a district office. The IRS intro- 
duced this change into the Southeast 
Region in 1968 and completed the 
transition nationwide by 1970. This 
act also discontinued the practice of 
allowing legal action regarding a 
refund to be taken against a collector 
as a personal action. 

November 13, 1966 The President 
signed the Foreign Investors Tax 
Act making comprehensive changes 
in the concepts of U.S. taxation of 
nonresident aliens and foreign cor- 
porations. 

December 19, 1966 The North 
Atlantic Service Center relocated from 
Lawrence to Andover, Massachusetts. 



77 



184 



1966 The piloting of a toll-free 
telephone network increased the 
IRS effort to handle most taxpayer 
inquiries by phone. 

1966 The IRS tested a single-font 
optical scanner in the Southeast Ser- 
vice Center this year. 

1966 The first Data Processing 
Management Training Program was 
established and the first Data Pro- 
cessing Career Management Regis- 
ter was established. 

1966 Branch offices of the Alcohol, 
Tobacco, and Firearms Division 
were closed in Buffalo, Charleston, 
West Virginia; Omaha, and Milwau- 
kee. 

1966 Mary E. Taylor became the 
first woman to enter the Executive 
Development and Selection Pro- 
gram. She was one of 17 candidates 
selected from over 300 nominees. 

1966 This year marked the begin- 
ning of a series of International Tax 
Training (INTAX) seminars and 
courses for the officials and man- 
agers of tax agencies of developing 
countries. 

1966 Special salary rates for revenue 
agents and internal auditors were 
expanded nationwide. 

1966 Title 1 of the Foreign 
Investors Tax Act of 1966 brought 
about a comprehensive revision of the 
federal income, estate, and gift tax 
laws applicable to foreign persons. 
Title II made several significant 
amendments to the income tax laws 
and Title III provided for the estab- 



lishment of the Presidential Election 
Campaign Fund. 

1966 The Revenue Act of 1966 
revised the system of federal tax 
liens. 

1966 The IRS opened a second 
regional training center in the Cen- 
tral Region. 

1966 Congress passed the Tax 
Adjustment Act of 1966 which mod- 
erated some of the revenue reduc- 
tions of the Excise Tax Reduction 
Act of 1965. 

1966 The IRS instituted the new 
"Planning-Programming-Budgeting 
System" as a major tool for projecting 
long-range trends in Service programs 
and resource requirements. 

1966 The IRS inaugurated a pro- 
gram to provide magnetic tapes of 
selected data from the master file 
to state tax authorities after an IRS 
survey revealed that most states 
used computers for tax processing. 

January 1, 1967 For the first 
time, the IRS processed returns to 
the Individual Master File nation- 
wide. This completed six years of 
intensive effort to establish a national 
automated federal tax system. 

January 1, 1967 The Taxpayer 
Inquiry Sampling Program began as 
the primary device for detecting 
nationwide taxpayer problems. In this 
program, the top 25 taxpayer inquiries 
were analyzed to determine areas 
which required special clarification. 



v*7 



185 



March 1967 The pilot for a new 
Direct Data Entry System (DDES) 
was installed at the Southeast Service 
Center. The initial process involved 
24 keypunch operators and verifiers 
using a General Electric/Process 
Automatic Computer (GE/PAC). 

March 1967 Payment of travel and 
transportation expenses to first-post- 
of-duty was authorized for new rev- 
enue agents and internal auditors. 

May 1967 The Inter-American Cen- 
ter of Tax Administrators (CIAT) was 
founded at a meeting in Panama City, 
Panama, to provide a forum for the 
exchange of information, experience, 
and technical assistance in tax admin- 
istration in the Western hemisphere. 
Commissioner Cohen was elected 
President of the Center's Executive 
Council. 

June 1967 Public reading rooms 
opened in the National Office and the 
seven regional offices. 

June 1967 A study group report on 
revenue officer attitudes, morale, and 
motivation was submitted to the 
Assistant Commissioner (Compli- 
ance) with the objective of improving 
the working climate for this key front- 
line occupation. 

JUNE 1967 The Regional Training 
Center moved from Detroit to 
Cincinnati. 

JULY 6, 1967 The Central Service 
Center was relocated from Cincin- 
nati to Covington, Kentucky. 



July 15, 1967 Congress amended 
the Interest Equalization Tax Law, 
aimed at halting evasion of the inter- 
est equalization tax through the 
improper use of certificates of prior 
American ownership of foreign securi- 
ties for the purpose of tax-free resales. 

July 1967 The Civil Service Com- 
mission approved a nationwide spe- 
cial salary rate for GS-5 through GS- 
9 special agents. 

September 1967 The first of three 
hearings to consider amendments to 
the regulations in title 27, Code of 
Federal Regulations, Part 5, "Labeling 
and Advertising of Distilled Spirits," 
was held. As a result, a new type of 
domestic whiskey, to be known as 
"light whiskey," was authorized in 
January 1968. 

December 31, 1967 Documentary 
revenue stamps were no longer used 
after this date. 

1967 The IRS established a Wage 
and Information Document Matching 
Program (WAID) to improve the over- 
all document matching program. This 
program became fully operational in 

1968 and went nationwide in 1969. 

1967 The IRS tested the use of 
expanded hours of service and pub- 
lic affairs releases covering the most 
common audit problems. 

1967 The IRS established the 
account referral program. 

1967 The IRS initiated a long-range 
study of the automated data process- 
ing system to determine require- 
ments of the 1970s and beyond. This 



T7 



186 



would later be called the Tax Admin- 
istration System (TAS). 

1967 A new Federal Tax Deposit 
(FTD) system was established for 
corporate estimated tax payments 
using preaddressed punch cards. 
This replaced depository receipt 
procedures that had been in effect 
for almost 20 years. The Federal 
Reserve Board and Office of the 
Treasurer sent tapes to the National 
Computer Center for reconciliation 
with the taxpayers' accounts. 

1967 The position of Deputy 
Assistant Commissioner (Data Pro- 
cessing) was established and Garrett 
DeMots was selected as the first 
incumbant. 

1967 The IRS Chief Counsel 
Library facilities were consolidated 
on the fourth floor of the National 
Office building. 

1967 Mary E. Taylor, the first 
female graduate of the Executive 
Development Program, became the 
first female assistant district director. 

1967 Three blind individuals were 
hired to work as taxpayer assistors in 
the Little Rock District in a pilot 
program supported by the Office of 
the Services for the Blind,Vocational 
Rehabilitation Administration. 

Early 1968 Representatives of the 
National Tax Administration Agency 
of Japan made an in-depth study of 
the IRS Foreign Tax Assistance Pro- 
gram and later established a similar 
program in Tokyo to provide train- 
ing and technical assistance to devel- 
oping countries in Asia. 



January 1, 1968 The Federal tax 
deposit system was extended to 
include payment of withholding and 
FICA taxes by employers and with- 
holding agents, certain excise taxes, 
railroad retirement tax, regular cor- 
poration income tax, and tax on busi- 
ness income of exempt corporations. 

January 18, 1968 The staff of 
the overseas offices of the Office 
of International Operations was 
cut by three persons as a result 
of a Presidential directive aimed 
at reducing U.S. dollar expendi- 
ture and personnel strength abroad. 
This left a total of 27 personnel in 
nine foreign posts. 

January 1968 The phase-in of filing 
of individual tax returns with the 
service centers continued as the 
Southeast Region phased in all types 
of individual returns. In the six other 
regions, taxpayers with refund returns 
were asked to file directly with the 
service centers. 

April 1968 The IRS introduced a 
new amended individual income tax 
return form, the 1040X. 

April 1968 The first in a series of 
three hearings on the "Labeling and 
Advertising of Distilled Spirits" regu- 
lations was held to consider substan- 
tive changes in the regulations. 

April 1968 Deputy Commissioner 
William H. Smith was named as one 
of the ten Outstanding Federal 
Employees by the National Civil 
Service League. 



77 



187 



May 1968 The Inter-American 
Center for Tax Administrators held 
its second annual general assembly 
in Buenos Aires. This organization 
now had members from 20 countries. 

JUNE 6, 1968 The Senate ratified 
income tax conventions with France, 
Brazil, and the Philippines. 

June 28, 1968 Congress passed the 
Revenue and Expenditure Control 
Act of 1968. This act retroactively 
increased tax rates by providing a 
10 percent surcharge on corporate 
income tax from January 1, 1968 
and on individual income tax from 
April 1, 1968. 

September 1968 The second of 
a series of three hearings on the 
"Labeling and Advertising of Dis- 
tilled Spirits," was held with the 
issuance of a Treasury Decision 
which established standards of iden- 
tity for blended applejack and certain 
flavored distilled spirits, and amended 
the standards of identity for gin and 
vodka. This Treasury Decision also 
required the alcoholic content and the 
net contents to appear on the brand 
label of all distilled spirits. 

October 22, 1968 The Gun Con- 
trol Act of 1968 was passed, adding 
additional firearms controls to be 
administered by the Alcohol, 
Tobacco, and Firearms Division of 
the IRS. 

October 1968 The IRS initiated an 
Appellate Conferee Evaluation Study 
which resulted in a test to grant settle- 
ment authority to appellate conferees. 
The test ended in November 1973 
without settlement authority granted. 



November l, 1968 Title II of the 
Gun Control Act of 1968 became 
effective. This act amended the 
National Firearms Act by inclusion of 
the destructive devices category of 
firearms and the insertion of more 
stringent penalties for criminal viola- 
tions of the act. The act required that 
all firearms, as defined by Title II, not 
previously registered had to be regis- 
tered within a 30-day amnesty period. 

November 15, 1968 The IRS 
established a Firearms Evaluation 
Group to provide advice concerning 
the development of standards to 
control the importation of firearms 
and ammunition. 

December 16, 1968 Title I of the 
Gun Control Act of 1968 became 
effective, strengthening firearms 
licensing provisions and setting forth 
comprehensive restrictions on com- 
mercial and private transactions 
involving firearms and ammunition 
and on the transportation, shipment, 
and receipt of these articles in inter- 
state and foreign commerce. Under 
the provisions of the law, the IRS was 
faced with a massive licensing task. 

December 19, 1968 The Alcohol 
and Tobacco Tax Division changed 
its name to the Alcohol, Tobacco, 
and Firearms Division. 

LATE 1968 The IRS began to con- 
template changes to the tax process- 
ing systems in the service centers. 
This resulted in a plan to decentralize 
taxpayer account files from the 
National Computer Center to the 
10 service centers, with Martinsburg 
operating primarily as a centralized 
data facilitator for the centers. 



T. 



,88 



1968 The IRS completed a four 
and one-half year renovation pro- 
ject in the National Office building. 
The interior of the building was 
converted to modern, well-lighted, 
air-conditioned office space and tra- 
ditional office layouts were 
changed. Old furniture was 
replaced with new, space-saving 
furniture. 

1968 The IRS redesigned its 
official stationery and envelopes. 

1968 The IRS tested a new ques- 
tionnaire-type form, the 1040Q, in 
an effort to provide a simpler income 
tax return for individuals. Studies 
showed that not enough taxpayers 
would use this type of form to justify 
its adoption. 

1968 The IRS abolished the posi- 
tion of Deputy Chief Counsel. The 
Collection Division was renamed 
General Litigation, with the 
increased responsibility of the Free- 
dom of Information Act given to this 
new division. 

1968 The IRS social security num- 
ber file was established. Since 1965, 
the IRS had been validating taxpay- 
ers social security numbers by com- 
paring them with those on a Social 
Security Administration-provided 
master tape. 

1968 The Omnibus Crime Control 
and Safe Streets Act of 1968 and the 
subsequent Gun Control Act of 
1968 replaced the FFA and NFA of 
the 1930s. Bombs and other destruc- 
tive devices were added to machine 
guns and sawed-off shotguns as 
items strictly controlled by the gov- 



ernment. The Alcohol and Tobacco 
Tax Division was given the first 
direct federal jurisdiction over the 
criminal use of explosives and this 
legislation greatly expanded their 
activities and responsibility for 
enforcement. 

1968 The third phase of Operation 
Dry Up was staged in Alabama. 

1968 The IRS completed a series 
of organizational changes in Alcohol 
and Tobacco Tax field offices, 
including the replacement of super- 
visor-in-charge positions with chief 
special investigator for enforcement 
and chief inspector for permissive 
functions positions. 

1968 The Supreme Court in the 
Marchetti and Grosso cases upheld 
the right of two taxpayers convicted 
of failing to pay occupational and 
excise taxes on wagering to assert 
their privilege against self-incrimina- 
tion under the Fifth Amendment 
because the returns on these taxes 
were not restricted as to disclosure 
and the extensive information con- 
tained was available to state and 
local prosecutors. 

1968 The Office of International 
Operations began processing returns 
on the Individual Master File. 

1968 The last three of seven ser- 
vice centers (Andover, Covington 
and Ogden) occupied new buildings 
that had been specially designed to 
accommodate the massive paper- 
work flow and complex electronic 
data processing requirements. 



77 



189 



1968 After a successful pilot test in 
the Southeast Service Center, the 
IRS began to install its first opera- 
tional GE-4020 direct data entry sys- 
tem (DDES) in the Southwest Service 
Center, replacing key punch 
machines. 

1968 The financial management 
intern program was developed as a 
means of identifying, recruiting, and 
training promising college graduates 
for careers in federal financial man- 
agement. Three interns were hired 
for the first year of the program. 

1968 As the result of an employee 
suggestion, a system to microfilm 
applications for certificate of label 
approval in the Federal Alcohol 
Administration Act was imple- 
mented. This resulted in improved 
research ability as well as reductions 
in storage space. 

1 968 The IRS established a ten- 
member panel of art experts to help 
determine whether realistic 
appraisals or fair market value had 
been placed on works of art donated 
to charity and claimed as deductions 
on tax returns. The Association of 
Art Museum Directors had sug- 
gested creation of the panel. 

January 20, 1969 Sheldon S. 
Cohen resigned as Commissioner. 

January 1969 More than 30 mil- 
lion taxpayers received federal 
income tax packages printed in two 
colors for the first time. The use of 
color was intended to minimize tax- 
payer error. 



February 18, 1969 The Commit- 
tee on Ways and Means began hear- 
ings on tax reform. These hearings 
concluded on April 24, 1969. 

April 1, 1969 Randolph W. 
Thrower of Georgia became Com- 
missioner. 

April 21, 1969 Tax reform was the 
subject of President Nixon's mes- 
sage to Congress. 

April 1969 The third and final 
hearing on the "Labeling and Adver- 
tising of Distilled Spirits," was held. 

May 12, 1969 A tax museum, to be 
known as the Visitor's Gallery, was 
dedicated in the National Office and 
opened to the public. 

May 1969 The third annual Gen- 
eral Assembly of the Inter-American 
Center of Tax Administration was 
held in Mexico City. 

July 18, 1969 The IRS established 
the Activist Organizations Committee, 
which was later renamed the Special 
Services Staff. The mission of this 
organization was to coordinate all IRS 
activities involving ideological, mili- 
tant, subversive, radical, and similar 
organizations and individuals. 

August 7, 1969 Congress extended 
the 10 percent surcharge through 
December 31, 1969 and placed the 
payment of Federal Unemployment 
Tax Act (FUTA) taxes on a quarterly 
installment basis. 

November 26, 1969 Congress 
extended the interest equalization 
tax through March 31, 1971. 



7*7 



190 



November 1969 Fifteen distin- 
guished Americans were appointed 
to serve on a new "Commissioner's 
Advisory Committee on Exempt 
Organizations," which helped the 
IRS define such terms as "religious," 
"educational," "propaganda," and 
"political activity." 

December 30, 1969 The Tax 
Reform Act of 1969 became law. 
This act dramatically lowered tax 
rates. This was the first of the 
"supermajor" tax acts amending the 
1954 tax code (followed by acts in 
1976, 1982, 1984, and 1986). 

This act applied a minimum tax to 
all taxpayers; established a number 
of excise taxes to be imposed on pri- 
vate foundations; increased the 
amount of the personal exemption; 
and provided that an individual's 
wages were not subject to withhold- 
ing of Federal income tax if the tax- 
payer certified to his employer that 
he expected no Federal income tax 
liability. 

This act also established the Tax 
Court as a legislative court under 
Article 1 of the Constitution and 
changed its name to the United 
States Tax Court. The term of office 
of Tax Court judges was increased 
from 12 to 15 years and full judicial 
pensions forjudges who were not 
reappointed after the expiration of 
their terms were provided. 

1969 Regional laboratories of the 
Alcohol, Tobacco, and Firearms 
Division in Chicago, Dallas, New 
York, San Francisco, and Seattle 
were consolidated into multi- 
regional laboratories in Atlanta, 
Cincinnati, and Philadelphia. 



7T 



1969 A group of volunteers from 
the Cleveland Chapter of the 
American Red Cross were the first 
recipients of the Commissioner's 
Award outside the IRS. They 
received the award for the prepara- 
tion of braille materials to train 
blind IRS employees. 

1969 The IRS set out to redesign 
the entire tax processing system. Ini- 
tial efforts produced the Tax Admin- 
istration System (TAS) which envi- 
sioned a totally decentralized system 
under which taxpayer accounts 
would be maintained at service cen- 
ters instead of at one central loca- 
tion. 

1969 The IRS began using a math- 
ematical technique called the Dis- 
criminant Function (DIF) to iden- 
tify individual tax returns by com- 
puter for audit for the first time. 
This new selection technique pro- 
vided a uniform standard for select- 
ing returns for audit. 

1969 The IRS began a test of the 
Integrated Data Retrieval System 
(IDRS) in the Southwest Region. 

1969 The National Tax Founda- 
tion estimated that the average 
American worked one hour and 48 
minutes each day to pay his or her 
federal taxes, up from one hour and 
36 minutes in 1959. 

1969 The Commissioner launched 
a comprehensive study of the entire 
IRS organization to determine 
whether tax administration responsi- 
bilities were being discharged in an 
efficient and effective manner and to 
ensure that the Service would be 



191 



able to adapt to the changing envi- 
ronment of the 1970s. 

1969 Congress approved three new 
service centers to be constructed on 
Long Island, Memphis, and Fresno. 

1969 A taxpayer inquiry referral 
system was formally adopted. This 
system permitted taxpayers to 
obtain complete service at any IRS 
office location. 

1969 Most individual estimated 
income tax return filers were placed 
on a "voucher" system of filing this 
year. Rather than the IRS sending 
quarterly notices for estimated tax 
installments, taxpayers submitted 
each installment with a payment 
"voucher" that was furnished with 
the estimated tax form package. 



1969 For the first time, the IRS 
presented evidence of tax evasion 
before a General Court-Martial in a 
case involving an Army noncommis- 
sioned officer who failed to report 
profits from black market operations 
in Vietnam. 

Late 1960s The IRS created the 
Coordinated Examination Program 
(CEP) to ensure uniform and consis- 
tent treatment of issues and to pro- 
vide better identification and devel- 
opment of issues. 



vt7 



Short Form 1040A U.S. Individual Income Tax Return 


Mrs 


JSS&Sr 1972 


s 


First name and Initial (it joint tetum. uie first names and middle initials ol both) 1 List name 


Your social security number 
iHijibind-., II joint rtlum) 


= 


Present home address (Number end street (including apartment number) or rural route) 


Wila't numbor, It join! return 


s 


City, town or post ottice. State and ZIP code 


X 


Your* 


& 


W.l.'i 



Filing Status — check only 

1 □ Single 

2 Q Married filing joint return 

3 Q Married filing separately. If wile (husband) is also filing, give 

her (his) social security number and first name here. 



4 Q Unmarried Head of Household 

5 Q Widow(er) with dependent child (Enter year of 
death of husband (wife) ►• 19 ) 



Exemptions Regular 65 or over Blind Enter 

6 Yourself . . . Q □ D I .lb.™, 

7 Wife (husband) . [J rj [] | checked^ 

8 First names of your dependent children who lived with you 



11 Wages, salaries, tips. etc. (attach Form W-2 to front. If unavailable, attach explanation) 

12a Dividends ( w,Zl™°;»u,'J°!,™ )$ 12b Less Exclusion $ Balance ■*• 

13 Interest income (if over $200, use Form 1040) 

14 Total lines 11. 12c. and 13 (Adjusted Gross Income) 



• If line 14 is $20,000 or less and you want IRS to figure your tax, see instructions on page 3. 

• If line 14 is under $10,000, find tax in Tables 1-12 and enter on line 19. Skip lines 15 through 18. 

• If line 14 is $10,000 or more go to line 15. 

15 II line 14 is $10,000 or more, enter 15% of line 14 but not more than $2,000 ($1,000 il line 3 was checked) . 

16 Subtract line 15 from line 14 

17 Multiply total number of exemptions claimed on line 10 by $750 

18 Taxable income (subtract line 17 from line 16) 

(Figure tax on amount on line 18 using Tax Rate Schedule X, Y, or Z, and enter tax on line 19.) 

The 1 040 A short form was reduced to half page size in the 1970s. 



1970 -1973 



Economic Stabilization 

and Union Negotiations: 

The IRS Adapts to New Demands 

^T7 



Despite the vast numbers of tax returns flowing into the IRS each year, the 
agency continued to be given additional responsibilities. In the early 1970s 

the IRS was given the job of informing the public and investigating 

irregularities in President Nixon's Economic Stabilization program. Other 

major activities included establishment of a special staff to oversee the 

redesign of the automated tax processing system. 



January 1, 1970 Federal Unem- 
ployment Act taxes (FUTA) came 
under the Federal Tax Deposit 
(FTD) program for the first time. 
This tax was now payable quarterly 
rather than annually. 

January 1 970 The I RS completed a 
three-year study of the revenue 
officer occupation. In addition to pro- 
viding information on recruitment 
and the work environment, this study 
revealed a changing emphasis towards 
higher-graded work. A number of 
new GS-1 1 and GS-12 revenue officer 
positions were created in recognition 
of this change. 

February 1970 The IRS assigned 
three technical representatives to con- 
duct examinations and investigations 
of black market currency activities in 
Vietnam and other countries in 
Southeast Asia. 

April 24, 1970 Congress provided 
tax relief to the crew of the U.S.S. 
Pueblo during imprisonment by 
North Korea. 

May 21, 1970 The Airport and 
Airways Act of 1970 increased the 
tax rates on the transportation of 
persons by air and imposed new 
taxes on the use of international 
travel facilities, the transportation 
of property by air, and the use of 
certain civil aircraft. 

May 1970 The Inter-American 
Center of Tax Administrators 
(CIAT) held its fourth General 
Assembly in Montevideo, Uruguay. 



June 1970 Barbara Vatran 
Thompson was appointed as the 
first Servicewide coordinator for the 
Federal Women's Program. 

July 10, 1970 The IRS announced 
that it could not justify tax exemp- 
tions or allow charitable contribu- 
tions to educational institutions with 
racially discriminatory admissions 
policies. A questionnaire requesting 
information on admissions policies 
was sent to 5,000 private educational 
institutions. 

July 12, 1970 Directors were 
appointed for the three new service 
centers. 

September 22, 1970 A ground- 
breaking ceremony was held for the 
Memphis Service Center. Vice 
President Agnew participated in 
the ceremonies. 

October 26, 1970 President 
Nixon signed the Bank Records and 
Foreign Transactions Act. This act 
was also known as the Bank Secrecy 
Act and required individuals, busi- 
nesses, and financial institutions to 
report cash transactions exceeding 
$10,000 to the IRS. This prompted 
the IRS to develop the Currency 
Transaction Report (Form 4789) and 
the Casino Currency Transaction 
Report (Form 8372). 

OCTOBER 1970 Thirty Internal 
Security Inspectors assisted the 
Secret Service in protecting digni- 
taries attending ceremonies at the 
celebration of the United Nations' 
25th anniversary. 



194 



October 1970 The Commissioner 
announced formation of an Advisory 
Committee on the Horse Industry. 
Composed of 15 citizens, the group 
included representatives of the aca- 
demic community and professional 
groups concerned with horses, with 
the purpose of advising the IRS on 
issues such as the holding period for 
livestock for capital gains treatment, 
exchange of livestock, and hobby 
losses. 

October 1970 The Commissioner 
formed an Advisory Committee on 
the Cattle Industry to advise the IRS 
in implementing changes in the tax 
law dealing with cattle and livestock. 

1970 The IRS discontinued Form 
1040A, consolidating it with a new 
Form 1040 to allow more taxpayers 
the advantage of claiming head of 
household, sick pay exclusion, and 
other benefits. 

1970 The optional tax tables were 
expanded to include incomes up to 
$10,000, enabling more taxpayers to 
use these tables instead of comput- 
ing their tax. 

1970 The IRS established a special 
committee on life insurance com- 
pany tax problems to study and 
resolve controversial issues raised in 
connection with examinations of 
federal income tax returns of life 
insurance companies. 

1970 The Water Quality Improve- 
ment Act of 1970 required the Alco- 
hol, Tobacco and Firearms Division 
of the IRS to work with the Environ- 
mental Protection Agency to 
develop guidelines for certification 



7T 



of compliance with water quality 
standards prior to manufacturers of 
distilled spirits, wine, beer, and 
explosives receiving operating per- 
mits or licenses from the IRS. 

1970 The IRS issued Form 4683, 
"U.S. Information Return on For- 
eign Banks, Securities, and Other 
Financial Accounts," to promote the 
government's overall efforts to com- 
bat organized crime and tax evasion. 

1970 IRS special agents from the 
Intelligence and Alcohol, Tobacco, 
and Firearms Divisions and the 
Inspection Service served on special 
duty as "Sky Marshalls" on U.S. car- 
rier international and selected 
domestic flights in an effort to com- 
bat "skyjacking" until a permanent 
force was recruited and trained for 
this purpose. 

1970 The Executive Development 
Program added an electronic data 
processing seminar to its program. 

1970 A regional test of sending 

1969 individual income tax returns 
to federal records centers six weeks 
after receipt began. 

1970 An Exempt Organizations 
Examination Branch was established 
in the National Office Audit Division 
to develop the nationwide exempt 
organization audit program and over- 
see the activities of all districts. 

1970 The IRS awarded a contract 
to Control Data Corporation for the 
CDC 3300 system for the IDRS data 
processing system. 



195 



1970 The Excise, Estate, and Gift 
Tax Adjustment Act of 1970 short- 
ened the time for filing and paying 
tax on estate tax returns from 15 to 
9 months after the decedent's death 
and postponed the scheduled reduc- 
tion of the 7 percent excise tax on 
automobiles and the 10 percent excise 
tax on telephone service until 1973. 

1 970 Due to the success of Form 
1040X, the IRS introduced Form 
1 120X for use by corporate taxpayers. 

1970 IRS-sponsored volunteer pro- 
grams began during this filing season 
when 7,500 volunteers helped about 
100,000 taxpayers as part of the new 
Volunteer Income Tax Assistance 
(VITA) program. 

1970 Congress passed the Compre- 
hensive Drug Abuse Prevention and 
Control Act in response to the Presi- 
dentially-declared "War on Drugs." 
With passage of this act, for the first 
time Federal drug control enforce- 
ment authority was based on the prin- 
ciple of interstate commerce rather 
than taxation. Title 21 of this act dealt 
with controlled substances and 
replaced the previous narcotic and 
dangerous drug control laws with a 
single statute. Licensing require- 
ments were extended to all controlled 
substances and not just narcotics. 

January 1971 Testing began to 
determine the feasibility of using 
microfilmed images of individual 
tax returns and documents in lieu 
of the original documents. Known 
as STAR (Storage and Retrieval of 
Images of Returns and Related 
Documents), this system was 
tested by the Cincinnati Service 



7 



Center and the Cleveland District 
Office. 

Junk 22, 1971 Randolph W. 
Thrower resigned as Commissioner. 

June 1971 President Nixon called 
for increased efforts to combat the 
growing problem of drug abuse. In 
response, the IRS set up a special 
program to conduct tax investiga- 
tions of key figures engaged in nar- 
cotics traffic. 

July 1 , 1 97 1 The Office of the 
Assistant Commissioner (Data Pro- 
cessing) was redesignated the Assis- 
tant Commissioner (Accounts, Col- 
lection, and Taxpayer Service). 

July 9, 1971 The National Associa- 
tion of Internal Revenue Employees 
(NAIRE) submitted proposals for a 
nationwide bargaining agreement to 
the IRS. Negotiations continued for 
nine months. 

July 23, 1971 The three new ser- 
vice centers were officially desig- 
nated as the IRS Service Center, 
North Atlantic Region (Brookhaven); 
IRS Service Center, Western Region 
(Fresno); and IRS Service Center, 
Southeast Region (Memphis). 

August 6, 1971 Johnnie M. 
Walters of South Carolina became 
Commissioner. 

AUGUST 15, 1971 President Nixon 
announced a 90-day freeze on most 
prices, wages, and rents. The Presi- 
dent's executive order created the 
Cost of Living Council as a major 
policy making body. The Office of 
Emergency Preparedness took over 



196 



responsibility to implement, admin- 
ister, and enforce the Economic Sta- 
bilization Program. 

August 19, 1971 The Office of 
Emergency Preparedness redele- 
gated responsibility to the IRS to 
establish local service and compli- 
ance centers to provide information 
to the public, investigate complaints, 
and monitor compliance with the 
Economic Stabilization Program. 

August 1971 The Western Service 
Center was redesignated the Ogden 
Service Center. 

October 15, 1971 President 
Nixon issued an Executive Order 
providing the legal foundation for 
Phase II of the Economic Stabiliza- 
tion Program. This order continued 
the Cost of Living Council and cre- 
ated the Pay Board and Price Com- 
mission. The role of the IRS was to 
receive inquiries and complaints, 
conduct investigations, and perform 
other related duties. 

November 14, 1971 The IRS 
established a position for an Assis- 
tant Commissioner (Stabilization). 
The Office of the Chief Counsel 
also established a Stabilization Divi- 
sion. President Nixon officially 
assigned responsibility for enforce- 
ment of the program to the IRS. 
Field offices were established at IRS 
regional and district offices. 

November 1971 The building for 
the Memphis Service Center was 
completed. 



1971 The Integrated Data 
Retreival System (IDRS) was suc- 
cessfully implemented at the South- 
west Service Center (Austin). 

1 97 1 The Revenue Act of 1 97 1 
included a job development invest- 
ment credit and a new depreciation 
system as well as an increased stan- 
dard deduction and extension of the 
optional tax tables to more taxpay- 
ers. It also reduced revenues some 
$26 billion over a three-year period. 

1971 The IRS developed the 
Employee Plan Master File System 
to link employer entities with 
adopted plans, the trusts or funds 
through which they financed their 
plans and the fiduciaries of these 
trusts or. funds. 

1971 The Taxpayer Service func- 
tion was reorganized and upgraded 
organizationally as the Taxpayer 
Service Division under the Assistant 
Commissioner for Accounts, Collec- 
tion, and Taxpayer Service. Tax- 
payer Service remained part of the 
collection function in IRS district 
offices. 

1971 The IRS tested the Cen- 
tiphone System (Centralized Tax- 
payer Information by Telephone) in 
the Little Rock District. This system 
permitted taxpayers to call district 
offices at the local call rate. 

1971 The IRS tested an automated 
Remittance Processing System to 
modernize the clearing, depositing, 
and crediting of checks to a tax- 
payer's account. 



77 



197 



1971 A bomb detonated and 
killed an employee in the Los 
Angeles District. 

1971 The Commissioner ordered 
a study to determine the feasibility 
of reintroducing the 1040A short 
form income tax return. This 
resulted in development of a half- 
sheet size form for reporting 1972 
taxes. 

1971 Dean J. Barron replaced 
Robert L. Jack as Assistant Com- 
missioner (Data Processing). 

1971 The fifth General Assembly 
of the Inter-American Center of 
Tax Administrators met in Rio de 
Janeiro. 

1971 An Office of Industrial Eco- 
nomics was established in the Plan- 
ning and Research function with 
responsibility for recommending 
changes in definitions of asset 
guideline classes and in the associ- 
ated depreciation and repair norms 
necessary to the new Class Life 
Depreciation Range System. 

1971 The Art Advisory Panel was 
expanded from 10 to 18 members. 

January 1, 1972 The new service 
centers in Memphis and Fresno 
began processing tax returns. 

March 1972 The Pay Board dele- 
gated authority to the IRS to 
approve or deny exceptions for wage 
and salary adjustments under the 
Economic Stabilization Program. 



March 1972 The Internal Secu- 
rity Division assumed jurisdiction 
over assaults and threats against 
IRS employees. 

April 5, 1972 The IRS signed an 
agreement with the National Associ- 
ation of Internal Revenue Employ- 
ees (NAIRE) which covered all dis- 
trict offices and provided NAIRE 
with exclusive union recognition. 
The agreement covered about 
28,000 employees and marked the 
first time the IRS and a federal 
employee union reached a nation- 
wide agreement. 

May 1972 The Price Commission 
delegated authority for exceptions in 
all rent and price cases involving 
firms with annual sales or revenues 
of $50 million or less to the IRS. 

July 1, 1972 The new service cen- 
ter at Brookhaven began processing 
tax returns. 

July 1,1972 The Alcohol, 
Tobacco, and Firearms Division was 
separated from the IRS and estab- 
lished as an independent Bureau in 
the Treasury Department. The 
Alcohol, Tobacco, and Firearms 
Division was also removed from the 
Chief Counsel area at this time. 
With this shift, the IRS lost 4,000 
staff years and $73.7 million of its 
appropriation. 

October 1972 The Treasury 
Building was designated as a 
National Historic Landmark. This 
building is the third oldest continu- 
ally occupied federal office building 
in Washington (after the White 
House and the Capitol). 



77 



198 



1972 Congress enacted legislation 
providing for jurisdictional coordina- 
tion between the United States and 
the Territory of Guam on individual 
income tax payments. Taxpayers 
could now file and pay tax to only 
one of the two jurisdictions, depend- 
ing on their place of residence at the 
end of the tax year. 

1972 The Integrated Data Retrieval 
System (IDRS) operated successfully 
in the Austin Service Center and the 
six states of the region. The IDRS 
was installed at all service centers and 
district offices over the next two years. 

1972 Revenue Ruling 72-315 
allowed all finance charges on 
revolving credit charge accounts to 
be deductible as interest on federal 
income tax returns. This applied to 
retail store revolving charge 
accounts as well as bank credit 
cards. Previously the limit was six 
percent of the average unpaid 
monthly balance. The ruling was 
made retroactive to returns filed in 
the last three years. 

1972 The Multiple Filer Audit 
Program began late this year by 
using computers to analyze individ- 
ual returns to determine if more 
than one return had been filed under 
the same social security number. 

1972 The IRS began to send teams 
of revenue agents and tax auditors to 
overseas posts to conduct on-site 
audits rather than relying on corre- 
spondence. 



1972 The sixth General Assembly 
of the Inter-American Center for 
Tax Administrators (CIAT) was held 
in Asuncion, Paraguay. 

1972 The IRS initiated a Federal 
Tax Deposit (FTD) Alert Program 
to identify failures of employers to 
deposit taxes withheld from employ- 
ees' wages. 

1972 The Executive Development 
Program was revised to place more 
emphasis on the typical work, of a 
field official, decision-making, and 
problem-solving at the field level. 

1972 The IRS reinstated the 
1040A short form. 

1972 The IRS completed construc- 
tion of a new auditorium on the 7th 
floor of the National Office. The 
facility was named the Boutwell 
Auditorium in honor of the first 
Commissioner of Internal Revenue. 

1972 The IRS began to provide 
tax information in Spanish. The IRS 
announced the publication of a new 
Spanish language guidebook for 
individual taxpayers in joint press 
conferences in New York, Miami, 
and Los Angeles. 

1972 The Service Center Review 
Program began with the goal of 
resolving issues at the service center 
level through correspondence with 
the taxpayer. 

1972 The Federal-State Tax Col- 
lection Act of 1972 authorized the 
IRS to enter into agreements with 
states to collect state individual 
income taxes if the state conformed 



7+7 



199 



its individual income tax law closely 
to federal tax law. 

1972 During the filing season, the 
IRS launched a nationwide pro- 
gram to identify and prosecute 
unscrupulous tax return preparers 
known as the Return Preparers 
Compliance Program. 

1972 The IRS used a separate 
attachment (Form 4875) to allow 
taxpayers to respond to the Presi- 
dential Election Campaign Check- 
off option added to the income tax 
this year. The separate form was 
necessary because taxpayers were 
required to designate their political 
party affiliation. 

January 11, 1973 The Economic 
Stabilization Program entered Phase 
III, placing mandatory controls on 
about 850 of the nation's largest 
firms and certain problem industries. 
Voluntary adherence to price and 
wage guidelines was emphasized. 
The Cost of Living Council became 
the sole policy-making body and the 
Pay Board and the Price Commis- 
sion were abolished. 

January 30, 1973 Service person- 
nel participated in a ceremony mark- 
ing the 100th graduate trained as a 
Taxpayer Service Representative at 
the Arkansas Enterprises for the 
Blind. 

January 31, 1973 The Chief 
Counsel organization abolished the 
Stabilization Division. 

March 12, 1973 The IRS 
announced the appointment of 
Carolyn K. Buttolph as the first 



female District Director. Buttolph 
moved from being Assistant Director 
of the Albany District to be Director 
of the Burlington District after grad- 
uating from the Executive Develop- 
ment program in 1972. 

April 13, 1973 A second multi- 
unit agreement with the National 
Association of Internal Revenue 
Employees (NAIRE) was signed, 
covering the approximately 26,000 
employees of the service centers, 
the National Computer Center, and 
the Data Center. The agreement 
became effective July 1. 

April 30, 1973 Johnnie M. Walters 
resigned as Commissioner to join 
the Washington, D.C. law firm of 
Hunton, Williams, Gay, Powell, and 
Gibson. 

May 25, 1973 Donald C. Alexander 
of Ohio became Commissioner. 

June 16, 1973 President Nixon 
ordered a 60-day freeze on most 
prices. The Cost of Living Council 
and the IRS were given responsibil- 
ity for enforcing the freeze regula- 
tions, answering inquiries, and pro- 
cessing requests for exceptions and 
exemptions. 

July 1, 1973 The IRS realigned 
processing activities by routing some 
tax returns from the old to the new 
service centers. 

July 1, 1973 The Detroit Data 
Center moved into a new facility in 
downtown Detroit. 



77 



200 



August 13, 1973 The IRS abol- 
ished the Special Services Staff. 

August 13,1973 Phase IV of the 
Economic Stabilization Program 
began. The IRS was given responsi- 
bility to receive and process price 
increase requests, review quarterly 
profit margin reports, issue subpoe- 
nas for witnesses and books, and col- 
lect and compromise civil penalties 
for violations. The IRS was also 
authorized to perform additional 
technical and analytical tasks for- 
merly reserved to the Cost of Living 
Council. 

1973 Honeywell H2050A comput- 
ers replaced Honeywell H-200s in 
IRS service centers. 

1973 The Integrated Data 
Retrieval System (IDRS) installation 
was completed in all IRS regions. 

1973 Robert H. Terry was selected 
as Assistant Commissioner 
(Accounts, Collection, and Taxpayer 
Service), succeeding Dean J. Barron 
who moved to Planning and 
Research. 

1973 The IRS developed a two- 
week course for revenue agents in 
special enforcement techniques 
assigned to the Strike Force or Nar- 
cotics Trafficker Programs. 

1973 The IRS eliminated Sched- 
ule B of Form 1040, used to report 
dividend and interest income. 

1973 The IRS began a system of 
Management by Objectives and 
Assessment by Results to supplement 
normal management processes. 



1973 The IRS established a Tax 
Systems Redesign Division to 
undertake a major redesign of IRS 
data processing systems. 

The master file at the National 
Computer Center would be decen- 
tralized to the 10 service centers 
under the system envisioned as 
part of the Tax Administration Sys- 
tem (TAS). 

1973 The Commissioner's Advi- 
sory Group was reinstituted when 
the Commissioner appointed 12 
prominent accountants, attorneys 
and educators to serve on the Advi- 
sory Group during the year. 

1973 For the first time, women 
served as part of the IRS instructor 
team for overseas military personnel. 

1973 In an effort to reduce over- 
withholding of income tax on wages, 
the IRS simplified Form W-4 and 
sent a message to more than 4.5 mil- 
lion employers requesting them to 
ask their employees to review their 
tax situation to reduce excessive 
withholding. 

1973 During the filing season, the 
IRS tested preparing returns on mini- 
computers while the taxpayer waited 
at four test sites (Boston, Brooklyn, 
Philadelphia, and Washington). Over 
9,000 1040A returns were prepared in 
this manner. The IRS also conducted 
a Pre-Filing Returns Review Test in 
two district offices to determine tax- 
payer response to the offer to review 
returns for accuracy before filing. 

1973 The Federal Energy Office 
(FEO) was created to oversee 
energy-related problems as the 



7+7 



201 



energy shortage became critical. 
Since the IRS had employees exper- 
ienced in conducting petroleum 
investigations, they were called 
upon to continue enforcing energy 
controls until FEO could assume 
this responsibility. A Memorandum 
of Understanding between the FEO 
Administrator and the Commissioner 
was established. 

1973 The IRS issued the 1973 edi- 
tion of the Tax Guide for Small 
Business. This revision, completed 
in cooperation with the Senate 
Select Committee on Small Busi- 
ness, was the first since 1956. 



1973 The IRS established a 
National Forensic Laboratory in 
Chicago to focus investigations on 
white collar crime. 

1973 The National Association of 
Internal Revenue Employees 
(NAIRE) changed its name to the 
National Treasury Employees 
Union (NTEU) during the group's 
national convention in San Fran- 
cisco. 



^7 




Individualized taxpayer service facilities such as this one sprang up in IRS offices around the country in the 1970s. 



1974-1979 

Outreach and Automation: 

The Rise of Taxpayer Service 

and the Demise of TAS 



7v 



Expansion in the efforts of the IRS to reach out and assist taxpayers with the 

annual ritual of filing their 1040s was a hallmark of these years. Continued 

increases in the number of tax returns filed resulted in intensified efforts 

to upgrade the processing capabilities of the service centers. Unfortunately, 

budget constraints and increasing concerns about the security and privacy 

of more and more computerized information prompted Congress to withdraw 

support for a major proposed upgrade known as the Tax Administration 

System during this period. 



January 1, 1974 For the first time, 
limited pretrial discovery was per- 
mitted before the Tax Court as a 
result of new Tax Court Rules of 
Practice and Procedure. 

JANUARY 2, 1974 A nationwide toll- 
free telephone service was available 
in 135 locations in the United States, 
Alaska, Hawaii, and Puerto Rico for 
the first time. 

February -April 1974 The IRS 
recruited, hired, and trained 860 new 
employees to form a field enforce- 
ment staff for the Federal Energy 
Office. The IRS had direct control 
and supervision over them until 
FEO assumed the responsibility for 
direction and control of energy activ- 
ities on July 1. 

April 1, 1974 The Chief Counsel 
function established the Disclosure 
Litigation Division to handle Free- 
dom of Information requests and 
disclosure issues. These matters 
were formerly handled by the Gen- 
eral Litigation Division. 

April 1, 1974 District Conference 
staffs were given authority to settle 
cases for tax years where the pro- 
posed deficiency or claimed refund 
was $2,500 or less. 

May 1 , 1 974 William E. Williams 
was appointed Deputy Commis- 
sioner, replacing Edward Fitzgerald 
who retired after 37 years of IRS ser- 
vice. 

JUNE 30, 1974 The Assistant Com- 
missioner (Stabilization) ceased to 
exist and personnel were phased 
back into tax administration roles. 



July 1, 1974 The taxpayer service 
organization was separated from 
enforcement activities at the district 
office level. 

July 21, 1974 The Office of the 
IRS Chief Counsel was reorganized 
and the General Legal Services 
Division was established to handle 
non-tax legal matters. This new 
office replaced the Operations and 
Planning Division. 

AUGUST 1974 The IRS formalized 
its Upward Mobility program to 
emphasize opportunities for employ- 
ees in grades GS 1 through 7. 

September 20, 1974 President 
Ford signed an Executive Order set- 
ting forth legally binding procedures 
whereby the President was required 
to personally sign all requests for 
copies or inspection of tax returns 
and had to designate in writing the 
member of his staff authorized to 
see specifically identified returns on 
his behalf. 

December 2, 1974 The 
Employee Retirement and Income 
Security Act of 1974 (ERISA) 
enacted complex rules governing 
the form and management of pen- 
sion funds. This act created the 
first statutory position below the 
Commisioner in the position of 
Assistant Commissioner (Employee 
Plans and Exempt Organizations). 
This new office was responsible 
for carrying out regulatory responsi- 
bilities assigned to the IRS with 
respect to employee benefit plans 
as well as to tax exempt organiza- 
tions. The new office consisted of 
Employee Plans, Exempt Organi- 



77 



zations, and Actuarial Divisions, 
transferred from the Audit and 
Technical organizations. The law 
set forth minimum vesting, partici- 
pation, and funding standards, and 
limits on contributions. 

December 31, 1974 The IRS was 
relieved of its responsibility for Eco- 
nomic Stabilization activities. 

1974 Five new international opera- 
tions posts were authorized: Canberra, 
Australia; Caracas, Venezuela; Johan- 
nesburg, South Africa; Kuala Lumpur, 
Malaysia, and Teheran, Iran. This 
brought the total number of interna- 
tional posts to 14. 

1974 The IRS printed 2.5 million 
tax forms on recycled paper as an 
experiment, including those for 
farmers and fishermen. 

1974 The eighth annual general 
assembly for the Inter-American 
Center of Tax Administrators 
(CIAT) met in Kingston, Jamaica. 

1974 A commercial, computerized 
legal research system, known as 
LEXIS, was tested by the Chief 
Counsel to determine the effec- 
tiveness of such a system. 

1974 Printing contractors mailed 
all tax packages directly to taxpayers 
for the first time. 

1974 The IRS reinstated Schedule 
B of Form 1040 (dividend and inter- 
est income). 

1974 The Social Services Amend- 
ment of 1974 empowered the IRS to 
collect delinquent child support 



payments on behalf of certain state 
agencies for cases in which a court- 
ordered child support obligation was 
delinquent and an assignment of 
support rights had been executed as 
a condition of eligibility for Aid to 
Families with Dependent Children. 

1974 The IRS initiated a Reports 
Curtailment Project to reduce and 
improve reporting requirements and 
to improve continuing reports. As a 
result, 308 reports were cancelled. 

1974 The IRS published a booklet 
titled "The Collection Process," 
designed for individual taxpayers 
who had received their second delin- 
quency notice. 

1974 Changes in tax forms this 
year included the shortening and 
simplification of instructions for 
forms 1040 and 1040A; the place- 
ment of the designation for the 
Presidential Election Campaign 
Fund Check-off on the face of 
forms 1040 and 1040A (with the 
change in law eliminating party 
preference); and dropping the 
requirement to list recipients of 
charitable contributions for which 
taxpayers had receipts or canceled 
checks. 

1974 The Chief Counsel estab- 
lished an EEO Advisory Commission. 

1974 James I. Owens assumed the 
position of Deputy Assistant Com- 
missioner (Accounts, Collection, and 
Taxpayer Service). 

1974 IRS instituted a revised doc- 
ument matching program, known as 
the Information Returns Program. 



7~ 



205 



1974 The IRS initiated the prac- 
tice of industry-wide audits, involv- 
ing the contemporaneous examina- 
tion of all major companies in a 
given industry, to make sure that 
certain tax issues related to that 
industry are treated uniformly 
throughout the industry. 

1974 The Austin Service Center 
was designated as the processing 
center for prisoner-of-war returns. 

1974 The IRS established a nation- 
wide tax shelter examination program 
coordinated by the National Office. 

1974 The structure of the audit 
division in district offices was reorga- 
nized to bring tax auditors and rev- 
enue agents together in the same 
groups and branches. This was the 
first restructuring of the audit divi- 
sion since 1959. 

1974 Congress enacted the Privacy 
Act of 1974, which imposed condi- 
tions under which disclosures of per- 
sonal information could be made, 
established notice and recordkeeping 
requirements relating to disclosures, 
established procedures by which an 
individual could inspect and request 
amendment of personal records, and 
provided civil remedies and criminal 
penalties for violations. 

February 1975 The IRS con- 
cluded a two-year collective bargain- 
ing agreement with the National 
Treasury Employees Union 
(NTEU) covering 2,200 employees 
in the National Office. It provided 
for bilateral union-management 
decision-making in personnel poli- 
cies and practices, such as promo- 



7 



tions and performance evaluations. 

March 29, 1975 Congress enacted 
the Tax Reduction Act of 1975. It 
included a provision for an Earned 
Income Tax Credit (EITC), avail- 
able to married individuals filing 
joint returns who were entitled to a 
dependency exemption for a child, 
surviving spouses, and heads of 
household with children. The act 
also authorized a rebate of 10 per- 
cent of an individual's 1974 income 
tax liability, with a minimum rebate 
of $100 and a maximum rebate of 
$200. The act also included a Per- 
sonal Exemption Credit which pro- 
vided an additional $30 personal 
exemption tax credit and a house 
purchase or Residence Credit which 
provided for a maximum $2,000 tax 
credit on the purchase of a new prin- 
cipal residence, the construction of 
which began before January 1, 1976. 

April 1975 Tax Advocates and 
Analysts filed suit in the District 
Court for the District of Columbia 
seeking access to all letter rulings 
issued since the effective date of the 
Freedom of Information Act, subject 
only to deletions of trade secrets, 
confidential commercial or trade 
information, or clearly unwarranted 
invasions of privacy. 

June 1975 The Commissioner led 
the United States delegation to the 
ninth annual Inter-American Center 
of Tax Administrators (CIAT) meet- 
ing in Ottawa, Canada. 

JULY 1, 1975 The interest rate on 
under or over payment of federal 
income tax was set at nine percent. 



July 1975 The IRS concluded 
negotiations for a three year collec- 
tive bargaining agreement with the 
National Treasury Employees 
Union (NTEU), covering 30,000 
employees in the Data Center, 
National Computer Center, and the 
10 service centers. 

August 1975 The IRS developed 
and sent Notice 403 to taxpayers 
required to furnish their social secu- 
rity numbers for tax administration 
purposes. 

September 28, 1975 The Privacy 
Act became effective. This act 
affected over 200 major tax forms. 

September 1975 The Office of 
Management and Budget approved 
the IRS program for designing and 
acquiring a new data processing sys- 
tem to be called the Tax Adminis- 
tration System (TAS). 

December 22, 1975 Congress 
enacted the Revenue Adjustment 
Act of 1975. Enactment late in the 
year required the IRS to communi- 
cate the provisions of the act to tax- 
payers who had already filed fiscal 
year returns as well as those who 
were about to file their calendar year 
returns. 

1975 The Integrated Data 
Retreival System in the service cen- 
ters was upgraded with CDC 3500 
computers to provide faster process- 
ing capabilities. 

1975 Anita Alpern was appointed 
Assistant Commissioner (Planning 
and Research), making her the first 
career woman in the IRS and the 



Department of the Treasury to reach 
grade GS-18 as well as the first 
female assistant commissioner. 

1975 The IRS organized a new 
Small Business Advisory Committee 
in an effort to recognize and deal 
with the particular tax problems of 
small businesses. 

1975 The IRS began using the 
Discriminant Function System 
(DIF) to select partnership returns 
for audit. 

1975 The IRS and the Securities 
Exchange Commission jointly investi- 
gated corporations for illegal political 
contributions, foreign and domestic. 

1975 The optional tax tables were 
expanded to cover adjusted gross 
income up to $15,000. Other 
changes in the 1975 tax return 
included the addition of a new line 
for the earned income credit. 

January 5, 1976 Treasury Decision 
7396 relieved employers from filing 
Form CT-1, Employers Quarterly 
Railroad Retirement Tax Return, on a 
quarterly basis. The new requirement 
reduced the filing of the return to 
once a year yet preserved the require- 
ment for periodic depositing of taxes. 

January 1976 A case inventory con- 
trol and management information 
reports system was implemented with 
computer terminals in all key districts 
for the Employee Plans/Exempt 
Organizations function to assist in 
controlling applications for approval of 
plans and plan amendments. 



7T- 



207 



February 21, 1976 Responsibility 
for administering the civil aspects 
of the federal wagering tax laws was 
returned to the IRS by Treasury 
Order 221-3. Responsibility for 
enforcing the criminal aspects of the 
Wagering Tax Laws remained with 
the Bureau of Alcohol, Tobacco, and 
Firearms. 



1976 The Department of Health, 
Education, and Welfare began a Par- 
ent Locator Service to locate parents 
who had not made court-ordered 
payments for child support. The IRS 
was directed to provide certain tax 
return information and to assess and 
collect delinquent payments as 
though they were tax deficiencies. 



May 27, 1976 For the first time, 
the IRS held public hearings on tax 
forms 1040 and 1040A in the 
National Office. 

May 1976 The Commissioner 
completed his term as third coun- 
cilor for the Inter-American Center 
of Tax Administrators and attended 
the tenth General Assembly held in 
El Salvador. 

October 4, 1976 The Tax Reform 
Act of 1976 became law. This act 
affected over 700 sections of the 
Internal Revenue Code and required 
changes in virtually every tax form 
and eliminated the optional tax tables. 

December 1976 The IRS con- 
cluded negotiations with the 
National Treasury Employees 
Union (NTEU) resulting in a four- 
year collective bargaining agreement 
covering approximately 30,000 
employees in district offices. 

December 1976 The IRS began 
providing telephone and teletype- 
writer service for the deaf on a 
nationwide, toll-free basis through 
the Indianapolis District. As a result, 
hearing-impaired taxpayers in all 
states except Alaska and Hawaii had 
access to services offered other tax- 
payers. 



1976 Before the 1976 filing season, 
a standard quality review system was 
implemented nationwide. The 
methods of providing taxpayer assis- 
tance were systematically monitored 
and measured. In over 600,000 con- 
tacts randomly sampled during the 
1976 period, taxpayer assistors 
achieved an accuracy rate of about 
90 percent. 

1976 The use of tax tables became 
mandatory, with tax brackets based 
on the amount of taxable income 
and an upper limit of $20,000. 

1976 The IRS created the Tax- 
payer Assistance Specialist position 
to provide a more highly qualified 
tax assistor to handle more complex 
technical inquiries. Initially, just 
over one-fourth of the Taxpayer Ser- 
vice Representatives (TSRs) were 
converted to Specialists. 

1976 The IRS created the Service 
Center Collection Branch function 
to consolidate the processing of col- 
lection cases at the service centers. 

1976 The IRS tested an Audit 
Information Management System 
(AIMS), a video terminal manage- 
ment information and case control 
system which replaced the System 
for Controlling Returns in Inventory 



7T 



208 



and Production (SCRIP), in the 
Atlanta Service Center. After a suc- 
cessful test, the program was imple- 
mented nationwide. 

1976 The IRS began nationwide 
use of the Technical Reference 
Information System (TRI), a com- 
puterized legal research system. 

1976 The Disclosure Operations 
Division was established in the 
National Office to provide program 
guidance to the newly created Dis- 
closure Officer positions in all IRS 
field offices. 

1976 The Tax Reform Act of 1976 
eliminated many tax shelters and 
required capitalization and amortiza- 
tion of real property construction 
period interest and taxes. This law 
made any person preparing income 
tax returns for compensation subject 
to disclosure requirements and 
penalties for negligently or fraudu- 
lently preparing returns. 

The identification number, 
address, and signature of the pre- 
parer were required as well as an 
annual information report. This act 
amended section 6103 of the Inter- 
nal Revenue Code, restricting the 
disclosure of tax return and taxpayer 
information. 

1976 The fiscal year was changed 
from July 1-June 30 to October 1- 
September 30. 

January 1, 1977 Beginning on this 
date, the unauthorized disclosure of 
tax returns or return information was 
considered a felony, punishable by a 
fine up to $5,000 and five years in 
prison. 



-7~, 



January 2, 1977 The IRS estab- 
lished the position of Assistant Com- 
missioner (Data Services). Patrick J. 
Ruttle was selected for this position in 
April 1977. 

February 26, 1977 Donald C. 
Alexander resigned as Commissioner. 

April 1977 Secretary of the Trea- 
sury Michael Blumenthal directed 
that an organizational study of the 
IRS be conducted to determine how 
to make the organization more effec- 
tive, efficient, and responsive to tax- 
payers. The Commissioner appointed 
an Organization Review Study Group, 
headed by the Deputy Commis- 
sioner, to undertake the project. 

May 5, 1977 Jerome Kurtz of Penn- 
sylvania became Commissioner. 

May 1977 Negotiations between 
the National Treasury Employees 
Union (NTEU) and IRS regional 
offices concluded, resulting in a four- 
year agreement covering approxi- 
mately 1,700 employees in six of the 
seven regions. 

May 1977 The Inter- American Cen- 
ter of Tax Administrators (CIAT) 
held its eleventh annual General 
Assembly in Caracas, Venezuela. 

JUNE 15, 1977 Jerome Kurtz was 
sworn in as Commissioner. 

1977 Congress passed the Tax 
Reduction and Simplification Act. 
This act contained a new jobs credit 
with a nonrefundable credit to 
employers meeting certain criteria in 
the hiring of new employees in 1977 
and 1978. 



209 



1977 The Carter administration 
approved the Tax Administration 
System, but concerns about tax- 
payer privacy, due in part to the 
Watergate scandals, and uncertain- 
ties over cost efficiency resulted in 
the deferral of further development 
by Congress in 1977 and 1978. The 
IRS had established a price tag of 
$1.8 billion for the Tax Administra- 
tion System. 

1977 The IRS conducted an alter- 
native filing period study in which a 
survey was sent to taxpayers asking 
for opinions on dividing the filing 
season into two periods, January- 
December with an April 15 filing 
deadline or July-June with an Octo- 
ber 15 filing deadline. Three- 
fourths of respondents indicated 
they would prefer to maintain the 
status quo. 

1977 A Service and Design Divi- 
sion was established in the new 
Assistant Commissioner (Data Pro- 
cessing) area to serve as the principal 
contact for data processing support 
services. Daniel N. Capozzoli was 
appointed as the first Director. Also, 
a Systems Analysis Division was 
established to evaluate systems, 
hardware, and operational efficiency, 
with Don Curtis appointed Director. 

1977 The Criminal Tax Division of 
the Chief Counsel organization 
undertook the responsibility to review 
unauthorized disclosure matters. 

1977 In United States v. Paepke, 
the 7th Circuit Court held that evi- 
dence illegally seized by state police 
officers was admissible in a subse- 
quent criminal tax prosecution. 



7 



1977 The Andover and Fresno 
Service Centers began processing 
exempt organization returns and 
related documents. The Philadel- 
phia Service Center had processed 
all exempt organization returns prior 
to this year. 

1977 The IRS Chief Counsel 
began to employ Paralegals. 

1977 The IRS created a special 
Problem Resolution Program aimed 
at helping taxpayers resolve their 
concerns and to bring attention to 
persistent taxpayer problems and 
complaints not resolved through nor- 
mal channels. 

1977 The IRS implemented the 
Audit Information Management Sys- 
tem (AIMS) nationwide. This new 
system expanded the Integrated Data 
Retreival System in service centers 
and allowed personnel to locate any 
return in the Audit Division. It also 
provided automated control and 
verification of assessments. 

1977 The IRS simultaneous exam 
program with tax treaty countries 
began this year with Canada. In this 
program, the participating govern- 
ments separately examined the 
affairs of selected multinational tax- 
payers under their respective juris- 
dictions. 

January 1, 1978 Special service 
center zip codes were used nation- 
wide for the first time, reducing the 
average time of mail transit by one 
day. 



210 



January 1, 1978 The Combined 
Annual Wage Reporting (CAWR) 
system took effect to satisfy IRS and 
Social Security Administration 
reporting requirements. The IRS 
redesigned the W-2 form to transmit 
the Federal Insurance Contributions 
Act (FICA) information formerly 
filed on Schedule A. 

April 1, 1978 A new excise tax on 
coal to finance the payment of black 
lung benefits to miners became 
effective. 

April 1978 Carol Fay became the 
first female Assistant Regional Com- 
missioner when she assumed this 
position for Resources Management 
in the Southeast Region. 

May 1978 The IRS participated in 
the Twelfth General Assembly of 
the Inter-American Center of Tax 
Administrators' (CIAT) in Port of 
Spain, Trinidad and Tobago. The 
Commissioner made a presentation 
on "Developing Tax Laws, Admin- 
istrative Rules, and Procedures for 
Resolving Taxpayers' Disputes." 

July 2, 1978 A major reorganiza- 
tion of the National Office took 
effect. Major provisions included the 
redesignation of Administration to 
Resources Management; the redes- 
ignation of Accounts, Collection, and 
Taxpayer Service to Taxpayer Ser- 
vice and Returns Processing; the 
transfer of Collection from Taxpayer 
Service and Returns Processing to 
Compliance; the transfer of Disclo- 
sure from Compliance to Taxpayer 
Service and Returns Processing; the 
transfer of the Tax Administration 
Advisory Services activity from 



Resources Management to Taxpayer 
Service and Returns Processing; the 
establishment of a Centralized Ser- 
vices activity to provide mass pro- 
cessing support services of technol- 
ogy and administrative operating 
procedures; establishment of a new 
National Office Resources Manage- 
ment (NORM) Division; the renam- 
ing of Audit activity to Examination; 
the renaming of Intelligence activity 
to Criminal Investigation; the merg- 
ing of the Office of the Assistant 
Regional Commissioner (Employee 
Plans and Exempt Organizations) 
with the Assistant Regional Com- 
missioner (Exam); the establishment 
of the Assistant Regional Commis- 
sioner (Collection). 

JULY 1978 The Chief Counsel's 
Office created an Employee Plans 
and Exempt Organizations Division. 

October 1, 1978 The former two 
levels of appeals, one at the district 
and one at the regional level, were 
consolidated with Appellate to cre- 
ate a single administrative appeal 
structure at the regional level. The 
Assistant Regional Commissioner 
(Appellate) was renamed the 
Regional Director of Appeals and 
the Director, Appellate Division in 
the National Office became the 
Director, Appeals Division. 

October 13, 1978 Congress 
approved the President's ERISA 
Reorganization Plan which elimi- 
nated overlapping jurisdiction and 
duplication of effort in the adminis- 
tration of ERISA by separating the 
authority of the Treasury and Labor 
Departments. 



vr- 



211 



October 1978 By this time, sepa- 
rate taxpayer service divisions 
existed in every IRS district office. 

November 9, 1978 The IRS 

announced the reorganization of its 
field offices, which involved the 
"streamlining" of 12 districts, elimi- 
nating intervening levels of manage- 
ment between the Director and 
front-line supervisors. 

The streamlined Districts 
included Aberdeen, Albuquerque, 
Augusta, Boise, Burlington, 
Cheyenne, Fargo, Helena, 
Portsmouth, Providence, Salt Lake 
City, and Wilmington. "Prime" Dis- 
tricts were established to provide 
resource management services for 
the streamlined districts. 

December 31, 1978 Service cen- 
ters implemented a Compliance 
Division which brought together the 
Collection, Criminal Investigation, 
and Exam activities assigned to ser- 
vice centers. Full implementation of 
this concept was completed by July 
1, 1979. 

1978 Due to lack of Congressional 
funding and support, the IRS can- 
celled plans to upgrade its auto- 
mated processing systems, known as 
the Tax Administration System 
(TAS). In its place, the IRS 
launched the Equipment Replace- 
ment and Enhancement Program 
(EREP) to modernize its data pro- 
cessing system. This program was 
eventually pared back to become the 
Equipment Replacement Program 
(ERP), focusing solely on replace- 
ment of aging equipment. 



7 



1978 The work of the Refund Liti- 
gation Division in Chief Counsel 
was decentralized to the field offices. 

1978 The IRS installed a Remit- 
tance Processing System (RPS) and 
an Omnisort mail sorting system in 
all service centers. This system auto- 
mated the sorting and opening of 
incoming tax returns and handled 
22,000 pieces of mail per hour with a 
98 percent accuracy rate. In contrast, 
the top speed of the manual sort 
process had been 1,200 pieces per 
hour. 

1978 The Revenue Act of 1978 
included changes in employee 
benefit plans; introduced the con- 
cept of simplified employee pension 
plans; repealed the alternative capi- 
tal gains tax; allowed a one-time 
exclusion for the sale of principal 
residence for those over age 55. 

1978 The IRS undertook its first 
examination of the economic, social, 
and behavioral factors that affected 
taxpayer compliance. 

1978 The Energy Tax Act of 1978 
provided tax credits for energy con- 
servation and renewable energy 
expenditures on residences. It also 
included a business energy invest- 
ment tax credit. 

1978 The Service published 
"The Collection Process (Employ- 
ment Tax Accounts)," a booklet 
explaining the rights and duties of 
business taxpayers and the IRS in 
the collection of employment taxes. 
The publication was sent to busi- 
ness taxpayers with their second 
delinquency notice or delivered by 



212 



a Collection representative on ini- 
tial contact. 

1978 The IRS began matching all 
W-2s, 1099, and 1087 documents 
submitted on magnetic media as well 
as a sampling of 1099s and 1087s 
submitted on paper. 

1978 The IRS established the Tax 
Counseling for the Elderly (TCE) 
program to assist taxpayers age 60 or 
over. 

1978 Based on a recommendation 
from the General Accounting Office, 
the IRS established a task force to 
improve and simplify tax forms. The 
Task Force consisted of the Commis- 
sioner, the Deputy Commissioner, 
and several assistant commissioners. 

January 1979 The IRS established 
a comprehensive program to identify 
illegal tax protester schemes and to 
take appropriate action through 
examination, criminal investigation, 
and collection. 

February 1979 The IRS estab- 
lished a study group to recommend a 
compliance program to identify and 
correct questionable W-4 forms. The 
Commissioner approved the study 
group's recommendations in June 
1979. 

March 1979 The IRS established 
an Automatic Data Processing 
(ADP) Policy Resource Board. 

May 1979 The IRS participated in 
the Thirteenth General Assembly of 
the Inter-American Center of Tax 
Administrators (CIAT) in Quito, 
Ecuador. 



August 1979 The IRS released a 
report titled, "Estimates of Income 
Unreported on Individual Income 
Tax Returns," marking the first 
effort to measure unreported indi- 
vidual income. The report showed 
that the "legal" tax gap was a far 
more serious problem than had pre- 
viously been thought. 

October 1, 1979 The Bankruptcy 
Reform Act of 1978 became effec- 
tive. This law required special hand- 
ling of tax returns for taxpayers who 
had declared bankruptcy. 

October 1979 The IRS expanded 
the Problem Resolution Program to 
include all 10 service centers. 

1979 The IRS began to receive 
Form W-2 data on magnetic tape. 
Reporting on magnetic tape 
remained voluntary until 1982. 

1979 The Equipment Replace- 
ment and Enhancement Program 
(EREP) was scaled down and lim- 
ited to replacing aging equipment 
and retitled the Equipment 
Replacement Program (ERP). ERP 
contained three major programs — 1) 
Service Center Replacement System 
(SCRS), 2) Master File Replacement 
System (MFRS); and 3) the 
Microfilm Replacement System 
(MRS). 

1979 The position of Deputy 
Assistant Commissioner (Data 
Services) was established with 
Joseph E. Bishop appointed to this 
position. 



T7 



213 



1979 The IRS established the 
position of Assistant to the Commis- 
sioner (Equal Opportunity) to give 
emphasis to equal opportunity and 
affirmative action efforts. 

1979 The Naxional Tax Founda- 
tion estimated that the average 
American worked one hour and 48 
minutes each work day to pay his or 
her federal taxes — unchanged from 
10 years earlier. 



v*7 

214 




The advent of electronic filing was one of the great success stories of the tax modernization efforts of the 1 980s. 



I98O -I986 



Tax Reform and Processing Nightmares: 

The IRS Struggles with 

the Increasing Pace of Change 

-7T7 



Faced with the limitation of only replacing rather than upgrading its aging 
computer systems, the IRS implemented a major new program known as the 

Service Center Replacement System in 1985. Unfortunately, insufficient 

computer capacity resulted in a system unable to keep pace with processing 

requirements. The 1985 filing season quickly became known as the "worst 

filing season in IRS history." Despite the agony of this troublesome year, the 

increased attention to IRS computer systems that resulted enabled the agency 

to move forward with new plans for computer upgrades. 



January 4, 1980 Commissioner 
Kurtz created a Taxpayer Ombuds- 
man in the National Office to 
supervise all Problem Resolution 
functions and to represent taxpayer 
interests. The Ombudsman 
reported directly to the Deputy 
Commissioner and Commissioner. 

January 14, 1980 Harold M. 
Browning was appointed as the first 
IRS Taxpayer Ombudsman. 

February 1980 A Request for 
Proposal for the Service Center 
Replacement System (SCRS) was 
issued. 

March 1, 1980 The Crude Oil 
Windfall Profit Tax Act of 1980 
became effective. This added a tax 
on crude oil and certain natural gas 
liquids produced from domestic oil 
and gas wells after this date. 

March 1 1 , 1 980 The I RS estab- 
lished a W-4 Program by issuing 
revised Employment Tax Regula- 
tions requiring employers to submit 
copies of W-4 forms filed on or after 
April 1, 1980 that claimed exemp- 
tion for withholding when wages 
were expected to exceed $200 per 
week or for those who claimed more 
than of nine exemptions. 

June 1, 1980 Authority for disclo- 
sure of tax returns and return infor- 
mation to federal agencies for use in 
non-tax criminal investigations was 
delegated to field offices to improve 
the timeliness of disclosure ser- 
vices. 



June 26, 1980 Commissioner 
Kurtz was elected president of the 
Inter-American Center of Tax 
Administrators (CIAT) during its 
14th General Assembly in Washing- 
ton, D.C. 

July 1980 The IRS began an 
effort to review, revise, and refor- 
mat all computer-generated corre- 
spondence in response to concern 
about its clarity. 

October 31, 1980 Jerome Kurtz 
resigned as Commissioner. 

1980 The IRS initiated a new 
method to group individual returns 
for examination selection purposes. 
Total Positive Income (TPI) 
replaced the previous Adjusted 
Gross Income (AGI) while Total 
Gross Receipts (TGR) was the new 
method employed for business tax 
returns. 

1980 The IRS began to convert 
the 1500 CDC and Honeywell 
assembly language computer pro- 
grams in service centers to the high- 
level computer language COBOL. 

1980 The responsibility of the IRS 
to collect delinquent child support 
payments was extended to non-Aid 
to Families with Dependent Chil- 
dren (AFDC) families. 

1980 The Data Communications 
Processing System (DPCS), a UNI- 
VAC 90/40 computer used as a 
front-end processor for IDRS, was 
installed nationwide. 



v^ 



216 



1980 The IRS established the Art 
Print Panel, a new advisory group to 
provide advice on the valuation of 
art prints in an effort to cope with 
abusive tax shelters that used 
inflated appraisals of art print pub- 
lishing ventures. 

1980 The IRS replaced its alco- 
holism program with a broadly based 
employee assistance program. 

1980 The IRS established a Tax 
Systems Division to create guide- 
lines for systems development; 
introduce procedures for structured 
analysis, design, and programming; 
and place greater emphasis on the 
use of high level computer program- 
ming language. 

1 980 The Chief Counsel estab- 
lished a special trial attorney program. 

1980 The Installment Sales Revi- 
sion Act of 1980 was passed and pro- 
vided major changes in the law 
regarding the installment method of 
accounting. 

January 26, 1981 A research project 
began at the Fresno Service Center to 
determine the feasibility of imaging 
tax returns on optical laser disks. The 
initial delivery of hardware occurred 
in December 1985. The IRS also 
issued a feasibility study recommend- 
ing a pilot test of optical character 
recognition equipment to process fed- 
eral tax deposits. 

March 14, 1981 Roscoe L. Egger, 
Jr. became Commissioner. 



7T 



June 1 2, 1 98 1 The I RS awarded a 
contract to Sperry Univac, Inc., for 1 1 
Univac 1 100-82 computer systems for 
the Service Center Replacement Sys- 
tem (SCRS) program. 

June 1981 William E. Williams 
retired as Deputy Commissioner. 

August 13, 1981 Congress enacted 
the Economic Recovery Tax Act of 
1981 (ERISA). This act provided a 
large tax cut, reducing individual 
income tax rates. This act provided 
tax relief for two-earner married cou- 
ples and increased the deductible 
limits for contributions to Individual 
Retirement Accounts. 

August 24, 1 98 1 The Houston Dis- 
trict Office was established and the 
Austin District Office was realigned. 

December 1981 The Commis- 
sioner announced a reorganization of 
the National Office in which the 
Office of the Assistant Commis- 
sioner (Technical) was abolished 
and the Individual Tax and Corpora- 
tion Tax Divisions were moved from 
the Technical area to the Office of 
the Chief Counsel. The Appeals 
Division was moved from the Com- 
pliance area to the Office of the 
Chief Counsel. 

December 1981 James Owens was 
appointed Deputy Commissioner. 

1981 The IRS developed the first 
editions of the IRS strategic plan 
and the research plan. 

1981 The tax tables were expanded 
to include $50 intervals for all taxable 
incomes between $2,000 and $49,999. 



217 



1981 The Omnibus Reconcilia- 
tion Act of 1981 required the IRS 
to collect delinquent child and 
spousal support payments on an 
expanded basis by offsetting 
income tax refunds. 

1981 The IRS began to use a new 
system — total positive income 
(TPI) and total gross receipts 
(TGR) — to group individual 
returns for examination. This 
replaced the use of adjusted gross 
income (AGI). 

January 8, 1982 The Treasury 
Department announced that it was 
unable to support the legal author- 
ity of IRS enforcement of public 
policy in denying tax exemption to 
racially discriminatory private 
schools. Subsequently, the U.S. 
Court of Appeals for the District of 
Columbia enjoined the IRS from 
granting or restoring exempt status 
to any racially discriminatory pri- 
vate school, thus precluding the 
execution of this policy change. 

JANUARY 11, 1982 IRS underwent 
a major reorganization in which 
Treasury Department Order 150-95 
authorized changes announced in 
December 1981. This reorganiza- 
tion also provided the Commissioner 
with line supervisory authority over 
the Chief Counsel, creating a situa- 
tion in which the Commissioner and 
the Treasury Department General 
Counsel shared supervision of the 
Chief Counsel. The Chief Counsel 
was delegated line supervisory 
authority over the Appeals function 
by the Commissioner. 

The positions of Deputy Chief 
Counsel (General); Deputy Chief 



Counsel (Technical); and Deputy 
Chief Counsel (Litigation) were 
abolished. A new management level 
was created in the National Office 
in the positions of Associate Com- 
missioner (Operations) and Associ- 
ate Commissioner (Policy and Man- 
agement) and the Associate Com- 
missioner (Data Processing). 

This reorganization abolished the 
positions of Assistant and Deputy 
Assistant Commissioner (Compli- 
ance); Director and Assistant Direc- 
tor, Examination Division; Director 
and Assistant Director, Collection 
Division; Director and Assistant 
Director, Criminal Investigation 
Division. The reorganization estab- 
lished the positions of Assistant and 
Deputy Assistant Commissioner 
(Examination); Assistant and 
Deputy Assistant Commissioner 
(Collection); Assistant and Deputy 
Assistant Commissioner (Criminal 
Investigation). The Office of the 
Assistant Commissioner (Planning 
and Research) was abolished. 

March 21, 1982 The Office of 
International Operations was redes- 
ignated the Foreign Operations 
District and placed under the juris- 
diction of the Mid-Atlantic Region. 

M AR( :h 1 982 The I RS began 
installing new computer systems to 
replace aging equipment in the ser- 
vice centers and the National Com- 
puter Center. The first LInivac 1 100- 
82 was installed in the Memphis Ser- 
vice Center for pilot testing and was 
operational by October. The contract 
was awarded for the Microfilm 
Replacement System. 



vT7 



218 



June 28, 1982 The Director of 
Practice was transferred from the 
Department of the Treasury's Office 
of General Counsel to the IRS Assis- 
tant Commissioner (Human 
Resources). 

June 1982 The IRS awarded a 
contract for a NAS 9060 (Hitachi) 
computer under the Master File 
Replacement System to replace six 
IBM 360/65s and an IBM 370 at the 
National Computer Center. 

AUGUST 1982 The IRS initiated a 
pilot test of optical character recog- 
nition (OCR) equipment in the 
Cincinnati Service Center to mea- 
sure and project its performance in 
processing FTDs. 

August 1982 A Request for Pro- 
posal was issued for a Distributed 
Input System (DIS) to replace the 
Direct Data Entry System (DDES). 

September 3, 1982 Congress 
enacted the Tax Equity and Fiscal 
Responsibility Act of 1982 (TEFRA) 
with the intention of raising rev- 
enues, closing statutory loopholes, 
and ensuring compliance with the 
tax laws. This act added procedural 
aspects to some of the civil penalty 
provisions and expanded informa- 
tion reporting and penalty provi- 
sions. 

December 7, 1982 Authority to 
manage the Information Returns 
program was given to the Assistant 
Commissioner (Examination) by the 
Planning Council. 



1982 Project Offices were estab- 
lished for the Automated Collection 
System (ACS), the Automated Exam 
System (AES), the Distributed 
Input System (DIS), and Taxpayer 
Processing System Redesign 
(TPSR). The latter was the prede- 
cessor of the Assistant Commis- 
sioner (Tax System Redesign). 

1982 The Assistant Commissioner 
(Data Services) was abolished and the 
Assistant Commissioner (Computer 
Services) was established. The Asso- 
ciate Commissioner (Data Processing) 
position was established and M. 
Eddie Heironimus was selected for 
this position in January 1983. 

1982 Joseph E. Bishop succeeded 
Donald J. Porter as Assistant Com- 
missioner (Data Services). 

1982 Congress authorized the Sec- 
retary of the Treasury to mandate 
magnetic media reporting. This was 
a major step in developing a match- 
ing program in which virtually all 
documents could be processed. 

1982 The IRS began to offset indi- 
vidual tax refunds to satisfy delin- 
quent child and spousal support 
obligations as required by the 
Omnibus Reconciliation Act of 1981. 

1982 The IRS established the 
position of Assistant to the Commis- 
sioner for Legislative Liaison to 
focus on the relationship between 
IRS and Congress. 

January 23, 1983 All Assistant 
Regional Commissioner (Taxpayer 
Service and Returns Processing) 
positions were reassigned to the 



77 



219 



position of Assistant Regional Com- 
missioner (Data Processing). 

March 15, 1983 The Foreign 
Operations District was established 
in the Mid-Atlantic Region. 

APRIL 18, 1983 The IRS and the 
Department of Labor signed a 
revised coordinated compliance 
agreement to improve coordination 
between the two agencies. 

May 24, 1983 The Supreme Court 
issued its decision in the consoli- 
dated cases of Bob Jones University 
v. U.S. and Goldsboro Christian 
Schools Inc. v. U.S. in which it ruled 
that educational institutions practic- 
ing racial discrimination based on 
religious beliefs were not charitable 
organizations in the common-law 
sense and, therefore, were not enti- 
tled to federal income tax exemp- 
tion. 

May 1983 A successful pilot test of 
optical character recognition (OCR) 
processing of federal tax deposits 
(FTDs) in the Cincinnati Service 
Center resulted in acquiring this sys- 
tem for other service centers. 

June 1983 The IRS awarded a 
contract to Motorola Four Phase Sys- 
tems, Inc., for the Distributed Input 
System. The equipment was 
installed in the service centers by 
August. 

October 1, 1983 The Sacramento, 
San Jose, and Laguna Niguel District 
Offices were established while the 
Los Angeles and San Francisco Dis- 
trict Offices were realigned. 



7* 



November 1983 The first IRS 
Research Conference was held with 
the theme, "Tax Administration 
Research Strategies." 

1983 Congress passed the Interest 
and Dividend Tax Compliance Act 
of 1983. 

1983 For the first time, the 1040 
tax form included a space for taxpay- 
ers to make voluntary contributions 
to reduce the public debt. 

1983 Seven older master file com- 
puters at the National Computer 
Center were replaced with one state 
of the art computer. 

1983 The Tax Processing System 
Redesign Staff was established to 
begin work on acquisition of a new 
tax processing system to satisfy the 
needs of the IRS into the next cen- 
tury. 

1983 The IRS tested a pilot Auto- 
mated Collection System and placed 
it in operation in four district offices 
(St. Louis, Chicago, Indianapolis, 
and Nashville) and two service cen- 
ters (Kansas City and Memphis). 

1983 The Microfilm Replacement 
System (MRS) and Service Center 
Replacement System (SCRS) 
equipment was installed at all ser- 
vice centers as Phase 1 of the 
Equipment Replacement Program 
was completed. 

1983 The IRS went nationwide 
with a new telephone assistance ser- 
vice, Tele-Tax, which offered tapes 
on 140 topics for taxpayers with 
push-button phones. A similar sys- 



220 



tern for taxpayers with rotary dial 
phones, Tax-Dial, was also tested 
this year. 

1983 Thomas J. Laycock became 
the Assistant Commissioner (Com- 
puter Services), succeeding Joseph 
Bishop who was selected as Deputy 
Assistant Secretary of the Treasury 
(Programs and Resources Manage- 
ment). 

1983 The IRS participated in the 
Seventeenth General Assembly of 
the Inter-American Center for Tax 
Administrators' (CIAT) in Curacao, 
Netherlands Antilles. 

January 1, 1984 Brokers and 
barter exchanges were required to 
use magnetic media in reporting 
transactions to the IRS, as enacted in 
the Interest and Dividend Compli- 
ance Act of 1983. 

January 1984 President Reagan 
stated in his State of the Union 
address, "Let us go forward with an 
historic reform for fairness, simplic- 
ity, and incentives for growth. I am 
asking [Treasury] Secretary Don 
Regan for a plan for action to sim- 
plify the entire tax code so all tax- 
payers, big and small, are treated 
more fairly." 

May 3 1 , 1 984 The I RS awarded a 
contract for $3.7 million to Integrated 
Automation of Berkeley, California, 
for an optical disk research test sys- 
tem to be installed at the Fresno Ser- 
vice Center and to be known as the 
Files Archival Image Storage and 
Retrieval (FAISR) system. 



^T 



May 1984 The IRS published its 
first Strategic Business Plan. 

October 1, 1984 The IRS 
realigned the boundaries of its 
regional offices as follows: the 
Helena District was transferred from 
the Western to the Midwest Region; 
the Salt Lake City and Phoenix Dis- 
tricts were transferred from the 
Western Region to the Southwest 
Region; the Little Rock and New 
Orleans Districts were transferred 
from the Southwest Region to the 
Southeast Region; and the Ogden 
Service Center was transferred from 
the Western Region to the South- 
west Region. 

November 27, 1984 Secretary of 
the Treasury Don Regan presented 
the administration with a report 
titled "Tax Reform for Fairness, 
Simplicity, and Economic Growth," 
otherwise known as "Treasury 1." 
This report recommended a three- 
tiered tax rate schedule of 15, 25, 
and 35 percent, increased personal 
exemptions, and abolition of most 
deductions under the existing code. 
Many of the report's recommenda- 
tions, including capital gains reform, 
became law with enactment of the 
Tax Reform Act of 1986. 

1984 The Tax Processing System 
Redesign Staff changed their name 
to Tax System Redesign to encom- 
pass a wider range of activities, 
including tax administration, man- 
agement information, and adminis- 
trative systems. 

1984 The Ogden Service Center 
became the first IRS component to 
adopt an aggressive quality improve- 



221 



ment approach and devote full-time 
resources for quality improvement 
projects. 

1984 Service centers assumed 
responsibility for most collection 
cases up to and including issuance of 
final notices of intent to levy and 
receipt and posting of payments 
received in response to the notices 
as the Automated Collection System 
(ACS) became fully operational 
nationwide at 21 call sites and all 
service centers. 

1984 Congress passed the Deficit 
Reduction Act of 1984. This act was 
intended to reduce tax shelter activ- 
ity; to reform taxation of interna- 
tional income; and improve the 
administration and efficiency of tax 
administration. This act required 
certain tax shelters to register with 
the IRS and enacted new provisions 
on the deductibility of employer 
contributions to welfare benefit 
funds for employees and new 
requirements for nondiscriminatory 
benefits to retain exempt status. It 
also marked the beginning of the 
Form 8300 program, which dealt 
with cash payments received in any 
trade or business over $10,000. 

1984 A Form 990 advisory commit- 
tee was established with membership 
consisting of assistant state attorneys 
general, private sector representa- 
tives, and IRS officials. 

1 984 The Tax Reform Act of 1 984 
was intended to raise about $50 bil- 
lion in revenue; it revamped taxation 
of life insurance companies and 
alimony payments; and made "perks" 
taxable at their fair market value. 



1984 The Detroit Data Center was 
given responsibility to process cur- 
rency transaction reports. 

1984 The IRS established the 
Strategic Management System, 
incorporating the existing long-range 
and information systems plan. A key 
component of the Strategic Manage- 
ment System was the Strategic Plan. 

1984 The IRS participated in the 
eighteenth General Assembly of the 
Inter-American Center for Tax 
Administrators' (CIAT) in Carte - 
gena, Colombia. 

1984 IRS processed Federal Tax 
Deposits and five million 1983 
Forms 1040EZ using Optical Char- 
acter Recognition technology. Multi- 
font scanners were installed at three 
service centers to process informa- 
tion documents. 

1984 Phases I and II of the Service 
Center Replacement System 
(SCRS) were completed. 

January 1985 The IRS sponsored 
its second research conference with 
the theme, "Tax Administration 
Research." 

March 3, 1985 The IRS District 
in Nevada moved from Reno to Las 
Vegas. 

August 12, 1985 The IRS 
awarded a limited competition con- 
tract to Sperry Corporation for 18 
additional CPUs and associated 
peripherals. 



77 



222 



October 1985 The Richmond 
Centralized Inventory Distribution 
Site (CIDS) became operational. 

October 1985 An outside man- 
agement consulting firm was 
retained to assist in a review of IRS' 
organizational structure and pro- 
grams for international tax adminis- 
tration. 

November 14, 1985 Representative 
George W. Gekas of Pennsylvania 
introduced a bill to stagger deadlines 
for filing federal income tax returns so 
that millions of documents would not 
flood the IRS at one time during the 
year. 

November 1985 The IRS spon- 
sored its third research conference 
with the theme "Trends Impacting 
on Tax Administration." This was the 
first research conference to include 
participants from the private sector. 

1985 Phase IV programs of the Ser- 
vice Center Replacement System 
(SCRS) were implemented. Start-up 
problems contributed to a "night- 
mare" filing season for the IRS. The 
IRS paid out $15.5 million in addi- 
tional interest payments for late 
refunds and incurred additional costs 
of over $64 million. 

1985 The IRS participated in the 
nineteenth General Assembly of 
the Inter-American Center for Tax 
Administrators in Port-au-Prince, 
Haiti. 

1985 The Distributed Input System 
(DIS) and the IDRS Replacement, 
Phase I, were completed. 



7 



1985 The IRS established a User 
Assistance and Computer Capacity 
Management Office (UACCMO). 

1985 The Tax System Redesign 
Office was elevated from project sta- 
tus to the Assistant Commissioner 
level under the Associate Commis- 
sioner (Data Processing). 

January 17, 1986 The National 
Office Command Center began 
operations. 

January 24, 1986 The first suc- 
cessful transmission of tax return 
data from a preparer to the IRS 
through the new electronic filing 
system was completed. 

January 1986 The Commissioner's 
Quality Council was established. 

February 1986 The Department of 
the Treasury did not approve an IRS 
request for additional computer 
equipment for the tax processing sys- 
tem asserting that it would be an 
expensive equipment acquisition that 
was not tied to any well thought-out 
solution to IRS' systems problems. 

February 27, 1986 The Office of 
the Assistant Commissioner (Interna- 
tional) was established and the For- 
eign Operations District of the Mid- 
Atlantic Region was abolished. This 
combined the international activities 
of the IRS into one functional area, 
under the authority of the Associate 
Commissioner (Operations). 

April 21, 1986 The IRS submitted 
a new plan for three-phase develop- 
ment of Tax System Redesign to 
Treasury, which required the Assis- 



223 



tant Commissioner (Tax Systems 
Redesign) to assume responsibility for 
planning of all tax processing and tax 
information initiatives. 

April 30, 1986 Roscoe L Egger, Jr. 
resigned as Commissioner. 

May 16, 1986 The Office of the 
Assistant Commissioner (Interna- 
tional) became operational. 

May 30, 1 986 The Treasury 
Department announced its support 
of Tax System Redesign. 

May 1986 The IRS issued a long- 
range plan as a forerunner to a strate- 
gic business plan. 

June 6, 1986 The Ft. Lauderdale 
District was established. 

July 30, 1986 The Office of the 
Assistant Commissioner (Support and 
Services) was abolished. The Office 
of the Assistant Commissioner 
(Human Resources Management and 
Support) was created. 

August 4, 1986 Lawrence B. Gibbs 
of Texas became Commissioner. 

August 1986 The IRS began test- 
ing the use of optical disk equip- 
ment to store and retrieve tax return 
documents using laster technology, 
known as the Files Archival and 
Image Storage Retrieval (FAISR) 
test, at the Fresno Service Center. 

October 21, 1986 Congress 
passed the Omnibus Reconciliation 
Act of 1986. 



October 22, 1986 President Rea- 
gan signed the Tax Reform Act of 
1986 (TRA-86). This act was the cul- 
mination of over 30 months of effort 
by both the executive and legislative 
branches to reform the existing tax 
code and redesignated the Internal 
Revenue Code of 1954 the Internal 
Revenue Code of 1986. 

This marked the most significant 
piece of tax legislation enacted in over 
30 years with over 300 provisions and 
would take three years to implement. 
The number of tax brackets was 
reduced to five with rates ranging 
from 1 1 percent to 38.5 percent. 

In 1988, the number of brackets was 
again reduced to two — 15 percent 
and 28 percent; personal and depen- 
dent exemptions were increased; the 
long term net capital gain deduction 
was excluded; and corporate tax 
brackets were reduced from 5 to 3. 

October 1986 The Bloomington 
Centralized Information Distribu- 
tion Site (CIDS) became opera- 
tional. 

October 1986 The IRS estab- 
lished an artificial intelligence labo- 
ratory as part of an initiative to 
explore potential applications of new 
technologies to tax processing. 

October 1986 The IRS put forth 
its goals for an evolutionary approach 
to tax systems redesign, stating that 
improvements would be made in 
incremental steps rather than a sin- 
gle sweeping change. 

November 19-21 1986 The IRS 
sponsored its fourth Research Con- 
ference. 



77 



1986 The Office of the Associate 
Chief Counsel (International) was 
established. 

1986 The compliance functions of 
the Austin Service Center were bro- 
ken off into a new "Compliance 
Center" as a test. 

1986 The IRS sponsored the first 
case of leave sharing in the Federal 
government involving two revenue 
agents from the IRS Ft Lauderdale 
District. Special legislation in 1986 
(P.L. 99-500) enabled the IRS cou- 
ple to receive nearly six months of 
donated leave from co-workers. 

1986 The IRS awarded a contract 
for the Communications Replace- 
ment System (CRS) to Sysorex 
Information Systems, Inc. 

1 986 The Office of Disaster 
Recovery was created in the Assis- 
tant Commissioner (Computer Ser- 
vices) area. 



1986 In support of the Automated 
Exam System (AES), the IRS con- 
tracted for up to 18,000 portable 
computers, designed to put more 
than 40 IRS-designed applications at 
the fingertips of revenue agents. 

1986 The name of the Software 
Division in the Assistant Commis- 
sioner (Computer Services) was 
changed to the Tax Processing Sys- 
tems Division and the name of the 
Management Systems Division was 
changed to the Compliance Process- 
ing Systems Division. Daniel N. 
Capozzoli succeeded Thomas J. 
Laycock as Assistant Commissioner 
(Computer Services). 



7^7 



225 




In 1992 the IRS welcomed Shirley Peterson as the first female commissioner in 
the history of tax administration in the United States. 



1987 - igg2 



Focus on Quality and Taxpayer Service: 

Putting the "Service" 

Back into the IRS 

v!v 

The IRS headed towards the 21st century with a new focus on quality service 
and a philosophy embodied in the "Compliance 2000" initiative. Efforts to 

improve IRS communications, both internally and externally, received 

increased attention in these years as the agency moved in a new direction 

aimed at increasing taxpayer compliance through awareness of the tax laws 

coupled with enforcement when necessary. 



February 1987 The first pilot 
child care center for IRS employees 
was opened in Andover, Massachu- 
setts. 

March 12, 1987 The Office of 
Management and Budget approved 
a new, alternate W-4A withholding 
certificate. 

April 6, 1987 Anthony V. Langone 
became the new Assistant Commis- 
sioner for Criminal Investigation. 

April-August 1987 The GAO and 
the IRS conducted a joint manage- 
ment review of IRS operations. The 
final report was issued in October 
1988. 

May 18, 1987 The first advance 
draft copies of 1987 tax forms were 
released for implementation of 
aspects of the tax reform act of 1986 
in the 1987 tax year. 

May 2 1 , 1 987 The Office of Chief 
Counsel was reorganized with posi- 
tions for a Deputy Chief Counsel, 
Management and Operations; 
Deputy Chief Counsel, Policy and 
Legal Programs; and an Associate 
Chief Counsel, Technical and Inter- 
national. 

June 1987 IRS announced the 
establishment of a Commissioner's 
Exempt Organizations Advisory 
Group to advise on issues and prob- 
lems relating to exempt organiza- 
tions. 

JULY 1, 1987 The Bureau of Alco- 
hol, Tobacco, and Firearms assumed 
responsibility for filing alcohol, 
tobacco, and firearms returns. 



^K 



JULY 2, 1987 Commissioner Gibbs 
announced the reorganization of the 
National Office. The major part of 
this reorganization created the posi- 
tion of Senior Deputy Commissioner 
and two Deputy Commissioners, 
replacing the previous system of one 
Deputy Commissioner and three 
Associate Commissioners. An Assis- 
tant Commissioner for Taxpayer 
Service was also created. Michael J. 
Murphy was appointed as Senior 
Deputy Commissioner. 

July 15, 1987 Commissioner Gibbs 
announced the selection of Charles 
H. Brennan as Deputy Commissioner 
for Operations and John L. Wedick 
as Deputy Commissioner for Plan- 
ning and Resources. 

July 28, 1987 Commissioner Gibbs 
announced that the IRS had been 
selected by the Ad Council for a 
nationwide public service advertis- 
ing campaign. 

August 30, 1987 The Assistant 
Commissioner (Information Systems 
Development) was established, 
replacing the Assistant Commissioner 
(Tax Systems Redesign). 

AUGUST 1987 The reorganization 
of the National Office took effect 
and created three new executive 
level positions — the Senior Deputy 
Commissioner, the Deputy Com- 
missioner (Operations), and the 
Deputy Commissioner (Planning 
and Research). The former structure 
was abolished, along with the posi- 
tions of Deputy Commissioner and 
the three Associate Commissioners. 

The reorganization also shifted 
oversight responsibility for the NCC 



228 



to the Assistant Commissioner 
(Computer Services) and a new 
Assistant Commissioner (Taxpayer 
Service and Returns Processing) was 
established. All Regional Commis- 
sioners and Assistant Commissioners 
now reported to the Deputy Com- 
missioners. 

September 10, 1987 IRS held its 
first "IRS Taxpayer Service Tele- 
conference," a two-hour program 
taped at the U.S. Chamber of Com- 
merce headquarters in Washington, 
D.C., and beamed to more than 60 
locations across the United States. 
The panel was composed of Com- 
missioner Gibbs, the Assistant Com- 
missioner for Taxpayer Service and 
Returns Processing, and the Director 
of the Taxpayer Service Division. 

September 16, 1987 The IRS 
sponsored the first meeting of the 
Commissioner's Exempt Organiza- 
tions Advisory Group. The 18 mem- 
ber group was chaired by former 
Commissioner Donald Alexander. 

October 27, 1987 The National 
Treasury Employees Union and IRS 
officials joined hands at a press con- 
ference to announce the creation of 
a joint quality improvement process 
within the IRS. This accord was a 
first in federal labor-management 
relations. 

November 9, 1987 David G. 
Blattner became the new Assistant 
Commissioner for Examination. 

November 1987 The Commis- 
sioner established a task force to 
study the penalty system and make 
recommendations. 



December 6, 1987 Damon O. 
Holmes assumed the position of 
Taxpayer Ombusman, serving as the 
taxpayer's advocate in examining 
IRS policies and suggesting changes 
to policies and procedures that cre- 
ated problems for taxpayers or 
resulted in inequitable taxpayer 
treatment. 

December 9, 1987 John D. John- 
son became the new Assistant Com- 
missioner (Planning, Finance, and 
Research). 

December 22, 1987 Congress 
passed the Omnibus Budget Recon- 
ciliation Act of 1987. 

December 1987 The first meeting 
of the National Quality Council was 
held. 

1987 The Revenue Act of 1987 
was designed to raise $9 billion in 
new taxes and contained approxi- 
mately 200 amendments to the 
Internal Revenue Code with a focus 
on business tax rules. 

1987 The Commissioner's Advi- 
sory Group charter was revised to 
include language about the IRS' 
commitment to the CAG members. 

1987 The IRS added a Strategic 
Business Plan to its Strategic Man- 
agement System to help strengthen 
the link between planning and bud- 
geting. The IRS also initiated an 
annual two-phased strategic business 
planning process under the direction 
of the Assistant Commissioner 
(Planning, Finance, and Research). 



77 



229 



January 6, 1988 The IRS 
announced a new public service 
advertising campaign using the slo- 
gan "Make Your Taxes Less Tax- 
ing." The campaign was designed 
by the New York advertising firm of 
McCann-Erickson with assistance 
from the Ad Council. 

March 2, 1988 The IRS 
announced the results of a nation- 
wide collection program aimed at 
identifying employers who mis- 
classified employees as "indepen- 
dent contractors." 

March 16, 1988 Teddy R. Kern 
became the new Assistant Commis- 
sioner for Inspection. 

March 24, 1988 Donald E. 
Bergherm became the new Assistant 
Commissioner for International. 

April 1, 1988 Alvin H. Kolak 
became the new Assistant Commis- 
sioner for Collection. 

May 19, 1988 Bruce V. Milburn 
became the new Assistant Commis- 
sioner for Criminal Investigation. 

JUNE 30, 1988 Legislative author- 
ity for the offset of non-child sup- 
port funds expired on this date. 
However, the program was later 
reauthorized and extended through 
January 1994 by the Family Support 
Act of 1988. 

September 1988 An Oregon man 
became the first person convicted of 
filing fictitious claims for tax refunds 
through the new electronic filing 
system. 



October 1, 1988 The Chief Coun- 
sel reorganized into five "functionally 
integrated organizations," including 

1) Financial Institutions and Products, 

2) Corporate, 3) Passthroughs and 
Special Industries, 4) Income Tax 
and Accounting, and 5) Employee 
Benefits and Exempt Organizations. 

November 1, 1988 The IRS pub- 
lished a four-page guide for taxpay- 
ers titled, "Your Rights As A Tax- 
payer," also known as Publication 1. 

November 10, 1988 Congress 
enacted the Technical and Miscella- 
neous Revenue Act of 1988 which 
included a "Taxpayer's Bill of 
Rights," requiring the IRS to inform 
taxpayers fully of their rights. 

1988 During this filing season, tax- 
payers were required to provide the 
social security number for all depen- 
dents age 5 and over. 

1988 The IRS introduced a revised 
"Understanding Taxes" program for 
high school students using computer 
software and video programs in the 
instructional materials. 

1988 A Telecommunications Strat- 
egy Task Force was created under 
the Assistant Commissioner (Infor- 
mation Systems Development). 

January 23, 1989 The IRS pub- 
lished a new strategic initiative 
under the title, "Improving Aware- 
ness of Ethical, Integrity, and Con- 
duct Issues." 

February 17, 1989 The National 
Office opened a Child Development 
Center. The IRS was the first fed- 



^7 



230 



eral agency to implement a child 
care program throughout its entire 
organization. 

March 4, 1989 Lawrence Gibbs 
resigned as Commissioner to return 
to private law practice with the firm 
Johnson and Gibbs. 

April 10, 1989 Alvin H. Kolak 
became the first Assistant to the 
Commissioner for Quality. 

JUNE 7, 1989 Robert T. Johnson 
became Assistant Commissioner for 
Human Resources Management and 
Support. 

JUNE 20, 1989 Robert A. LeBaube 
assumed the newly created position 
of Assistant Commissioner for Tax- 
payer Service. Raymond P. Keenan 
became the new Assistant Commis- 
sioner for Collection. 

July 1, 1989 Several provisions of 
the Taxpayer's Bill of Rights took 
effect, including the extension of 
the time period between the IRS' 
notice of intent to levy and issuance 
of the levy from 10 to 30 days and 
the institution of a 21 day holding 
period for banks prior to the issuing 
of a levy. 

July 5, 1989 Fred T. Goldberg, Jr. 
was sworn in as Commissioner. The 
Senate approved Goldberg's nomi- 
nation on June 23, 1989. 

July 7, 1989 As of this date, tax- 
payers had the right to appeal the 
filing of a notice of tax lien if they 
believed it was erroneously filed by 
the IRS, under provisions of the 
Taxpayer's Bill of Rights. 



July 25-27, 1989 The House Sub- 
committee on Commerce, Con- 
sumer, and Monetary Affairs of the 
Committee on Government Opera- 
tions, chaired by Representative 
Doug Barnard, Jr., of Georgia, con- 
ducted hearings into misconduct by 
senior IRS officials. 

JULY 31, 1989 Charles J. Peoples 
became the new Assistant Commis- 
sioner (Returns Processing). 

July 1989 An interagency agree- 
ment between the Department of 
Labor, the Office of Management 
and Budget, and the IRS resulted in 
significant changes in the processing 
of employee plan returns. The 
agreement coincided with the cen- 
tralized processing of returns in the 
Memphis, Andover, Atlanta, and 
Brookhaven Service Centers. 

August 1989 The IRS established 
an Inspection hotline for employees 
to report suspected cases of fraud, 
waste, and abuse. 

October 1 1, 1989 Regina M. 
Deanehan became the new Assistant 
Commissioner (Planning, Finance, 
and Resources). 

October 17, 1989 Commissioner 
Goldberg announced the reorganiza- 
tion of the National Office to focus 
efforts on tax systems modernization 
and provide greater accountability 
for financial management. 

December 7, 1989 Inar Morics 
became the new Assistant Commis- 
sioner (Criminal Investigation). 



77 



231 



December 18, 1989 The IRS 
established a position for a Chief 
Information Officer. The Assistant 
Commissioner for Computer Ser- 
vices was redesignated as the Assis- 
tant Chief Information Officer-Infor- 
mation Systems Management and 
the Assistant Commissioner for 
Information Systems Development 
was redesignated as the Assistant 
Chief Information Officer-Informa- 
tion Systems Development. 

December 20, 1989 John D. John- 
son became the Deputy Commis- 
sioner for Planning and Finance/Chief 
Financial Officer. 

December 1989 The IRS began 
prototyping the Automated Underre- 
porter Program at the Ogden Service 
Center in an effort to replace the 
manual process of screening cases ini- 
tially identified from matching 
income and deduction documents 
received from third party payers 
against tax returns. 

1989 By this year, taxpayers in 36 
states could file their taxes electroni- 
cally. 

1989 The National Tax Founda- 
tion estimated that the average 
American worked one hour and 47 
minutes each day to pay his or her 
tax bill — one minute less than 10 
years earlier. 

JANUARY 10, 1990 Commissioner 
Goldberg appointed a group of 
seven experts, including tax practi- 
tioners, government officials, and 
academicians, to serve on the "Com- 
missioner's Review Panel on 
Integrity Controls," to evaluate IRS 



efforts to improve its record on 
integrity in recent months. The 
Panel was chaired by James P. 
Holden and became known as the 
"Holden Committee." The Panel 
issued its final report in October 
1990. 

January 30, 1990 Abraham N.M. 
Shashy, Jr. was confirmed as Chief 
Counsel. 

January 1990 Commissioner 
Goldberg released an interim report 
on "Integrity Within the IRS." 

JANUARY 1990 Prior to this date the 
Internal Security Division of the 
Assistant Commissioner (Inspection) 
served as the sole investigator of all 
misconduct allegations within the 
Service. During this month, the 
Treasury Inspector General began 
investigating instances of alleged 
misconduct among executives and 
managers of the IRS. 

February 22, 1990 Mark D. Cox 
became the Assistant Chief Informa- 
tion Officer for Information Systems 
Development. 

April 1 2, 1 990 The I RS announced 
the selection of Henry H. Philcox as 
the organization's first Chief Informa- 
tion Officer. 

April 12, 1990 The IRS announced 
the signing of a contract with the 
National Academy of Science for a 
two-year independent review of the 
information systems management 
effort to upgrade the Service's auto- 
mated capabilities. 



77 



232 



April 23, 1990 C. Morgan King- 
horn became the first individual to 
hold the newly created position of 
Assistant Commissioner for 
Finance/Controller. 

April 25, 1 990 The title of the 
position of Assistant Commissioner 
for Inspection was changed to Chief 
Inspector. 

April 30, 1990 The Supreme 
Court declined to review an appel- 
late court's determination that abor- 
tion rights activists had no legal 
standing to challenge the federal tax 
exemption of the Roman Catholic 
Church. This concluded litigation 
that had extended nearly 10 years. 

June 1, 1990 The Office of Man- 
agement and Budget selected the 
Cincinnati Service Center as one of 
three Federal organizations to 
receive the 1990 Quality Improve- 
ment Prototype Awards. 

July 2, 1990 Philip G. Brand 
became the new Assistant Commis- 
sioner for Taxpayer Service with the 
retirement of Robert A. LeBaube. 

August 15, 1990 The IRS began 
accepting contributions for a volun- 
tary leave bank program for all 
employees. 

August 20, 1990 Walter A. Hut- 
ton, Jr. became the new Assistant 
Chief Information Officer for Infor- 
mation Systems Management. 

August 1990 Regina M. Deane- 
han replaced Donald E. Bergherm as 
Assistant Commissioner for Interna- 
tional. 



~? 



September 4, 1990 The IRS 
announced creation of a new posi- 
tion for an Executive Director of the 
Coordinated Examination Program. 
John J. Monaco was appointed to 
this position. 

September 9, 1990 Robert F. 
Hilgen became Assistant Commis- 
sioner for Planning and Research. 

September 19, 1990 The IRS cel- 
ebrated the 20th anniversary of its 
volunteer tax assistance programs. 

October 4, 1990 The House of 
Representatives Committee on Gov- 
ernment Operations released its final 
report on the investigations of the 
IRS over the past two years, titled 
"Misconduct by Senior Managers in 
the Internal Revenue Service." 

October 25, 1990 The IRS cre- 
ated the new position of Assistant 
Commissioner for Procurement Ser- 
vices to set policy and perform con- 
tract administration, information sys- 
tems acquisitions, quality assurance, 
and program review. This function 
was soon renamed the Assistant 
Commissioner for Procurement. 

October 1990 The IRS began a 
two-year conversion to a new per- 
sonnel/payroll system known as the 
Treasury Integrated Management 
Information System (TIMIS), oper- 
ated by the Department of Agricul- 
ture's National Finance Center in 
New Orleans. 

November 15-16, 1990 The IRS 
sponsored its annual Research Con- 
ference with the theme "How Do 
We Affect Taxpayer Behavior? The 



233 



Case for Positive Incentives, Assis- 
tance or Enforcement." 

November 1990 The IRS estab- 
lished an Information Returns Pro- 
grams Bulletin Board System which 
allowed payors to file 1099 forms 
electronically and provided employ- 
ers with the latest IRS information. 

December 19, 1990 Treasury 
Department Order 150-02 officially 
redesignated senior management 
positions in the IRS: the Senior 
Deputy Commissioner became the 
Deputy Commissioner; the Deputy 
Commissioner for Operations 
became the Chief Operations 
Officer; the Deputy Commissioner 
for Planning and Resources/Chief 
Financial Officer became the Chief 
Financial Officer; the Assistant 
Chief Information Officer for Infor- 
mation Systems Development 
became the Assistant Commissioner 
for Information Systems Develop- 
ment; and the Assistant Chief Infor- 
mation Officer for Information Sys- 
tems Management became the 
Assistant Commissioner for Informa- 
tion Systems Management. 

DECEMBER 30, 1990 John E. Burke 
was selected to replace Robert 
Brauer as Assistant Commissioner 
for P^mployee Plans and Exempt 
Organizations. 

December 31, 1990 Charles H. 
Brennan was selected as the new 
Regional Commissioner for the Mid- 
Atlantic Region. 

1990 This was the first year that 
taxpayers throughout the country 
could file their tax returns clcctroni- 



7 



cally as long as they expected a 
refund. 

1990 The position of Assistant 
Commissioner for Human Resources 
Management and Support was 
redesignated the Assistant Commis- 
sioner for Human Resources and 
Support. 

1990 Late in the year Congress 
repealed the supplemental Medicare 
catastrophic premium. Because the 
tax forms had already been printed, 
IRS advised taxpayers to ignore the 
lines referring to this surtax. 

1990 The Family Support Act of 
1988 required dependent and child 
care providers to provide their Tax- 
payer Identification Number (TIN) 
to any client who planned to take a 
credit, beginning with tax year 1989 
with tax forms filed in 1990. 

1990 Agricultural employers were 
required to withhold income tax 
from cash wages paid to farm work- 
ers under requirements of the 
Omnibus Budget Reconciliation Act 
of 1989. 

1990 After extensive review, major 
changes were made in the Coordi- 
nated Examination Program, includ- 
ing creating an executive-level posi- 
tion to provide overall program 
direction. 

1990 The 1040 form for this filing 
season included space to report 
retirement income and estimated tax 
payments. 

1990 The IRS began implement- 
ing the On-Line Entity System 



234 



(OLE) as the first phase of the Cor- 
porate Files On-Line (CFOL) pro- 
ject, allowing immediate access to 
more than 350 million files of tax 
account data. 

1990 The Automated Underre- 
porter (AUR) Control System came 
on line during this year, relieving the 
problems of tracking approximately 
9 million underreporter cases annu- 
ally. 

1990 A contract for the mainframe 
computer system for the Integrated 
Collection System (ICS) was 
awarded and prototype operations 
were established in the Birmingham 
and Dallas Districts. 

1990 The IRS issued a new and 
simplified federal unemployment 
tax return, the 940EZ, which would 
be used by small businesses with 
uncomplicated tax situations and 
most household employers. 

January 2, 1991 David G. Blattner 
was selected as the new Chief Oper- 
ations Officer for the IRS. 

January 14, 1991 In Cheek v. 
U.S., the Supreme Court held that a 
criminal tax defendant's sincerely 
held beliefs about the federal tax 
system do not have to be "objec- 
tively reasonable" in order to negate 
the element of "willfulness" neces- 
sary for a conviction. 

January 15, 1991 George O'Hanlon 
was selected as the new Assistant 
Commissioner for Examination. 

January 15, 1991 The IRS intro- 
duced the new 1040EZ-1 form 



which would allow taxpayers in a 
test area in Texas to file a four-ques- 
tion income tax form and have the 
IRS compute their taxes for 1990. 

March 25, 1991 Deputy Commis- 
sioner Michael Murphy received a 
National Public Service Award from 
the National Academy of Public 
Administration and the American 
Society for Public Administration in 
recognition of his efforts to promote 
the tax modernization and quality 
initiatives in the IRS. 

March 27, 1991 The Office of 
Chief Counsel announced a reorga- 
nization in an effort to provide bet- 
ter coordination between the 
National Office and field staff. 
Changes included redesignation of 
the Tax Litigation Division to the 
Field Services Division; elevation of 
Employee Benefits and Exempt 
Organizations to Associate Chief 
Counsel status; and creation of a 
position for a Special Chief Counsel, 
Large Case. 

March 1991 The IRS held its first 
National Information Reporting 
Forum to listen to concerns about 
information reporting requirements 
from tax practitioners. 

April 12, 1991 Joesph F. Kump 
assumed the new position of 
Accounts Receivable Executive 
Officer in the National Office. 

May 13-17, 1991 The 25th annual 
meeting of the Inter-American Cen- 
ter of Tax Administrators (CIAT) 
was held in Washington, D.C., and 
hosted by the IRS. 



77 



235 



June 3, 1991 After three years of 
effort, the IRS released its new 10- 
year, $8 billion tax systems modern- 
ization plan to update the Service's 
information systems. 

JUNE 17, 1991 Judy K. Van Alfen 
was named Assistant Commissioner 
for Returns Processing, succeeding 
Charles Peoples, who moved to 
become Director of the Austin Ser- 
vice Center. 

June 18, 1991 Gregory D. Rothwell 
was named as the first person to hold 
the new position of Assistant Com- 
missioner for Procurement. 

November 14-15, 1991 The IRS 
hosted its annual Research Confer- 
ence. The theme was "Closing the 
Tax Gap: Alternatives to Enforce- 
ment." 

November 18, 1991 The Assistant 
Commissioner (Human Resources 
and Support) renamed several of its 
divisions. The new titles included: 
Support and Services Division, the 
Labor Cost Analysis Division, and 
the Training and Development 
Division. 

December 1, 1991 David Mader 
replaced Robert Johnson as Assistant 
Commissioner (Human Resources 
and Support). 

December 4-5, 1991 The first 
meeting of the newly created Infor- 
mation Reporting Program Advisory 
Committee was held in Washington, 
D.C. This 16-member group of aca- 
demicians, accountants, attorneys, 
business executives was formed to 
offer the IRS constructive observa- 



tions on proposed policies and pro- 
cedures. 

December 5, 1991 The IRS 
announced the selection of Michael 
P. Dolan as the new Deputy Com- 
missioner and of Philip Brand as the 
new Chief Financial Officer. 

December 1 1, 1991 The IRS 
awarded a contract to provide inte- 
gration support services for the tax 
systems modernization program to 
TRW, Inc. 

1991 The 1040A form was revised 
to allow wider use. Changes 
included the addition of lines to 
report pension and annuity income, 
taxable social security benefits, esti- 
mated tax payments, and the credit 
for the elderly. 

1991 The IRS created a new posi- 
tion for a Tax System Modernization 
Manager. Larry G. Westfall, former 
Director of the Austin Service Cen- 
ter, accepted this position. 

1991 A $1.4 billion contract for the 
Treasury Multi-Users Aquisition 
Contact (TMAC) was awarded to 
AT & T. Under this contract, the 
IRS would receive up to 50,000 com- 
puter workstations as part of the 
overall Tax Systems Modernization 
effort, with a total cost estimate of 
$8 billion. 

January 6, 1992 The IRS created 
a new Diagnostic Services Center in 
Beckley, West Virginia, headed by 
Raymond Keenan, to test system 
modernization and Compliance 2000 
programs. 



7T- 



236 



January 13, 1992 The IRS Execu- 
tive Committee announced its deci- 
sion to retain the Criminal Investiga- 
tion Division's current structure and 
to continue its focus on illegal 
income investigations despite alter- 
native recommendations from a task 
force that had studied the Criminal 
Investigation function over the past 
year. 

February 2, 1992 Fred Goldberg 
left his position as Commissioner to 
become the Assistant Secretary of 
the Treasury for Tax Policy. 

February 3, 1992 Shirley D. Peter- 
son, former Assistant Attorney Gen- 
eral at the Justice Department's Tax 
Division, became the first female 
Commissioner of the Internal Rev- 
enue Service. 

March 1992 Michael J. Murphy 
retired as Deputy Commissioner and 
became Executive Director of the 
Tax Executives Institute. Michael 
P. Dolan replaced Murphy as 
Deputy Commissioner. 

March 1992 Phil Brand replaced 
John D. Johnson as Chief Financial 
Officer of the IRS, as Johnson 
moved to become the Southeast 
Regional Commissioner. 

March 1992 Robert Wenzel 
replaced Raymond Keenan as Assis- 
tant Commissioner (Collection). 

April 27, 1992 The IRS published 
a penalty policy statement putting 
forth the philosophy that penalties 
support the IRS mission only if they 
enhance voluntary compliance. 
May 12, 1992 President George 



Bush announced his support for IRS 
efforts to simplify tax processing for 
small businesses by endorsing 
efforts to streamline payroll tax 
deposit rules beginning in 1993. 

May 20, 1992 The IRS announced 
the creation of a new position for a 
"Compliance 2000 Executive". 
Named to this position was Marshall 
V. Washburn whose primary respon- 
sibility would be to implement the 
Compliance 2000 strategy aimed at 
reducing the burden on taxpayers 
and increasing voluntary compliance 
by simplifying the tax system. 

May 28, 1992 The Ogden Service 
Center received the Presidential 
Award for Quality for its "service to 
customers and commitment to 
excellence." 

June 1992 A federal arbitration 
board approved a proposed IRS pol- 
icy to allow revenue officers to use 
registered pseudonyms to protect 
their identity against potentially vio- 
lent taxpayers. 

JULY 1992 Budgetary restrictions 
compelled the IRS to decide not to 
participate in a new Public Trans- 
portation Incentive Program aimed 
at encouraging federal employees to 
use mass transportation to get to and 
from work. Because agencies were 
required to subsidize this program 
with existing financial resources, the 
IRS decided it could not afford to 
participate. 

AUGUST 1992 Hurricane Andrew 
struck the lower coast of Florida 
inflicting greater property damage 
than any other natural disaster in 



77 



237 



American history. The IRS partici- 
pated in relief efforts by staffing sites 
throughout the disaster relief area to 
assist taxpayers in applying for 
refunds, amending prior year returns, 
and determining casualty losses. 

October 23-24, 1992 The Associa- 
tion of Former IRS Executives held 
its first meeting. 1992 Various con- 
gressional proposals explored the fea- 
sibility of using the IRS to enforce 
child support obligations of non-cus- 
todial parents. 

November 19-20, 1992 The IRS 
hosted its annual Research Confer- 
ence. The theme was "The Indirect 
Effect of IRS Actions on Taxpayer 
Compliance." 

1992 The IRS launched a major 
program to identify non-filers and 
return them to the tax system. 
Careful to avoid the label of 
amnesty, the IRS set up stations 
throughout the country to assist tax- 
payers who had not filed returns in 
bringing their accounts up-to-date. 

1992 The Odgen Service Center 
began receiving equipment from the 
TMAC contract for its pilot of the 
Automated Underreporter (AUR) 
program. 

1992 The National Office received 
a new telephone system, known as 
FTS (Federal Telephone System) 
2000. 



1992 The IRS began a study of its 
organizational structure with the 
possible goal of realigning the Ser- 
vice along functional lines. The 
overall effort was known as Core 
Business Systems. 

1992 The IRS began testing joint 
electronic filing of state and federal 
individual tax returns. 

1992 For the first time, taxpayers 
in the test state of Ohio could file 
the 1040EZ tax return over the tele- 
phone, under the name of TeleFile. 

1992 The IRS tested a new, sim- 
ple tax return, the 1040EZ-1, in 
Washington, Texas, and Rhode 
Island which allowed taxpayers to 
answer three basic questions and 
have the IRS figure their taxes for 
them. Also for the first time, the IRS 
accepted computer-generated 
answer sheets from taxpayers and 
tax practitioners in place of tradi- 
tional tax returns under the 
"1040PC" program. 

1992 For the first time, taxpayers 
who owed money could file their 
returns electronically. 

1992 The IRS established the 
Office of Internal Communications. 



v*7 



238 




of Internal Revenue 



George S. Boutwell 

July 17, 1862-March 4, 1863 

Massachusetts 

Joseph J. Lewis 

March 18, 1863-June 30, 1865 

Pennsylvania 

William Orton 

July 1, 1865-October31, 1865 

New York 

Edward A. Rollins 

November 1, 1865-March 10, 1869 

New Hampshire 

Columbus Delano 

March 11, 1869 -October 31, 1870 

Ohio 



Walter Evans 

May 21, 1883-March 19, 1885 

Kentucky 

Joseph S. Miller 

March 20, 1885-March 20, 1889 

West Virginia 

John W. Mason 

March 21, 1889-April 18, 1893 

West Virginia 

Joseph S. Miller 

April 19, 1893 -November 26, 1896 

West Virginia 

W. St. John Forman 

November 27, 189 6 -December 31, 1897 

Illinois 



Alfred Pleasonton 

January 3, 1871 -August 8, 1871 

New York 

John W. Douglass 

August 9, 1871 -May 14, 1875 

Pennsylvania 

Daniel D. Pratt 

May 15, 1875-July 31, 1876 

Indiana 



Nathan B. Scott 

January 1, 1898-February 18, 1899 

West Virginia 

George W. Wilson 

March 1 1899 -November 27, 1900 

Ohio 

John W. Yerkes 

December 20, 1900- April 30, 1907 

Kentucky 



Green B. Raum 

August 2, 187 6- April 30, 1883 

Illinois 



John G. Capers 

June 5, 1907 -August 31, 1909 

South Carolina 



239 



Royal E. Cabell 

September 1, 1909-ApriI 27, 1913 

Virginia 

William H. Osborn 

April 28, 1913-September25, 1917 

North Carolina 

Daniel C. Roper 

September 26, 1917 -March 31, 1920 

South Carolina 



John B. Dunlap 

August 1, 1951 -November 18, 1952 

Texas 

T. Coleman Andrews 

February 4, 19 53 -October 31, 1955 

Virginia 

Russell C. Harrington 

December 5, 1955 -September 30, 1958 

Rhode Island 



William, ML Williams 
April 1, 19 20 -April 11, 1921 
Alabama 



Dana Latham 

November 5, 1958-Janaury 20, 1961 

California 



David H. Blair 

May 27, 1921 -May 31, 1929 

North Carolina 



Mortimer M. Caplin 
February 7, 1961-July 10, 1964 
Virginia 



Robert H. Lucas 

June 1, 1929-August 15, 1930 

Kentucky 

David Burnet 

August 20, 1930 -May 15, 1933 

Ohio 



Sheldon S. Cohen 

January 25, 1965-January 20, 1969 

Maryland 

Randolph W. Thrower 
April 1, 1969-June22, 1971 
Georgia 



Guy T. Helvering 

June 6, 1933 -October 8, 1943 

Kansas 



Johnnie M. Walters 

August 6, 1971-April30, 1973 

South Carolina 



Robert E. Hannegan 

October 9, 1943 -January 22, 1944 

Missouri 



Donald C. Alexander 

May 25, 197 3 -February 26, 1977 

Ohio 



Joseph D. Nunan, Jr. 
March 1, 1944-June30, 1947 
New York 



Jerome Kurtz 

May 5, 197 7 -October 31, 1980 

Pennsylvania 



George J. Schoeneman 
July 1, 1947 -July 31, 1951 
Rhode Island 



Roscoe L. Egger, Jr 

March 14, 1981 -April 30, 1986 

Indiana 



240 



Lawrence B. Gibbs > 

August 4, 1986-March 4, 1989 | 

Texas 2 

X 

Fred T. Goldberg, Jr. 

July 5, 1989-February 2, 1992 @ 

Missouri £y5 

Shirley D. Peterson 
February 3, 1992- 
Colorado 



241 



zjippendix 2: 
Chief Counsels of the 
Revenue Service 



Walter H. Smith 


Fletcher Maddox 


March 1869-1871 


1908-1913 


Ohio 


Montana 


William McMichael 


Ellis C. Johnson 


1871 


1913-1917 


Pennsylvania 


Missouri 


Charles Chesley 


A. A. Ballantine 


October 1872-Ju/y 1, 1888 


January 1 -Decmeber 3 1 , 1918 


New Hampshire 


Ohio 


Thomas J. Smith 


D. M. Kelleher 


1888-1890 


February 27 -July 1, 1919 


New Hampshire 


unknown 


Alphonso Hart 


Robert Miller 


1890-1893 


July 28, 1919-February 29, 1920 


Ohio 


Kentucky 


Robert T. Hough 


Wayne Johnson 


1893-1897 


March 1 -September 15, 1920 


unknown 


Montana 


George M. Thomas 


Carl A. Mapes 


1897-1901 


December 11, 1920 -December 21, 1922 


Kentucky 


Michigan 


Albert W. Wishard 




1901-1903 


Nelson T. Hartson 


Indiana 


January 1, 1923-March 31, 1925 




Washington 


A. B. Hays 




1903-1908 




Ohio 





242 



Alexander W. Gregg 

April 1, 1925-OctoberlO, 1927 

Texas 

Clarence M. Charest 
October 11, 1921 -June 12, 1933 
California 

E. Barrett Prettyman 

June 13, 1933-March 4, 1934 

Virginia 

Robert H. Jackson 

March 9, 1934-March 1, 1936 

Pennsylvania 

Morrison Shaforth 

December 1, 1936-September 18, 1937 

Colorado 



Arch M. Cantrall 

January 29, 1958- August 31, 1959 

Kentucky 

Hart H. Spiegel 

September 21, 1959-January 20, 1961 

Arizona 

Crane C. Hauser 

August 17, 1961 -August 31, 1963 

New Jersey 

Sheldon S. Cohen 

January 6, 1964-January 24, 1965 

Maryland 

Mitchell Rogovin 

January 25, 1965 -March 30, 1966 

New York 



John P. Wenchel 

September 20, 1937 -June 30, 1947 

Maryland 

Charles Oliphant 

August 4, 1947- December 5, 1951 

Indiana 

Charles W. Davis 

May 16, 1952-June 10, 1953 

Illinois 



Lester R. Uretz 

April 12, 1966-January 20, 1969 

Illinois 

K. Martin Worthy 

June 25, 1969 -January 15, 1972 

Georgia 

Lee H. Henkel 

June 12, 1972-April 16, 1973 

West Virginia 



Daniel A. Taylor 

December 9, 1953-Decmeber30, 1954 

Kentucky 

John Potts Barnes 

June 9, 1955-January 18, 1957 

Alabama 



Meade Whitaker 

October 19, 1973-January 20, 1977 

District of Columbia 

Stuart E. Seigel 

June 24, 1977 -May 31, 1979 

New York 



Nelson P. Rose 

March 14, 1957-January 27, 1958 

Ohio 



N. Jerold Cohen 

November 13, 197 9- January 20, 1981 

Arkansas 



243 



Kenneth W. Gideon 
August 3, 1981-1984 
Texas 

Fred T. Goldberg, Jr 

1984-1986 

Missouri 



William F. Nelson 

July 29, 1986 -November 1, 1988 

Mississippi 

Abraham N.M. Shashy 
February 7, 1990- 
Texas 



Note: From 1869-1926, the Chief 
Counsel was known as the Solicitor 
of Internal Revenue. From 1926- 
1934, the position was known as the 
General Counsel for the Bureau of 
Internal Revenue. Since 1934, the 
position has been designated Chief 
Counsel of Internal Revenue. 



244 



zJ[ppendix3: 




Collections by Year 



Year 


Revenue Collected 


Year 


Revenue Collected 


1792 


$ 208,943 


1868 


$ 190,374,926 


1793 


337,706 


1869 


159,124,127 


1794 


274,090 


1870 


184,302,828 


1795 


337,753 


1871 


143,198,322 


1796 


475,290 


1872 


130,890,097 


1797 


575,491 


1873 


113,504,013 


1798 


644,358 


1874 


102,191,016 


1799 


779,136 


1875 


110,071,515 


1800 


1,543,621 


1876 


116,768,096 


1801 


1,582,377 


1877 


118,549,230 


1802-1813 


no internal taxes 


1878 


110,654,163 


1814 


3,882,482 


1879 


113,449,621 


1815 


6,840,732 


1880 


123,981,916 


1816 


9,378,343 


1881 


135,229,912 


1817 


4,512,288 


1882 


146,523,273 


1818 


1,219,604 


1883 


144,553,345 


1819-1862 


no internal taxes 


1884 


121,590,040 


1863 


41,003,192 


1885 


112,421,121 


1864 


117,145,748 


1886 


116,902,869 


1865 


211,129,529 


1887 


118,837,301 


1866 


310,120,448 


1888 


124,326,475 


1867 


265,064,938 


1889 


130,894,434 



245 



Year 


Revenue Collected 


Year 


Revenue Collected 


1890 


$ 142,594,697 


1919 


$3,850,150,079 


1891 


146,035,416 


1920 


5,407,580,252 


1892 


153,857,544 


1921 


4,595,357,062 


1893 


161,004,990 


1922 


3,197,451,083 


1894 


147,168,450 


1923 


2,621,745,228 


1895 


143,246,008 


1924 


2,796,179,257 


1896 


146,830,616 


1925 


2,584,140,268 


1897 


146,619,593 


1926 


2,835,999,892 


1898 


170,866,819 


1927 


2,865,683,130 


1899 


273,484,573 


1928 


2,790,535,538 


1900 


295,316,108 


1929 


2,939,054,375 


1901 


306,871,669 


1930 


3,040,145,733 


1902 


271,867,990 


1931 


2,428,228,754 


1903 


230,740,925 


1932 


1,557,729,043 


1904 


232,932,781 


1933 


1,619,839,224 


1905 


234,187,976 


1934 


2,300,816,309 


1906 


249,102,738 


1935 


2,773,213,214 


1907 


269,664,022 


1936 


3,448,571,174 


1908 


251,665,950 


1937 


4,653,195,315 


1909 


246,212,719 


1938 


5,658,765,314 


1910 


289,957,220 


1939 


5,181,573,953 


1911 


322,526,300 


1940 


5,340,452,347 


1912 


321,615,895 


1941 


7,370,108,378 


1913 


344,424,453 


1942 


13,047,868,517 


1914 


380,008,894 


1943 


22,371,386,496 


1915 


415,681,024 


1944 


40,121,760,232 


1916 


512,723,288 


1945 


43,800,387,575 


1917 


809,393,640 


1946 


40,672,096,998 


1918 


3,698,955,821 


1947 


39,108,385,742 



246 



Year 


Revenue Collected 


Year 


Revenue Collected 


1948 


$41,864,542,295 


1970 


$ 195,722,096,497 


1949 


40,463,125,019 


1971 


191,647,198,138 


1950 


38,957,131,768 


1972 


209,855,736,878 


1951 


50,445,686,315 


1973 


237,787,204,058 


1952 


65,009,585,560 


1974 


268,952,253,663 


1953 


69,686,535,389 


1975 


293,822,725,772 


1954 


69,919,990,791 


1976 


302,519,791,922 


1955 


66,288,692,000 


1977 


358,139,416,730 


1956 


75,112,649,000 


1978 


399,776,389,362 


1957 


80,171,917,000 


1979 


460,412,185,013 


1958 


79,978,476,484 


1980 


519,375,273,361 


1959 


79,797,972,806 


1981 


606,799,120,630 


1960 


91,774,802,823 


1982 


632,240,505,595 


1961 


94,401,086,398 


1983 


627,246,792,581 


1962 


99,440,839,245 


1984 


680,475,229,000 


1963 


105,925,395,281 


1985 


742,871,541,000 


1964 


112,260,257,115 


1986 


782,251,812,000 


1965 


114,434,633,721 


1987 


886,290,590,000 


1966 


128,879,961,342 


1988 


935,106,594,000 


1967 


148,374,814,552 


1989 


1,013,322,133,000 


1968 


153,363,837,665 


1990 


1,056,365,652,000 


1969 


187,919,559,668 


1991 


1,086,851,401,000 



247 



appendix 4: 
Personnel* 



Date 


Number of Employees 


Date 


Number of Employees 


1866 


4,461 


1888 


3,295 


1867 


4,808 


1889 


3,437 


1868 


5,393 


1890 


3,741 


1869 


6,258 


1891 


3,850 


1870 


6,266 


1892 


3,938 


1871 


6,321 


1893 


3,744 


1872 


6,141 


1894 


4,339 


1873 


5,136 


1895 


4,204 


1874 


4,784 


1896 


3,991 


1875 


4,657 


1897 


3,858 


1876 


5,184 


1898 


3,832 


1877 


3,983 


1899 


3,667 


1878 


3,729 


1900 


4,003 


1879 


3,609 


1901 


3,836 


1880 


3,405 


1902 


4.111 


1881 


3,405 


1903 


3,960 


1882 


4,002 


1904 


3,834 


1883 


4,341 


1905 


3,854 


1884 


4,126 


1906 


3,703 


1885 


3,581 


1907 


3,788 


1886 


3,292 


1908 


3,872 


1887 


3,389 


1909 


3,795 



* Figures include both permanent and temporary employees 



248 



Date 



Number of Employees 



Date Number of Employees 



1911 


3,992 


1912 


3,838 


1913 


4,000 


1914 


3,972 


1915 


4,730 


1916 


4,718 


1917 


5,053 


1918 


9,597 


1919 


14,055 


1920 


15,848 


1921 


17,470 


1922 


17,710 


1923 


17,613 


1924 


15,884 


1925 


15,568 


1926 


14,333 


1927 


13,211 


1928 


12,914 


1929 


12,273 


1930 


11,979 


1931 


11,833 


1932 


11,716 


1933 


11,524 


1934 


11,216 


1935 


16,523 


1936 


17,054 


1937 


21,148 


1938 


22,045 


1939 


22,623 



1940 


22,423 


pq 
Z 

o 


1941 


27,230 


4^ 


1942 


29,065 


cs 


1943 


36,338 




1944 


46,171 




1945 


49,814 




1946 


59,693 




1947 


52,830 




1948 


52,143 




1949 


52,266 




1950 


55,551 




1951 


57,805 




1952 


56,309 




1953 


53,463 




1954 


51,411 




1955 


50,890 




1956 


50,682 




1957 


51,364 




1956 


50,816 




1959 


51,226 




1960 


51,047 




1961 


53,206 




1962 


56,481 




1963 


59,711 




1964 


61,059 




1965 


62,098 




1966 


63,508 




1967 


65,946 




1968 


67,574 





249 



Date Number of Employees 



Date Number of Employees 



1969 


66,064 


1970 


68,683 


1971 


68,972 


1972 


68,549 


1973 


74,170 


1974 


78,921 


1975 


82,616 


1976 


85,455 


1977 


85,727 


1978 


86,258 


1979 


86,540 


1980 


88,010 



1981 


86,860 


1982 


83,756 


1983 


84,196 


1984 


88,208 


1985 


92,792 


1986 


96,395 


1987 


102,774 


1988 


115,494 


1989 


115,360 


1990 


112,987 


1991 


117,017 



250 



Tax 


Rates andExc^ 


btions 


z 

D 

>< 








Taxable Income Brackets 


CS 


Year 


Exemptions 

Single Joint Dependents 


Rates (%) 


Lowest 

Amount 

Under 


Highest 
Amount 

Over 




1861 


_ 


3 


$800 






1862 


- 


3-5 


600 


$ 10,000 




1863 


- 


3-5 


600 


10,000 




1864 


- 


5-10 


600 


10,000 




1865 


- 


5-10 


500 


5,000 




1866 


- 


5-10 


500 


5,000 




1867 


- 


5 


1,000 






1868 


- 


5 


1,000 






1869 


- 


5 


1,000 






1870 


- 


2.5 


2,000 






1871 


- 


2.5 


2,000 






1872 


all Civil War era income taxes expired 








1873-1912 


no income tax imposed 










1913 


$ 3,000 $ 4,000 None 


1-7 


$ 20,000 


$ 500,000 




1914 


3,000 4,000 None 


1-7 


20,000 


500,000 




1915 


3,000 4,000 None 


1-7 


20,000 


500,000 




1916 


3,000 4,000 None 


2-15 


20,000 


2,000,000 




1917 


1,000 2,000 $200 


2-67 


2,000 


2,000,000 




1918 


1,000 2,000 200 


6-77 


4,000 


1,000,000 




1919 


1,000 2,000 200 


4-73 


4,000 


1,000,000 




1920 


1,000 2,000 200 


4-73 


4,000 


1,000,000 




1921 


1,000 2,500 400 


4-73 


4,000 


1,000,000 





251 



X Taxable Income Brackets 

Lowest Highest 

Amount Amount 

Dependents Rates (%) Under Over 



400 4-56 $4,000 $200,000 

400 3-56 4,000 200,000 

400 1.5-46 

400 1.125-25 

400 1.125-25 

400 1.125-25 

400 1.125-25 

400 .375-24 

400 1.125-25 

400 1.125-25 

400 4-63 

400 4-63 

400 4-63 

400 4-63 

400 4-79 

400 4-79 

400 4-79 

400 4-79 

400 4.4-81.1 

400 10-81 

350 19-88 

350 19-88 

500 23-94 

500 23-94 

500 19-86.45 

500 19-86.45 

600 16.6-82.13 

600 16.6-82.13 



Q 
Z 

o. Year 


Exemptions 
Single 


Joint 


< 






?\ 1922 


$ 1,000 


$ 2,500 


1923 


1,000 


2,500 


1924 


1,000 


2,500 


1925 


1,500 


3,500 


1926 


1,500 


3,500 


1927 


1,500 


3,500 


1928 


1,500 


3,500 


1929 


1,500 


3,500 


1930 


1,500 


3,500 


1931 


1,500 


3,500 


1932 


1,000 


2,500 


1933 


1,000 


2,500 


1934 


1,000 


2,500 


1935 


1,000 


2,500 


1936 


1,000 


2,500 


1937 


1,000 


2,500 


1938 


1,000 


2,500 


1939 


1,000 


2,500 


1940 


800 


2,000 


1941 


750 


1,500 


1942 


500 


1,200 


1943 


500 


1,200 


1944 


500 


1,000 


1945 


500 


1,000 


1946 


500 


1,000 


1947 


500 


1,000 


1948 


600 


1,200 


1949 


600 


1,200 



4,000 


500,000 


4,000 


100,000 


4,000 


100,000 


4,000 


100,000 


4,000 


100,000 


4,000 


100,000 


4,000 


100,000 


4,000 


100,000 


4,000 


1,000,000 


4,000 


1,000,000 


4,000 


1,000,000 


4,000 


1,000,000 


4,000 


5,000,000 


4,000 


5,000,000 


4,000 


5,000,000 


4,000 


5,000,000 


4,000 


5,000,000 


2,000 


5,000,000 


2,000 


200,000 


2,000 


200,000 


2,000 


200,000 


2,000 


200,000 


2,000 


200,000 


2,000 


200,000 


2,000 


200,000 


2,000 


200,000 



252 



Taxable Income Brackets 



Year 


Exemptions 
Single 


Joint 


Dependents 


Rates (%) 


Lowest 

Amount 

Under 


Highest w 

Amount ^ 

Over ~ 


1950 


$600 


$1,200 


600 


17.4-84.36 


$ 2,000 


$ 200,000 /$ 


1951 


600 


1,200 


600 


17.4-84.36 


2,000 


200,000 


1952 


600 


1,200 


600 


20.4-91 


2,000 


200,000 


1953 


600 


1,200 


600 


20.4-91 


2,000 


200,000 


1954 


600 


1,200 


600 


20-91 


2,000 


200,000 


1955 


600 


1,200 


600 


20-91 


2,000 


200,000 


1956 


600 


1,200 


600 


20-91 


2,000 


200,000 


1957 


600 


1,200 


600 


20-91 


2,000 


200,000 


1958 


600 


1,200 


600 


20-91 


2,000 


200,000 


1959 


600 


1,200 


600 


20-91 


2,000 


200,000 


1960 


600 


1,200 


600 


20-91 


2,000 


200,000 


1961 


600 


1,200 


600 


20-91 


2,000 


200,000 


1962 


600 


1,200 


600 


20-91 


2,000 


200,000 


1963 


600 


1,200 


600 


20-91 


2,000 


200,000 


1964 


600 


1,200 


600 


16-77 


500 


100,000 


1965 


600 


1,200 


600 


14-70 


500 


100,000 


1966 


600 


1,200 


600 


14-70 


500 


100,000 


1967 


600 


1,200 


600 


14-70 


500 


100,000 


1968 


600 


1,200 


600 


14-75.25 


500 


100,000 


1969 


600 


1,200 


600 


14-77 


500 


100,000 


1970 


625 


1,250 


625 


14-71.75 


500 


100,000 


1971 


675 


1,350 


675 


14-70 


500 


100,000 


1972 


750 


1,500 


750 


14-70 


500 


100,000 


1973 


750 


1,500 


750 


14-70 


500 


100,000 


1974 


750 


1,500 


750 


14-70 


500 


100,000 


1975 


750 


1,500 


750 


14-70 


500 


100,000 


1976 


750 


1,500 


750 


14-70 


500 


100,000 


1977 


750 


1,500 


750 


0-70 


3,200 


203,200 



253 



Taxable Income Brackets 



Year 

1978 
1979 
1980 
1981 
1982 
1983 
1984 
1985 
1986 
1987 
1988 
1989 
1990 
1991 



xemptions 
Single 


Joint 


Dependents 


Rates (%) 


Lowest 

Amount 

Under 


Highest 
Amount 

Over 


$750 


$ 1,500 


750 


0-70 


$ 3,200 


$ 203,200 


1,000 


2,000 


1,000 


0-70 


3,400 


215,400 


1,000 


2,000 


1,000 


0-70 


3,400 


215,400 


1,000 


2,000 


1,000 


0-70 


3,400 


215,400 


1,000 


2,000 


1,000 


0-50 


3,400 


85,600 


1,000 


2,000 


1,000 


0-50 


3,400 


109,400 


1,000 


2,000 


1,000 


0-50 


3,400 


162,400 


1,040 


2,080 


1,040 


0-50 


3,540 


169,020 


1,080 


2,160 


1,080 


0-50 


3,670 


175,250 


1,900 


3,800 


1,900 


11-38.5 


3,000 


90,000 


1,950 


3,900 


1,950 


15-33 


29,750 


71,900* 


2,000 


4,000 


2,000 


15-33 


30,950 


74,850* 


2,050 


4,100 


2,050 


15-33 


32,450 


78,400* 


2,150 


4,300 


2,150 


15-31 


34,000 


82,150* 



* Based on Married Filing Jointly filing status 



254 



Index 



By Subject 

Accounting Systems, 97, 100, 217 
Accounts Receivable, 235 
Ad Council, 228, 230 
Adams, John, 20, 25 
Administrative Intern Program, 174 
Admissions, taxes on, 91, 92, 97 
Adulterated Foods, 67, 70 
Advisory Tax Board, 96, 97, 98 
Agency for International 

Development, 173, 178, 182 
Agricultural Adjustment Act, 1 19, 

120, 123, 126, 128 
Aid to Families With Dependent 

Children, 216 
Air Transportation, taxes on, 194 
Alabama, 27, 41, 57, 62, 80, 82, 85, 

189, 235 
Alaska, 49, 63, 78, 172 
Alcohol, taxes on, 12, 15, 16, 23, 33, 

34, 35, 36, 37, 40, 41, 43, 44, 45, 

47, 48, 50, 53, 57, 58, 59, 63, 71, 

74, 75, 79, 80, 88, 91, 92, 100, 116, 

120, 123, 126, 128, 136, 138, 143, 

160, 166, 174, 176, 182, 186, 187, 

188, 190, 195 
Alcohol Tax Unit, 121, 134, 139, 151, 

152, 153 
Alcohol, Tobacco, and Firearms 

Division, 179, 185, 188, 189, 191 
Alcohol and Tobacco Tax Division, 

123, 131, 153, 157, 161, 171, 188 
Aldrich, Nelson, 81 
Alexander, Donald C, 200, 209, 229 
Alliance for Progress, 172 
Alpern, Anita, 207 
Amortization Allowances, 96 
Andrews, T. Coleman, 157, 161 



Appeals, of tax cases, 37, 42, 43, 101, 

102, 104, 107, 108, 183, 188,211 
Appeals Division, 96, 114, 154, 156, 

211,217,218 
Arizona, 62, 85, 117, 165,221 
Arkansas, 37, 41, 43, 54, 85, 101, 187, 

197, 200, 221 
Arrest Authority, 177 
Art Advisory Panel, 190, 198, 217 
Articles of Confederation, 14, 15 
Artificial Intelligence, 224 
Assessors, 33, 34, 37, 40, 49 
Assistant Commissioners, 145 
Accounts, Collection, and 
Taxpayer Service, 196, 197, 201, 

205 
Administration, 104, 108, 157,163, 

171, 174 
Audit, 211 

Collection, 172, 218, 230, 231, 237 
Compliance, 174, 186, 211, 218 
Computer Services, 221, 225, 229, 

232 
Criminal Investigation, 211, 218, 

228,230,231,236 
Data Processing, 174, 176, 187, 

196, 198, 210 
Data Services, 209, 213 
Employee Plans and Exempt 

Organizations, 204, 234 
Examination, 211, 218, 229, 235 
Finance, 233 
Human Resources, 219 
Human Resources, Management, 

and Support, 224, 231,234 
Human Resources and Support, 

234, 236 
Information Systems 

Development, 228, 230, 232, 
234 



255 



Information Systems 
Management, 232, 233, 234 
Inspection, 155, 156, 157, 175, 

230, 232, 233 
International, 223, 224, 230, 233 
Operations, 145, 156, 157, 161, 

166, 174 
Planning, 157, 163 
Planning, Finance, and Research, 

229, 231 
Planning and Research, 164, 170, 

198,201,207,218,233 
Procurement, 233, 236 
Resources Management, 211 
Returns Processing, 231, 236 
Stabilization, 197, 204 
Support and Services, 224 
Tax Systems Redesign, 224, 228 
Taxpayer Service, 231, 233 
Taxpayer Service and Returns 

Processing, 211, 229 
Technical, 145, 156, 157, 170,183, 
217 

Associate Commissioners, 218, 223, 
228 

Attacks on Revenue Employees, 
seeThreats against... 

Auction Sales, taxes on, 18, 22, 23 

Audit, 93, 94, 96, 103, 104, 108, 112, 
113,114,115, 117, 120, 121, 124, 
129, 131, 140, 142, 144, 146, 149, 
153, 155, 166, 170, 184, 191, 195, 
199, 206 

Audit Information Management 
System, 208, 210 

Austin Compliance Center, 225 

Automated Collection System, 220, 
222 

Automated Data Processing, 137, 
142, 143, 145, 148, 153, 164, 167, 
170, 171,173, 174, 176, 178, 185, 
186,210,212,213,217,220,223, 
231,232,235,236 

Automated Examination System, 
225 



Automated Underreporter System, 

232, 235, 238 
Automobiles, taxes on, 115, 119 
Awards, 141, 175, 179, 187, 191, 233, 

235, 237 

Badges, 160 

Bailey, Joseph W., 75, 81 

Bank Secrecy Act, 194 

Bankhead Cotton Act, 122, 128, 131 

Bankruptcy Reform Act, 213 

Banks, taxes on, 33, 35, 36, 37, 38, 

40,41,48,63,75,88 
Barnard, Doug Jr., 231 
Barron, Dean J., 198,201 
Bergherm, Donald E., 230, 233 
Billiard Parlors, taxes on, 75 
Bishop, Joseph E., 213, 221 
Blair, David H., 102, 116 
Blattner, David G., 229, 235 
Block, H & R, 161 
Blue Ribbon Program, 162 
Board of Tax Appeals, 105, 107, 108, 

113, 114, 116, 120, 136, 137 
Board of Tax Commissioners, 32 
Boats, taxes on, 48, 97 
Bolich, Daniel A., 151, 153 
Bombs, 198 
Bonds, 93 

Boston Tea Party, 14 
Boutwell, George, 24, 33, 35, 45, 47, 

49 
Bowling Alleys, taxes on, 75 
Bradford, William, 18 
Brand, Philip G., 233, 236, 237 
Brauer, Robert, 234 
Brennan, Charles H., 228, 234 
Bribery, 150 
Brown, Norris, 81 
Browning, Harold M., 216 
Brushaber v. Union Pacific 

Railroad Co., 91 
Buchanan, James, 30 
Budget, 20, 22, 23, 60, 67, 71, 72, 

149, 150, 172 



256 



Bureau of Alcohol, Tobacco, and 

Firearms, 198, 208, 228 
Bureau of the Census, 161 
Bureau of Engraving and Printing, 

57, 58, 63 
Burke, John E., 234 
Burnet, David, 118, 121 
Bush, George, 237 
Business Master File, 176, 178, 180 
Butter, taxes on, 106 
Buttolph, Carolyn K., 200 

Cabell, Royal E., 82, 86 

Calhoun, John C, 26 

California, 33, 44, 47, 52, 54, 62, 63, 

67,69,81,85, 117, 150, 151, 153, 

198, 220 
California Debris Control Act, 69 
Capers, John G., 80, 82 
Capital Gains, 103, 130, 148 
Capital Stock Tax, 113, 115, 121, 

122, 126 
Caplin, Mortimer M., 172, 174, 175, 

180 
Capozzoli, Daniel N., 210, 225 
Carriages, taxes on, 18, 19, 22, 23, 40 
Carriers Taxing Act, 129, 131 
Carter, Jimmy, 210 
Cary v. Curtis, 27 
Cash Transaction Reports, 222 
Cashier of Internal Revenues, 35 
Cattle, taxes on, 33, 195 
CDC Computers, 195, 207, 216 
Centralized Inventory Distribution 

System, 223, 224 
Centralized Services, 211 
Charitable Contributions, 92, 99, 194 
Charitable Organizations, 

see Exempt Organizations 
Chase, Salmon P., 36 
Checks, for payment of taxes, 84 
Checks, taxes on, 59, 61, 63, 75, 119, 

126 
Cheek v. United States, 235 
Cheese, taxes on, 74, 84 



Chemistry, Division of, 66, 69, 71, 
72,99 

Chewing Gum, taxes on, 75, 88 

Chief Counsel, 25, 40, 46, 100, 101, 
108, 112, 116, 120, 122, 123, 126, 
153, 154,166, 171, 172, 175, 177, 
180, 182, 183, 189, 197, 198, 200, 
210,211,212,217,218,225,228, 
230, 232, 235 

Disclosure Litigation, 204 
General Legal Services, 204 
Operations and Planning, 204 

Chief Financial Officer, 232, 234, 
236 

Chief Information Officer, 232, 234 

Chief Inspector, 233 

Chief Operations Officer, 234, 235 

Child Care, deductions for, 160 

Child Care Centers, 228, 230 

Child Labor, taxes on, 93, 96, 97, 
104 

Child Support, collection of, 205, 
216,218,219,230,238 

Chinese, registration of, 60, 69, 70, 
71, 78, 79 

CIAT (Inter-American Center of 
Tax Administrators), 174, 184, 
186, 188, 190, 194, 198, 199, 205, 
206, 208, 209, 211, 213, 216, 221, 
222, 223, 235 

Circuses, taxes on, 75 

Civil Service System, 75, 79, 84, 87, 
89,99, 100, 133, 150, 152, 153, 
178, 184, 185, 186, 194 

Clay, Henry, 26 

Cleveland, Grover, 67, 70, 71 

Clothing, taxes on, 42 

Coal, taxes on, 127, 128, 129, 130, 
211 

Coffee, taxes on, 30 

Cohen, George M., 118 

Cohen, Sheldon S., 182, 190 

Collection Districts, 33 

Colonial Stamp Act Congress, 13 

Colorado, 62, 85, 117 



257 



Colwell, Stephen, 37 
Command Center, 223 
Commissioner of Internal Revenue, 

Office of the, 33 
Commissioner of the Revenue, 16, 

17,20,22,23,24,25,31 
Commissioner of Taxes, 31 
Commissioner's Advisory Group, 

183, 201 
Committee on Appeals and Review, 

160 
Commissioner's Advisory Group, 

183, 201, 229 
Commissioner's Award, 191 
Commissions, 53, 59 
Committee For Tax Appeals, 104, 

106 
Committee On Appeals and Review, 

98, 103, 105, 107 
Communications Replacement 

System, 225 
Compliance 2000, 236, 237 
Compromise, authority, 25, 35 
Conferences (IRS), see also Joint 
Conference, 100, 118, 121, 128, 129, 

140, 174 
Connecticut, 12, 33, 52, 62, 67, 103 
Continental Congress, 14, 15, 16 
Contract Employees, 48, 49, 52, 53 
Controller, 233 
Coolidge, Calvin, 106, 113 
Coordinated Evaluation Program, 

167 
Coordinated Examination Program, 

233, 234 
Core Business Systems, 238 
Corporate Files On-Line (CFOL), 

234 
Corporations, taxes on, 27, 44, 70, 

81, 82, 84, 85, 86, 90, 91, 96, 102, 

112, 115, 119, 130, 133, 148, 162, 

164, 165, 167, 188 
Corporation Tax Division, 82 
Cosmetics, taxes on, 33 



Cost of Living Council, 196, 197, 

200, 201 
Cotton, taxes on, 40, 43, 88 
Court of Claims, 66 
Couzens, James, 112 
Cox, Mark D., 232 
Coxe, Tench, 16, 17, 19 
Credit Cards, 165, 199 
Criminal Activities, taxes on, 113, 

153 
Currency Act, 13 

Currency Transaction Reports, 194 
Current Tax Payment Act, 137 
Customs Service, 16 

Dallas, Alexander, 23, 24 
Day v. Buffington, 46 
Deanehan, Regina M., 231, 233 
Deaths of IRS employees, 

see Threats... 
Decentralization (of IRS), 93, 94, 99, 

105, 106, 108, 128, 130, 131, 132, 

144, 153, 158 
Declaration of Independence, 14 
Declaratory Act, 13 
Delaney, Dennis W., 150 
Delano, Columbus, 45, 46, 47 
Delaware, 31, 57, 67, 85, 97, 155, 212 
Department of Agriculture, 79 
Department of Commerce, 78 
Department of Justice, 46, 118, 120, 

121 
Department of Labor, 78, 220, 231 
Department of the Treasury, 16 
Deputy Commissioner, 35, 40, 44, 

57,77,92,96, 157, 175, 187,204, 

216, 217, 228, 229, 232, 234, 235, 

236, 237 
Detroit Computer Center (also 

Detroit Data Center), 180, 183, 

200, 222 
Diagnostic Services Center, 236 
Dickinson, John, 13 
Dingley Tariff Bill, 74, 75 
Direct Data Entry System, 186 



258 



Direct Tax, 20, 22, 23, 20, 31, 32, 33, 

35,38,41,43,44,45,50,60,61, 

66, 67, 68 
Director of Practice, 156, 165, 178, 

219 
Disaster Recovery, 225 
Disclosure, of tax information, 24, 

42,46,71,76,77,81,82,84,86, 

107, 112, 122, 126, 156,209,210, 

216 
Discriminant Function (DIF), 191, 

207 
Distributed Input System, 220, 223 
District Conference Staff, 204 
District Offices, streamlined, 212 
District of Columbia, 67, 70, 72 
Dividends, taxes on, 36, 40, 1 19, 120 
Dolan, Michael P., 236, 237 
Douglass, John W., 48, 53 
Drugs, taxes on, (see also opium), 

87, 89, 196, 201 
Due Date, taxes, 31, 32, 36, 43, 48, 

72, 84, 87, 90, 96, 97, 136, 160, 

210, 223 
Dues, taxes on, 91, 92, 97 
Dunlap, John B., 151, 152, 155 

Earned Income Tax Credit, 1 19, 

138, 206, 207 
Economic/Wage Stabilization 

Programs, 136, 138, 140, 196, 197, 

198, 200, 201, 205 
Egger, Roscoe L, Jr., 217, 224 
Einstein, Albert, 156 
Eisenhower, Dwight, 160 
Eisner v. Macomber, 90 
Electronic Filing, 223, 230, 232, 234, 

238 
Elliott v. Swartout, 26 
Embargo Act, 22 

Employee Assistance Program, 217 
Employee Plan Master File, 197 
Employee Plans, 115, 165, 178, 204, 

207,212,231 
Employee Relations, 165 



Energy Tax Act, 212 
Engineering Division/Section, 114, 

126 
Enrolled Agents, 166 
Environmental Protection Agency, 

195 
Equal Employment Opportunity, 

214 
Equipment Replacement and 

Enhancement Program, 212, 213 
Equipment Replacement Program, 

212,213,220 
Erskine v. Van Arsdale, 50 
Estate Taxes, 33, 90, 91, 99, 103, 

112, 114, 119, 142, 196 
Estee, C.F., 35 
Ethics, 230, 232, 233 
Evans, Walter, 61, 63 
Excess Profits Tax Council, 93, 96, 

140, 143 
Excess Profits Taxes, 91, 93, 96, 102, 

103, 119, 121, 122, 133, 138, 139, 

149, 158 
Exchange of tax information with 

states, see States... 
Excise Taxes, 12, 22, 31, 44, 75, 81, 

88, 124, 152, 160, 164, 171, 182, 

185, 196, 199,211 
Executive Development Program, 

185, 195 
Exempt Organizations, 87, 96, 148, 

177, 194, 195, 204, 207, 218, 220, 

233 
Exempt Organization Advisory 

Group, 190, 228, 229 
Exempt Organization Master File, 

183 
Extension of time to file, 126 

Facilities Management, 173 
Faculty Tax, 12, 15 
Farmer's Tax Guide, 162 
Fay, Carol, 211 

Federal Alcohol Administration, 127, 
128, 133 



259 



Federal Energy Office, 201, 204 
Federal Firearms Act, 131, 148 
Federal Insurance Contributions 

Act, 132, 148, 160, 162, 164, 187, 

211 
Federal Records Centers, 195 
Federal Tax Deposits, 187, 194, 199, 

220, 222 
Federal Unemployment Tax Act, 

132, 190, 194 
Federal Women's Program, 194 
Fifth Auditor's Office, 25 
Finance Offices, 149 
Finnegan, James P., 150 
Firearms, regulation of, 122, 123, 

128, 131, 134, 139, 141, 148, 180, 

188, 189 
Fiscal Year, 27, 68, 209 
Fitzgerald, Edward, 204 
Flint v. Stone Tracy Co., 84 
Florida, 27, 69, 162, 165, 224, 225 
Flour, tax on, 75 
Ford, Gerald, 204 
Foreign Operations District, 161 
Form 720, 158 
Form 940, 153 
Form 940EZ, 235 
Form 990, 222 
Form 1040, 87, 106, 134, 145, 156, 

162, 178,205,208,220,234 
Form 1040 A, 106, 144, 145, 156, 161, 

162, 166, 195, 198, 199, 205, 236 
Form 1040ES, 145 
Form 1040EZ, 222 
Form 1040EZ- 1,235, 238 
Form 1040PC, 238 
Form 1040Q, 189 
Form 1040W, 168 
Form 1040X, 187, 196 
Form 1087,213 
Form 1099, 183,213,233 
Form 1120, 162 
Form 1120S, 167 
Form 1120X, 196 
Form 2034, 160 



Form 2050, 160 

Form 2688, 168 

Form2950SE, 179 

Form 4683, 195 

Form 4789, 194 

Form 4875, 200 

Form 8300, 222 

Form 8372, 194 

Form CT- 1,207 

FormW-2, 143, 183,213 

FormW-4, 201,213, 216, 228 

Form letters, 104, 115 

Forms, color in, 190 

Forms, distribution of, 154, 156, 164, 

166, 190, 205 
Forms, general, 87, 97, 99, 180, 205, 

213, 228, 234 
Forman, W. St. John, 74, 75 
Foster, David, 84 
Franklin, Benjamin, 16 
Fraud Agents, 50 
Fraud, of employees, 35, 43, 44 
Fraud, of taxpayers, 35, 41, 42, 43, 

45,58,76,98, 153, 154 
Freedman's Bureau, 41 
Freedom of Information Act, 189, 

204, 206 
Fries, John, 20 
Furniture, taxes on, 23 

Garfield, James, 42 

Gasoline, taxes on, 119, 120, 166 

Gaugers, 56, 60, 71, 100 

Gauging of Distilled Spirits, 42, 69, 

85 
General Accounting Office, 228 
General Counsel, see Chief Counsel 
Georgia, 38, 41, 57, 62, 85, 212 
Gibbs, Lawrence B., 224, 228, 229, 

231 
Gift Taxes, 112, 119 
Goldberg, Fred T., Jr., 231, 232, 237 
Gore, Thomas P., 81 
Grant, Ulysses, 45, 54 
Greenbacks, 32 



260 



Gross Income, 216, 218 

Guam, 199 

Gun Control Act, 188, 189 

Hamilton, Alexander, 15, 16, 17, 19 

Handicapped Employees, 187 

Hannegan, Robert E., 137, 138 

Harding, Bertrand, 170, 174, 175 

Harding, Warren, 102 

Harland, Thomas, 44 

Harrington, Russell C, 161, 164 

Harrison Anti-Narcotics Act, 89, 100 

Hat Act, 12 

Hawaii, 77 

Hayes, Samuel, 37 

Health Programs, 167 

Helvering, Guy T., 121, 137 

Highway Use Tax, 162 

Hilgen, Robert F., 233 

Holden, James P., 232 

Holmes, Damon O., 229 

Home, sale of, 212 

Honeywell Computers, 180, 201, 216 

Hooper, Samuel, 47 

Hoover, Herbert, 116, 117 119 

Horses, taxes on, 195 

Hull, Cordell, 81, 86 

Hutton, Walter A, Jr., 233 

Hyde v. Continental Trust, 71, 72 

Hylton v. United States, 19 

IBM Computers, 161, 165, 168, 171, 

172, 179, 180, 183, 219 
Idaho, 62, 85,97, 212 
Illegal Activities, taxes on, 90 
Illinois, 34, 54, 55, 56, 59, 61, 62, 85, 

97 
Income Tax Amendment, 

see 16th Amendment 
Income Tax, constitutionality of, 45, 

60, 71, 72, 91 
Income Tax Division/Unit, 72, 87, 

96, 99, 108 



Income Tax Laws, passed, 31, 33, 
36, 37, 40, 42, 46, 50, 71, 86, 90, 
91,96,102,106,112, 115,116, 
118, 122, 128, 129, 130, 132, 133, 
134, 136, 137, 138, 139, 142, 148, 
152, 163, 166, 171, 177, 179, 184, 
185, 188, 191, 197, 204, 206, 208, 
209, 212, 217, 218, 222, 224, 229 

Income Tax Laws, proposed, 20, 23, 
24,30,31,32,37,42,47,52,63, 
69, 70, 74, 79, 80, 81, 82, 86, 102, 
105, 106, 126, 177,221 

Independent Contractors, 143, 230 

Indiana, 34, 54, 56, 61, 62, 85, 97, 
208 

Indians, 47, 60, 72 

Individual Master File, 184, 185, 
189,201,213 

Individual Retirement Accounts, 
217 

Informants, 48, 157 

Information Document Matching, 
177,205 

Information Reporting Program 
Advisory Committee, 236 

Information Returns, 175, 183, 186, 
195, 205, 213, 233, 235 

Inheritance Taxes, 24, 25, 27, 32, 35, 
53,74,79,80,81,93 

Inspection Service, 150, 151, 154, 
155, 158, 161,231 

Inspector General, 232 

Installment Payments, 96, 107 

Insurance Companies, taxes on, 33, 
91, 96, 166, 195, 222 

Integrated Collection System (ICS), 
235 

Integrated Data Retrieval System 
(IDRS), 191, 195, 197, 199, 201, 
207, 216, 223 

Intelligence Unit, 98, 140, 168, 183 

Inter- American Center of Tax 
Administrators, see CIAT 

Interest, rate for refunds/taxes, 50, 
206 



261 



Interest, taxes on or exemptions for, 

27, 199 
Internal Revenue Manual, 59, 155 
Internal Revenue Service, 

designation of, 158 
Internal Security, 194, 198 
International Offices, 129, 131, 144, 

183 
International Operations, 161, 162, 

164, 171, 176, 177, 184, 185, 187, 

188, 199,201,205,218,220 
Intolerable Acts, 14 
Iowa, 33, 56, 62, 85, 86 
Irey, Elmer, 140 
Iron Acts, 12 

Jack, Robert L., 170, 172, 174, 198 
Jackson, Andrew, 25, 26 
Jackson, Robert H., 122 
Jefferson, Thomas, 22 
Johnson, Andrew, 37, 43, 44 
Johnson, James W., 150 
Johnson, John D., 229, 232, 237 
Johnson, Lyndon, 180, 182, 183 
Johnson, Robert T., 231, 236 
Joint Committee on Internal 

Revenue Taxation, 112, 143, 144, 

149, 150 
Joint Returns, 142 

Kansas, 60, 64, 69, 84, 85 
Keenan, Raymond P., 231, 236 
Kennedy, John F., 172, 173, 175, 

177, 178 
Kentucky, 26, 37, 40, 52, 55, 57, 62, 

85, 97 
Kern, Teddy R., 230 
Kerr-Smith Tobacco Control Act, 

123, 128, 131 
Kinghorn, C. Morgan, 233 
Kolak, AlvinH., 230, 231 
Kump, Joseph F., 235 
Kurtz, Jerome, 209, 216 



Laboratories, 66, 67, 69, 92, 99, 191, 

202 
Langone, Anthony, 228 
Latham, Dana, 164, 172 
Laycock, Thomas J., 221 
Leave sharing, 225, 233 
LeBaube, Robert A., 231, 233 
Lee, Lighthorse Harry, 19 
Legacy Taxes, 77, 78 
Legal Expenses, 184 
Legislative Affairs, 116, 124 
Legislative Liaison, 219 
Lewellyn v. Frick, 109 
Lewis, Joseph J., 35, 38 
LEXIS, 205 
Library, 92, 187 
Licenses, on businesses or 

professions, 33, 40 
Lindbergh Kidnapping, 124 
Lincoln, Abraham, 31, 33 
Liquor Tax Administration Act, 128 
Loopholes, 90 

Louisiana, 38, 41, 57, 67, 69, 85, 221 
Lucas, Robert H., 116, 118 
Lynch v. Tilden Produce Co., 106 

Mader, David, 236 

Madison, James, 22 

Magoon v. Illinois Trust and Savings 

Bank, 76 
Maine, 34, 54, 56, 57, 67, 85, 97 
Major Violator Program, 163, 168, 

173 
Mallory, Robert, 37 
Management Initiatives, 140, 141, 

142, 143, 144, 145, 151, 153, 177, 

201, 205 
Margarine, taxes on, 66, 68, 76, 78, 

79, 90, 148 
Marihuana, taxes on, 130, 139 
Marrs, Aubrey R., 132 
Marshals, U.S., 20, 58, 59, 64 
Martinsburg Computer Center, 

see National Computer Center 



262 



Maryland, 25, 27, 34, 48, 54, 56, 61, 

67,85, 161, 166 
Mason, John W., 67, 69 
Massachusetts, 12, 15, 24, 33, 34, 35, 

53,56,57,61, 150, 151 
Matches, taxes on, 37, 61, 85, 86 
McCray v. United States, 79 
McCulloch v. Maryland, 25 
McFarlane, James, 18 
McKinley Tariff Act, 68, 69, 87 
McKinley, William, 74, 75 
Medical Expenses, deduction of, 

137 
Medicare Catastrophic Premium, 

234 
Medicine, taxes on, 33 
Mellon, Andrew, 102, 105 
Mellon v. United States, 117 
Michigan, 34, 56, 57, 62, 85, 112, 

113, 151, 158 
Microfilm Operations, 142, 182, 213, 

220 
Milburn, Bruce V., 230 
Miller, Joseph S., 64, 67, 69, 74 
Miller, William Jr., 20 
Mining, taxes on, 69 
Minnesota, 62, 85, 142 
Mississippi, 38, 41, 53, 57, 67, 80, 85, 

97 
Missouri, 37, 56, 61, 62, 85, 150, 179 
Molasses Act, 12 
Monaco John J., 233 
Monroe, James, 24 
Montana, 62, 63, 67, 85, 212, 221 
Morics, Inar, 231 
Morrill, Justin, 30, 31,37,42 
Morrill Tariff Act, 30 
Moving expenses, deduction for, 179 
Multiple Filers, 199 
Murphy, B.D., 150 
Murphy, Michael J., 235, 237 
Museum, tax, 75, 190 



Narcotic Drugs Import and Export 

Act, 87, 104 
National Academy of Science, 42, 

43, 232 
National Association of Internal 

Revenue Employees (NAIRE), 

see also National Treasury 

Employees Union, 130, 183, 196, 

198, 200, 202 
National Banking Association Act, 

35 
National Bankruptcy Act, 124 
National Computer Center, 170, 

171, 173, 174, 176, 179, 183, 188, 

200, 218, 219, 220, 228 
National Firearms Act, 123, 128, 188 
National Industrial Recovery Act, 

119, 120, 121 
National Office, construction of, 110, 

113, 114, 116, 117 
National Office, designation of, 158 
National Office, renovation of, 189, 

199 
National Tax Foundation, 132, 145, 

168, 191,214,232 
National Treasury Employees 

Union (NTEU), see also National 

Association of Internal Revenue 

Employees, 202, 206, 207, 208, 

209, 229 
National Wage Stabilization Board, 

140, 141 
Navigation Act, 12 
Nebraska, 62, 69, 77, 85 
Ness, Elliott, 113 
Net Worth, 137, 160 
Nevada, 62, 63, 67, 85, 97, 101, 222 
Neville, John, 18 

New Hampshire, 33, 54, 67, 85, 212 
New Jersey, 12, 33, 54, 55, 85, 114, 

152, 165, 179, 183 
New Mexico, 62, 85, 97 
New Plymouth Colony, 12 



263 



New York, 34, 38, 47, 48, 52, 54, 55, 

57,58,61,62,64,69, 105, 115, 

124, 126, 137, 149, 150, 151, 152, 

154, 162, 170, 179 

New York Bank Note Company, 58 

Nixon, Richard, 190, 194, 196, 197, 

200 
North Carolina, 14, 27, 40, 41, 55, 57, 

61, 85, 86, 97 
North Dakota, 62, 77, 85, 97, 212 
Norton, Lord Frederick, 13 
"Nothing in life is certain but...", 16 
Nunan, Joseph D., Jr., 138, 141, 143 

Offers in Compromise, 122, 131, 

132, 158 
O'Hanlon, George, 235 
Ohio, 34, 47, 55, 56, 61, 85, 143, 170, 

196 
Oil, taxes on, 40, 77, 92 
Oklahoma, 64, 84, 85, 101 
Olson, James B.E., 151 
Ombudsman, 216, 229 
On-Line Entity (OLE), 234 
Operation Dry Up, 179, 183, 189 
Opium, taxes on, 66, 68, 71, 74, 76, 

79,80,85,87,89, 104, 136 
Optical Character Readers, 217, 220, 

221,222,224 
Oregon, 49, 62, 78, 85 
Organizational Studies, 140 
Organized Crime Drive, 175, 184 
Orton, William, 38 
Osborn, William H., 86, 91 
Otis, James, 12 
Owens, James I., 205, 217 

Pacific Insurance Co. v. Soule, 44 
Patton v. Brady , 78 
Payne-Aldrich Tariff Act, 81, 82, 86 
Payne, Serano E., 77, 80, 82 
Payroll, 164, 172,233 
Penalties, 42, 46, 105, 115, 128, 146, 
229, 237 



Pennsylvania, 12, 14, 16, 18, 20, 25, 

27, 33, 35, 47, 48, 53, 54, 55, 56, 

62,85,97, 165, 173, 179 
Peoples, Charles J., 231, 236 
Perfume, taxes on, 33 
Personnel Policies, 143, 144, 173 
Peterson, Shirley D., 237 
Philcox, Henry H., 232 
Philippine Islands, 78, 82, 123, 129 
Pitt, William, 20 
Planning, long-range, 139, 144, 162, 

165, 167, 183, 185,217,221,222, 

224, 229 
Playing Cards, taxes on, 33, 71, 92 
Pleasanton, Alfred, 47, 48 
Pollock v. Farmers' Loan and Trust 

Co., 71,72 
Practitioners, 108, 156, 161, 200 
Pratt, Daniel D., 53, 55 
Presidential Election Campaign 

Check Off, 200, 205 
Privacy Act, 206, 207 
Private Letter Rulings, 156, 158, 

160, 206 
Problem Resolution Program, 210, 

213,216 
Processing of tax returns, 106 
Prohibition, 53, 57, 80, 82, 91, 93, 97, 

98, 100, 103, 105, 106, 107, 108, 

117, 118, 119, 120, 121 
Prohibition Party, 46 
Prohibition Unit, 98, 100, 101, 102, 

104, 105, 113, 116 
Public Debt Act, 136, 138 
Public Debt, contributions to 

reduce, 220 
Public Salary Tax Act, 132 
Public Utilities, taxes on, 33, 91 
Publication 1, 230 
Puerto Rico, 91 



264 



Quality Programs, 166, 208, 221, 223, 

229, 231, 233, 237 
Quarterly Payments, 

see Installments 
Quotas, 143, 153, 166, 175 

Railroads, taxes on, 33 

Railroad Unemployment Insurance 

Act, 131 
Railroad Retirement Tax Act, 130 
Raum, Green B., 56, 57, 58, 61 
Reading Room, 186 
Reagan, Ronald, 221 
Reciprocal Trade Agreement Act, 

122 
Refunds, 36, 42, 45, 66, 78, 1 17, 131, 

145, 178,218,219 
Regional Offices, 154, 155, 156, 157, 

179, 182, 184, 221, 229 

Atlanta, 166, 174 

Central, 157, 179 

Mid-Atlantic, 155, 182, 218, 220 

Midwest, 155 

North Atlantic, 182 

Northeast, 155 

Southeast, 155, 173, 182, 184, 187, 

211 

Southwest, 155, 178, 191 

Western, 157 
Regulatory Taxes, 66 
Relatives, employment of, 58 
Remittance Processing System, 212 
Reorganization Plan No. 1, 154, 155, 

163 
Research Conferences, 220, 222, 

223, 224, 233, 236, 238 
Returns, copies of, 115 
Revenue Agents, 36, 37, 48, 53, 57, 

59, 63, 92 
Revenue Agents-In-Charge, 101, 

105, 113, 114, 121, 124, 128, 129 
Revenue Commission, U.S., 37, 38, 

40 
Revenue Marine Service, 16 
Revenue Officers, 41, 194, 238 



Revenue Stamps, 34, 37, 43, 44, 45, 
56, 57, 58, 59, 60, 66, 69, 70, 75, 
76, 77, 79, 87, 88, 89, 90, 157, 166, 
186 

Rhode Island, 12, 14, 31, 33, 52, 67, 
97,212 

Rollins, Edward, 38, 41, 43, 44, 45 

Roosevelt, Franklin, 119, 126, 128, 
130, 133, 138 

Roosevelt, Theodore, 79, 80, 82 

Roper, Daniel C, 91, 98, 100 

Rothwell, Gregory D., 236 

Rulings, Revenue, 99, 101 

Ruttle, Patrick J., 209 

Safety Programs, 166 
Salary, Commissioner, 20, 22, 23 
Salary, employees, 34, 53, 59, 63 
Salary, federal officers, taxes on, 40, 

71 
Salary, Judges, taxes on, 46, 87, 90, 

132 
Salary, President, taxes on, 87, 90, 

119 
Salary, State Officials, taxes on, 87, 

90 
Salary, Storekeepers, 45 
Salary Stabilization Act, 136 
Sales Taxes, 23, 24, 46, 96, 101, 1 19 
Salt, taxes on, 22 
Schenck, Robert, 46 
Scholey v. Rew, 53 
Schoeneman, George J., 142, 150, 

151 
Scott, Nathan B., 75, 76 
Securities, U.S., taxes on, 31 
Seizures, 36, 40 
Senior Deputy Commissioner, 228, 

234 
Service Center Replacement 

System, 213, 216, 218, 220, 222, 

223 



265 



Service Centers, 161, 166, 176, 179, 
180, 182, 184, 194, 200, 201, 207, 
208,212,220,222 
Andover, 184, 189,210,228 
Atlanta, 172, 174, 176, 178, 185, 

190, 209 
Austin, 177, 179, 180, 190, 197, 

199, 206 
Brookhaven, 192, 196, 198 
Cincinnati, 177, 180, 186, 189, 

196, 220, 233 

Fresno, 192, 196, 198, 210, 217, 

221 
Kansas City, 161, 168 
Lawrence, 161, 184 
Memphis, 192, 194, 196, 197, 198, 

218 
Midwest, 162 

Northeast, 162, 165, 172, 175 
Ogden, 162, 164, 168, 183, 189, 

197, 221, 232, 237 
Philadelphia, 173, 176, 178,179, 

210 

Western, 162, 172 
Shashy, Abraham N.M., Jr., 232 
Shay's Rebellion, 15 
Silver Purchase Act, 123, 124 
Simmons, James F., 31 
Simplification, calls for, 119, 138 
Slaves, taxes on, 20, 23, 27, 35 
Small Businesses, taxes on, 78, 202, 

207, 237 
Smietanka v. Indiana Steel 

Company, 103 
Smith, Walter H., 40 
Smith, William S., 170 187 
Smyth, James F., 151 153 
Snuff, tax on, 18, 19, 22, 48, 59 
Snyder, John W., 151 
Social Security, 127, 129, 130, 131, 

132, 137, 139, 148, 160, 162, 164, 

171, 173,211 
Social Security Division, 127 
Social Security Numbers, 175, 183, 

189,207,230 



Solicitor of Internal Revenue, 

see Chief Counsel 
Solicitor of the Treasury, 25, 26, 46 
Songs, 184 
South Carolina, 25, 26, 32, 35, 38, 41, 

46, 55, 57, 67, 85, 86, 102, 165, 179 
South Dakota, 62, 77, 85 
Spanish, tax information in, 199 
Special Advisory Commission, 118, 

120 
Special Commissioner of the 

Revenue, 46 
Special Services Staff, 190, 191, 201 
Sperry-Univac Computers,, 222 
Springer v. United States, 60 
Stamp Act, 13 
Stamp Taxes, 19, 22, 23, 33, 34, 37, 

40, 41, 42, 48, 49, 52, 60, 66, 68, 

75, 77, 88, 123, 145, 148 
Standard Deduction, 134, 138, 197 
Stanton v. Baltic Mining Co., 91 
STAR (Storage and Retrieval of 

Images of Returns), 196 
State/Federal Cooperation, 127, 130, 

148, 163, 185, 199, 238 
State income taxes, 27, 82 
State inheritance taxes, 74, 76, 103 
Statistics of Income, 90, 93, 103, 112, 

161, 164, 178 
Statute of Limitations, 48, 124 
Strategic Business Plan, 229 
Strategic Management System, 222, 

229 
Stevens, Thaddeus, 35 
Stocks, taxes on, 90 
Storekeepers, 45, 56, 60, 71, 100, 148 
Subchapters, 165, 167 
Subversive Organizations, 148 
Sugar Act, 13 
Sugar, bounty on, 46, 68, 69, 71, 72, 

74 
Sugar, taxes on, 18, 22, 30, 129, 134, 

138, 141 
Suggestions, 141, 190 
Superintendent of Stamps, 22 



266 



Surtax, 86, 90, 91, 96, 102, 105, 119, 
127, 128, 132, 136, 190 

Taft, William Howard, 81, 82 
Taney, Roger, 26 
Tariff Commission, U.S., 90 
Tariffs, protectionist, 24, 25, 26, 68, 

86, 102 
Tax Administration System, 186, 

191,201,207,210,212 
Tax Code, predecessor to, 59 
Tax Counseling for the Elderly, 213 
Tax Court, 104, 107, 136, 191, 204 
Tax Freedom Day, 117, 132, 145, 

167, 191, 214, 232 
Tax Gap, 104,213 
Tax Model, 172 

Tax Practitioners, 63, 90, 153, 209 
Tax Processing System Redesign 

Staff, 220, 221 
Tax Protestors, 213, 235 
Tax Simplification Board, 102, 104 
Tax System Modernization 

Manager, 236 
Tax System Redesign, 201, 221, 223, 

224 
Tax Tables, 195, 197, 207, 208, 217 
Tax Treaties, 161, 163, 188, 210 
"Taxation Without 

Representation...", 12, 13 
Taxpayer's Bill of Rights, 213, 230, 

231 
Taxpayer Compliance Measurement 

Program, 177 
Taxpayer Identification Number, 

175, 234 
Taxpayer Service, 87, 92, 99, 133, 

138, 139, 144, 165, 167, 168, 172, 

175, 176, 179, 185, 186, 197,200, 

204,208,211,212,229,230 
Taylor, Mary E., 185 
Tea Act, 14 
Tea, taxes, 30 

"Teaching Taxes", 156, 177, 230 
Telegraphs, taxes on, 88, 92, 96, 119 



Telephones, taxes on, 88, 92, 96, 

119, 171 
Telephones, toll-free, 183, 185, 197, 

204, 208 
Tele-Tax, 220 
Tennessee, 40, 43, 55, 56, 58, 62, 80, 

85, 103, 152 
Tennessee v. Davis, 59 
Terry, Robert H., 171,201 
Texas, 38, 42, 53, 69, 85, 101, 102, 

103, 114, 154,217,235 
Threats Against Revenue Agents, 

45, 57, 58, 60, 63, 64, 67, 68, 69, 

70, 71, 72, 74, 75, 76, 77, 79, 82, 

84, 85, 86, 87, 89, 198 
Thrower, Randolph W., 190, 196 
Tobacco, taxes on, 23, 33, 36, 37, 40, 

42, 43, 44, 47, 48, 50, 52, 53, 59, 

60,61,68,74,75,77,78,88, 123, 

139, 153, 162, 184 
Townshend Acts, 13 
Training Programs, 92, 126, 158, 

163, 164, 165, 170, 171, 174, 175, 

178, 183, 185, 186 
Treasurer, United States, 14 
Treasury Department Building, 23, 

26, 27, 37, 45, 198 
Treasury Multi-Users Acquisition 

Contract (TMAC), 236, 238 
Truman, Harry S., 141, 150, 152, 154 
TRW, Inc., 236 
Tucker Act, 66 
Twain, Mark, 37 

Understanding Taxes, 

see "Teaching Taxes" 
Underwood, Oscar W., 86 
Underwood-Simmons Tariff Bill, 86 
Undistributed Income, taxes on, 

128, 132 
United States v. Butler, 128 
United States v. Johnson, 137 
United States v. Joseph Adams, 122 
United States v. Paepke, 210 
United States v. Perkins, 74 



267 



United States v. Ranier Brewing 

Co., 94 
Univac Computers, 216, 218 
Unjust Enrichment Tax, 128, 132 
"Untouchables, The", 168 
Upward Mobility, 204 
Utah, 62, 63, 67, 69, 97, 162, 212, 221 

Valuation Division, 117, 118, 126 
VanAlfen, Judy K., 236 
Veazie Bank v. Fenno, 45 
Vermont, 30, 33, 52, 54, 67, 69, 85, 

97,200,212 
Veto, of tax bills, 138, 141, 171 
Victory Tax, 136, 137, 138 
Vinegar, 59 
Virginia, 27, 40, 43, 53, 56, 57, 62, 67, 

100 
Volstead Act, 98 
Volunteer Income Tax Assistance 

(VITA), 196, 233 
Voorhees, Daniel W., 71 



Wilson, George W., 76, 77 
Wilson Tariff Bill, 70, 71 
Wilson, William L., 70 
Wilson, Woodrow, 85, 86, 88, 91, 93, 

98 
Windfall Profits Tax, 128, 130, 132, 

216 
Wisconsin, 34, 48, 63, 85, 97, 130, 

151, 155 
Withholding, 18, 33, 36, 71, 87, 90, 

92, 113, 119, 130, 137, 148 184, 

201 
Withholding, interest and dividends, 

71, 149 
Withholding, payroll taxes, 127, 130 
Women, in IRS workforce, 34, 99, 

106, 185, 187,200,201,207,211, 

231,233,236 
Woodbury, Levi, 26 
Wool Act, 12 

Works Progress Administration, 127 
Wyoming, 62, 85, 97, 212 



Wagering Tax, 152, 158,208 
Walters, Johnnie M., 196, 200 
Washburn, Marshall V., 237 
Washington, 62, 78, 85 
Washington, George, 14, 15, 18, 19 
Ways and Means Committee, 16, 17, 

24, 30, 341, 32, 36, 42, 46, 47, 69, 

70, 75, 77, 105, 119, 126, 130, 138, 

149, 163, 190 
Weddick, John L., 228 
Wells, David A., 37, 45 
Wenzel, Robert, 237 
West Virginia, 40, 56, 62, 85, 171, 

173,236 
Westfall, Larry G., 236 
Whiskey Rebellion, 17, 18, 19 
Whiskey Ring, 54 
Williams, John J, 150. 
Williams, William E., 204, 217 
Williams, William M., 100, 102 
Willis-Campbell Act, 103 
Wilmot, David, 27 



Yerkes, John W., 77, 80 

16th Amendment, 23, 72, 75, 80, 81 
82, 85, 90 



268 



By Date 

January 1: 33, 52, 53, 54, 57, 63, 75, 
99, 102, 106, 113, 121, 126, 127, 
130, 139, 148, 160, 170, 176,177, 
179, 182, 184, 185, 187, 194, 
198,204,209,210,211,221 

January 2: 47, 48, 70, 112, 149, 163, 
209, 235 

January 3: 47, 55, 149 

January 4: 16, 182,216 

January 5: 55, 87, 207 

January 6: 128, 172,230,236 

January 7: 55, 87, 100 

January 8: 32, 55, 70, 154, 170, 179, 
218 

January 9: 16,23,55,85, 156 

January 10: 154, 232 

January 11: 71, 77, 121, 170, 200, 218 

January 12: 

January 13: 236 

January 14: 130, 141, 154, 216, 235 

January 15: 112, 149,235 

January 16: 19, 100, 117, 121 

January 17:87, 121,223 

January 18: 23, 121, 172, 187 

January 19:47, 71, 104 

January 20: 47, 55, 128, 172, 190 

January 21: 24, 27, 32 

January 22: 16, 126, 138, 172 

January 23: 219, 230 

January 24: 136, 177,223 

January 25: 40, 72, 182 

January 26: 100,217 

January 27: 

January 28: 24, 67, 72 

January 29: 52, 70, 144 

January 30: 70, 74, 93, 154, 200, 232 

January 31: 19,77,80, 115,200 

January: 13, 15, 20, 35, 60, 69, 77, 96, 
108, 130, 138, 149, 156, 160, 182, 
187, 190, 194, 196, 207, 213, 221, 
222, 223, 232 



February 1: 52, 55, 70, 102, 113, 117 
February 2: 24, 35, 237 
February 3: 43, 85, 96, 237 
February 4: 80, 157 
February 5: 44, 150 
February 6: 84, 148 
February 7: 47, 148, 161, 172 
February 8: 30, 53 
February 9: 37, 57, 80, 118 



60,79,89, 118, 128, 131 
118, 163, 170, 179 
118, 154 
42,52,69,96, 115, 118 

78 



121, 176 

230 

190 

22, 142, 150 

15, 72, 148, 208 

138, 232 

66 

96, 108, 138 

35, 42, 67, 85, 138 

27, 112, 126, 170, 179, 



February 10 
February 11 
February 12 
February 13 
February 14 
February 15 
February 16 
February 17 
February 18 
February 19 
February 20 
February 21 
February 22 
February 23 
February 24 
February 25 
February 26 

209 
February 27: 24, 40, 121, 150, 223 
February 28: 42, 76, 121, 150 
February 29: 
Feburary: 15, 32, 40, 42, 96, 97, 100, 

104, 176, 180, 194, 206, 213, 216, 

223, 228 

March 1: 15, 42, 47, 48, 53, 57, 59, 

69,72,76,84,89,97, 100, 112, 

126, 130, 138, 176,216 
March 2: 25, 30, 42, 67, 68, 72, 77, 

79,84,91,230 
March 3: 17, 19, 22, 24, 25, 26, 32, 

35,37,53,57,59,61,66,68,91, 

128, 222 
March 4: 15, 22, 35, 45, 74, 85, 102, 

231 
March 5: 13,43, 116 



269 



March 6: 48, 100 

March 7: 37, 72, 126, 133, 136, 141 

March 8: 72, 78, 139 

March 9: 74 

March 10:45, 104, 120 

March 11:45,72, 100, 141,216 

March 12:45,72, 115,200,228 

March 13: 60, 72, 84, 97, 118, 154, 

172 
March 14:40, 106, 116,217 
March 15:72, 154, 165,220 
March 16: 117, 148, 165, 184,230 
March 17:80,84, 154 
March 18: 13,35,84, 108 
March 19:20,63, 161 
March 20: 64, 67, 69, 150 
March 21: 67, 77, 218 
March 22: 119 
March 23: 142 
March 24: 23, 66, 230 
March 25: 81, 139, 141,235 
March 26: 17,43 
March 27: 112, 121, 128, 235 
March 28: 58, 136 
March 29: 81, 170 206 
March 30: 64, 172 
March 31: 43, 100, 160, 173, 182 
March: 20, 43, 57, 60, 93, 105, 131, 

154, 166, 186, 192, 213, 218, 235, 

237 

April 1: 36, 47, 52, 53, 97, 100, 105, 
106, 113, 116, 126, 129, 130, 138, 
140, 144, 148, 180, 190, 204, 211, 
230 



April 


2: 


25, 


71, 142, 


176 


April 


3: 


43, 


173 




April 


4: 


93, 


150 




April 


5: 


46, 


173, 198 




April 


6: 


22, 


74, 228 




April 


7: 








April 


8: 


72, 


86 




April 


9: 


77, 


85 




April 


K 


):32 


!, 67, 115, 


128, 157,231 


April 


1 


:ZA 


K 102 





April 12: 78, 86, 115, 132, 150, 232, 

235 
April 13:84,89,200 
April 14:36,45, 170 
April 15:72,81, 160 
April 16:37,77, 105 
April 17:76,84 
April 18:23,69,220 
April 19:69 
April 20: 25, 173 
April 21: 76, 122, 190,223 
April 22: 142 
April 23: 22, 133, 233 
April 24: 33, 40, 76, 108, 194 
April 25: 72, 75, 97, 233 
April 26: 43, 46, 129, 130 
April 27: 24, 37, 86, 136,237 
April 28: 69, 81, 86, 136 
April 29: 
April 30: 15, 22, 43, 61, 77, 80, 112, 

200, 224, 233 
April: 14, 35, 45, 58, 64, 100, 105, 

143, 144, 154, 157, 170, 182, 187, 

190,206,209,211 

May 1: 48, 61, 69, 97, 100, 1 15, 126, 

161, 176,204 
May 2: 108, 173 
May 3: 71 
May 4: 

May 5: 16,60,69,74, 184,209 
May 6: 72, 74, 108 
May 7: 72, 81, 150 
May 8: 17,72,86 
May 9: 40, 78, 87 
May 10: 14, 113, 122 
May 11: 109 

May 12: 119, 129, 190,237 
May 13: 235 
May 14: 53, 77, 89 
May 15: 25, 53, 104, 121, 154, 180 
May 16: 106, 224 
May 17:38,63, 177 
May 18:53, 122, 128,228 
May 19:40, 164,230 



270 



May 20: 52, 76, 115, 155,237 

May 21: 61, 67, 194,228 

May 22: 

May 23: 104, 106, 113 

May 24: 113, 129,220 

May 25: 140, 200 

May 26: 104, 106, 113 

May 27: 80, 93, 102, 208 

May 28: 19, 60, 130, 237 

May 29: 25, 85, 105, 115, 130, 141 

May 30: 38, 224 

May 31: 18,79, 114, 116,221 

May: 22, 26, 46, 81, 86, 100, 102, 105, 
109, 118, 149, 150,157, 166, 171, 
173, 182, 184, 186, 188, 190, 194, 
198, 208, 209, 211, 213, 220, 221, 
224 

June 1: 19,48, 52, 55, 57, 80, 93, 117, 

129, 173, 176,216,233 
June 2: 38, 106, 113, 160 
June 3: 74, 235 
June 4: 35, 122 

June 5: 18,38,80,93, 118, 184 
June 6: 30, 48, 74, 118, 121, 141, 188, 

224 
June 7: 32, 76, 79, 97, 231 
June 8: 43, 49 
June 9: 14, 18, 137, 138 
June 10:26, 114, 119, 182 
June 11: 141 

June 12: 122, 131, 157,217 
June 13: 75 
June 14: 143 
June 15:61,209 
June 16: 81, 105, 107, 117, 118, 119, 

124,200 
June 17:81, 117, 166,236 
June 18:52,57, 123,236 
June 19:57,58, 105, 123, 126 
June 20: 138,231 
June 21: 16, 116, 182 
June 22: 38, 46, 52, 128, 196 
June 23: 119 
June 24: 166 



June 25: 61, 84, 131, 132, 161, 166 
June 26: 123, 128,216 
June 27: 75, 78, 97, 150 
June 28: 81, 123, 171, 188,219 
June 29: 13,85, 116, 129, 132 
June 30: 32, 36, 37, 46, 66, 67, 89, 
107, 123, 126, 131, 133, 138, 141, 
143, 150, 160, 164, 166, 171, 173, 
176, 178, 182,204,206,230 
June: 26, 30, 38, 80, 93, 96, 1 19, 141, 
157, 161, 178, 186, 194, 196,217, 
219, 220, 228, 237 

July 1: 33, 38, 48, 52, 57, 60, 61, 67, 
69, 77, 78, 79, 81, 88, 98, 100, 101. 
102, 109, 113, 114, 116, 117, 129, 
131, 132, 133, 137, 142, 150, 155, 
157, 158, 161, 171, 178, 183, 196, 
198, 200, 204, 206, 228, 231 

July 2: 107, 118, 143, 150, 211, 228, 
233 

July 3: 33, 71 

July 4: 14, 15,30,36,79 

July 5: 76, 81,90, 120,231 

July 6: 19, 186 

July 7: 63, 158, 164, 173,231 

July 8: 82 

July 9: 20, 30, 120, 158, 196 

July 10:90, 180, 194 

July 11: 155 

July 12: 82, 194 

July 13:41,74 

July 14: 20, 26, 33, 46, 173 

July 15: 18, 107, 186, 228 

July 16: 18, 20, 30, 41, 60, 88, 107, 
140, 150 

July 17: 18,30,33, 140 

July 18: 178, 184, 190 

July 19: 13,30, 116, 118, 150 

July 20: 15,43,60, 171 

July 21: 59, 61, 80, 204 

July 22: 22, 123 

July 23: 30, 44, 77, 196 

July 24: 16, 22, 30, 74 

July 25: 31, 61, 140,231 



271 



July 26: 113,231 

July 27: 75, 231 

July 28: 41, 114,228 

July 29: 31, 33 

July 30: 33, 44, 160,224 

July 31: 16, 55, 63, 82, 126, 139, 151, 

231 
July: 26, 69, 98, 114, 123, 162, 173, 

174,183,184,186,207,211,216, 

231,237 

August 1:33,41,54,61,86, 101, 113, 

114, 151, 162, 171 
August 2: 23, 56, 66 
August 3: 41,45 

August 4: 102, 134, 151, 155, 224 
August 5: 31, 44, 82 
August 6: 33, 196 
August 7: 18, 60, 62, 74, 190 
August 8: 33, 48, 60, 71, 151, 184 
August 9: 48, 58, 102, 134 
August 10:62, 82, 132 
August 11: 33, 155 
August 12: 33, 222 
August 13: 49, 201,217 
August 14: 67, 127 142 
August 15: 33, 56, 62, 1 18, 196, 233 
August 16: 160 
August 17:58, 85, 151 
August 18: 88, 105 
August 19: 33, 129, 197 
August 20: 62, 118,233 
August 21: 
August 22: 33 
August 23: 145 
August 24: 23, 217 
August 25: 14,33, 183 
August 26: 27, 33, 113, 129 
August 27: 33, 76 
August 28: 71, 148, 164 
August 29: 134, 151 
August 30: 127,228 
August 31: 44, 54, 82 



August: 33, 41, 58, 76, 127, 142, 145, 
151, 171, 174, 197,204,207,213, 
219,224,228,231,233,237 

September 1: 33, 37, 41, 43, 62, 78, 

82,86, 107,120, 127, 129, 140, 

148, 160, 171, 174 
September 2: 16,82, 164, 180 
September 3: 15, 131,219 
September 4: 88, 233 
September 5: 14, 62 
September 6: 17,45,90, 132 
September 7: 

September 8: 56, 80, 90, 171, 180 
September 9: 76, 86, 90, 233 
September 10: 14, 151,229 
September 11:16 
September 12: 123 
September 13: 171, 174, 178 
September 14: 89, 132, 151 
September 15: 174 
September 16: 35, 56, 93, 229 
September 17: 33 
September 18: 
September 19: 15, 174,233 
September 20: 56, 134,204 
September 21: 166 
September 22: 164, 166, 194 
September 23: 148 
September 24: 18 
September 25: 67, 91, 124 
September 26: 79, 91 
September 27: 14, 151, 174 
September 28: 118,207 
September 29: 

September 30: 19, 41, 143, 158, 164 
September: 23, 124, 127, 139, 143, 

151,158,162,171,174, 186, 188, 

230 

October 1: 33, 46, 49, 54, 62, 66, 68, 
85,88,98, 124, 127, 130, 151,211, 
213,220,221,230 

October 2: 26, 56, 74, 136 

October 3: 86, 89, 91, 151 



272 



October 4: 58, 151, 161, 208, 233 


November 11: 


3 


October 5: 151 




November 12: 98, 113, 155, 166 


o 

en 


October 6: 71, 118, 155 




November 13: 16, 19, 184 


X 


October 7: 140 




November 14: 145, 153, 197, 223, 




October 8: 116, 133, 136, 137, 


140 


236 


Vdi 


October 9: 137, 140 




November 15: 14, 52, 120, 140, 172, 




October 10: 91, 120, 151, 171 




188,233,236 




October 11:56, 152,231 




November 16: 120, 121, 134, 233 




October 12:67 




November 17: 




October 13: 63, 211 




November 18: 155, 236 




October 14: 




November 19: 153, 155, 224, 238 




October 15: 59, 101, 152, 197 




November 20: 224, 238 




October 16: 177 




November 21: 93, 114,224 




October 17: 118, 133,231 




November 22: 23, 79 




October 18: 




November 23: 44, 102, 103, 109 




October 19: 101, 109, 152 




November 24: 167 




October 20: 152 




November 25: 80 




October 21: 136, 152, 155,224 




November 26: 74, 190 




October 22: 87, 88, 143, 188, 224 


November 27: 74, 77, 221 




October 23: 88, 152, 155, 174, 237 


November 28: 




October 24: 152, 177,237 




November 29: 77, 153 




October 25: 233 




November 30: 75, 109 




October 26: 14, 194 




November: 41, 63, 66, 108, 149, 158, 




October 27: 98, 229 




174, 191, 197, 220, 223, 229, 234 




October 28: 98 








October 29: 




December 1: 41, 48, 53, 54, 57, 88, 




October 30: 149 




92, 98, 108, 109, 156, 164, 236 




October 31: 38, 46, 140, 152, 161, 


December 2: 31, 204 




216 




December 3: 




October: 35, 69, 79, 109, 114, 


140, 


December 4: 74, 236 




152, 164, 171, 174, 183, 188 


194, 


December 5: 153, 161, 236 




195, 198,212,213,223,224 


233 


December 6: 24, 120, 160, 229 





November 1: 13, 38, 52, 54, 57, 85, 

87, 88, 92, 109, 124, 130, 137, 142, 
152, 188, 230 

November 2: 44, 60, 152, 184 
November 3: 70 
November 4: 
November 5: 89, 164, 180 
November 6: 14,72, 153, 174 
November 7: 153 
November 8: 98, 139 
November 9: 140,212,229 
November 10: 45, 105, 230 



December 7: 153,219,231 
December 8: 92 
December 9: 70, 229 
December 10: 45, 54 
December 11: 136, 153,236 
December 12: 77, 140 
December 13: 88, 101, 149 
December 14: 101 
December 15: 19, 23, 41, 54, 101, 

161 
December 16: 14, 101, 105, 116, 139, 

140, 145, 188 
December 17: 89, 105, 177 



273 



December 18: 113,231 
December 19: 53, 68, 70, 84, 172, 
- 184, 188, 234 

@ December 20: 45, 77, 1 75, 232 

?j^ December 21: 23 

December 22: 37, 71, 82, 98, 137, 

138, 207, 229 
December 23: 24 
December 24: 49, 82 
December 25: 33 
December 26: 134 
December 27: 49, 149 
December 28: 69, 149 
December 29: 69, 108, 172 
December 30: 191,234 
December 31:41, 75, 1 19, 120, 158, 

183, 186,205,212,234 
December: 16, 24, 30, 41, 70, 101, 

103, 129, 164, 175, 183, 208, 217, 

229, 232 



274 



*U.S. Government Printing Office : 1993 - 339-204/30360 



Department of the Treasury 
Internal Revenue Service 

Publication 1694 (12-92) 
Catalog Number 1 5087N