COMMISSIONER OF 

INTERNAL REVENUE 

NNU~L

REPORT 

1959 FOR THE FISCAL YEAR 

ENDED JUNE 30. 1959 

INTERNAL REVENUE SERVICE 

UNITED STATES 

TREASURY DEPARTMENT 
it 

EPORT ON OPERATIONS 
20, 533, 316 

38, 568, 559 

27, 040, 911 

11, 527,648 

8,644, 386 

7, 733, 223 

335, 880 

575,282 

1,410,925 

10, 814, 268 

2,946, 461 

1, 734, 021 

6, 133, 786 

7,024 

INTERNAL REVENUE 

COLLECTIONS 

NOTES 

All yearly data are on a fiscal year 

basis, unless otherwise specified. 

For example, data headed "1959" 

pertain to the fiscal year ended June 

30, 1959, and "July 1" inventory 

items under this heading reflect inventories as of July 1, 1958. 

In many tables and charts, figures 

have been rounded and therefore 

will not necessarily add to the 

printed totals which are based on 

unrounded figures. 

General 

Internal revenue collections amounted to $79,797,973,000 in the 

fiscal year 1959. This represents a decrease of $180,503,000, or 

0.2 percent, under the $79,978,476,000 collected in the previous 

fiscal year. 

Collections of individual income taxes increased by $2,166,-

185,000, or 5.6 percent, and employment tax collections increased 

by $209,358,000, or 2.4 percent. However, these increases were 

not sufficient to offset a decrease of $2,441,807,000, or 11.9 percent, in corporation income tax collections. Amounts collected 

from estate and gift taxes and from excise taxes showed only 

slight decreases from the preceding year. 

A comparison of collections by major categories follows: 

Internal revenue collections 

iln thousands of dollars. For details, see table 3, p. 1061 

Source 

Grand total I 

Income taxes, total 

Corporation 18, 091, 509 

Individual, total 40, 714, 744 

Withheld by employer 2 29, 001,375 

Others 11, 733,369 

Employment taxes, total 

Old-age and disability insurances 8, 004,355 

Unemployment insurance 324,020 

Railroad retirement 525,369 

Estate and gift taxes 1, 352, 982 

Excise taxes, total 10, 759, 549 

Alcohol taxes 3,002, 096 

Tobacco taxes I, 806, 816 

Other excise taxes 5, 950, 637 

Taxes not otherwise classified 3 5,444 

1959 1958 

79,978,476 

59,101,874 

Note.-Calendar year figures by regions, districts, States, and Territories, for sel cted types of taxe , may be obtained 

from the Public Information Division, Internal Revenue Service, Washington 25, D.C. 

I Collections are adjusted to exclude amounts transferred to the Government of Guam. For details, see table 1, p. 88, 

and footnote 5, p. 110. 

I Estimated. Collections of individual income tax withheld are not reported separately from old-age and disability 

insurance taxes on wages and salaries. Similarly, collections of individual income tax not withheld are not reported 

separately from old-age and disability insurance taxes on self-employment income. The amount of old-age and disability 

insurance tax collections shown is based on estimates made by the Secretary of the Treasury pursuant to the provisions of 

sec. 201(a) of the Social Security Act, as amended, and includes all old-age and disability insurance taxes. The estimates 

shown for the 2 classes of individual income taxes were derived by subtracting the old-age and disability insurance tax 

estimates from the combined totals reported. 

s Includes amounts of unidentified and excess collections and profit from sale of acquired property. 3 
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4 Annual Report 

The use of the depositary receipt method of paying taxes continued to expand during 1959, with depositary receipt purchases 

totaling $31,946,440,000. This represents an increase of $1,537,-

542,000, or 5.1 percent, over last year's purchases. The 1959 

depositary receipt purchases accounted for 40 percent of total 

internal revenue receipts and 71 percent of the employment taxes 

collected. In the excise tax area, nearly 89 percent of the taxes 

shown on Form 720 returns were paid by depositary receipts. 

Corporation Income Taxes 

Corporation income taxes collected during 1959 totaled $18,-

091,509,000, and accounted for about 23 percent of the total internal revenue collections. As compared with 1958, this represents a decrease of $2,441,807,000, or 11.9 percent. The decrease 

resulted from the sharp decline in corporate profits in the first 

half of calendar year 1958. 

Individual Income Taxes 

Reflecting the rise in personal incomes, collections of individual 

income tax withheld showed a gain of $1,960,464,000 and other 

individual income tax collections increased by $205,721,000. Individual income taxes accounted for 51 percent of the total internal 

revenue receipts. Withheld taxes accounted for over 71 percent 

of all individual income taxes. 

Employment Taxes 

Employment taxes collected during 1959 totaled $8,853,744,000, 

an increase of $209,358,000, or 2.4 percent, over the preceding 

year. Old-age and disability insurance taxes increased by $271,-

132,000, due mainly to the increase in the tax rate of one-fourth 

percent each on employers and employees and the increase in the 

maximum amount taxable from $4,200 to $4,800 effective January 

1, 1959. Collections of unemployment insurance taxes and railroad retirement taxes showed slight decreases. 

Other Internal Revenue Collections 

Other internal revenue collections, including estate and gift 

taxes, alcohol and tobacco taxes, other excise taxes, and taxes not 

otherwise classified, amounted to $12,117,975,000. This amount 

represents a decrease of $114,241,000, or 0.9 percent, under similar 

collections last year. Excise taxes other than alcohol and tobacco 

taxes dropped by 3.1 percent. A new system for payment of all 

Federal liquor and tobacco excise taxes by means of returns is 

described on page 43. 
RECEIPT AND PROCESSING OF 

RETURNS 

Number of Tax Returns 

In the 1959 fiscal year, 92,852,000 tax returns of all classes were 

received by the Internal Revenue Service. This was 679,000, or 

0.7 percent less than the number received in the preceding year. 

Most of the decrease occurred in individual income tax returns 

where the combined total of Forms 1040 and 1040A numbered 

59,185,000 and showed a decline of 822,000, or 1.4 percent, from 

the previous year. This decrease was due largely to economic 

factors. While the number of Forms 1040 declined by 3,859,000, 

there was an increase of 3,037,000 in the number of Forms 1040A. 

The increase in number of Forms 1040A received was due partly 

to the efforts of the Service to increase the use of this simplified 

card return form and partly to a revision in its coverage to include 

salary and wage incomes up to $10,000. In previous years, the 

Form 1040A could only be used by persons with salary and wage 

incomes under $5,000. 

Individual declarations of estimated tax numbered 6,102,000, 

which represented a gain of 107,000 from the preceding year. 

Employment tax returns filed in 1959 totaled almost 20,000,000, 

about the same number as in the preceding year. 

Major changes among other classes of tax returns were an increase of 70,000 in occupational tax returns and a decline of 

144,000 in all other excise taxes. 

7 
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Report on Operations 9 

A comparison of the number filed in fiscal 1959 with the number filed in fiscal 1958, by principal types of returns, follows : 

Number of returns filed, by principal type of return 

/Figures in thousands. For details, see table 5, p. 112 1 

Type of return 1959 1958 

Grand total 92,852 • 93, 532 

Income tax returns, total 68,593 69,202 

Individual and fiduciary, total 60,008 60, 793 

Individual—citizens and resident aliens, total 59,185 60,007 

Form 1040 41,959 45,818 

Form 1040A 17,226 14,188 

All other individual and fiduciary 824 786 

Declarations of estimated tax, total 6,120 6,015 

Individual 6,102 5,995 

Corporation 18 20 

Partnership 1,016 1,047 

Corporation I 998 971 

Other 2 451 377 

Employment tax returns, total 19, 847 19, 856 

Withheld income tax and old-age and disability insurance 18, 645 18, 618 

Railroad retirement and unemployment insurance 1,202 1,238 

Estate tax 61 54 

Gift tax 85 80 

Special occupational taxes 1,338 • 1,268 

All other excise taxes 2,928 3,071 

• Revised. 

Includes 30,000 corporation returns, Form 11205, filed in the period Jan. 1 through June 30, 1959, by small business 

corporations electing to have their undistributed taxable income taxed to shareholders. 

2 Consists principally of exempt organization returns, tentative returns, and self-employment tax returns filed in Puerto 

Rico and Virgin Islands. 

Service Centers 

Large-scale centralized machine processing of individual income 

tax returns and declarations of estimated tax was further extended 

this year both as to area served and volume of returns processed. 

The area served was extended to cover 63 districts. The Midwest Service Center at Kansas City, Mo., served all districts in 

the Atlanta, Chicago, and Cincinnati regions. The Northeast 

Service Center at Lawrence, Mass., served all districts in the 

Boston, New York, and Philadelphia regions. The Western Service Center at Ogden, Utah, served all districts in the Dallas, 

Omaha, and San Francisco regions except Honolulu. 

In addition to extended district coverage, the centers processed 

a larger portion of the individual income tax workload for districts 

served in the past and undertook the processing of other returns 

on an experimental basis to determine how they may be adapted 

to machine processing. 
10 Annual Report 

During 1959, the three service centers processed an aggregate 

of 41 million Forms 1040 and 1040A, or approximately 70 percent 

of the total number filed. 

Mathematical Verification 

During the year, 52,465,000 income tax returns of individuals 

filed on Forms 1040 and 1040A were mathematically verified. This 

was a decrease of about 9 percent from the preceding fiscal year. 

The decrease is due primarily to the fact that some verification 

originally scheduled for 1959 was performed in 1958 and to an 

increase in the number of returns made available for prerefund 

audit. In addition there was less manpower available for verification work during 1959. 

The number of error cases disclosed by mathematical verification declined by slightly more than 5 percent, as compared with 

the 9-percent decline in the number of returns verified. Among 

the error cases, the number with a tax increase declined by 7 percent, while the number with tax decreases dropped 2 percent. 

The increases averaged $73 while the average decrease was $65. 

The results of mathematical verification of individual income 

tax returns during the last 2 years are shown in the following 

table: 

Individual income tax return mathematically verified 

Item 

Type of return 

Total Form 1040 Form 1040A 

1959 1958 1959 1958 1959 1958 

Number of returns verified thousands__ 

Number of returns on which changes were 

made thousands_ 

Returns with increase: 

Number thousands__ 

Amount thousand dollars__ 

Returns with decrease: 

Number thousands.. 

Amount thousand dollars __ 

52, 465 

I, 800 

1,153 

84,688 

647 

42, 268 

57, 372 

1,904 

1,244 

107, 256 

659 

45,480 

39, 534 

1,278 

857 

62,664 

421 

25, 406 

47,919 

1,666 

1,091 

95,360 

575 

38,401 

12,931 

522 

295 

22,023 

226 

16,862 

9,454 

237 

153 

11, 897 

84 

7,078 

Information Returns 

More than 302 million information returns were received by the 

Internal Revenue Service during 1959. The majority of these, 

numbering over 200 million,' were Forms W-2 (employer's state- 

' Includes number of Forms W-2, Copy B, involved in instances where two 

or more of these forms are attached to one income tax return. This differs 

from reporting basis employed in earlier reports, which, in such instances, 

took into account only the number of "sets" of Form W-2, Copy B. 

Report on Operations 11 

ments of wages paid and tax withheld) and included both copies 

A, filed by employers, and B, filed by employees. Forms 1099 (information returns on payments of dividends, interest, and various 

other items) totaled nearly 96,000,000. The remaining information doCuments processed consisted of nearly 5,500,000 Forms 1087, 

Ownership Certificates—Dividends on Stock, and small numbers 

of other types of documents. 

Collection Activity Reorganization 

The new organizational alinement of collection division office 

branches which had been developed and tested in the Pittsburgh 

and Phoenix districts during 1958 was extended to all district 

offices prior to the 1969 filing period. The new organization establishes a balanced grouping of office functions and provides a 

straight line workflow with fewer control points and reduced 

transportation costs. An important feature is a Taxpayer Service 

Branch which provides prompt service at one central point on 

many of the inquiries and requests for assistance received from 

taxpayers. 

Continuing the development of a "Blue Ribbon" Service in all 

functional areas, a study was undertaken which has as its objective improvement in organization and management in the delinquent accounts and returns branches of the district collection 

divisions. 
ENFORCEMENT WORK 

Audit of Returns 

General.—The volume of returns examined was increased during 1959 for the fourth consecutive year, notwithstanding the fact 

that there was a slight decrease in audit personnel. The gain in 

examinations resulted from steps taken to streamline audit operations and permit more effective utilization of manpower. 

Emphasis was concentrated on audit procedures to accelerate 

the closing of older cases and assure prompt examination of returns currently filed. Savings in clerical manpower were achieved 

through expanded use of service center machine facilities in the 

preparation of questionnaires to taxpayers and in the compilation 

of audit management reports. Post-audit-review operations also 

were strengthened to provide for a more effective coordination of 

the audit work throughout the nine regions. 

A reorganization of district audit divisions was initiated which 

will redistribute middle management positions according to the 

needs of the respective offices. The audit training program was 

extended to provide for the training of office auditors, estate and 

gift tax agents, and pension trust specialists, and to provide advanced training for revenue agents. 

Studies were undertaken to determine the best possible distribution of technical personnel among the regional and district offices ; 

to improve the office audit operations in district offices by making 

guides, techniques, and related instructions available for use of 

office auditors; and to outline the duties and responsibilities of the 

regional audit staff in assisting district audit management in the 

development and execution of audit programs. 

Post-audit-review operations.—A new program has been initiated to improve the coordination of the Regional Post Review 

operations and to achieve a high level of uniformity in the application of the Code, regulations, and procedures. Information obtained will provide an improved basis for appraising the quality 

of audit work, preparing training materials, and determining the 

needs for changes in the Code or regulations. 

Report on Operations 13 

Reorganization of district audit divisions.—Changes in the organizational structure of district audit divisions were authorized 

in May 1959 to provide greater flexibility, a more effective span 

of control, and better utilization of both supervisory and technical 

personnel. The new organization provides for variations in the 

number of branches and the extent of intermediate supervision, 

to fit the size and scope of the district's audit mission. 

Returns examined.—The number of returns examined totaled 

2,888,000, representing an increase of 59,000 or 2 percent as compared with the 2,829,000 returns examined in 1958. 

A comparison of the number of returns examined during the last 

2 years follows: 

Number of tax returns examined 

/Figures in thousands) 

Type of return 1959 1958 

Grand total 

Income tax, total 

Corporation 

Individual and fiduciary 

Estate and gift tax 

Excise and employment tax , 

2,888 '2,829 

2,595 2,496 

173 

2,422 

159 

2,336 

29 

264 

28 

•106 

• Revised. 

Excludes examinations resulting in no tax change where such examination was made from the taxpayer's copies of 

returns in the course of an audit covering both income and excise and/or employment tax. The number of such "no 

change" returns thus excluded is 819,000 for 1959 and 871,000 for 1958. 

The district audit divisions also completed action on 13,678 

offers in compromise involving income, profits, estate, gift, excise 

(other than alcohol), and employment taxes. For general discussion on offers in compromise activity, see page 40. 

Fraud Investigations 

Continued emphasis on identification and completion of cases of 

substance, combined with a decrease of 3 percent in technical personnel, resulted in a decline of 5 percent in the number of fullscale investigations completed and 16 percent in the number of 

prosecution recommendations. Additional tax and penalties involved in completed cases decreased slightly as compared with 

1958, but remained well above totals for 1956 and 1957. The 

presentation to courts and juries of larger fraud cases of broad 

significance, while time consuming, is accompanied by more widespread news coverage and creates greater deterrent effect among 

would-be violators. However, in maintaining a balanced enforcement effort, cases involving the smaller, less complicated tax 

12 
14 Annual Report 

frauds, usually committed by taxpayers in the lower income brackets, are recommended for criminal action whenever the violation is 

of such flagrancy as to warrant prosecution as a felony. 

There was only a slight decrease in the number of investigations 

of applicants for enrollment to practice. This work and the investigation of charges against enrollees to practice will be transferred early in the next fiscal year to the Inspection Service, 

thereby permitting the Intelligence Division to devote its efforts 

exclusively to the identification and investigation of possible tax 

fraud violations. 

A comprehensive training program for special agents was developed which is aimed at bringing the newly appointed special 

agent into production more quickly and at improving the performance of incumbent special agents (see p. 70) . 

A summary of investigations by special agents follows : 

Tax fraud and other investigations completed by Intelligence Division 

Type 1959 1958 

Grand total 25,417 25,923 

Suspected fraud and miscellaneous type cases investigated: 

Unnumbered (preliminary) investigations, total 14, 237 14, 416 

Fraud 12,360 12,736 

Wagering 1,499 1,247 

Coin-operated gaming devices 242 306 

Miscellaneous 136 127 

Numbered (full-scale) investigations, total 3,969 4,184 

Prosecution recommended, total 1, 640 1, 946 

Fraud 1,026 1,280 

Wagering 514 547 

Coin-operated gaming devices 66 88 

Miscellaneous 34 31 

Prosecution not recommended, total 1,399 1, 426 

Fraud 1,251 1,254 

Wagering 89 75 

Coin-operated gaming devices 41 83 

Miscellaneous 18 14 

Investigations discontinued, total 930 812 

Fraud 889 748 

Wagering 31 52 

Coin-operated gaming devices 10 12 

Other investigations, total 7,211 7,323 

Applications for admission to practice before the Treasury Department 

Charges against enrollees to practice 

1 7,160 

51 

7,241 

82 

I In addition to the applications for admission to practice before the Treasury Department, there were 3,698 renewal 

applications processed and renewal cards issued during fiscal year 1959. 

Report on Operations 15 

Federal-State Cooperation 

Further steps were taken to develop the program for coordination of Internal Revenue and State tax enforcement efforts. The 

potential value of joint uses of information by both jurisdictions 

is receiving wider recognition. More States have shown an interest in obtaining the adjustments made in Federal audit of tax 

returns. State efforts to reciprocate, but not their willingness, 

have been limited in a number of respects, particularly in the audit 

area. Because the Revenue Service cannot reach all returns needing audit, it has encouraged State tax authorities to develop supplemental audit programs geared to the Federal limitations. It 

has been found also that the States can provide many auxiliary 

types of information that may be useful in Federal enforcement. 

All existing exchange relationships between Internal Revenue 

field offices and State tax administrators, which still predominantly reflect informal arrangements made on a local basis, are 

being carefully reviewed. This review is intended to bring out 

ways in which improved planning would facilitate expansion of 

the benefits that may be obtained from exchange of information 

and assistance. 

The recent rapid adoption of mechanized systems by the States 

has provided a broader opportunity for meshing sources of tax 

information. For example, one State recently carried out a mechanical match of its sales tax returns and Federal income tax 

returns, with gratifying results. It is expected that the interchangeability of data on taxpayers will have more scope as systems 

for rapid data processing develop. 

Alcohol and Tobacco Tax Program 

This was the second complete year for the new enforcement 

program which continues to produce very tangible results in the 

effort to combat production and sale of illicit alcoholic beverages.. 

This program places primary emphasis on— 

(1) a concentrated drive to detect and prosecute organized 

groups of large-scale operators ; 

(2) the extension of investigations and the planning of raids 

so as to arrest groups of violators together (more arrests 

per seizure) ; 

(3) an intensified raw materials preventive program. 

Field and case reports show marked success in the efforts to detect and prosecute large-scale violators. In connection with the 

second area of emphasis, the percentage of stills seized with defendants increased over the past two years by more than one-third. 
C•4 

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Item 

Seizures: 

Stills number_ 

Nontaxpaid distilled spirits gallons__ 

Nontaxpaid wines do__ 

Mash do___ 

Vehicles number__ 

Property (appraised value) dollars 

Arrests l number 

1959 1958 

9,225 9,272 

225, 232 216, 216 

4, 301 7, 448 

4,655, 572 5,140, 846 

3,193 3,778 

2,910,912 3, 403, 778 

10,912 11,631 

16 Annual Report 

The pressure of the preventive raw materials program, the 

third area of emphasis, caused increasing disruption of the "moonshiner's" traditional sources of supply. The cost of sugar used in 

the manufacture of nontaxpaid distilled spirits rose to a level exceeded only during World War H sugar rationing. Substitutes are 

frequently used and major violators often have several employees 

whose only duty is to make small retail sugar purchases and accumulate enough to operate. Consequently, the uninterrupted operation of the larger stills is the exception, not the rule. 

The success of the new enforcement program is indicated in the 

unusual interest of the courts and the U.S. attorneys as evidenced 

by their many favorable comments on the soundness of the program, more successful convictions, and the imposing of longer 

sentences for violation of Federal liquor and raw materials laws. 

Seizures for violations of alcohol, tobacco, and firearms tax 

laws decreased generally, and arrests decreased also during the 

year. As compared with the preceding year, the seizure of stills 

decreased only nominally; seizures of nontaxpaid distilled spirits 

increased by 4 percent; and the appraised value of property seized 

decreased 12 percent, from $3,403,778 to $2,993,054. The number 

of vehicles seized decreased 1 percent, from 3,229 to 3,193. 

Seizures of nontaxpaid wines decreased from 7,448 gallons to 

4,301. 

The number of arrests decreased from 11,631 to 10,912, including 42 arrests for tobacco tax violations and 597 arrests for firearms violations. 

A comparison of seizures and arrests follows : 

Seizures and arrests for alcohol, tobacco, and firearms violations 

Note.—Includes seizures and arrests in cases adopted, as well as originated by the Alcohol and Tobacco Tax Division. 

l Includes 42 arrests for tobacco tax violations and 597 arrests for firearms violations in 1959, and 9 a rests for tobacco 

tax violations and 513 arrests for firearms violations in 1958. 
694 

4,166 

416,704 493,535 

4,744 5,689 

1958 

7,076 

4,173 

5,560 

18 Annual Report 

Action under the Liquor Enforcement Act of 1936 (now 18 

U.S.C. 1261, 1262, 3615) against persons attempting to import 

liquor into the State of Oklahoma resulted in 28 arrests and the 

seizure of 1,367 gallons of taxpaid liquor and 20 vehicles, valued 

at $42,952. This act ceased to apply to any State, upon the repeal 

of the Oklahoma Prohibition Ordinance and the enabling act by a 

- vote of the electorate on April 7, 1959, and the signing of the House 

Bill 825 of the Oklahoma Legislature, on June 23, 1959, by the 

Governor. 

During the year, 4,459 case files were examined in connection 

with preparation and submission to the wardens of Federal institutions under the jurisdiction of the Bureau of Prisons, Department of Justice, of background information required by prison 

officials and pardon and parole boards for classifying persons 

serving sentences resulting from convictions in alcohol, tobacco, 

and firearms cases, and/or considering applications from such 

persons for pardon and parole. 

Firearms Program 

During 1959, registration of firearms totaled 52,156 compared 

with 9,254 in 1958. This substantial increase in registrations resulted from the importation in 1959 of large quantities of rifles 

which, because of their barrel length of less than 18 inches, are 

subject to the provisions of the National Firearms Act. Investigational work under the National and Federal Firearms Acts, and 

the Act of August 9, 1939 (49 U.S.C. 781), resulted in 597 arrests, 

the seizure of 161 vehicles, the seizure of 887 firearms, and the 

completion of 611 criminal prosecution cases. 

Report on Operations 19 

Rewards to Informers 

Individuals who sought rewards as informers submitted 4,157 

claims during 1959. Of the year's receipts and those still on hand 

at the end of the prior year, 5,102 were closed. A majority of the 

claims closed were disallowed either because they could not be 

substantiated or because they did not fulfill the eligibility requirements of the regulations. 

Although 708 of these claims were approved, the recommended 

payments of $416,704 decreased by $76,831 from last year. Taxes, 

interest, and penalties recovered on the strength of informants' 

disclosures were nearly 30 times the amount of rewards 

recommended 

Continued emphasis on disposing of these claims as rapidly as 

possible has resulted in a substantial decrease in the number of 

unprocessed claims as compared with the prior fiscal year. 

A comparison of results for this activity during the last 2 years 

is shown below : 

Receipt and disposal of claims for informers' rewards 

Status 

Pending July 1 number__ 

Received during year 

Disposed of during year, total do____ 

Rejected 

Allowed 

Pending June 30 do_ 

Amount allowed on claims disposed of during year dollars_ 

Cases Involving Criminal Prosecution 

Total additional taxes and penalties of $87,622,773 were involved in cases received in the Chief Counsel's office with recommendations of criminal prosecution. This reflected an increase of 

about $5,500,000 over the amount involved in the prior year. 

An analysis of criminal tax cases of all types (other than wagering-occupational tax cases handled at the District level) flowing 

from the Assistant Regional Commissioner, Intelligence, through 

0 
20 Annual Report 

the office of the Chief Counsel and the Department of Justice 

follows : 

Receipt and disposal of cases in Chief Counsel's office 

Status 1959 1958 

Pending July 1 

Received during year, total 

With recommendation for prosecution 

With requests for opinion 

Disposed of during year, total 

Prosecution not warranted 

Department of Justice declined 

Prosecutions 

Opinions delivered 

All other closings 

Pending June 30 I 

2,132 

1,640 

3,140 

1,565 

1,552 

88 

1,501 

64 

1, 641 2, 573 

325 

69 

985 

91 

171 

285 

208 

1,770 84 

226 

2,131 2,132 

I Includes cases awaiting action in Department of Justice exclusive of wagering tax cases referred by Intelligence 

Division. 

A total of 823 income and miscellaneous criminal cases, with 

prosecution recommendations involving 905 prospective defendants, was forwarded to the Department of Justice. Compared 

with the prior year, this was a decrease of 13 percent in the volume 

of referrals. Indictments in such cases were down 23 percent in 

1959 and the total disposal of cases in these categories in the district courts decreased by 25 percent. 

In income, excise, and wagering tax cases reaching the courtroom, 796 defendants pleaded guilty or nolo contendere, 113 were 

convicted after trial, 72 were acquitted, and 177 were dismissed. 

In alcohol, tobacco, and firearms tax cases, 5,694 pleaded guilty, 

789 were convicted after trial, 360 were acquitted, and 724 were 

dismissed. 

Report on Operations 21 

A comparison of indictments and courtroom actions for the last 

2 years follows : 

Results of criminal action 

Number of defendants 

Action 

1959 1958 

Total 

Indictments and informations 

Disposals, total 

Plea—guilty or nob contendere 

Convicted after trial 

Acquitted 

Nol-prossed or dismissed 

Income tax and miscellaneous cases 

Indictments and informations 

Disposals, tota l 

Plea—guilty or nolo contendere 

Convicted after trial 

Acquitted 

Nol-prossed or dismissed 

Wagering tax cases 

Indictments and informations 

Disposals, total 

Plea—guilty or nob contendere 

Convicted after trial 

Acquitted 

Nol-prossed or dismissed 

Alcohol, tobacco, and firearms taxes 

Indictments and informations 

Disposals, total 

Plea—guilty or nob contender 

Convicted after trial 

Acquitted 

Nol-prossed or dismissed 

8,770 

8,725 

8,705 

8, 647 

6,490 

902 

432 

1 2 geli 

6,243 

962 

531 

911 

702 

743 

918 

995 

543 

88 

48 

i 64 

720 

87 

46 

142 

483 

415 

441 

532 

253 

25 

24 

113 

248 

41 

60 

183 

1,585 

7,567 

7,346 

7,120 

5,694 

789 

360 

2 724 

5,275 

834 

425 

586 

1 

 Includes cases dismissed for the following reasons: 7 because of death of principal defendant, 1 because of serious 

illness, and 44 because major defendant had pleaded guilty or had been convicted in a related case. 

Includes 27 terminations because of trials in other cases. 

2 Includes income, estate, gift, and excise taxes other than wagering, alcohol, tobacco, and firearms taxes. 

Supreme Court decisions in criminal cases.—Certiorari was denied and rehearing was refused in the case of Paul DeLucia, a notorious gambler and racketeer, convicted and sentenced to imprisonment for 3 years and fined $5,000 on charges of attempted 

evasion of taxes on income alleged by the defense to represent 

expenditure of a cash hoard on hand in the 1940's after a conspiracy 

to extort money from the movie industry. 

The Supreme Court, in affirming a tax evasion conviction in 

Palermo v. United States (360 U.S. 343), restricted the extent to 

which defendants can inspect prior statements of government witnesses under section 3500, Title 18, U.S.C., by excluding memoranda of interviews prepared by special agents from the scope of 

the Jencks Act. 
22 Annual Report 

A major decision in the field of conspiracy to violate the Federal 

wagering tax statutes affirmed the conviction of two principals 

engaged in evasion of the wagering taxes and reversed the conviction of two minor employees of the lottery not shown to have 

knowledge of the principals' failure to pay the Federal gambling 

tax. Ingram et al. v. United States (360 U.S. 672) . 

Other court action of significance.—The further hearing on the 

motion to suppress in United States v. Shotwell Manufacturing 

Company et al., ordered by the Supreme Court (355 U.S. 233) on 

the basis of newly discovered evidence impugning the truthfulness 

of trial testimony as to an alleged voluntary disclosure, was held 

and the motion was denied, and the defendants were resentenced 

for the attempted evasion of income taxes. 

The trial of Dave Beck, former president of the International 

Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, resulted in his conviction on charges of the attempted evasion of about $240,000 in income taxes for the years 

1950 to 1953, inclusive, and assisting in the preparation of false 

information returns on behalf of the union's Joint Council Building Association. Judge Boldt imposed a sentence of 5 years' imprisonment and the maximum fines in the total of $60,000. 

Eugene James, secretary-treasurer of Local 46 of the International Union of Laundry Workers, was convicted and sentenced to 

3 years' imprisonment for the attempted evasion of approximately 

$563,000 in income taxes on unreported moneys received by him, 

including substantial diversions of funds from welfare payments 

made by union members. 

Collection of Delinquent Accounts 

The number of delinquent accounts on hand was reduced in 

1959 to the lowest point reached in nearly 7 years. Dollar amounts 

outstanding also showed a substantial reduction, with the yearend figure dropping below that of any year since 1954. 

The inventory of delinquent accounts on June 30, 1959, totaled 

1,202,000 cases and $1,206,005,000. This represents a reduction 

of 20 percent in number and 18 percent in amount, compared to 

a year ago. 

In order to bring this work as nearly up to date as possible, 

efforts were continued to reduce the number of older accounts, 

without diminishing the attention given to current cases. By June 

30, the proportion of cases with balances 2 years old and over had 

dropped to 18 percent, compared with nearly 20 percent a year 

earlier. 

Report on Operations 23 

This year 2,656,000 delinquent account assemblies (each assembly consists of a notice to the taxpayer and 2 office records) 

were issued, which is 11 percent less than the alltime high reached 

last year. The amount of tax on these cases was $1,195,919,000, 

which was 12 percent lower than last year. 

Delinquent accounts disposed of totaled 2,960,000 cases and 

$1,456,137,000 this year. Both the number and dollar value of 

these disposals are slightly higher than last year. This disposal 

action reflects the effort which resulted in the reduced delinquent 

accounts' inventory even though employment in the delinquent 

accounts and returns branches of district offices was slightly lower 

than last year. 

The collection of delinquent accounts by office collection methods 

was further expanded, with the result that the Office Collection 

Force was responsible for over one-half of all delinquent accounts 

closed during the year. The increased use of office collection methods on easier cases has made it possible for the revenue officer 

staff to concentrate on the more difficult cases. This year revenue 

officers closed 16 percent fewer cases than the Office Collection 

Force but 69 percent more in dollars. 

The amount collected from delinquent accounts in 1959 totaled 

$978,283,000, which was 3.3 percent lower than 1958. 

A comparison of the results of delinquent account activity for 

the last 2 years is shown below: 

Taxpayer delinquent accounts 

Status 

Number ( housands) Amount (thousand dollars) 

1959 1958 1959 1958 

Assemblies issued I 

Closed, total 

By type of action: 

Collected 

Other disposals 2 

By method of handling: 

Revenue officers 

Office Collection Force 

Other 

Pending June 30, total 

Active 

Inactive ' 

2, 656 

Z 960 

2,978 

2, 960 

1,195, 919 

1,456,137 

1,352,478 

1, 446, 785 

2,396 

565 

1,288 

1,533 

139 

2,434 

526 

1,295 

1,487 

178 

978,283 

477,854 

791,278 

169,533 

195,326 

1,011, 948 

434,837 

754,734 

436,085 

255,966 

1,202 1, 505 1, 206, 005 1,466,223 

1, 079 

122 

1, 368 

137 

762,024 

443,981 

976,466 

489,756 

I The assembly comprises several pads, all for office use, ex ept one which is a notice to the taxpayer indicating legal 

action unless immediate payment is made. 

2 Includes adjustments to reflect erroneous and duplicate assessments, uncollectibility, etc. 

:Consists of closings by the office group designated to handle inactive accounts. 

Consists of inactive accounts on which collection has been deferred, such as cases involving military personnel, offers 

in compromise, etc. 
24 Annual Report 

Delinquency Investigations and Delinquent Returns 

Approximately 1 million investigations were completed involving individuals or firms on which preliminary information indicated a failure to file some type of return. There were 440,000 

delinquency investigations pending at the end of this year compared with 585,000 last year. 

During the year 761,000 delinquent returns were secured involving $92,020,000 in tax, penalties, and interest. Most of these 

were quarterly returns of employment and excise taxes. This is 

a decrease of 15 percent in number and 14 percent in amount as 

compared with last year. The decrease is due principally to the 

fact that, during 1959, emphasis was placed on the collection of 

delinquent accounts, with the result that less manpower was available for securing delinquent returns. 

APPEALS AND CIVIL LITIGATION 

General 

The number of protested income, profits, estate, and gift tax 

cases received in pre-90-day and 90-day status by the regional 

appellate divisions from the district offices during 1959 was somewhat higher than the number received during 1957 or 1958. However, during 1959 the upward trend in receipts showed signs of 

leveling off. This is in contrast to the 1954-57 period when receipts were increasing rapidly each year. 

The larger volume of protested cases referred to the regional 

appellate divisions is reflected in increases in both the number of 

cases disposed of and the number pending. Notwithstanding the 

larger workload, the policy of considering protested cases promptly 

has continued with the result that disposals increased and the 

inventory at the close of the year was in current condition. 

The number of petitions filed with the Tax Court of the United 

States also increased during the year. This is attributable to the 

larger volume of regional appellate division disposals of protested 

cases and to an increase in the number of cases which were not 

considered by the regional appellate divisions prior to the issuance 

of the statutory notice. Disposals of petitioned cases also increased, but did not equal receipts. 

Income, Profits, Estate, and Gift Taxes 

The following tables reflect case receipts, dispositions, and pending inventories for the regional appellate divisions as a whole 

during the last 2 fiscal years : 

25 
_ 

26 Annual Report 

Appellate Division processing of protested income, profits, estate, and gift tax 

cases prior to issuance of statutory notice of deficiency (pre-90-day cases) 

Status 

Number of cases 

1959 1958 

Pending in pre-90-day status July 1 12,394 11,123 

Net receipts from district directors during year 17,379 16,512 

Processed during year, total 16,475 15,241 

Agreed 11,785 10,109 

Unagreed overassessment and claim rejections 625 604 

Appellate Division statutory notices issued-transferred to 90-day statu s 4,065 4,528 

Pending in pre-90-day status June 30 13,298 12,394 

Appellate Division processing of protested income, profits, estate, and gift tax 

cases in which statutory notices of deficiency were outstanding (90-day cases) 

Status 

Number of cases 

1959 1958 

Pending in 90-day status July 1 1,874 1,453 

Net receipts during year, total 4,384 4,945 

Statutory notices issued by Appellate Divisions 4,004 4,469 

Cases resulting from district directors' statutory notices 380 476 

Processed during year, total 4,928 4,524 

Agreed 606 728 

Defaulted 1,124 1,095 

Petitioned to the Tax Court-transferred to docketed status 3,198 2,701 

Pending in 90-day status June 30 1,330 1,874 

Difference from preceding table is caused by cases being combined or split for the purpose of issuing the statutory 

notice, cases in transit, etc. 

Appellate Division processing of income, profits, estate, and gift tax cases 

petitioned to the Tax Court (docketed cases) 

Status 

Number of cases 

1959 1958 

Pending in docketed status July 1 10,395 8,761 

Net receipts during year, total 7,002 6,272 

Petitions filed in response toDistrict directors' statutory notices 4,131 3,677 

Appellate Division's statutory notices 2,824 2,546 

Cases reconsidered after trial 47 49 

Processed during year, total 5,649 4,638 

Agreed-stipulated 4,478 3,478 

Dismissed or defaulted 310 353 

Tried before the Tax Court on merits 861 807 

Pending in docketed status June 30 11,748 10, 395 

i Difference from number shown as petitioned in preceding table is caused by excluding district directors' statutory 

notices considered by Appellate in 90-day status, cases in transit, etc. 
28 Annual Report 

Excise and Employment Taxes 

The receipts of excise and employment tax cases increased over 

prior years. The increase in 1959 was offset to some extent by an 

increase in disposals. 

The following table reflects the results in excise and employment 

tax cases: 

Appellate Division processing of protested excise and employment tax cases 

Status 

Number of cases 

1959 1958 

799 628 

Pending July I 1,656 I, 498 

Received during year 

1,418 1,327 

Processed during year, total 

675 591 

Settled by agreement 743 736 

Closed without agreement 

1,037 799 

Pending June 30 

Effect of New Settlement Procedure 

The new procedure for settling Tax Court cases in various field 

offices has been in effect for approximately a year. As indicated 

in last year's report, under this procedure a determination as to 

settlement of a "presession" case is within the joint responsibility 

of the regional counsel and the regional appellate division, while a 

determination as to settlement of a "session" case is within the responsibility of the regional counsel. The results of this year's 

operation under the new procedure show that cases are being disposed of more efficiently, thus enabling the taxpayers and the Government to close cases at an earlier date. One of the effects of this 

new procedure has been to close cases at trial sessions of the court 

without a continuance, and it has enabled the court to dispose of 

more cases at motion sessions of the court in Washington without 

resetting such cases at trial sessions. This, of course, has enabled 

the court to set cases for trial which otherwise could not have been 

set at an early date. 

Claims for Relief From Excess Profits Tax 

Substantial progress was made during the year in the disposition 

of the remaining claims for relief from the World War II excess 

profits tax (sec. 722, Internal Revenue Code of 1939) . The number of cases pending in the Tax Court was reduced 62 percent, from 

99 to 38 ; and no nondocketed cases were pending before the Excess 

Report on Operations 29 

Profits Tax Council by the close of the year. The results for the 

year were as follows : 

Claims for relief from excess profits tax 

Cases not petitioned to 

the Tax Court 

Cases petit onecl to the 

Tax Court 

Status 

Number of 

cases 

99 

341,983 

194, 564 

38 147, 419 

Compromise and Closing Agreement Cases 

Final closing agreement cases relating to completed transactions 

are considered by the Appellate Division. The table shown below 

reflects the activity in this area during the year 1959. (Rulings 

on proposed closing agreements involving prospective transactions 

are discussed on p. 54.) 

The table below also shows the number of offer-in-compromise 

cases appealed to the regional appellate divisions and the results 

of such appeals. This information is also included in the data on 

compromise cases appearing on pages 40 and 41. 

Appellate Division processing of compromise and final closing agreement cases 

Status 

Compromise cases Final closing agreement 

cases 

1959 1958 1959 1958 

Pending July 1 

Received during year 

Processed during year, total 

Accepted, granted, or approved 

Rejected 

Withdrawn 

Pending June 30 

212 

447 

449 

210 

398 

396 

12 

31 

36 

15 

27 

30 

134 

272 

43 

111 

244 

41 

210 212 7 12 

Civil Litigation 

Litigation results.—The Supreme Court decided 23 tax cases 

last year, sustaining the Government's position in all of the cases. 

The circuit courts of appeals decided 405 tax cases (exclusive 

of bankruptcy, receivership, insolvency, compromise, and liquor 

Pending July 1, 1958 

Received 

Closed 

Pending June 30, 1959 

Total 

Number of 

cases 

2 

Amount 

claimed 

(thousand 

dollars) 

268 61 

Amount 

claimed 

(thousand 

dollars) 

341, 983 
30 Annual Report 

cases) . The Government's position was supported in 230 of these 

cases. 

In most cases, a taxpayer who has paid a disputed tax can, if he 

wishes, sue for refund in the Court of Claims or in a U.S. district 

court. Last year the district courts decided 168 cases for the 

Government, 200 for the taxpayer, and 46 cases partly for the 

Government and partly for the taxpayer. The Court of Claims 

decided 57 cases for the Government, 18 cases for the taxpayer, 

and 3 cases partly for each. 

There were at year-end 2,334 civil cases (principally suits for 

refund of taxes, other than those relating to alcohol, tobacco, and 

firearms taxes) involving tax questions pending in district and 

State courts, and 467 pending in the Court of Claims. 

For details of the cases in courts other than the Tax 'Court, see 

tables 20, 21, and 22 on pages 130 and 131. 

Decisions of Supreme Court.—Among civil tax cases (see "Enforcement" section for criminal cases) decided by the Supreme 

Court were the following : 

On November 10, 1958, the Supreme Court decided three cases 

in favor of the Government : Commissioner v. James E. Peurifoy, 

Commissioner v. Paul V. Stines and Betty 0. Stines, Commissioner 

v. John S. Hall and Doris D. Hall, 358 U.S. 59. These cases involved the deductibility of travel and living expenses of construction workers while away from home (where their families resided). The Supreme Court upheld the decision of the Court of 

Appeals for the Fourth Circuit which had reversed the Tax Court's 

allowance of these expenses. The Fourth Circuit reversed because 

one of the men had worked on the project for 20 months, another 

for a year, and a third for 8 months, and since each had left this 

project for either personal or undisclosed reasons while work was 

still available, the Court decided the work was for an indeterminate duration rather than just temporary. The Supreme Court 

held that the question was one of fact, and inasmuch as the court of 

appeals had made a fair assessment of the record, it refused to 

intervene. 

Also on November 10, 1958, the Supreme Court decided the case 

of United States v. Hulley (1958), 358 U.S. 66, reversing, per 

curiam, the Supreme Court of Florida (102 So. 2d 599) . The trial 

court had held that mechanics' liens became effective on the date of 

the visible commencement of operations for improvement of certain 

property belonging to the taxpayer, a date prior to the filing of the 

notice of Federal tax lien, and therefore had priority over the 

Federal tax lien even though such mechanics' liens were not filed 

until after the date of the filing of the notice of Federal tax lien. 

Report on Operations 31 

This decision was affirmed, per curiam, by the Supreme Court of 

Florida. The decision of the Supreme Court in this case cited the 

case of United States v. Vorreiter (1957), 355 U.S. 15, reversing 

the Supreme Court of Colorado (307 P. 2d 475) together with the 

line of cases dealing with this problem beginning with United 

States v. Security Trust & Savings Bank (1950) , 340 U.S. 47. 

On February 24, 1959, the Supreme Court affirmed the decision 

of the Ninth Circuit in William B. Cammarano, et ux. v. U.S. and 

the decision of the Eighth Circuit in F. Strauss & Son, Inc. v. Commissioner (see 358 U.S. 498) . The decision was for the Government. The issues involved the interpretation and validity of Treasury Regulations 111, section 29.23(o)-1 and section 29.23(q)-1 

to deny deductions, as "ordinary and necessary" business expenses 

under section 23 (a) (1) (A) of the Internal Revenue Code of 1939, 

of sums expended by taxpayers in furtherance of publicity programs designed to help defeat initiative measures pending before 

the voters of Washington and Arkansas. Certiorari was granted 

because of the recurring nature of the problem and because of its 

importance in the administration of the revenue laws. The Court 

held that these regulations had acquired the force of law and were 

applicable to the situations involved in these two cases. 

On April 6, 1959, the Third Circuit decisions in favor of the 

Government in Parsons v. Smith and Huss v. Smith (six cases) 

were affirmed (see 359 U.S. 215) . Involved was the question of 

whether strip-coal miners (petitioners) had a depletable economic 

interest in the mineral in place. The Court reviewed the economic 

interest doctrine from its enunciation in Palmer v. Bender (1933) , 

287 U.S. 551, and reaffirmed the distinction between an economic 

interest in the minerals in place and a mere economic advantage 

derived from production, citing Helvering v. Bankline Oil Co. 

(1938), 303 U.S. 362, and section 29.23(m)-1, Regs. 111. Applying the principles set down in the Palmer decision and later decisions, the Court concluded that under the contracts involved in 

the instant cases, petitioners did not make any capital investment 

in or acquire any economic interest in the coal in place. 

On March 9, 1959, the Supreme Court decided the case of United 

States V. Embassy Restaurant, Inc. (1959) , 359 U.S. 29, reversing 

the Court of Appeals for the Third Circuit (254 F. 2d 475) which 

had upheld the District Court. The District Court had held that 

unpaid contributions to a union welfare fund were "wages .. . 

due to workmen" and as such were entitled, in bankruptcy, to 

priority under section 64(a) (2) of the Bankruptcy Act. The 

Supreme Court held that the contributions were not due to the 
32 Annual Report 

workmen but to the trustees of the welfare fund and further that 

they did not have the customary attributes of wages. In so doing 

the Court distinguished its prior decision in United States v. Carter 

(1957), 353 U.S. 210. In Carter the Court was concerned with the 

right of trustees of a welfare fund to sue on a contractor's payment 

bond "for sums justly due" under the Miller Act which does not 

limit recovery on the statutory bond to "wages." In the instant 

case it was concerned with the Bankruptcy Act and the relative 

priority of claims of classes of creditors. 

On March 23, 1959, the Supreme Court decided the case of 

Edgar B. Sims v. United States of America (1959), 359 U.S. 108, 

affirming the decision of the Court of Appeals for the Fourth Circuit (252 F. 2d 434) upholding the District Court. The District 

Court had held that the failure of the petitioner, the State Auditor 

of West Virginia, to honor levies served upon him to reach the 

salary due certain State employees who were indebted to the Government on account of unpaid Federal tax assessments, rendered 

him personally liable in a sum equal to the amount he refused to 

surrender pursuant to the levies. The decision of the Supreme 

Court rejected the petitioner's argument that a State is not a 

"person" upon whom a levy could be served. It also rejected the 

argument that the petitioner was not a person "obligated with 

respect to" the salaries involved and therefore not personally liable, 

citing several decisions of the Court of Appeals of West Virginia 

involving the petitioner and his power to control the disposition of 

salary funds. This is the first U.S. Supreme Court decision on the 

questions involved and should do much to clarify these particular 

aspects of Federal and State relationships. 

The so-called "dealers' reserve" cases were decided in the Government's favor by the Supreme Court under date of June 22, 1959, 

79 S. Ct. 1270, in Commissioner v. John R. and Shirley G. Hansen, 

Commissioner v. Burl P. Glover, and Commissioner v. Clifton E. 

and Violet R. Baird, representing appeals from the Courts of Appeals of the Seventh, Eighth, and Ninth Circuits. In these cases 

the taxpayers, two automobile dealers and a house trailer dealer, 

were required to accrue, as income, the percentage of the price 

withheld on sales by them to finance companies and banks of installment payments received from customers and credited to the 

dealers' reserve accounts. The Court overruled the dealers' contention that the substance of the transaction was a loan from the 

finance companies or banks to the buyer who then authorized 

payment to the dealer of the full amount of the paper less that 

portion retained in the dealers' reserve. The substance of the 

transaction, as viewed by the Supreme Court, was to the effect 

Report on Operations 33 

that the dealer takes the buyers' notes and then sells them to the 

finance company or bank ; hence, the retention of the amount 

placed in the reserve was found to depend upon the note-sales 

agreements between the dealer and the finance companies or 

banks. And, since these amounts would ultimately either be paid 

to the dealer or used for his benefit in satisfying his obligations 

to the finance company or bank as guarantor of the installment 

paper, the amount retained for the reserve was held to be properly 

accruable at the time the finance company or bank credited it to 

the dealer's account. 

On June 29, 1959, the consolidated cases of Hine Pontiac v. United 

States, Modern Olds, Inc. v. United States, and Commissioner v. 

Kilborn, and of Colonial Chevrolet Corp. V. United States and Marine Chevrolet Co. V. United States were decided in per curiam 

opinion in favor of the Government; see 79 S. Ct. 1443 and 1444. 

The Court followed its decisions in the Hansen, Glover, and Baird 

cases. The Court has thus adopted the position taken by the Board 

of Tax Appeals and the Tax Court in a long line of decisions, and 

has resolved a conflict which had existed among the courts of 

appeal. 

Statement on adverse Tax Court decisions.—There were published in the Internal Revenue Bulletin acquiescences of the Commissioner in 211 adverse decisions of the Tax Court and nonacquiescences in 41 adverse decisions. 

529114 0 60 4 
CHANGES IN TAX LIABILITY 

Additional Tax 

Additional tax, interest, and penalties assessed as the result 

of enforcement activities totaled $1,821,616,000. This represents 

an 8-percent increase over 1958 and marks the highest total 

reached since the reorganization of the Service in 1952. 

Assessments resulting from audit of returns rose to $1,619,-

148,000, showing a gain of $169,584,000 as compared with last year. 

The major portion of this gain is attributable to the increase of 

$110,726,000 shown in the corporation income tax area. In the 

case of individual and fiduciary income taxes, the increase over 

1958 amounted to $20,981,000 and occurred in the area of regular 

audit. Estate and gift tax assessments rose by $35,716,000, while 

smaller gains were reported in the amounts resulting from audit 

of employment tax returns and excise tax returns. 

Other types of enforcement activities, such as the mathematical 

verification of returns and the securing of delinquent returns, 

showed decreases in assessments during the year. Mathematical 

verification resulted in assessments of $85,233,000, or 22 percent 

less than 1958. Delinquent returns secured decreased to $117,-

235,000, which is 9 percent less than 1958. 

The amount saved through the audit and disallowance of improper refund claims totaled $259,002 ,000 as compared with 

$271,168,000 in the preceding year. 

35 

o o 

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1.61 

)0C 

1■•• 

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ITCC C3I=I ta. t=1 z Z 2 
36 Annual Report 

Results for the last 2 years are shown in the following table : 

Tax, interest, and penalties resulting from enforcement efforts 

/In thousands of dollars] 

1959 

Additional tax, interest, and penalties assessed, total 

From audit, total 

Income and profits taxes, total 

Corporation income and profits 

Individual and fiduciary: 

Prerefund audit 

Regular audit 

Estate and gift taxes 

Employment taxes 

Excise taxes 

From mathematical verification of income tax returns, tote 

Individual (Forms 1040 and 1040A) 

Fiduciary (Form 1041) 

Corporation 

From delinquent returns secured, total 

By Collection Division 

By Audit Division 

Claims disallowed 

',Revised. 

Includes withheld income tax. 

2 July-December 1958 only. Not available for periods subsequent to Dee. 31, 1958. 

Overassessments and Overpayments 

Refunds.-The number of internal revenue refunds totaled 

37,580,000, representing a slight decrease as compared with 1958. 

However, the amount refunded, including interest, increased 10.9 

percent to a total of $5,156,969,000. The amount of interest allowed on the refunds was $69,480,000, which was 5.7 percent below 

last year's figure. 

The increases in amount of refunds occurred chiefly in the "prepayment" refunds of individual income taxes, which increased 4.8 

percent, and in the refunds of corporation income taxes which rose 

by almost 64 percent as the result of a sharp increase in allowances 

of loss carryback claims (see p. 38) . A significant factor in the issuances of refunds was the decrease in the amount of interest paid 

even though the amount of refunds increased considerably. This 

is the result of a more efficient processing of claims and overpaid 

returns by both the audit and collection divisions of district offices. 

Included in the manufacturers' and retailers' excise taxes were 

1,407,000 refunds made to farmers, transit systems, and users of 

nonhighway vehicles, which aggregated approximately $99,700,000. 

The following table shows by class of tax the number and 

amount of refunds and interest allowed during the last 2 years. 

Report on Operations 37 

Internal revenue refunds, including interest 

Type of tax 

Number 

Amount refunded 

(principal and 

interest-thousand 

dollars) 

Amount of interest included (thousand dollars) 

1959 1958 1959 1958 1959 1958 

Total refunds of internal revenue 1 . _ 

Corporation income and profits taxes 

Individual income and employment taxes, 

total 

Excessive prepayment income tax 

Other income tax and old-age and 

disability insurance 

Railroad retirement 

Unemployment insurance 

Estate tax 

lift tax 

Excise taxes, total 

Alcohol taxes 8 

Tobacco taxes' 

Manufacturers' and retailers' excise 

taxes 

All other excise taxes • 

lot otherwise classified 

2 37, 579, 642 38,097, 839 2 5, 156,969 4, 651, 656 69, 480 73, 675 

96, 577 

2 36, 032, 736 

66, 791 

36, 609, 118 

829, 083 

2 4, 122, 110 

505, 799 

3, 947, 574 

46, 617 

19,108 

46, 588 

23,725 

2 35, 073, 009 

930, 098 

158 

29, 471 

35, 528,081 

I, 053,867 

158 

27, 012 

2 3, 956, 326 

162, 203 

149 

3,431 

3, 777, 919 

165, 953 

383 

3,318 

6, 569 

12,449 

21 

68 

7, 850 

15,791 

2 

82 

4, 730 

590 

1,435,535 

4,304 

692 

1, 406, 601 

21, 827 

806 

182, 366 

19,024 

1,199 

177, 360 

2,487 

73 

1, 096 

2,061 

154 

1,129 

8, 888 

2,063 

1,410, 033 

14,551 

9, 170 

2,111 

1, 380, 056 

15.264 

63, 716 

8,446 

102,703 

7,502 

64, 526 

99,512 

6,934 

6,388 

4 

374 

718 

1 

(•) 

363 

764 

9, 474 10, 333 777 700 99 18 

•Less than $500. 

Figures have not been reduced to reflect reimbursem nts from the Federal Old-age and Survivors Insurance Trust 

Fund, amounting to $83,430,000 in 1959 a d $75,465,000 in 1958, and from the Highway Trust Fund, amounting to $96,900,000 in 1959 and $89,913,000 in 1958 

2 Net of 177,072 undeliverable checks tote ing $8,290,000. 

Includes drawbacks and stamp redempt ons. 

Includes narcotics, silver, wagering tax (excise) and stamps, capital stock tax, and other excise refunds. 

Excessive prepayments of individual income tax.-During the 

six-month period ending June 30, 1959, 34.2 million refunds were 

scheduled on individual income tax returns filed for the 1958 tax 

year. The bulk of the refunds relating to tax year 1958 were 

scheduled by the end of May, just 6 weeks after the filing deadline. 

The refunds scheduled on the tax year 1958 returns averaged $111 

per item as compared with an average of $104 per item for the 

refunds issued through June 1958 on the 1957 tax year returns. 

The number and amount of credits allowed on tax year 1958 returns 

decreased 14 percent and 2 percent, respectively. 

The following table shows the number and amount of refunds 

and credits, and interest paid as a result of excessive prepayments 

of tax on returns filed for the tax years 1953 through 1958 (usually 

received and processed by June 30 of the following year) : 

Item 

1,422,657 

1,821,616 

1, 619, 148 

747, 426 

• 1, 687, 671 

1,449, 564 

1,290,949 

1958 

636, 700 

85,233 109, 674 

259,002 

117,235 

92, 020 

25,214 

128, 433 

107, 124 

21,308 

271,168 
38 Annual Report 

Refunds and credits resulting from excessive prepayments of individual 

income tax 

Refunds 

Tax year 

(thousands) 

Number 

(thousand (thousand (thousands) (thousand 

Principal Interest Number Amount 

dollars) dollars) dollars) 

1957 

1956 

1955 

1954 

1953 

1b58 I 

33,138 2, 932, 261 3, 559 I, 681 573,243 31, 591 2, 739, 932 3, 879 I, 130 462, 818 

34,183 3, 777, 579 482 1,323 539,614 35,155 33, 726,000 33,192 31, 828 732,840 34,096 3,323, 779 3,936 31,602 599,012 33, 274 3,074,128 3, 589 1, 596 543, 501 

I Figures are preliminary and reflect refunds o credits to June 30, 1959. Revised figures to Dec. 31, 1959, will appear in next year's report. 

3 Principal and interest for tax year 1957 are estimated. 

I Includes 24000 returns requiring split between credit to ensuing tax year (or prior year) and current year refund. 

I Includes 262,000 returns requiring split between credit to ensuing tax year (or prior year and current year refund. 

Carryback allowances.-As a result of the temporary decline 

in business activity during - calendar year 1958, there was a substantial increase in the filing of applications for tentative adjustments of prior years' income taxes to give effect to operating loss 

carrybacks. The increase consisted principally of filings by corporate taxpayers. 

Applications adjusted in 1959 numbered 67,230, with tax reductions amounting to $619,095,000. As compared with 1958, the 

number of cases handled rose by 34 percent and the dollar allowances were twice as large. 

Notwithstanding the larger volume of applications filed, the 

required tax adjustments were made promptly and the inventory 

of cases under consideration was reduced by 20 percent during 

the year. 

A comparison of the carryback applications received and adjusted in the last 2 years is shown below : 

Receipt and disposal of tentative carryback applications 

Amount (thousand dollars) 

Claimed 

Applications received 

Pending July 1 

65,178 53,514 

10, 336 7, 107 

Applications adjusted, total 67, 230 50, 285 

Allowed ma. n.a. Disallowed n.a. n.a. 

Pending June 30 8,284 10,336 

Revised. 

n.a.-Not available. 

Report on Operations 39 

Claims for refund.-During 1959 district audit divisions closed 

more than 485,700 claims, an increase of about 67,000 over the 

preceding year's closings. 

Claims activity in the individual income tax area was increased 

by reason of claims filed by teachers and others in connection with 

educational expenses. Income tax regulations issued April 5, 1958, 

permitted the deduction, on income tax returns for 1954 and subsequent tax years, of certain educational expenses not previously 

allowable. As a result, many taxpayers filed claims involving this 

issue. 

Based on number of claims, over 89 percent of the closings involved individual income taxes and about 5 percent involved corporation income taxes, while the remaining 6 percent was spread 

among estate, gift, excise, and employment taxes. However, over 

56 percent of the total dollar amount of claims closed involved 

corporate income taxes, while individual income tax claims 

amounted to but 32 percent. 

The amount claimed was disallowed to the extent of 26 percent 

on individual income tax claims and 60 percent on corporation income tax claims. 

Data on claims for refund closed during 1959 are reflected 

below : 

Claims for refund closed by district audit divisions 

Class of tax Number 

Amount (thousand do Ian) 

Claimed by 

taxpayer Allowed Disallowed 

Total 485,758 415,615 210,974 204,711 

Individual income tax 432,226 134,292 99,199 35,093 Corporation income tax 24, 574 234,077 94,194 139,883 Estate tax 1,223 12,982 6, 231 6, 751 Gift tax 217 939 323 616 Excise taxes 16,063 30,453 9,162 21, 291 

Employment taxes 11, 455 2,943 1,165 1,078 

Review of overassessments exceeding $100,000.-A total of 300 

cases involving overassessments of $373,187,163 was reported to 

the Joint Committee on Internal Revenue Taxation in accordance 

with the provisions of section 6405 of the Internal Revenue Code 

of 1954 which requires review by the committee of all refunds and 

credits of income, war profits, excess profits, estate, or gift tax 

exceeding $100,000. These figures compared with 278 cases involving $245,260,358 reported in the preceding year. 

Credits 

Status 

Number 

Adjusted 

619M5 

19,724 

6$, 619 76,316 
40 Annual Report 

Offers in Compromise 

Offer-in-compromise inventories reached an alltime low by the 

end of the year. This downward trend, which has been continuous 

since 1953, is due primarily to the emphasis which all management 

levels have placed on the accelerated compromise program. This 

program provides for better management through a more thorough 

understanding of the responsibilities connected with compromise 

functions. Its accomplishments include : (1) Developing investigative and review techniques to improve the quality of field reports ; (2) providing more effective coordination between regional 

and district offices to maintain technical consistency in the decentralized compromise activity; and (3) emphasizing the need for 

specialized training of district technical personnel in basic policies 

and evaluation techniques. 

An important administrative development during the year 

placed in district collection divisions the sole responsibility for 

processing all specific penalty offers and those delinquency penalty 

offers involving employment-withholding taxes. This realinement 

will provide a smoother workflow, more efficient and effective use 

of district personnel, and better managerial planning. 

During the year district offices received for consideration 6,121 

tax offers, 5,635 delinquency penalty offers, and 3,336 specific 

penalty offers. The district offices, together with the National 

Office's Compromise Branch and regional appellate divisions, disposed of 15,985 offers, leaving 4,797 on hand as of June 30, 1959. 

Tax offers in cases in which court proceedings (except those of 

the Tax Court of the United States) are involved, or criminal 

prosecution is pending, are considered by the Chief Counsel or 

by the appropriate regional counsel. These offices received 311 

offers, disposed of 317, and had 192 offers on hand as of June 30, 

1959. 

In the alcohol, tobacco, and firearms categories, the National 

Office's Alcohol and Tobacco Tax Division and its regional offices 

received 501 offers and disposed of 481, leaving a total of 85 cases 

on hand as of June 30, 1959. 

The overall compromise workload as of June 30, 1959, consisted 

of 5,074 cases awaiting consideration at all Revenue Service levels. 

Report on Operations 41 

A comparative summary of compromise cases closed in the last 

2 years follows : 

Offers in compromise disposed of 

Type of tax or penalty 

Number 

Amount (tho sand dollars) 

Liabilities Offers 

1959 1958 1959 1958 1959 1958 

Offers accepted, total 11,192 14,648 48,718 47,340 10, 570 12,528 

Income, profits, estate, and gift taxes 1,297 1,326 37,447 35,643 7,727 9, 313 

Employment and withholding taxes 1,275 1,261 6,060 6, 007 1,761 I, 803 

Alcohol taxes 158 178 588 605 120 117 

Other excise taxes 274 286 2, 459 2, 655 483 711 

Delinquency penalties on all taxes 4,569 6,393 2, 164 2, 430 413 487 

Specific penalties 3,619 5,204 66 97 

Offers rejected or withdrawn, total 5, 591 5, 458 81, 647 77,414 14,719 12,090 

Income, profits, estate, and gift taxes 2, 225 2,183 65, 283 64,403 11,738 9,615 

Employment and withholding taxes I, 518 1,316 9, 102 7,659 1, 804 1,544 

Alcohol taxes 150 175 811 597 78 65 

Other excise taxes 468 424 5,565 4,018 940 711 

Delinquency penalties on all taxes 1,196 1,333 886 737 150 149 

Specific penalties 34 27 9 6 
SUPERVISION OF THE ALCOHOL 

AND TOBACCO INDUSTRIES 

General 

On September 2, 1958, Public Law 85-859 (H.R. 7125), the 

Excise Tax Technical Changes Act of 1958, was enacted. It incorporates the Revenue Service's recommendations for modernization of the distilled spirits provisions of the Internal Revenue Code, 

together with minor revisions in the wine, beer, and tobacco 

statutes. 

A semimonthly return system for the payment of Federal taxes 

on alcohol and tobacco products was instituted on June 24, 1959, 

thus eliminating the use of stamps for this purpose. The abolition 

of the historic stamp system (in use since 1868) marked a significant change in the method of collecting these taxes, from the 

purchase of stamps before removal, to a return system, similar to 

the methods employed to collect most other excise taxes. This 

change will effect considerable savings to the Government by 

eliminating the cost of printing, distributing, stocking, and accounting for the stamps. 

Detailed tabulations relating to the production of alcohol, distilled spirits, beer, wine, and tobacco manufactures during the 

fiscal year 1959 are presented in a separate Internal Revenue 

Service publication entitled "Statistics Relating to the Alcohol and 

Tobacco Industries," which may be obtained from the Superintendent of Documents, Washington 25, D.C. 

Authorization of Operations 

The number of permits issued during the year under the provisions of chapters 51 and 52 of the Internal Revenue Code and 

sections 3 and 4 of the Federal Alcohol Administration Act totaled 

2,611, of which 2,353 covered operations relating to alcohol and 

liquors and 258 involved tobacco. Permits terminated during the 

year numbered 5,304 comprising 2,699 relating to alcohol and 

43 
Report on Operations 45 

0 

0 

2 of storagerac ith interiorv 

Annual Report 

liquors and 2,605 in the tobacco area. The last-mentioned figure 

includes the automatic termination of 2,478 permits of dealers in 

tobacco materials and 4 permits of cigarette paper and tube manufacturers, these groups having been removed from the scope of 

the permit system by Public Law 85-859, effective September 3, 

1958. Details as to permit actions during the year are shown in 

tables 9-11 on pages 115 and 116. 

The number of establishments qualified to engage in the production, distribution, storage, or use of alcohol and alcoholic liquors 

totaled 469,122 as of June 30, 1959, showing a slight increase as 

compared with the 463,436 establishments reported at the close of 

fiscal 1958. Corresponding figures for tobacco manufacturers and 

distributors show 3,209 qualified establishments on June 30, 1959, 

as compared with 3,301 a year earlier. A breakdown of these 

figures by class of establishment is shown in tables 7 and 8 on 

pages 114 and 115 of this report. 

A total of 38,129 applications for approval or exemption of 

alcoholic beverage labels were considered in 1959, with 36,241 

receiving certificates of approval, 301 found exempt from label 

approval, 401 disapproved, and 1,186 applications returned without 

action. For additional information, see table 12, page 117. 

Sixty applications for approval of interlocking directorates were 

favorably acted upon during the year. 

On-Premises Supervision 

Storekeeper-gauger supervision was provided at distilleries, 

warehouses, denaturing and rectifying plants, bottling houses, 

and other facilities which accounted for the production of 

494,132,066 proof-gallons of ethyl alcohol, the denaturation of 

478,412,160 proof-gallons of ethyl alcohol, the warehousing 

of 32,746,616 proof-gallons of ethyl alcohol, the production of 

260,406,618 tax-gallons of distilled spirits of various kinds, the 

warehousing of 888,778,713 tax-gallons of distilled spirits, the tax 

payment on 167,756,627 tax-gallons of distilled spirits including 

alcohol, the rectification of 81,511,553 proof-gallons of distilled 

spirits and wines, and the bottling of 193,315,347 wine-gallons of 

distilled spirits. 

Inspection of Establishments 

Inspections of establishments for the fiscal year aggregated 

40,855, of which 29,703 related to plants and permittees other than 

dealers. During the previous fiscal year total inspections num- 
of the Alcohol and Tobacco TaxDivision, Washington, D.C. onal Laborato 

46 Annual Report Report on Operations 47 

bered 45,957, of which 33,124 related to plants and permittees 

other than dealers. The reduction in the number of inspections 

was caused primarily by a change in emphasis on certain aspects 

of brewery meter tests and investigation of nonbeverage drawback 

claims, the necessity of extensive training of field officers to implement the provisions of Public Law 85-859, and to make the return 

system for payment of taxes on alcohol and tobacco products 

effective. 

During the year, the plants and permittees (other than dealers), 

subject to inspection and having no on-premises supervision, produced alcoholic beverages and tobacco products as follows : 

90,973,768 barrels (of 31 gallons each) of beer, 165,749,699 gallons of still wines, 3,047,661 gallons of effervescent wines, 

3,975,047 gallons of vermouth, and 10,954,183 gallons of special 

natural wines other than vermouth. Tobacco plants, also subject 

to inspection, produced in the 1958 calendar year 6,395,432,691 

cigars, 470,067,919,673 cigarettes, and 180,067,394 pounds of other 

tobacco products (including smoking and plug tobacco, and snuff). 

Chemical Analyses and Research 

The national and regional laboratories of the Alcohol and Tobacco Tax Division received approximately 39,000 samples for 

examination during the year. This reflects very little change from 

the volume of samples received in past years, and the percentage 

of illicit alcohol and narcotic samples also remained about the same, 

28 percent and 13 percent, respectively. 

Formulas using taxpaid spirits were approved for 2,431 medicines, flavors, and foods, while 6,416 formulas and 5,210 labels were 

approved for products and processes using specially denatured 

alcohol. 

Several new analytical procedures were developed and were 

reported in five articles published in periodicals of national circulation. A number of other procedures were improved and reported 

as Internal Revenue documents. 

In collaboration with industry, the laboratories worked on a 

number of problems of mutual interest. Of most importance were 

testing procedures for carbon dioxide in wine and congeners in 

distilled spirits. 
Report on Operations 49 

TECHNICAL SERVICES 

Regulations Program 

Enactment during the fiscal year of the Technical Amendments 

Act of 1958 (Public Law 85-866) and the Excise Tax Technical 

Changes Act of 1958 (Public Law 85-859) required the issuance of 

numerous temporary rules-pending the issuance of final regulations-to permit taxpayers to conclude necessary business transactions, make tax elections, etc. Four Treasury Decisions, providing such temporary rules, were issued under each of these acts 

within a few weeks following their enactment. 

Three complete new regulations under the 1954 Code were published during the fiscal year, as follows : 

Gift Tax Regulations (T.D. 6334) to supersede Regulations 108. 

Documentary Stamp Tax Regulations (T.D. 6351) to supersede Regulations 71. 

Wagering Tax Regulations (T.D. 6370) to supersede Regulations 132. 

In all, 61 Treasury Decisions and 28 notices of proposed rulemaking were published during the fiscal year. In addition to the 

temporary rules and the new complete regulations noted above, 

some of the more important regulations published related to the 

following topics and sections of the Code : 

Regulations under subchapter F, chapter 1 of the Code, relating to 

exempt organizations. These regulations, published in final form as 

Treasury Decision 6301 on July 9, 1958, and Treasury Decision 6391 

on June 26, 1959, provide the regulations required under the statutory 

provisions which deal with general rules for exemption from tax, 

taxation of business income of certain exempt organizations, etc. 

Regulations under section 162 of the Code, relating to the reporting and 

substantiation of traveling and other business expenses of employees. 

These regulations, published in final form as Treasury Decision 6306, 

on August 28, 1958, provide rules for the reporting of information on 

income tax returns by taxpayers who pay or incur ordinary and necessary business expenses in conection with the performance of services 

as an employee. 

Regulations under section 6104 of the Code, relating to publicity of information required from certain exempt organizations and certain 

48 

trusts. These regulations, published in final form as Treasury Decision 6331 on November 1, 1958, provide rules relating to public inspection of applications for tax exemption. 

Regulations under section 481 of the Code, relating to adjustments required by changes in method of accounting. These regulations, published in final form as Treasury Decision 6366 on February 20, 1959, 

provide important rules relating to transitional adjustments. 

Fourteen public hearings in relation to proposed regulations 

were held in accordance with the provisions of the Administrative 

Procedure Act. Approximately 275 taxpayers or their representatives participated in these public hearings. 

Alcohol and tobacco tax.-A total of 33 regulations, implementing the alcohol and tobacco tax provisions of the 1954 Code, have 

been issued. A new regulation, 26 CFR Part 296, "Miscellaneous 

Regulations Relating to Tobacco Materials, Tobacco Products, and 

Cigarette Papers and Tubes," was issued, and two additional tobacco regulations, 26 CFR Part 285, relating to cigarette papers 

and tubes, and 26 CFR Part 290, relating to the exportation of 

tobacco materials and products, remain to be issued. 

Treasury Decisions of major import issued during the year 

includedT.D. 6307, effective September 2, 1958, which prescribed requirements 

regarding the extension of the bonding period on distilled spirits from 

8 to 20 years; changed the conditions of certain bond forms; and 

removed the restriction that the bottling of gin in bond for export 

must be within 8 years after entry in bond. The amendment also 

authorized the consolidation of packages of spirits for further storage 

in bond. 

T.D. 6315, effective September 3, 1958, which provided procedures for 

the payment of amounts by the United States equal to the taxes or 

duties paid on losses of alcoholic liquors caused by a disaster occurring 

after December 31, 1954, and before September 3, 1958; and for the 

period on and after September 3, 1958, and not later than June 30, 1959. 

T.D. 6316, effective September 3, 1958, which provided procedures to 

permit continuation of the terms of existing distillers bonds to cover 

operations from May 1, 1959, to June 30, 1959, both dates inclusive, 

and for payments which might be made by the United States of amounts 

equal to taxes paid on beer lost, rendered unmarketable, or condemned 

by reason of the floods of 1951 or the hurricanes of 1954. 

T.D. 6323 and T.D. 6359, effective May 1, 1959, prescribed regulations 

to implement Public Law 85-323 to prevent unjust enrichment by precluding refunds to persons who have not borne the ultimate burden 

of the alcohol or tobacco tax involved. 

T.D. 6325, effective September 3, 1958, provided regulations relating to 

losses of tobacco products and cigarette papers and tubes caused by 

disasters occurring after December 31, 1954, and not later than September 2, 1958. 

529014 0-60 5 
Annual Report 

Ttp. 6392, effective September 3, 1958, provided similar regulations for 

disasters occurring after September 2, 1958. 

T.D. 6381, effective June 24, 1959, provided temporary regulations for 

the payment of taxes on beer, wine, and distilled spirits and rectified 

products by a semimonthly or prepayment return. 

T.D. 6382, effective June 24, 1959, similarly provided temporary regulations for the taxpayment of cigars, cigarettes, and manufactured tobacco by return on,either a semimonthly or prepayment basis. 

Tax Return Forms Program 

Numerous changes in forms and instructions were made during 

the year under a continuing program seeking to improve forms to 

achieve more simplicity, to promote more efficient processing and 

audit, and provide legal accuracy. In addition, many changes were 

made and some additional forms were developed to reflect changes 

in the tax law. 

A total of 236 tax return and information forms and instructions 

were prepared, reviewed, or revised. Some of the noteworthy 

changes in old forms and some of the new forms developed are 

as follows : 

Form 1040A was revised so as to permit its use by employees with 

incomes up to $10,000 consisting of wages subject to withholding and 

not more than $200 of dividends, interest, and wages not subject to 

withholding. Previously, the form could be used only by employees 

with incomes of less than $5,000. 

Form 1120. A line for entering the amount of depreciation deducted 

under the new additional first-year depreciation allowance was added 

to the summary of schedules I and J. 

Form 1065 was revised so as to reflect adjustments in the computation 

of net earnings from self-employment for gain or loss from the sale 

or exchange of property other than capital assets. 

Form 1041. A new line (29) was added to page 1 to provide a specific 

entry space for the tax paid with a tentative return and tax withheld 

from wages and salaries of a decedent. 

Form 11205, U.S. Small Business Corporation Return of Income. This 

is a new form required to implement subchapter S of chapter 1 of the 

Code, as added by the Technical Amendments Act of 1958. Subchapter 

S permits a "small business corporation" to elect not to be subject to the 

corporate income tax. If the election is made, the corporate income 

is taxed to the shareholders whether or not distributed. Form 1120S 

is not a tax return form inasmuch as it does not provide for the computation of any tax; rather, it is a return of income and includes such 

information as items of gross income and allowable deductions and 

the supporting schedules, names and addresses of shareholders during 

the year, number of shares owned by each shareholder and amounts 

of money and property distributed to each, and beginning and ending 

balance sheets. 

Form 2553, Election by Small Business Corporation. This is also a new 

form required to implement subchapter S. 

Report on Operations 51 

Form 2555, Statement to Support Exclusion of Income Earned Abroad. 

This is a new form required to implement section 72 of the Technical 

Amendments Act of 1958, which amended the Code to provide that the 

exclusion for income earned abroad is not to apply for purposes of 

determining whether a taxpayer is required to file an income tax 

return. 

Numerous suggestions for improvements in returns and instructions, received from Revenue Service personnel, taxpayers, professional groups, and other sources, were analyzed and many were 

adopted. 

Tax Rulings 

During the year, 38,596 requests from taxpayers for rulings and 

requests from field offices of the Service for technical advice were 

processed. The number processed included 33,670 requests which 

had been received from taxpayers or their representatives and 

4,926 requests received from field offices. At the close of the fiscal 

year, 10,037 requests for rulings and technical advice were on 

hand to be processed. 

In addition to the processing of rulings and technical advice, 

15,881 technical conferences were held with taxpayers or their 

representatives. 

An analysis of the rulings and technical advice processed, by subject matter, follows : 

Requests for tax rulings and technical advice processed 

Subject Total Taxpayers' 

requests 

Field 

requests 

Total 38, 596 33, 670 4, 926 

Income and excess profits taxes 30,652 28, 058 2,594 

Employment and self-employment taxes 

Estate and gift taxes 

1,147 

801 

857 

622 

290 

179 

Alcohol and tobacco taxes I, 917 903 1, 014 

Other excise taxes 3, 256 2, 560 696 

Engineering questions (depreciation, etc.) 823 670 153 

Determination Letters 

District audit divisions issue determination letters in cases 

where a reply .can be based on clearly established rulings and 

regulations. Rulings requested of district offices involving new 

or complex issues are referred to the National Office for consideration. During 1959 the audit divisions issued 12,716 determination 
Annual Report 

rs involving pension trust plans and exempt organizations. 

The following table reflects the activity in these areas : 

Pension trust and exempt organizat on determination letters issued 

Item Pension trust plans 

Exempt 

organizaProfit- tions 

sharing 

Pension or 

annuity 

Stock 

bonus 

Initial qualifications: 

Approved 

Employees participating under plan 

Total number employed 

Disapproved 

Terminations 

Closed without issuance of determination letter 

3,097 

361,697 

631,462 

30 

204 

108 

3,834 

448,325 

1, 088, 157 

33 

253 

118 

24 

2 

3 

2,335 

4,398 

2 

4,920 

317 

1,557 

Under established procedure taxpayers may appeal adverse 

field determinations relating to pension trust and profit-sharing 

plans. During the year, 31 appeals were considered by the National Office. Of these, 16 appeals were decided in favor of the 

taxpayer; 12 decisions were against the taxpayer, and 3 decisions 

were partially in favor of the taxpayer. 

Technical Publication Program 

Technical Information Release No. 164, issued on June 16,1959, 

announced a new policy designed to promote prompt publication 

of rulings in the Internal Revenue Bulletin. The previous policy 

was to have all rulings published in the Bulletin reviewed and concurred in by the Chief Counsel. Under the new policy, Revenue 

Rulings will not be referred to the Office of the Chief Counsel 

unless they come under standards governing the referral of individual taxpayer letter rulings. This will not affect the status of Revenue Rulings as official pronouncements. 

"Index-Digest Supplement to Cumulative Bulletins 1953-1956" 

was issued as Publication No. 401 as a research and reference aid 

to promote a systematic and reasonably simple location of the 

rulings, procedures, decisions, and other authorities published in 

the Cumulative Bulletins for 1953-56, inclusive. It is a consolidation in digest form and by topical arrangement of the specific issues 

and principles covered in the matters so published during those 

years. 

The number of rulings published in the Internal Revenue Bulletin decreased by 21 percent during 1959. The principal decline 

was in the number of income tax rulings published which totaled 

224 as compared with a peak total of 342 in 1958. 

Report on Operations 53 

A comparison of the rulings published in the last 2 fiscal years 

follows : 

Revenue rulings and procedures published 

Type 1959 1958 

Total 546 687 

224 342 

Income tax 21 35 

Employment taxes 10 13 

Estate and gift taxes 

Alcohol and tobacco taxes 71 

191 

71 

196 

Other excise taxes 2 

Excess profits tax 4 2 

Firearms 10 

Engineering issues_ 19 16 

Administrative and miscellaneous 

Among the more significant Revenue Rulings and Revenue Procedures published during the year were the following : 

Generally, contracts and claims to receive indefinite amounts, such as 

those received in exchange for stock in liquidation of a corporation, 

must be valued for Federal income tax purposes (Rev. Rul. 58-402, 

C.B. 1958-2, 15). 

An employee, governmental or otherwise, receiving a fixed mileage allowance or a per diem allowance in lieu of subsistence at rates not in 

excess of 125 percent of the maximum mileage rates or per diem rates 

authorized to be paid by the Federal Government in the locality in 

which the travel is performed is considered, for purposes of section 

1.162-17(b) of the Income Tax Regulations, as having been required 

to account to his employer for his business travel and transportation 

expenses (Rev. Rul. 58-453, C.B. 1958-2, 67). He therefore is not 

normally required to itemize such expenses in detail on his tax return. 

A ruling was published which discusses the tax consequences of the 

repayment by stockholders to a corporation of the excess of Federal 

Housing Administration mortage loan proceeds over the cost of property covered by the loan which excess had previously been distributed 

by the corporation to its stockholders (Rev. Rul. 58-456, C.B. 1958-2. 

415). 

Payments as commissions by a marine supplier to masters, or other 

personnel, of "tramp steamers" of foreign registry when normal, usual, 

and customary in the industry, appropriate and helpful in obtaining 

business, and with the knowledge and consent of the shipowner, constitute ordinary and necessary business expenses. Such payments are 

subject to the withholding of income tax under section 1441 of the 

Code (Rev. Rul. 58-479, C.B. 1958-2, 60). 

A timely filed claim for refund of amounts erroneously paid as manufacturers' excise tax is not rendered invalid because the required 

written consents of ultimate purchasers were filed after the expiration of the statutory period of limitations (Rev. Rul. 58-563, C.B. 

1958-2, 892). 

The Service compiled and published a list of the categories of tires that 

are subject to the manufacturers' excise tax, indicating whether they 

are taxable at 8 cents a pound or at 5 cents a pound (Rev. Rul. 58-583, 

C.B. 1958-2,776). 
54 Annual Report 

The Service set forth the criteria or tests for determining whether an 

organization qualifies for exemption from Federal income tax under 

section 501(a) of the Code as a club organized for pleasure, recreation, 

and other nonprofitable purposes as described in section 501 (c) (7) 

of the Code (Rev. Rul. 58-589, C.B. 1958-2, 266). 

The retailers' excise tax on jewelry and related items applies to transactions involving merchandise obtained by fraudulent uses of charge 

plates or through the use of fictitious names, addresses, and forged 

credentials (Rev. Rul. 58-608, C.B. 1958-2, 748). 

Standards of conduct, extent of authority, and circumstances and conditions governing the recognition of unenrolled preparers of Federal 

tax returns are prescribed pursuant to section 10.7(a) (7) of Department Circular No. 230 (Rev. Proc. 59-3, IRE 1959-7, 29). 

The value of a turkey, ham, or other item of merchandise of similar 

nominal value, distributed by an employer to an employee at Christmas, 

or other comparable holiday, does not constitute "wages" for employment tax purposes and need not be treated as income by the employee. 

However, the cost of such items is deductible by the employer (Rev. 

Rul. 59-58, IRE 1959-8, 7). 

For purposes of the statutory provisions relating to involuntary conversions involving the "destruction" of property, it is not necessary 

that the taxpayer satisfy the test of "suddenness" if the causes of 

destruction otherwise fall within the genera] concept of a casualty. 

This modified the position the Service had taken in two previously published rulings (Rev. Rul. 59-102, IRB 1959-13, 20). 

For the purposes of the "sick pay" exclusion under section 105(d) of 

the Code, "sickness" exists from commencement of labor to the termination of the period during which a woman is physically incapacitated 

as a result of childbirth or miscarriage, regardless of the place of 

delivery. Wages, or payments in lieu of wages, received by a taxpayer 

during such a period of incapacity are excludable from gross income 

in the manner and to the extent provided under section 105 (d) of the 

Code (Rev. Rul. 59-170, IRB 1959-20, 8). 

Where a corporation purchases life insurance on the lives of its stockholders, the proceeds of which are to be used in payment for the stock 

of the stockholder, the premiums on such insurance do not constitute 

income to the stockholder, even though the stockholder has the right 

to designate a beneficiary, provided the right of the beneficiary to receive the proceeds is conditioned upon the transfer of the corporate 

stock to the corporation (Rev. Rul. 59-184, IRB 1959-21, 8). 

Closing Agreement Cases 

Closing agreements involving the tax status of prospective 

transactions are considered by the Tax Rulings Division of the 

National Office. (For information on cases involving completed 

transactions, see p. 29.) Two cases pending at the beginning of 

the year were completed, but no new cases were received during 

the year. 

Report on Operations 55 

Civil Advisory Legal Services 

Five years have now elapsed since the commencement of the 

reorganization program under which there was decentralized to 

the regional counsels much of the legal work connected with the 

functions of the district directors' offices. This period has witnessed an increase in cases received from approximately 7,000 in 

fiscal 1955 to nearly 11,000 for the current fiscal year. Despite 

this increase in case receipts, the civil advisory lawyers have been 

able to maintain a sufficient disposal rate so that the volume of 

pending cases has not been increased but has in fact declined from 

nearly 6,000 at the beginning of fiscal 1955 to slightly more than 

4,800 at the end of the current fiscal year. (For a statistical 

report of the cases received and disposed of during the current 

fiscal year, see tables 23, 24, and 25 on pp. 131 and 132.) 

Along with this substantial increase in case receipts, the offices 

of the regional counsel have steadily increased their less formal 

assistance to the district directors' offices in daily contact, both by 

telephone and in person, and through the continuing visitation 

program under which the lawyers who handle the civil advisory 

cases make periodic visits to the district directors' offices within 

their respective regions. This visitation program provides a 

means for establishing direct personal contact between the administrative personnel in the district directors' offices and the 

civil advisory lawyers in the regional counsels' offices. Through 

question-and-answer sessions during these periodic visits, troublesome problems are threshed out which would, under ordinary procedures, require extensive written correspondence back and forth 

between the respective offices. 

Again, as in 1958, the civil advisory lawyers in the regional 

counsels' offices participated in the expanded inservice training 

program for revenue officers. The lectures given by these lawyers 

covered the problems involved in proceedings under the Bankruptcy Act, receiverships and other insolvencies, suits to quiet title 

and for foreclosure by mortgagees, applications for discharge of 

property from the effect of Federal tax liens, and requests for 

release of such liens. These lectures also dealt with offers in 

compromise, decedent estate cases, suits to reduce tax claims to 

judgment and enforce Federal tax liens, suits for failure to honor 

a levy, suits to establish transferee liability and set aside fraudulent transfers, injunctions, subpenas and summonses, and in general those matters dealing with the collection of taxes by administrative procedures as well as those matters relating to instances 

where the ordinary administrative processes may be ineffectual 
Annual Report 

Or inadequate. During the current fiscal year this activity was 

further expanded to include a limited participation in the inservice refresher training program for the more experienced revenue officers. 

During the fiscal year 1959 three cases pertaining to problems 

considered in connection with civil advisory legal work were decided by the U.S. Supreme Court. For a summary of these cases, 

see United States v. Hulley, page 30, United States v. Embassy 

Restaurant, Inc., page 31, and Edgar B. Sims V. United States of 

America, page 32. 

959 

1958 

1957 

§ 

a a a 1 0, 

1956 

S 

Cy? 

o no 

TAXPAYERS 

ASSISTED 

Telephone 

assistance 

Self-help 

assistance 

Individual 

assistance 

AIDS FOR TAXPAYERS 

Direct Taxpayer Assistance 

Each year more and more taxpayers are preparing their tax 

returns without help from the Revenue Service. This has been 

the trend for the past 4 years despite an increase in the number of 

returns filed. 

During the 1959 filing period, 10,173,000 persons received assistance compared with 10,988,000 in 1958. The number of taxpayers 

requiring individual assistance decreased by 21 percent, from 

779,000 in 1958 to 618,000 in 1959, while the number receiving 

"self-help" showed a 10 percent drop from 5,038,000 to 4,552,000. 

The number of inquiries handled by telephone, the most economical 

method, decreased only about 4 percent, from 5,171,000 to 

5,003,000. 
58 Annual Report 

Factors contributing to the self-sufficiency of taxpayers in preparing returns include the educational programs sponsored by the 

Revenue Service in secondary schools and colleges, an improved 

series of tax guides and related publications, and the expanded use 

of the simplified card return, Form 1040A. 

The average number of taxpayers assisted per man-day was increased from 90.9 in 1958 to 96.4 in 1959. This increase resulted 

partially from wider use of self-help and telephone assistance and 

partially from better utilization of the time available. Most offices 

designated certain days of the week for taxpayer assistance in 

order to minimize time lost due to slack periods. 

Time spent on the program declined from 144,012 man-days in 

1958 to 124,025 man-days in 1959. The decrease in man-days was 

19,987, or 14 percent. 

The program cost amounted to $2,896,318, which is 11 percent 

less than the cost in 1958. 

Taxpayer Publications 

Further improvements were made in the Service's Taxpayer 

Assistance Publications. 

Your Federal Income Tax, IRS Publication No. 17, is an authoritative and comprehensive manual on Federal income taxes 

for individual taxpayers. The booklet contains 128 pages of 

simplified explanations and examples of thousands of problems 

with which taxpayers are confronted when they prepare their income tax returns. Some 180 new rules resulting from changes in 

law or administrative rulings were discussed and illustrated. Rearrangement of material and an expanded index added to its utility 

as a ready-reference book. More than 612,000 copies were sold, 

approximately 12,000 more than the previous year. 

Tax Guide for Small Business, IRS Publication No. 334, a 

128-page booklet, explains and answers most of the Federal tax 

problems confronting the small business and professional man. 

Although the 1959 edition was written primarily for use in preparing the 1958 returns, it is also designed for use as a ready 

reference all during the year. It includes detailed explanations 

of the tax results of the establishment, operation, and disposition 

of a business, whether it is a proprietorship, partnership, or a corporation. The explanations cover income, excise, employment, 

self-employment, and withholding taxes. A Federal Tax Calendar 

for 1959 and a detailed Federal Tax Check List (of especial interest to new business) are also included. Approximately 200,000 

copies were sold, about the same as the previous year. 

Report on Operations 59 

Farmers' Tax Guide, IRS Publication No. 225, a 64-page pamphlet designed especially for farmers, was revised and improved as 

the result of suggestions received from readers, and discussions 

with representatives of the Agricultural Extension Service of the 

U.S. Department of Agriculture. One million copies of this booklet were distributed to farmers. 

Tax Guide for U.S. Citizens Abroad, IRS Publication No. 54, was 

revised to include the new rules applicable to citizens residing 

abroad which resulted from changes in law. This 24-page booklet 

tells the U.S. citizen who resides or works abroad the extent to 

which he has to pay Federal taxes on his income. Coverage includes discussions of pensions and annuities, dependents, royalties, 

foreign tax problems peculiar to the marital relationship, and 

estate and gift taxes, in addition to a comprehensive explanation 

of the Federal income tax laws as they relate to such citizens. 

Nearly half a million copies of this edition were distributed through 

consulates and other Government offices to U.S. citizens abroad. 

This is an increase of more than 400,000 over the previous year. 

Motor fuel tax pamphlets.—These publications were revised and 

issued to explain the Highway Revenue Act of 1956 as it relates 

to— 

"Federal Use Tax on Highway Motor Vehicles" (IRS Publication No. 

349) 

"Federal Gas Tax Refund for Nonhighway and Transit Users" (IRS 

Publication No. 378) 

"Farmer's Gas Tax Refund" (IRS Publication No. 308) 

Other publications.—Thirty-one other publications were printed 

and distributed free to taxpayers. These publications contained 

modified versions of separate chapters of Your Federal Income 

Tax and Tax Guide for Small Business. In some instances, material from both booklets was combined to present a more comprehensive discussion of the subject matter. In other instances, two 

or more related chapters or parts of chapters were included in a 

single publication. Some of the more important publications 

include— 

Filing Your Return Excise Taxes 

What Is Income Net Operating Loss 

Sick Pay, Disability Pay, etc. Employee and Travel Expenses 

Personal Exemptions and Dependents Entertainment for Business 

Selling Your Home Casualty and Theft Losses 

Medical and Dental Expenses Installment and Deferred Payment Sales 

Depreciation, Amortization, Depletion Tax Withholding and Estimated Tax 

What Are Business Expenses 
60 Annual Report 

Information Program 

The public information program to improve taxpayer understanding of Federal tax laws and to provide filing information for 

taxpayers was carried out in several ways. 

"Since the Beginning of Time," a public service documentary 

film, was produced and distributed for bookings through Revenue 

Service field offices. 

Showings included 201 telecasts before an estimated audience 

of more than 40 million and over 1,000 other bookings before 

schools, civic groups, and luncheon clubs with an estimated audience of 35,000. Advance bookings extending to the next filing 

period have been made with district offices. 

The film was selected for later showing at the International 

Film Festival in Edinburgh, Scotland. Another honor was its 

selection by the television stations of the country as one of the 50 

best films in the news and documentary category. 

During the year, approximately 175 releases were issued to news 

media. These releases contained national office policy statements, 

announcements of personnel changes and other administrative matters, actions on technical matters, and items of interest for release 

by field offices. 

In addition to press releases, the Public Information Division 

answered inquiries and acted as a clearinghouse for writers working on special articles. One of the results of this function was the 

appearance of several articles on enforcement activities in national 

magazines. 

The annual public information kit containing releases, scripts, 

radio and TV spot announcements, and other material for use 

during the filing period was prepared and distributed to field 

offices. 

A sample survey by the National Association of Broadcasters 

of free public service broadcast and telecast time during the 1958 

filing period revealed that Revenue Service spot announcements 

received the second greatest amount of time of all organizations, 

and the highest amount of time of any Government agency. 

In its sixth year, the "Teaching Taxes" program of student 

handbooks, teacher's guides, and other teaching aids was used in 

22,308 high schools and colleges. Approximately 2,648,000 students received this tax instruction under 72,000 teachers. 

Schools and classes in adult education, other Federal agencies, 

U.S. Armed Forces, industry, veterans' hospitals, and even prisons 

are using these materials free of charge. 

INTERNATIONAL ACTIVITIES 

International Operations 

Responsibility for administering the internal revenue laws in 

areas of the world outside the United States is centralized in the 

International Operations Division. Through this Division, the 

Revenue Service devotes attention to the special tax problems in 

this area and endeavors to raise the level of voluntary compliance 

among U.S. taxpayers residing abroad. 

The Division has permanent foreign posts at Paris, France; 

Ottawa, Canada ; Manila, Philippines ; and London, England, with 

one or two technical employees assigned to each post. A field 

office in Puerto Rico collects social security taxes in Puerto Rico 

and the Virgin Islands, and performs other Internal Revenue 

functions to the extent applicable in Puerto Rico. The bulk of 

the work of the Division is conducted by correspondence from 

Washington or where necessary by temporary visits to foreign 

countries by agents assigned to Washington. The Division also 

secures a substantial amount of information from foreign countries 

for other offices of the Internal Revenue Service. 

Since the establishment of the Division in 1955, international 

tax activities have been transferred to the Division as rapidly as 

they could effectively be absorbed within planning, recruiting, 

and budgetary limitations. During the past year this assimilation 

of foreign tax work was nearly completed. Over 10,000 delinquent tax accounts with foreign addresses were transferred to the 

Division from district offices for specialized collection action. Responsibility was assumed by the Division during the year for 

certifying compliance with the death duty provisions of the tax 

treaties, and exchanging estate information with foreign tax treaty 

countries. 

Compliance with U.S. tax laws by U.S. citizens residing abroad 

was facilitated by the enactment of the Technical Amendments 

Act of 1958 (Public Law 85-866) . This law requires U.S. citizens 

residing in foreign countries to file U.S. tax returns and report all 

of their income, including earned income subject to exclusion 

61 
62 Annual Report 

under section 911 of the Internal Revenue Code, even though no 

tax may be due. Form 2555 was developed as an attachment to 

individual income tax returns to facilitate the reporting of income 

excluded under section 911. A comprehensive information program was conducted to notify U.S. citizens residing in foreign 

countries of the change in income tax return filing requirements 

under the new law. 

International Tax Conventions 

Belgium.—The Senate ratified a supplementary convention between the United States and Belgium which will extend the United 

States-Belgium convention to the Belgian Congo and the Trust 

Territory of Ruanda-Urundi. For technical reasons, Belgium had 

not ratified the convention as of the end of the fiscal year. 

Pakistan.—On May 21, 1959, instruments of ratification of the 

income tax convention between the United States and Pakistan 

were exchanged, thus bringing the tax convention with that country into effect for taxable years beginning on or after January 1, 

1959. 

United Kingdom.—A supplementary protocol, with respect to 

the tax treatment of royalties, amending the existing tax convention with the United Kingdom, came into force January 1, 1959. 

That convention, as thus amended, was extended, with certain 

modifications, to 15 United Kingdom oversea territories, also effective January 1, 1959. Five other oversee territories did not 

qualify, as of January 1, 1959, due to certain internal procedures 

in such territories not having been completed as of the end of the 

calendar year 1958. 

Norway.—A supplementary convention with Norway was submitted to the Senate in August 1958 and is now pending before 

that body. 

General.—Extended discussions with a number of countries took 

place during the year, resulting in texts of proposed conventions 

which are in various stages of development. 

Foreign visitors.—There is continuing worldwide interest in the 

study of the tax laws and tax administration methods of the United 

States. The International Tax Relations Division was host to 

approximately 140 officials from 43 countries during the fiscal year 

for varying periods of time. 

LEGISLATIVE DEVELOPMENTS 

Legislative Preparations 

H.R. 10, a bill to encourage the establishment of voluntary 

pension plans by self-employed individuals, was reported out on 

February 24, 1959, by the House Ways and Means Committee and 

was passed by the House of Representatives on March 16, 1959. 

The Senate Finance Committee held some hearings before the close 

of the fiscal year and hearings were scheduled to be continued. 

H.R. 7086, to extend the Renegotiation Act of 1951, was acted 

upon by both Houses of the Congress and a conference report on 

the bill was pending at the close of the fiscal year. 

Some other bills of lesser importance received active consideration by the Congress and action on these bills was in various 

stages of completion at the close of the year. 

Revenue Service representatives attended public hearings and 

executive sessions held by the committees in connection with this 

pending legislation as well as the legislation enacted as set forth 

below. They also performed services in connection with the drafting of these bills and the related committee reports. 

During the year, 35 reports on bills were prepared and forwarded to the office of the Assistant to the Secretary. Information was also furnished to that office informally in instances where 

time did not permit the preparation of a formal report. In addition, the Revenue Service carried out its own research and study 

projects to develop information about tax administrative problems, 

tax loopholes, and tax inequities. It considered and evaluated 

suggestions submitted by taxpayers, including Members of 

Congress. 

Legislation Enacted 

On September 2, 1958, H.R. 7125 (85th Cong.), the Excise Tax 

Technical Changes Act of 1958, was enacted. This law makes a 

technical revision of the excise tax and the alcohol and tobacco 

tax provisions of the Code. It also makes numerous substantive 

changes in these provisions (Public Law 85-859). 

63 
64 Annual Report 

H.R. 8381 (85th Cong.), Technical Amendments Act of 1958, 

was also enacted on September 2, 1958. This law eliminates many 

substantive unintended benefits and hardships in the existing income, estate, and gift tax provisions of the Code and removes many 

technical errors and ambiguities (Public Law 85-866). 

- H.R. 13549 (85th Cong.), the Social Security Amendments of 

1958, was enacted on August 28, 1958. This enactment increases 

the rates of the self-employment income tax and the FICA tax on 

employees and employers effective for taxable years beginning 

after December 31, 1958. It also increases the tax base for these 

taxes from $4,200 to $4,800 effective after 1958 (Public Law 

85-840). 

On June 25, 1959, H.R. 4245 (86th Cong.) was enacted, providing a permanent formula for the taxation of life insurance companies (Public Law 86-69). 

H.R. 7523 (86th Cong.), the Tax Rate Extension Act of 1959, 

was enacted on June 30, 1959. This act extends to July 1, 1960, 

the present corporation income tax rate and the rates of certain 

excise taxes which were scheduled to be reduced as of July 1, 1959. 

It also provides for reduction of the tax on transportation of persons from 10 percent to 5 percent effective July 1, 1960, and for 

termination of the tax on general telephone service effective July 1, 

1960 (Public Law 86-75). 

Thirteen other bills which have some effect on the Federal tax 

statutes were enacted, the following being of particular interest: 

Public Law 85-595 amended title 18 of the United States Code to permit 

a defendant, in a prosecution for an offense described in section 7201 

or 7206 of the Internal Revenue Code and involving use of the mails, 

to elect to be tried in the judicial district in which he resided at the time 

the alleged offense was committed. 

Public Law 85-920 amended section 1402(a) of title 28 of the United 

States Code to set up express rules for determining venue in suits by 

corporations against the United States for refunds of taxes. 

Public Law 85-930 extended the Renegotiation Act of 1951 from its expiration date of December 31, 1958, to June 30, 1959. 

Public Law 86-28 amended the Internal Revenue Code to increase the 

rate of the railroad retirement tax on employees, employee representatives, and employers effective with respect to compensation paid on or 

after June 1, 1959, for services rendered on or after such date. 

Public Law 86-70 made certain amendments to the Internal Revenue Code 

which were necessitated by the admission of Alaska to the Union. 

The Revenue Service formulated and carried out plans for the 

implementation of the legislation that was enacted. These plans 

included the issuance of statements to the public, circulars, and 

regulations, and the revision of tax forms. 

INTERNAL CONTROLS 

Internal Audit 

The internal audit program is designed to promote efficient administration. All phases of Revenue Service work are subject to 

audit and internal audit coverage of all major field activities is required at least once each year. Utilizing recognized sampling 

techniques, the program gives greatest attention to those organizational segments which are most closely connected with the collection 

of tax revenues and the enforcement of tax laws. 

The following summary covers the regular internal audit activity for the fiscal year 1959 : 

Internal audit activity 

Offices or divisions audited 

Subject 

ject to 

July 

In p 1, 1 roces

95s8 

Started Completed I

June

n process 

30, 1959 

Grand total 

Regional offices, total 

Regional counsel? offices 

Regional commissioners' offices: 

Collection 

Audit 

Intelligence 

Alcohol and tobacco tax 

Appellate 

Administrative 

District directors' divisions, total 

A

Collection

dit 

Inutelligence 

Service centers 

255 41 255 267 29 

6 15 

is a m~ma~ 

1 

_ 

68 

11 

10 

9 

9 

10 

11 

8 

to 

1 1 

1 

I 

3 

1 

2 

3 

2 

4 

189 25 194 196 23 

64 

64 

61 

10 

11 

4 

65 

66 

63 

— 

65 

68 

63 

— 

10 

9 

4 

3 1 2 3 

In addition to these regular internal audits, an internal audit 

of the International Operations Division was in process at the end 

of the year. 

Internal Security 

During the fiscal year regional inspectors gave increased emphasis to on-the-job training of Internal Security inspectors. The 

National Office distributed to regional inspectors comprehensive 

529014 0-130-6 

65 
66 Annual Report 

training material pertaining to criminal investigative procedures 

and techniques. With respect to formalized training, 12 Internal 

Security inspectors successfully completed the comprehensive 

course conducted by the Treasury Law Enforcement School. 

Three Internal Security inspectors completed the Treasury Technical School course. 

There were 4,136 personnel investigations closed during fiscal 

year 1959. In addition, police checks were conducted on 4,135 

employees who served in temporary appointments for 90 days or 

less. The large increase in the police check cases over the preceding fiscal year (2,748 such cases in fiscal year 1958) was due 

to the hiring of many more temporary employees in connection 

With the Service's efforts to facilitate the processing of tax returns 

and remittances during the filing period. Inspection also completed 126 formal tort claim investigations of motor vehicle accidents and other accidents involving personal injuries to nonFederal employees in connection with Internal Revenue Service 

activities. The overall dropoff in investigations completed in fiscal 

year 1959 was caused by a very low attrition rate within the 

Service, coupled with a cutback in the recruitment and hiring of 

new permanent employees due to budget limitations. The decrease 

in investigations conducted resulted in a corresponding decrease 

in the number of disciplinary actions taken for the year. 

A comparison of personnel investigation cases in the past 2 years 

follows : 

Personnel investigations and disciplinary actions 

Type of investigation and action 1959 1958 

Personnel investigations 

Number of cases closed, total 

Character and security investigations 

Conduct investigations 

Special inquiries 

4,136 6,007 

2, 462 

607 

1,067 

3,986 

610 

1,411 

Actions taken as a result of personnel investigations 

Disciplinary actions, total 52 719 

Separations, total I 18 260 

Bribery, extortion, or collusion 

Embezzlement or theft of Government funds hr property 2 9 

Failure of employee to pay proper tax 14 

Falsification or distortion of Government reports, records, etc 5 83 

Unauthorized outside activity 14 

Failure to discharge duties properly 1 13 

Refusal to cooperate 3 

Divulgence of confidential information 5 

Acceptance of fees or gratuities 

Personal and other misconduct 6 

7 

111 

Suspensions from duty and pay 3 25 

Reprimands, warnings, reassignments, transfers, ar demotions 30 434 

Nondisciplinary actions 3,61 5,288 

Includes resignations, retirements, or other separations while employees were under investigation or before administrative decision was made an disciplinary action where investigation disclosed derogatory information. 

MANAGEMENT ACTIVITIES 

Personnel 

Emphasis during the year was on (1) evaluating progress made 

thus far, (2) improving procedures and decentralizing additional 

authorities in the interests of efficiency and economy, and (3) 

maintaining and extending the "Blue Ribbon" career service program. For the fourth consecutive year the Revenue Service 

continued the successful operation of its executive development 

training program. Participants in this program, carefully selected for their executive potential, are assigned to the position 

of assistant district director or other key positions in the Revenue 

Service upon completion of a 6-month training course. During 

the year, a study was started to develop a plan to broaden the 

program with a view toward covering various levels of supervision 

leading to key executive positions. 

New recruiting sources for employees with good potential for 

advancement in semitechnical Service occupations were made possible through development and negotiation with the Civil Service 

Commission of a qualification standard which permits recruiting, 

at the GS-4 level, graduates of junior and business colleges and 

technical accounting schools. This eliminates dependence upon 

clerical registers which generally provide applicants possessing 

much lower potential for success in these occupations. 

A new development in college recruitment was the statutory 

authorization for recruiting superior college.students at the GS-7 

grade level upon graduation. Well over one-half of the approximately 600 trainees recruited annually to meet Service needs 'for 

technical personnel will be hired at the GS-7 grade level. 

Service-wide promotion guidelines were issued to implement 

the Civil Service Commission's Federal merit promotion program 

required to be placed in operation by January 1, 1959. It was 

already the policy of the Service to make promotions based upon 

merit, but the promotion plans issued under the new guidelines 

by all regions and the National Office require a more formal appli67 
Item 

Suggestions received 

Suggestions adopted 

Superior work performance awards 

Special acts and services awards 

1958 

5,110 

1,235 

859 

89 

4, 453 

1,118 

1,075 

78 

68 Annual Report Report on Operations 69 

cation and documentation of merit principles in the selection of 

employees for promotion. 

Regional Commissioners of Internal Revenue were authorized 

to approve additional personnel actions. They now have authority 

to take action on all positions in district offices, with the exception 

of those pertaining to district directors and assistant district 

directors. 

As an essential part of the policy to decentralize authority, the 

Administrative Assistant to the Commissioner was delegated the 

authority to make decisions and take final action for the Revenue 

Service in grievances, appeals, suitability, and disciplinary cases 

involving employees in positions for which the Administrative 

Assistant has personnel action authority. 

Concerted effort was continued in identifying and rewarding 

employees whose performance of work was outstanding. During 

the year, 674 employees were recommended for outstanding performance ratings of which 399, or 59 percent, were approved. 

This was a substantial increase in the number of recommendations 

and approvals over the previous 2 years. There were 282 outstanding performance ratings approved in 1957 and 96 approved 

in 1956. 

A Service-wide survey was conducted to determine the status 

of employee and employee group relations with management. 

Field reports revealed a reasonably good employee-management 

relations program throughout the Service and highlighted the following: (a) Top management officials are providing positive 

leadership for improvement of this program, (b) excellent relationships exist with employee organization representatives, (c) 

established procedures are being used for handling grievances 

and appeals, (d) the incentive awards and suggestion programs 

have made excellent progress this year, and (e) adequate channels 

of communication exist between employees and management. 

A post retirement program was inaugurated during the year. 

A retiree emblem was designed and is given to retirees having at 

least 10 years of Revenue Service employment. The Commissioner's Letter which contains IRS items of general interest is 

mailed to retirees for a reasonable period of time. Also, a retirement planning pamphlet has been published for the purpose of 

making available to employees information which may be helpful 

in their timely and orderly preparation for retirement. 

The incentive awards program contributed materially to management improvement and employee morale. Employee recognition for superior work accomplishment increased more than 25 

percent over the same period a year ago. 

The following table shows the participation in the program 

during the last 2 years : 

Incentive awards program 

The preparation of position classification guides and standards 

continued to receive primary attention. Guides were issued covering several large groups of employees, including internal revenue 

agents, revenue officers, and most office employees in district collection divisions. Emphasis has accordingly been shifted to 

smaller specialized groups of employees in order to assure that 

their grades are in line with the grades established for the large 

number of employees already covered. 

The basic purposes of these standards and descriptions are to 

define promotional ladders, maintain grade equity among various 

positions, eliminate unnecessary paperwork, facilitate assignment 

of work in accordance with management concepts, and help in 

the recruitment and retention of well-qualified people. 
70 Annual Report 

The number of internal revenue employees on the rolls at the 

close of 1959 totaled 50,200 as compared with 50,816 at the close 

of 1958. A comparison by principal categories is shown in the 

following summary : 

Personnel summary 

Location and type 

Man-years realized Number on oils at close 

of year 

1959 1958 1959 1958 

Service, total 

Permanent 

Temporary 

National Office 

geld service, total I 

Collection, total 

Revenue officers 

Returns examiners 

Other 

Audit, total 

Revenue agents 

Office auditors 

Other 

Intelligence, total 

Special agents 

Other 

Alcohol and tobacco tax, total 

Investigators 

Inspectors 

Storekeeper-gaugers 

Other 

Appellate, total 

Technical advisers 

Other 

Administration 

Regional Counsel 

Inspection 

Enforcement personnel included above 2 

51,226 52, 516 50, 200 50,816 

49, 284 

1,942 

50, 849 

1,667 

47, 972 

2,228 

49, 834 

982 

2,969 

48, 257 

2,959 

49, 557 

2,633 

47, 567 

2,638 

48, 178 

23, 326 23, 948 23, III 23, 038 

5,344 

1,604 

16,378 

5,693 

1,525 

16,730 

5,172 

2,062 

15,877 

5,476 

1,604 

15,958 

15,479 16,123 15, 099 15, 756 

10,429 

2, 101 

2,949 

10,822 

2,129 

3,172 

10, 171 

2,003 

2,925 

10, 510 

2,095 

3,151 

1,939 2,015 1,914 1,968 

1,445 

494 

1,504 

511 

1,423 

491 

1,470 

498 

2,944 3,068 2,897 3,005 

901 

421 

749 

873 

936 

446 

802 

884 

884 

411 

730 

872 

912 

438 

771 

884 

1.294 1,162 1,354 1,191 

587 

707 

507 

655 

625 

729 

533 

658 

2, 192 

656 

427 

2,183 

641 

417 

2,125 

641 

426 

2,142 

654 

424 

22, 994 23, 857 22, 856 23, 276 

5 Includes International Operations Division. 

2 1ncludes revenue officers, returns examiners, revenue agents, office auditors, special agents, and alcohol and tobacco 

tax investigators, inspectors, and storekeeper-gaugers. 

Training 

Enactment of the Government Employees Training Act (Public 

Law 85-507) on July 7, 1958, greatly facilitated administration of 

the training program and opened new avenues for strengthening 

the program to achieve greater operating effectiveness and 

economy. 

A new training program for special agents was introduced 

through a series of preview seminars attended by field supervisory 

personnel. The new program will provide classroom instruction 

Report on Operations 71 

in tax law, procedures, and investigative techniques for newly appointed agents as well as for incumbents. A handbook for special 

agents was prepared as an integral part of the program. 

Further progress was made in implementing the audit training 

program. Approximately 1,000 internal revenue agents were 

trained in the new 6 weeks' "Advanced Agent Training Program." 

Field instructors and trainees also met for special training in the 

new 4 weeks' course in "Pension Trust and Profit Sharing Plans." 

In the collection area, the survey committee recommendations of 

1957 were completed. Approximately 2,000 revenue officers were 

given a new 1-week refresher course. 

In addition to these programs, each of which is based on the 

findings of a special training survey committee, steps were taken 

to meet other training needs. Plans were developed and Civil 

Service Commission approval was received for tax examiner training programs in both audit and collection areas. 

To keep technical personnel informed as to current developments 

in tax laws, regulations, and administrative policies, a periodic 

newsletter entitled "Tax Briefs for Revenue Agents and Office 

Auditors" was issued throughout the year and an annual Technical 

Review Institute was inaugurated. The Institute consists of a 

series of comprehensive lectures presented in district offices to explain and fit into perspective the major technical developments of 

the past year. 

Special committees were established in June 1959 to survey the 

effectiveness of the training given personnel in both the enforcement and the permissive areas of alcohol and tobacco tax activities, 

and to make recommendations for improvement. 

Three hundred fifteen Intelligence, Inspection, and Alcohol and 

Tobacco Tax investigators completed courses at the Treasury Law 

Enforcement Officers Training School. 

The Management Institute Program was continued, again 

utilizing various non-Service sites across the country to train approximately 1,200 participants, principally branch chiefs, analysts, 

and group supervisors. Included in this number were 46 employees of other Treasury Department bureaus. 

Thirteen employees completed the 6-month executive development course designed for potential key officials. Basic and specialized supervisory training continued for both incumbent and potential management personnel throughout the Service under local 

sponsorship. 

Continued usefulness of the 14 tax law and tax accounting 

courses offered by correspondence is reflected in the completion by 

employee-students of approximately 62,000 lessons during the year. 
72 Annual Report 

Work was begun on the development for Service-wide use of 

(1) a standardized supervisory training course, (2) an instructor 

guide for use by regional appellate divisions in training technical 

advisers, (3) an on-the-job training guide for coaches and supervisors, (4) a standardized secretarial development course, and 

(5) a report writing course. 

Contracts were negotiated outside the Service for (1) the 

preparation of a Taxpayer Contacts course, (2) a study to be 

made of the training needs of regional analysts, and (3) the 

preparation of scripts and films for use alone or for incorporation 

in other training programs. 

Operating Facilities 

Property management.—Improved property inventory techniques were developed this year which will (1) simplify the taking 

of an inventory, (2) provide an adequate basis for computing the 

capital assets account without adjusting for acquisitions and disposals, (3) furnish current data for budget requests, (4) provide 

a basis for allocation of equipment funds, and (5) furnish a more 

factual replacement picture since 90 percent of equipment purchases will have already been received and trade-ins and disposals 

accomplished each year prior to the taking of an annual inventory. 

Progress was made in the standardization of storeroom supplies 

which permitted reduction of storeroom inventory in some offices 

as high as 200 items. Standards were also developed for such 

items as envelopes, special equipment for enforcement vehicles, 

money chests, binders, and paper cartons for shelf filing. These 

standards provide for uniform sources of supply, more favorable 

prices, and savings in administrative costs. 

Regional requirements for passenger vehicles for enforcement 

work were determined and a ceiling established for each region. 

Authority to acquire cars from forfeitures and transfers from 

other agencies was decentralized to regional offices. These two 

authorities together with prior delegations now permit regions to 

do a complete fleet management function to acquire, assign, control, and dispose of their motor vehicle fleet. 

Space.—Upgrading and consolidation of office space were accomplished in Los Angeles, Milwaukee, and Cincinnati district 

offices and in the Philadelphia Regional Office. Space improvements were also made in various other smaller locations. As a 

result of negotiations with the General Services Administration 

and the lessor, the Newark District Office was air conditioned and 

the cost included in the lease to be amortized over a 5-year period. 

Report on Operations 73 

Several other Internal Revenue Service offices have been air conditioned as a result of the GSA program of air-conditioning Federal office buildings. Some of these locations are the Omaha, St. 

Paul, Louisville, and Little Rock district offices. 

The new office building for the Baltimore district office is scheduled for completion by the end of calendar year 1959. 

Internal Revenue Service space requirements are included in 

Federal office buildings now under construction in Albuquerque, 

N. Mex., Burlington, Vt., and Omaha, Nebr. These buildings will 

be completed and ready for occupancy some time during calendar 

year 1960. In addition, Revenue Service space requirements are 

included in Federal office buildings which have been fully approved 

and will be constructed in Parkersburg, W. Va., Richmond, Va., 

and Little Rock, Ark. These buildings should be constructed and 

ready for occupancy within the next 2 to 3 years. 

Records and correspondence.—The records administration program has continued to free Service operations of unnecessary and 

complicated paperwork, and at the same time to insure that adequate official records are created to document activities. In this 

connection, additional standards, guidelines, and management 

analysis assistance aimed at reducing records and eliminating or 

simplifying their related paperwork were furnished operating 

units in the National Office and the field. 

Continuing emphasis on the management of forms resulted in 

fewer, more understandable forms and form letters for use by the 

Service and the public. Concentrated forms standardization work, 

which resulted in a 32-percent decrease in local district office 

forms, is illustrated by these figures : 

Inventory New forms added Forms elimi- Inventory 

Forms prescribed by— July 1, 1958 during year noted June 30,1959 

National Office 3,021 436 159 3,298 

Regional offices 6,630 2,039 1,016 7,653 

District offices 22,547 2,694 9,841 15,400 

The Service-wide systematic retirement and disposal of inactive 

records resulted in the elimination of 208,430 cubic feet of records, 

and the recapture for other use of floorspace and filing equipment 

valued at $719,000. 

Improved and timely correspondence to the public, with less 

clerical effort, has been a direct result of intensive reviews of 

public-use form letters. Likewise, there has been a significant 

improvement in the quality of dictated correspondence resulting 

from Service-wide implementation of the Correspondence Handbook. 
74 Annual Report Report on Operations 75 

Safety.—The Secretary of the Treasury presented an employee 

of the Internal Revenue Service with the Secretary's Individual 

Award of Honor for his outstanding work in the field of safety. 

This was the first such award presented in the Department. A 

safety award program was established to encourage accident prevention competition between the three Service Centers and to 

stimulate efforts to reduce on-the-job injuries and man-days of 

lost production due to such injuries. The Secretary's Safety 

Award was presented to 22 district offices for working without 

a lost-time injury for a year. In addition, Upper Manhattan 

District established a safety record of 2,467,272 man-hours without a lost-time injury and received a similar award. 

Publications.—Publications distribution activities of the National Office were moved from the basement of the headquarters 

building to a warehouse at a suburban location where adequate 

facilities have been provided for receiving, storing, handling, and 

distributing forms. As a result, the average length of time for 

filling requisitions was reduced from about 3 weeks to less than 

a week. 

Adoption of the semimonthly return system for payment of alcohol and tobacco taxes, described on p. 43, placed heavy demands 

on publications facilities. During the closing 6-week period of 

the fiscal year, 21 individual forms, 9 industrial circulars, and 2 

styles of envelopes had to be designed, developed, printed, and 

distributed to provide the tools for the changeover. Approximately 926,500 forms and circulars were distributed to the field 

during the first week in June in order to provide for their use 

effective June 24, 1959. The envelopes were shipped in 3 days 

instead of the 45 days normally required. 

Fiscal Management 

The cost of operating the Revenue Service during the year was 

$355,469,000, including $819,000 in advance procurement from 

the 1959 appropriation, made available prior to the beginning of 

the 1959 fiscal year through special legislation. Over $15 million 

of the approximately $18 million increase over the preceding fiscal 

year was attributable to annualization of the costs of the Government-wide salary increase effective in January 1958. 
78 Annual Report 

centers, where high-speed, data-processing machines are used to 

perform these operations. 

The success of this program, together with recent advancements 

in the capacity and versatility of data-processing equipment, have 

prompted the Service to survey the possibilities for further improvements through mechanization. Studies of large-scale electronic data-processing (EDP) equipment were initiated in 1959 

to determine the availability of types having potential application 

to Revenue Service procedures and to determine the feasibility of 

adapting and modifying existing operations to utilize such 

equipment. 

These studies showed that the use of EDP methods to perform the 

bulk of the Service's work involving accounting, clerical, and statistical operations is a practicable and achievable goal. Broad outlines , were developed for a system which would not only handle 

present operations more rapidly and economically but would also 

perform many additional tasks that cannot now be done. 

The proposed system would include a permanent tax account for 

each taxpayer through which all transactions, for all taxes and tax 

periods, would be cleared before issuance of a net bill or refund. 

This consolidation of financial and technical essentials from all 

returns and information documents would permit more efficient 

billing, refunding, and verifying, and would provide the tools for 

major advances in enforcement. 

The process of installation will be very gradual, of course, since 

the size and complexity of the project mean that its full implementation will take several years. Initially, the Service proposes 

to install the plan in a single region, thus obtaining the benefits of 

a pilot application. When a satisfactory operation in that region 

has been achieved, the system will be extended gradually to the 

other eight regions. Present estimates contemplate that the pilot 

regional setup will be under way sometime in 1961, with all the 

remaining regions converted within a few years thereafter. 

Current Research Program 

Research studies have covered an increasingly wide range of 

compliance and enforcement problems. These deal with such 

varied subjects as filing requirements for estimated tax and annual returns, the effect of simplification measures on taxpayer 

compliance, as well as examination of numerous technical provisions of the Code, where clarification or coordination of unrelated 

provisions would assist taxpayers and the Service in dealing with 

complicated questions. One such study, for example, has develReport on Operations 79 

oped a basis for standardizing the statutory rules dealing with 

"related persons" and "attribution of ownership." During the 

past year a great deal of attention has been given to research 

supported by surveys. Several surveys were designed to add to 

existing information on underreporting of different types of income. The increasing public attention being given to indicated 

gaps between income reported by taxpayers and what they are 

presumed to have received has stressed the need for more accurate 

information. Work in this area has a prominent place in future 

research plans. 

Advisory Group 

An advisory group, consisting of 12 outstanding representatives 

of the legal, accounting, and tax teaching professions was organized in June 1959. This group will serve as a clearinghouse 

for suggestions from practitioners and the public for improving 

tax administration. They will meet with Revenue Service officials 

several times- a year to discuss ways in which operations can be 

improved, to offer constructive criticism of Service policies and 

procedures, and to provide valuable advice on general problems 

facing the Service. 

Coordinated Evaluation Program 

A program for evaluation of regional management on a coordinated basis by all National Office divisions having counterparts in 

regional commissioners' offices was initiated in 1959. The basic 

purpose of the program is to determine how effectively regional 

offices are carrying out their responsibilities and to determine 

areas where the National Office can be of greater assistance. 

These visits make it possible for top management to participate 

jointly in discussions of the evaluations made by the various functional directors and reach certain overall conclusions on the caliber 

of regional management. This coordinated approach has proved 

very effective and an increasing number of regions are putting 

their district evaluation programs on a coordinated basis. 

Statistical Reporting 

Unusual progress occurred during the year in the utilization of 

high-speed electronic computer equipment and in the issuance of 

two important sets of statistics, "Tax Analysis" and "Selected 

Financial Data," in advance of the annual "Statistics of Income" 

volumes. For the first time in the history of the Service, income- 
78 Annual Report 

centers, where high-speed, data-processing machines are used to 

perform these operations. 

The success of this program, together with recent advancements 

in the capacity and versatility of data-processing equipment, have 

prompted the Service to survey the possibilities for further imProvements through mechanization. Studies of large-scale electronic data-processing (EDP) equipment were initiated in 1959 

to determine the availability of types having potential application 

to Revenue Service procedures and to determine the feasibility of 

adapting and modifying existing operations to utilize such 

equipment. 

These studies showed that the use of EDP methods to perform the 

bulk of the Service's work involving accounting, clerical, and statistical operations is a practicable and achievable goal. Broad outlines were developed for a system which would not only handle 

present operations more rapidly and economically but would also 

perform many additional tasks that cannot now be done. 

The proposed system would include a permanent tax account for 

each taxpayer through which all transactions, for all taxes and tax 

periods, would be cleared before issuance of a net bill or refund. 

This consolidation of financial and technical essentials from all 

returns and information documents would permit more efficient 

billing, refunding, and verifying, and would provide the tools for 

major advances in enforcement. 

The process of installation will be very gradual, of course, since 

the size and complexity of the project mean that its full implementation will take several years. Initially, the Service proposes 

to install the plan in a single region, thus obtaining the benefits of 

a pilot application. When a satisfactory operation in that region 

has been achieved, the system will be extended gradually to the 

other eight regions. Present estimates contemplate that the pilot 

regional setup will be under way sometime in 1961, with all the 

remaining regions converted within a few years thereafter. 

Current Research Program 

Research studies have covered an increasingly wide range of 

compliance and enforcement problems. These deal with such 

varied subjects as filing requirements for estimated tax and annual returns, the effect of simplification measures on taxpayer 

compliance, as well as examination of numerous technical provisions of the Code, where clarification or coordination of unrelated 

provisions would assist taxpayers and the Service in dealing with 

complicated questions. One such study, for example, has develReport on Operations 79 

oped a basis for standardizing the statutory rules dealing with 

"related persons" and "attribution of ownership." During the 

past year a great deal of attention has been given to research 

supported by surveys. Several surveys were designed to add to 

existing information on underreporting of different types of income. The increasing public attention being given to indicated 

gaps between income reported by taxpayers and what they are 

presumed to have received has stressed the need for more accurate 

information. Work in this area has a prominent place in future 

research plans. 

Advisory Group 

An advisory group, consisting of 12 outstanding representatives 

of the legal, accounting, and tax teaching professions was organized in June 1959. This group will serve as a clearinghouse 

for suggestions from practitioners and the public for improving 

tax administration. They will meet with Revenue Service officials 

several times- a year to discuss ways in which operations can be 

improved, to offer constructive criticism of Service policies and 

procedures, and to provide valuable advice on general problems 

facing the Service. 

Coordinated Evaluation Program 

A program for evaluation of regional management on a coordinated basis by all National Office divisions having counterparts in 

regional commissioners' offices was initiated in 1959. The basic 

purpose of the program is to determine how effectively regional 

offices are carrying out their responsibilities and to determine 

areas where the National Office can be of greater assistance. 

These visits make it possible for top management to participate 

jointly in discussions of the evaluations made by the various functional directors and reach certain overall conclusions on the caliber 

of regional management. This coordinated approach has proved 

very effective and an increasing number of regions are putting 

their district evaluation programs on a coordinated basis. 

Statistical Reporting 

Unusual progress occurred during the year in the utilization of 

high-speed electronic computer equipment and in the issuance of 

two important sets of statistics, "Tax Analysis" and "Selected 

Financial Data," in advance of the annual "Statistics of Income" 

volumes. For the first time in the history of the Service, income- 
Percent 

100 

oft Straight line 

,..,Declining balance 

:;:: end sun. et the 

"yews digits 

Income year 

1955 

(Thousands) 

1956 1954 1953 

56,747 57,838 

42,633 45,223 

14,114 12,615 

15,702 14,426 

13,712 12,932 

1,990 1,494 

41, 045 43, 412 

28,921 32,291 

12,124 11,121 

Million dollars) 

267, 724 248, 530 229,221 228, 708 

215,618 200, 712 185, 953 187, 734 

21, 285 18, 430 16,926 16,664 

8,606 7,851 7,048 5,828 

2,872 2,584 2,370 2,043 

3, 344 3, 086 3, 107 3, 128 

16,000 15,868 13,818 13,312 

249,551 229,595 209,669 212,375 

201, 837 186,154 170.501 173.518 

19,176 16, 349 14, 987 15,969 

8,201 7, 454 6, 720 5, 568 

2,468 2,187 2,003 1,786 

2,731 2,526 2,485 2,568 

15, 1.39 14,926 12,972 12,967 

59,197 

46, 259 

12,938 

18,459 

16,973 

1,486 

40,738 

29, 286 

11,453 

44,689 

13, 561 

41,359 

29,254 

12,105 

58,250 

16,891 

15,435 

1, 456 

80 Annual Report 

analysis data were completed as soon as 8 months after the lastincluded returns were due to be filed. 

The first issue of "Tax Analysis of Individual Income Tax Returns," relating to returns filed during 1958, was released in December 1958. This release was prepared in response to a request 

in Staff Study II of the Joint Committee on Internal Revenue 

Taxation. It contained data compiled from page 1 of Form 1040 

(and comparable data from Form 1040A), classified by taxable 

and nontaxable returns and by size of adjusted gross income. 

The second issue of "Selected Financial Data," covering certain 

items reported on business income returns for 1957-58, was released in April 1959. Comparable selected statistics, classified by 

industry, were prepared for nonmanufacturing corporations and 

for sole proprietorships and partnerships engaged in nonagricultural activities. These business statistics, first prepared for 

1956-57, have proved essential to the Federal Government estimates of national income and gross national product and will be 

continued annually. 

New information showing methods used by corporations to 

compute depreciation has recently been prepared in connection 

with the annual program of providing statistics with respect to 

the operation of the income tax laws. As shown in the following 

chart, significant changes have occurred in the methods used by 

corporations in computing depreciation since 1954. 

Report on Operations 81 

The total amount of depreciation and amortization claimed as a 

deduction by corporations has grown from $13.7 billion in 1954-55 

to $19.4 billion in 1957-58. The 1954-55 and 1955-56 methods 

data are based on information reported in the majority of the'corporation returns filed for those years. The 1956-57 data were 

derived from a study of the returns filed by the largest corporations 

only. The 1957-58 percentages relate to all corporations. 

A comparison of major types of income for both individuals 

and corporations, as given in the "Statistics of Income" for the 5 

most recent years, is shown in the following tables. 

Individual income tax returns: Number of returns and sources of income, 

1953-57 

Item 

1957 

A. Number of returns 

All individual returns, total 59, 825 

Taxable 46, 865 

Nontaxable 12,960 

Returns with itemized deduction, total 20,155 

• Taxable 18,569 

Nontaxable 1,586 

Returns with standard deduction, total 39,670 

Taxable 28, 296 

Nontaxable 11,374 

B. Sources of income 

All individual returns: 

Adjusted gross income, total 280, 321 

Salaries and wages 228, 077 

Business or profession 20, 339 

Dividends received 9,124 

Interest received 3,319 

Rents and royalties 3, 259 

Other income 16,202 

Taxable returns: 

Adjusted gross income, total 262,169 

Salaries and wages 214, 187 

Business or profession 18,596 

Dividends received 8, 627 

Interest received 2,841 

Rents and royalties 2,582 

Other income 15, 336 

Note-The classification of taxable and nontaxable returns to 1954-57 was ased only on the income tax (after credits) 

for the years 1952 and 1953 it was based on the combined in ome tax (afte credits) and elf-employment tax. Thus, 

returns with adjusted gross deficit and no income tax but having self-employment tax were classed as taxable. These returns 

had adjusted gross deficits of 246 million in 1953. For 1955 and subseque t years, nontaxable returns with adjusted 

gross deficit and returns with a breakeven in adjusted gross in one were clas shed as returns with a standard deduction, 

whereas in prior years they were classified as returns with itemized deductions. 

329014 0-00----7 
Type of case 1959 1958 

General enrollment-attorneys and agents: 

Applications for enrollment approved 

Applications for enrollment disapproved 

Applications withdrawn on advice of the Director 

Applications for enrollment withdrawn with prejudice 

Applications abandoned 

Special enrollment to practice before the Internal Revenue Service: 

Applications approved by reason of examination 

Applications approved pursuant to standards and orocedures based upon former service with the Treasury Department. (Sec. 10.3(f), Department Circular No. 230, revised) 

Applications of former employees denied 

Applications withdrawn 

Applications abandoned 

Renewal of enrollment cases: 

Applications for renewal approved 

Applications for renewal disapproved 

Applications for renewal withdrawn 

Applications for renewal abandoned. 

Disbarment cases: 

Disbarments 

Resignations accepted 

Resignations accepted with prejudice 

Reprimands issued 

Suspensions 

Closed without action 

Formal complaints pending against enrolled persons 

3. 616 

5 

23 

1 

8 

2 

3 

7,280 

14 

110 

1 

5 

125 

6, 720 

17 

110 

1 

30 

1 

199 

15 

7 

54 

7, 422 

24 

4 

2 

1 

39 

2 

1 

82 Annual Report 

Corporation income tax returns: Number of returns and sources of receipts, 

195347 

Item 

Income year 

1957-58 

(preliminary 

19%-57 1955-56 1954-55 1953-54 

A. Number of returns 

All corporation returns, total 984,516 924,961 842,125 754, 019 730, 974 

Active corporations, total 940. 147 885, 747 807,303 722,805 697,975 

With net income 572,936 559,710 513, 270 441, 177 441,767 

Without net income 367,211 326,037 294, 033 281, 628 256, 208 

Inactive corporations 44,369 39,214 34,822 31,214 32,999 

B. Sources of receipts (Million dollars) 

Active corporations: 

Receipts, total 720, 436 679, 868 642,248 554,822 558, 242 

Gross sales 567,719 540,040 514, 864 443,637 452,061 

Gross receipts from operations 117,193 106,633 97, 819 85,269 82,507 

Dividends received 3,453 3,446 3, 344 2,945 2,965 

Interest received 16,893 15,058 13, 207 11,618 10,801 

Rents and royalties 7, 068 6, sao 5, 875 5, 343 4, 936 

Other receipts 8, 110 7, 861 7,140 6,010 4,973 

Returns with net income: 

Receipts, total 625,621 614,857 584,975 484,727 506,456 

Gross sales 499,494 493,633 472, 447 388,712 411,212 

Gross receipts from operations 96,108 92,476 86, 549 73,352 74,151 

Dividends received 3,286 3,352 3,303 2,860 2,938 

Interest received 14,298 12,855 11,415 10,155 9, 567 

Rents and royalties 5,549 5,613 4,862 4,405 4,184 

Other receipts 6,885 6,927 6, 399 5, 244 4,397 

Enrollment of Practitioners 

Treasury Department rules governing the practice of attorneys, 

agents, and other persons before the Internal Revenue Service were 

revised in fiscal year 1959 to recognize two new classes of practitioners and thus provide additional channels through which taxpayers may obtain assistance in their tax problems. The new 

regulations, which became effective March 15, 1959, reflect many 

helpful comments received from the public and interested professional groups. 

The first change permits unenrolled persons to represent taxpayers before revenue agents and examining officers in district directors' offices with respect to returns prepared by them for the 

taxpayer. This change was made to meet the increased need for 

competent assistance to taxpayers resulting from the tremendous 

increase in the number of tax returns filed, since the original 

Treasury provisions governing these matters were put into effect. 

The other immediate change permits qualified and experienced 

persons to be specially enrolled to practice before the Internal Revenue Service through a simplified examination procedure. On 

Report on Operations 83 

June 24 and 25, 1959, approximately 2,100 properly qualified applicants, who were not eligible for enrollment as lawyers, certified 

public accountants, or former Internal Revenue Service officers or 

employees took the special examination designed to test adequately 

the technical competency of the candidate to represent taxpayers 

at all levels of the Service. Those who successfully pass the examination, and the character investigation which will follow, will be 

given a card permitting unlimited practice before all levels of the 

Internal Revenue Service. As in the case of attorneys and certified 

public accountants and former Internal Revenue Service employees, 

they will be required to conform to the standards of conduct and 

ethical practice, as set forth in Treasury Department Circular 230, 

Revised. 

Applications for general enrollment approved in 1959 included 

7,280 original applications and 3,616 renewals. Comparative figures as to the disposition of enrollment and disbarment cases during 

the past two years are shown below : 

Disposition of enrollment and disbarment cases 

Note. When the time limit specified in 31 CFR 10.6(d), as amended, is not met, a forme enrollee is required to submit the original application which is processed by this office. The item, "Applications for enrollment approver includes 1,077 of this type in 1958 and 1,742 in 1959. 
STATISTICAL TABLI 
STATISTICAL TABLES 

Internal Revenue Collections 

Table Page 

1. Internal revenue collections by sources and by internal revenue regions, 

districts, States, and Territories 88 

2. Internal revenue collections by sources and by quarters 104 

3. Internal revenue collections by sources 106 

4. Internal revenue collections by principal sources, fiscal years 1940-59_ _ 109 

5. Number of returns filed by internal revenue regions, districts, States, 

and Territories 112 

6. Internal revenue tax on manufactured products from Puerto Rico_ __ _ 114 

Alcohol and Tobacco Taxes 

7. Establishments qualified to engage in the production, distribution, 

storage, or use of alcohol and alcoholic liquors 114 

8. Establishments qualified to engage in the production or distribution of 

tobacco products 115 

9. Permits relating to industrial alcohol under chapter 51, IRC 115 

10. Permits for operations relating to alcoholic beverages under the 

Federal Alcohol Administration Act 116 

11. Permits relating to tobacco under chapter 52, IRC 116 

12. Label activity under Federal Alcohol Administration Act 117 

Stamp Taxes 

13. Number of occupational tax stamps issued, by class of tax and by 

internal revenue regions, districts, States, and Territories 118 

Cases Receiving Appellate Consideration or in Litigation 

14. Appellate Division processing of protested income, profits, estate, and 

gift tax cases prior to issuance of statutory notice 126 

15. Appellate Division processing of protested income, profits, estate, and 

gift tax cases in which statutory notices were outstanding 127 

16. Appellate Division processing of income, profits, estate, and gift tax 

cases petitioned to the Tax Court (docketed cases) 128 

17. Receipt and disposal of income, profits, estate, and gift tax cases in 

the Tax Court 128 

18. Results obtained in income, profits, estate, and gift tax cases disposed 

of in the Tax Court 129 

19. Receipt and disposal of Tax Court cases in courts of appeals or in 

Supreme Court 129 

20. Receipt and disposal of suits filed by taxpayers in Federal courts 130 

21. Civil tax cases decided by courts of appeals and Supreme Court 130 

22. Receipt and disposal of claims pending and suits filed by the United 

States in Federal and State courts 131 

23. Receipt and disposal by the Office of the Chief Counsel of collection, 

erroneous refund, subpena, summons, and injunction cases 131 

24. Receipt and disposal by the Office of the Chief Counsel of insolvency 

and debtor proceedings 131 

25. Receipt and disposal by the Office of the Chief Counsel of lien cases 

and noncourt civil advisory cases 132 

Cost of Administration 

26. Obligations incurred by the Internal Revenue Service 132 

27. Cost of printing and binding 134 

NOTES 

All yearly data are on a fiscal year 

basis, unless otherwise specified. 

For example, data headed "1959" 

pertain to the fiscal year ended June 

30, 1959, and "July 1" inventory 

items under this heading reflect inventories as of July 1, 1958. 

In many tables and charts, figures 

have been rounded and therefore 

will not necessarily add to the 

printed totals which are based on 

unrounded figures. 

Internal revenue districts are 

listed in this section by the names 

of headquarters cities. Each district 

is identical with the boundaries of 

the State in which the headquarters 

city is located except for the States 

and Territories recapitulated at the 

bottom of tables 1, 5, and 13. A map 

of the districts appears on page xiii. 

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Ihiladelphiaregion 

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Source of revenue 

Quarter endedSept. 30, 1958 

(1) 

Dec.31, 1958 

(2) 

Mar. 31, 1959 

(3) 

June 30, 1959 

(4) 

Excise taxes-Continued 

Miscellaneous excise taxes, total 

Admissions: 

Theaters, concerts, athletic contests, etc. it 

Roof gardens, cabarets, etc 

Club dues and initiation fees 

Long-distance telephone, telegraph, cable, radio, etc.; 

leased wires, wire and equipment service 

Local telephone service 

Transportation ofOil by pipeline 

Persons 

Property 

Use of safe deposit boxes 

Coconut and other vegetable oils processed in 

Sugar 

Diesel and special motor fuels 

Narcotics and marihuana, including occupational 

taxes 

Coin-operated amusement and gaming devices 

Bowling alleys, pool tables, etc 

Wagering taxes: 

Occupational 

Wagers 

Use tax on certain vehicles 

Other 17 

Unclassified excise taxes: 

Unapplied collections 

Undistributed depositary receipts a 

Taxes not otherwise classified in 

447,649 359,519 314, 065 314, 721 

14,395 

10, 584 

18,738 

68,906 

94, 574 

6, 772 

51,909 

106, 748 

1,485 

438 

21, 396 

11, 859 

265 

10,371 

I, 986 

261 

5,334 

25,334 

11 

16,081 

11,485 

13,725 

76,7% 

100, 753 

I, 175 

61, 806 

31,424 

1,424 

387 

25, 549 

11,%1 

160 

772 

287 

96 

2,7 

2, 764 

4 

II, 550 

11,482 

13,765 

73, 662 

100,063 

14 

59, 655 

2,323 

1,381 

473 

21, 732 

13, 502 

149 

631 

125 

118 

2,000 

2,005 

5 

7,952 

II, 566 

18, 585 

73, 049 

102, 632 

1 

53, 674 

1,419 

1,852 

390 

17, 701 

15, 176 

395 

1,004 

1, 004 

91 

1,668 

2,434 

II 

I, 139 

16,372 

345 

(-15,906) 

419 

34, 570 

(-1,322) 

30,735 

1,113 (-1, 313) 1, 205 4, 439 

Footnotes on p. 110. 

Table 2.-Internal revenue collections by sources and by quarters 

lIn thousands of dollars) 

Table 2.-Internal revenue collections by sources and by quaders-Continued 

lIn thousands of dollars] 

Source of revenue 

Grand total, all sources 

Corporation income and profits taxes 

Individual income and employment taxes, total 

Income tax not withheld a 

Income tax withheld and old-age and disability insurance 

Railroad retirement 6 

Unemployment insurance 

Estate tax 

Gift tax 

Excise taxes, total 

Alcohol taxes, total 

Distilled spirits 7 

Wines, cordials, etc. 

Beer 7 

Tobacco taxes, total 

Cigarettes 

Cigars Ti' 

Other 7 

Stamp taxes on documents, other instruments, and playing 

cards, total 

Issues and transfers of bonds of indebtedness or 

capital stock, foreign insurance policies, and deeds 

of conveyance: 

Sales by postmasters 

Sales by directors 

Playing cards, silver bullion transfers 

Manufacturers excise taxes, total 

Gasalipe 

Lubricating oil, etc 

Tires (wholly or in part of rubber), inner tubes, and 

tread rubber 

Motor vehicles, chassis, bodies, parts, and accessories_ 

Radio and television sets, phonographs, components, 

etc 

Refrigerators, freezers, air-conditioners, etc.; electric, 

gas, and oil appliances 

Other it 

Retailers' excise taxes, total 

Luggage, etc 

Jewelry, etc 

Furs 

Toilet preparations 

Quarter endedSept. 30, 1958 

(1) 

Dec. 31, 1958 

(2) 

Mar. 31, 1959 

(3) 

June 30, 1959 

(4) 

17, 079, 073 15, 295, NO 22, 821,985 24, 601,856 

3, 061, 451 .3, 112,601 6, 244, 639 5,672, 818 

10, 970, 151 9, 277, 959 13, 543, 542 15, 796, 836 

2, 209, 526 630, 020 3,626,160 5, 883, 008 

8, 625, 152 8, 513, 594 9,473, 357 9, 778, 282 

132, 985 132,131 128,397 131,856 

2,488 2,215 315,628 3,690 

295, 450 282, 286 335. 439 322, 648 

4,751 5,365 16,639 90,405 

2, 716, 156 2,618, 161 2, 680, 521 2, 714, 711 

765, 891 833,863 655,299 747, 044 

518,297 631,970 476,803 510,079 

21,601 26,016 21,747 23,079 

225, 993 175, 877 156,749 213, 886 

477,690 453, 350 446, 399 429,377 

460,188 435,169 431,215 411,478 

12, 783 13,627 10, 702 13, 989 

4,719 4,555 4,482 3,910 

31, 192 30, 080 35, 594 36, 951 

7,114 8,159 11,343 9,562 

22,178 20, 052 22, 041 25, 476 

1,6% 1,869 2,210 1,913 

929, 343 882, 967 I, 065, 813 1,080,666 

435, 898 453, 631 422, 979 387, 745 

19, 58 1 18,786 17,499 17, 819 

67, 021 67, 491 68, 700 75,699 

303, 668 215, 362 421, 432 480,323 

26,955 41,485 45,132 38,994 

22, 958 26, 239 26, 737 27, 032 

53,262 59, 973 63, 334 53, 053 

76,882 73,943 128,364 76,539 

13, 961 12, 350 21, 218 13, 939 

34, 337 31, 681 59,043 31,321 

3,698 5,758 13,347 7,107 

24, 886 24,154 34, 756 24, 172 

Footnotes on p 110. 

104 105 
Table 3.-Inremal revenue collections by sources-Continued 

[In thousands of dollars] 

Table 3.-Internal revenue collections by sources 

[In thousands of dollars] 

Source of revenue 1959 1958 1959 1958 Source of revenue 

35, 644, 493 

745, 892 

79,797,973 79,978,476 

49, 588,488 

18, 091, 509 

18, 088, 669 

2,840 

2, 137, 149 

3, 002, 096 

525,369 

324,020 

92, 442 

Grand total, all sources 

Corporation income and profits taxes, total 

Regular It 

Exempt organization business income tax Ia 

Individual income and employment taxes, total 

Income tax not withheld I 

Income tax withheld and old-age and disability insurance, total 5 2, 

Received with returnsI 

Undistributed depositary receipts 

Railroad retirement, total 

Railroad employment compensation tax; employers' tax 6% percent to May 31, 

1959, 6% percent thereafter; employees' tax 6% percent to May 31, 1959, 

6% percent thereafter; both imposed on taxable portion of wages: 

Received with returns 

Undistributed depositary receipts 

Railroad employees' representative tax, 121/2 percent of taxable portion of 

wages to May 31, 1959, 131/2 percent thereafter 

Unemployment insurance, employers of 4 or more persons taxed 3 percent on 

taxable portion of wages; credit allowed up to 90 percent of tax for contributions 

to State unemployment funds 

Estate tax, graduated rates from 3 percent on first $5,000 of net estate in excess of 

$60,000 exemption to 77 percent on portion over $10,000,000; credit allowed for 

State death taxes 

Gift tax, graduated rates from 2% percent on first $5,000 of net gifts in excess of $30,000 

exemption to 57% percent on portion over $10,000,000; $3,000 annual exclusion for 

each donee 

Excise taxes, total 

Alcohol taxes, total 

Distilled spirits taxes, total 

Imported (collected by Customs), $10.50 per gallon 

Domestic. $10.50 per gallon 7 

Rectification, 30 cents per proof gallon 

Occupational taxes: 

Nonbeverage manufacturers of spirits, $25, $50, $100 per year 

Rectifiers: 

Less than 500 barrels, $110 per year 

500 barrels or more, $220 per year 

Retail dealers in liquor or medicinal spirits, $50 Per year 

Wholesale liquor dealers, $200 per year 

Manufacturers of stills, $55 per year 

Seizures, penalties, etc 

Stills or worms manufactured, $22 each 

Wines, cordials, etc., taxes, total 

Imported (collected by Customs, rates same as domestic) 

Domestic 7 

(Still wines 17 cents, 67 cents, $2.25 per gallon; sparkling wines, 

$3.40; artificially carbonated wines, $2.40; liqueurs, cordials, $1.92) 

Occupational taxes: 

Retail dealers in wines or in wines and beer, $50 per year 

Wholesale dealers in wines or in wines and beer, $200 per year 

Beer taxes, total 

Imported (collected by Customs), $9 per barrel of 31 gallons 

Domestic, $9 per barrel of 31 gallons 7 

Occupational taxes: 

Brewers: 

Less than 500 barrels, $55 per year 

500 barrels or more, $110 per year 

Retail dealers in beer, $22 per year 

Wholesale dealers in beer, $100 per year 

Footnotes on p. 110. 

Excise taxes-Continued 

Tobacco taxes, total 

Cigarettes, total 

Class A (small), $4 per thousand 

Class B (large), $8.40 per thousand 

Prepayments 

Cigars, total 

Large cigars, classified by intended retail prices, total 

Class A (Retailing at not over 2% cents each), $2.50 per thousand__ 

Class B (Over 2% cents, not over 4 cents each)), $3 per thousand__ 

Class C (Over 4 cents, not over 6 cents each), per thousand 

Class (Over 6 cents, not over 8 cents each), $7 per thousand 

Class E (Over 8 cents, not over 15 cents each), $10 per thousand_ _ 

Class F Over 15 cents, not over 20 cents each), $15 per thousand _ 

Class G Over 20 cents each), $20 per thousand 

Small cigars, 75 cents per thousand 

Prepayments 

Manufactured tobacco (chewing, smoking, and snuff), 10 cents per pound 7_ 

Cigarette papers and tubes, papers % cent per 50; tubes 1 cent per 50 

Court fines, penalties, and taxes on leaf tobacco sold or removed in violation 

of sec. 5731, Internal Revenue Code of 1954 

Stamp taxes on documents, other instruments, and playing cards, total 

Issuesand transfersof bonds of indebtedness or capital stock, foreign insurance 

I, 277, 052 policies, and deeds of conveyance: 22 

Sales by postmasters 

Sales by directors 

133, 873 Playing cards, 13 cents per pack 

Silver bullion transfers, 50 percent of profit 

Manufacturers' excise taxes, total 

Gasoline, 3 cents per gallon 

Lubricating oil, etc., 6 cents per gallon; cutting oil 3 cents 

Tires (wholly or in part of rubber), inner tubes, and tread rubber: 

Tires, highway type, 8 cents per pound; other, 5 cents 

Inner tubes, 9 cents per pound 

Tread rubber, 3 cents per pound 

109 Motor vehicles, chassis, bodies, parts, and accessories: 

Passenger automobiles, chassis, bodies, etc., 10 percent 

6 Trucks and buses, chassis, bodies, etc., 10 percent 

23 Parts and accessories for automobiles, trucks, etc., 8 percent 

14, 297 Radio and television sets, phonographs, components, etc., 10 percent 

1,450 Refrigerators, freezers, air-conditioners, etc.; electric, gas, and oil appliances: 

7 Refrigerators, f reezers, air.conditianers, etc., 5 percent exceptself-contained 

1, 528 air-conditioning units which are taxed at 10 percent 

4 Electric, gas, and oil appliances, 5 percent 

Pistols and revolvers, 10 percent 

Phonograph records, 10 percent 

Musical instruments, 10 percent 

Sporting goods (other than fishing rods, creels, etc.), 10 percent 

Fishing rods, creels, etc.. 10 percent 

Business and store machines, 10 percent 

Cameras, lenses, film, and projectors, 10 percent except projectors which are 

taxed at 5 percent 

Electric light bulbs and tubes, 10 percent 

Firearms (other than pistols and revolvers), shells, and cartridges, 11 percent. 

Mechanical pencils, pens, and lighters, 10 percent 

Matches, 2 cents per thousand; fancy wooden or colored stems, 5% cents 

Footnotes on p. 110. 

(*) 

30 

3,855 

1,177 

1,235,823 

117,160 

10, 759, 549 

522,002 

3,341 

25 

20, 531, 116 

2,199 

12,091, 789 

34, 209, 992 

34, 302, 512 

(-92.520) 

575.282 

600, 716 

(-25, 456) 

22 

335, 880 

307, 338 

t 1, 745, 618 

21, 802 

10, 814, 268 

I, 183 

131 

762, 660 

2,894 

754, 704 

84,530 

5, 773 

1, 806,816 

1,738,050 

1, 738, 045 

4 

(*) 

51,101 

50, 696 

77 

806 

9,633 

8, 095 

24, 758 

3, 409 

3, 918 

404 

3,958, 789 

133,817 

16,916 

749 

36, 478 

89, 746 

7,558 

34 

1, 734, 021 

1 668, 208 

1,668, 201 

8 

92 

687 

8,851 

6.089 

24, 636 

3,117 

3, 735 

109, 452 

30, 460 

71, 681 

7,286 

25 

1,636,629 

69, 996 

231, 742 

15, 434 

12,639 

1,170, 003 

206,104 

166,720 

146,422 

3,974,135 

47,247 

47,208 

17,862 

700 

39 

4 

40, 593 39, 379 

62,373 61,400 

2,028 1,568 

20,540 18,282 

14,590 14,635 

11,675 11,255 

5,589 4, 995 

93, 894 90, 658 

24,288 22,546 

29,401 24,936 

13,909 14,617 

8,444 

262 5

9, 060 

5, ,111 

12, 348, 714 

36, 390, 385 

1, 700, 253 

73,685 

248,041 

16, 563 

14,307 

1.039, 272 

215, 279 

166,234 

152, 566 

339, 692 

I, 757, 307 

22,037 

105 

5 

23 

15,224 

1,250 

5 

1,497 

4 

6, 

84, 808 

I, 360 

165 

3, 222 

763,983 

(*) 33 

032 

1,235 

106 
Source of revenue 1959 1958 

Excise taxes-Continued 

Retailers' excise taxes, total 

Luggage, etc., 10 percent 

Jewelry, etc., 10 percent 

Furs, 10 percent 

Toilet preparations, 10 percent 

Miscellaneous excise taxes, total 

Admissions taxes, total 

Theaters, concerts, athletic contests, etc.: 

Admissions, 1 cent for each 10 cents or rosier fraction thereof of the 

amount paid; 2, no tax where amount is 90 cents or less f 

Ticket brokers' sales, 10 percent of amounts in excess of box office 

price 20 

Leases of boxes or seats, 10 percent of the amount for which similar 

accommodations are sold 2, 

Admissions sold by proprietors in excess of established price, 50 

percent of such excess 

Roof gardens, cabarets, etc., 20 percent of total paid for admissions, 

services, etc 

Club dues and initiation fees, 20 percent 

Long-distance telephone, telegraph, cable, radio, etc., 10 percen t 

Leased wires, 10 percent; wire and equipment service, 8 percent 

Local telephone service, 10 percent 

Transportation ofOil by pipeline, 41/2 percent; repealed, effective August 1, 1958 

Persons, 10 percent 

Property, 3 percent of amount paid, except coal which is 4 cents per ton; 

repealed, effective August 1, 1958 

Use of safe deposit boxes, 10 percent 

Coconut and other vegetable oils processed in 

Sugar, approximately )4 cent per pound 

Diesel and special motor fuels, 3 cents per gallon 

Narcotics and marihuana, total 2, 

Narcotics 

Marihuana 

Coin-operated amusement and gaming devices, $10 and $250 per device 

Bowling alleys, pool tables, etc., $20 per alley or table 

Wagering taxes: 

Occupational tax, $50 per year 

Wagers, 10 percent of amount wagered 

Use tax on highway motor vehicles weighing over 26,000 pounds, $1.50 per 1,000 

pounds 

Adulterated and process or renovated butter, filled cheese, and imported 

oleomargarine 00 

Firearms transfer and occupational taxes 20 

Unclassified excise taxes: 

Unapplied collections 

Undistributed depositary receipts 

Taxes not otherwise classified II 

355,728 341,621 

61, 468 

156,382 

29, 909 

107, 968 

58, 785 

156, 134 

28, 544 

98, 158 

1,435,953 1,741,327 

95, 094 97, 602 

49, 023 

572 

316 

66 

45,117 

53, 647 

568 

413 

54 

42,919 

64, 813 

269, 192 

23, 221 

398, 023 

60, 338 

256, 143 

23, 233 

370,810 

7, 962 

227, 044 

35,143 

225,809 

143, 250 

6,142 

1,689 

86, 378 

52, 528 

462, 989 

6,137 

9, 383 

85, 911 

46,061 

969 1, 038 

929 992 

40 46 

16,894 

3,403 

566 

6, 221 

32, 532 

2 

29 

628 

6, 311 

33,117 

3 

22 

17,513 

3,139 

65,771 

580 

(-36,127) 

3, 378 

5,444 7, 024 

en 

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Table 3.-Internal revenue collections by sources-Continued 

(In thousands of dollars] 

Footnotes an p. 110. 

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Footnotesonp. 110. 

1 no 
Footnotes for tables 1-4 

Note.—Calendar year figures, by regions, districts States, and Territories, for 

selected types of taxes, may be obtained from the Public Information Division, 

Internal Revenue Service, Washington 25, D.C. Floor stocks taxes are reported 

separately only during the periods in which the collections are of significant 

amounts. Relatively small amounts collected in subsequent periods are merged 

with the amounts shown for the related class of tax. 

*Less than $500. 

Revised. 

I The receipts in various States do not indicate the Federal tax burden of the 

respective States, since the taxes collected in one State are, in many instances, 

borne by residents of other States. For example, the withholding taxes reported 

by employers situated in metropolitan areas near State boundaries include 

substantial amounts withheld from salaries of employees who reside in neighboring 

States. 

2 Includes tax on business income of exempt organizations. 

3 Collections of individual income tax not withheld are inclusive of old-age and 

disability insurance taxes on self-employment income. Similarly, the collections 

of income tax withheld are reported in combined amount with old-age and disability insurance taxes on salaries and wages. Estimated separate national totals 

for individual income tax and for old-age and disability insurance taxes are shown 

in the text table on p. 3 of this report. Amounts of old-age and disability 

insurance tax collections, classified by States, are compiled by the Social Security 

Administration as a byproduct of its wage and income record-keeping operations 

and are published periodically in the Social Security Bulletin. 

4 Tax payments made to banks, under the depositary receipts system, are 

included in internal revenue collections for the period in which the depositary 

receipts are issued. However, such payments are not classified by internal 

revenue districts (nor by tax subclasses to which excise tax payments relate) 

until the depositary receipts are received in internal revenue offices with tax 

returns. Accordingly, the items shown as "Undistributed depositary receipts" 

represent the amount of depositary receipts issued, less the amount of depositary 

receipts received with returns and distributed by district and tax class. 

6 Beginning with fiscal year 1957, the United States total for individual income 

tax withheld is adjusted to exclude withheld individual income taxes transferred 

to the Government of Guam in accordance with the provisions of Public Law 630, 

approved Aug. 1, 1950 (64 Stat. 392). This adjustment amounted to $3,967,000 

for 1959. 

Includes railroad employment compensation tax and tax on railroad employee 

representatives. 

7 Amounts of taxes collected in Puerto Rico on tobacco and liquor manufactures 

coming into the United States are covered into the. Treasury of Puerto Rico 

under the provisions of sec. 7652(a)(3) of the Internal Revenue Code of 1954. 

Such amounts are included in overall collections results (tables 1 through 4), 

beginning with 1955, and are shown separately in table 6. 

6 Includes occupational taxes on manufacturers of stills, rectifiers, wholesale 

liquor dealers, retail dealers in liquor or medicinal spirits, and nonbeverage 

manufacturers of spirits. 

° Includes seizures, penalties, etc., and tax on stills or worms manufactured. 

'° Includes occupational taxes on wholesale and retail dealers in wines or in 

wines and beer. 

II Includes occupational taxes on brewers and wholesale and retail dealers in 

beer. 

n Includes taxes on large cigars, classes A through G, and on small cigars. 

13 Includes taxes on cigarette papers and tubes, court fines, penalties, and 

taxes on leaf tobacco sold or removed in violation of sec. 5731, Internal Revenue 

Code of 1954. 

" Includes taxes on pistols and revolvers; phonograph records; musical instruments; sporting goods; fishing rods, creels, etc.; business and store machines; 

Footnotes for tables 1-4—Continued 

cameras, lenses, film, and film projectors; electric light bulbs and tubes; firearms, 

shells, and cartridges; mechanical pencils, pens, and lighters; and matches. 

16 Includes taxes on ticket brokers' sales, on leases of boxes or seats, and on 

admissions sold by proprietors in excess of established prices, as well as general 

admissions tax. 

16 Includes taxes on coconut oil from the Philippines, the Trust Territory, and 

United States possessions as well as other coconut and vegetable oils processed. 

Under Public Law 85-235, the 3 cents per pound tax imposed by Code Sec. 4511(a) 

on the first domestic processing of coconut oil, fatty acids, or salts derived therefrom, or any mixtures or combinations containing such oil, acids, or salts, is 

suspended from Oct. 1, 1957, to June 30, 1960. 

17 Includes taxes on adulterated and process or renovated butter, filled cheese, 

and imported oleomargarine; and firearms transfer and occupational taxes. 

18 Includes amounts of unidentified and excess collections and profit from sale 

of acquired property. 

Corporation income and profits tax rates: First $25,000 of net income, normal 

tax of 30 percent; net income in excess of $25,000, combined normal tax and 

surtax of 52 percent. Normal tax and surtax rates also apply to net income 

derived by certain exempt organizations from unrelated trade or business. 

22 Rates of tax are as follows: 

Individual income tax: Graduated rates from 20 percent on first $2,000 of 

net income in excess of exemption to 91 percent on amount over $200,000. 

Old-age and disability insurance taxes on self-employment income: 3% percent of self-employment income; increased to 3% percent for taxable 

years beginning after December 31, 1958. 

21 Rates of tax are as follows: 

Income tax withheld: Wages in excess of exemptions taxed at 18 percent. 

Old-age and disability insurance taxes on salaries and wages: Employers' tax 

2% percent, employees' tax We percent, both imposed on taxable portion 

of wages; both increased to 2 1% percent effective Jan. 1, 1959. 

22 Issues of stock, 11 cents per $100 face value through Dec. 31, 1959, 10 cents 

per $100 actual value thereafter; issues of bonds, 11 cents per $100 face value. 

Transfers of stock, 5 cents or 6 cents per $100 face value through Dec. 31, 1959, 

4 cents per $100 actual value thereafter; transfers of bonds, 5 cents per $100 face 

value. Foreign insurance policies, 1 cent or 4 cents per $1 of premium. Deeds 

of conveyance, 55 cents per $500. 

2

' In the case of certain racetracks the following rates apply: 

Admissions-1 cent for each 5 cents of amount paid. 

Ticket brokers' sales-20. percent. 

Leases of boxes or seats-20 percent. 

24 Narcotics, 1 cent per ounce; narcotics order blanks, $1 per hundred. Marihuana, $1 per ounce; marihuana order blanks, 2 cents each. Amounts shown 

also include occupational taxes levied on manufacturers, dealers, and practitioners. For classes and rates of occupational taxes see table 13. 

36 Adulterated butter, 10 cents per pound; process or renovated butter, Y4 cent; 

domestic filled cheese, 1 cent; imported filled cheese, 8 cents; imported oleomargarine, 15 cents. Occupational taxes are levied on manufacturers or dealers 

in these products and are included in the amounts shown. 

" Transfers of machineguns, short-barreled firearms, silencers, etc., $200 each; 

transfers of certain double-barreled guns, $1 each. Occupational taxes are levied 

on manufacturers, importers, or dealers in firearms and are included in the amounts 

shown. 

37 Beginning January 1951, withheld income taxes and old-age and disability 

insurance taxes on employees and employers are paid into the Treasury in combined amounts without separation as to type of tax. The figures for prior periods 

' have been combined accordingly in this table for purposes of comparison, but are 

shown separately in the annual reports for those periods. 

28 Beginning January 1, 1959: 1 cent for each 10 cents, or major fraction thereof, of amount paid in excess of $1. 

111 
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1
Table 6.—Internal revenue tax collected in Puerto Rico on manufactured products coming Table 8.—Establishments qualiRed to engage in the production or distribution of tobacco 

Into the United States, by objects of taxation products 

On thousands of dollars] 

Objects of taxation 1959 1958 

Total 21,004 18, 533 

Distilled spirits 19,069 16,708 

Distilled spirits, rectification tax 544 482 Wine (*) Beer (*) 3 Cigars, large: 

Class A 

Class B 

Class C :3 Class D 3 1 

Class E 1,384 1, 331 

Class F 1 2 

Class G 1 (.) Cigars, small 

Cigarettes, small 

Chewing and smoking tobacco 2 2 

Note—Amounts of taxes collected in Puerto Rico on tobacco and liquor manufactures coming into the United States 

are covered into the Treasury of Puerto Rico under the provisions of sec. 7652(aX3) of th Internal Revenue Code of 

1954. Such amounts are included in overall collections results (tables 1 through 4), beginni g with 1955. 

•Less than $500. 

Table 7.—Establishments qualiRed to engage in the production, distribution, storage, 

or use of alcohol and alcoholic liquors 

Class of establishment 

As of June 30— 

1959 1958 

Industrial alcohol: 

Industrial alcohol plants 32 33 

Industrial alcohol bonded warehouses 38 45 

Industrial alcohol denaturing plants 45 48 

Dealers in specially denatured alcohol 41 38 

Users of specially denatured alcohol and denatured rum 3,854 3,936 

Reprocessors, rebottlers, etc., of specially denatured alcohol articles 1,143 1,192 

Users-Of tax-free alcohol 7,405 7,484 

Distilled spirits: 

Fruit distilleries 93 96 

Registered distilleries as 84 

Internal revenue bonded warehouses 209 211 

Distillery denaturing bonded warehouses 2 2 

Taxpaid bottling houses 48 48 

Rectifying plants 127 132 

Beer: Breweries 231 246 

Wines: 

Bonded wine cellars 510 533 

Taxpaid wine-bottling houses 119 121 

Vinegar: Vinegar factories using vaporizing process 6 6 

Beverage dealers: 

Importers 

Wholesale dealers in liquors 

1,466

7, 210 

1,383 

7,403 

Wholesale dealers in beer 10,773 10,928 

Retail dealers in liquors 279,271 270,697 

Retail dealers in beer 154,843 157,184 

Other: 

Manufacturers of nonbeverage products (drawback) 996 1,014 

Bottle manufacturers 95 93 

CarrieM 449 454 

Fait-flavor concentrate plants 30 25 

Class of establishment 

As of June 30— 

1959 1958 

Manufacturers of tobacco . _ __ _ __________________ _______________________________ 

Manufacturers of cigars and cigarettes 

Manufacturers of cigarette papers and tubes 

Dealers in tobacco materials 

Tobacco export warehouses 

183 

597 

4 

2,336 

89 

190 

843 

2,357 

84 

I Includes the former bonded sea stores warehouses. 

Table 9.—Permits relating to industrial alcohol under Chapter 51, Internal Revenue 

Code, 1954 

Industrial 

alcohol 

plants, 

bonded 

Dealers 

in 

Users of— 

Carriers 

of 

Total ware- specially Specially Specially specially 

Status houses, 

and denate ring 

denatured 

alcohol 

denatured 

alcohol 

denatured 

rum 

Tax-free 

alcohol 

denatured 

alcohol 

Plants 

(1) (2) (3) (4) (5) (6) (7) 

In effect July 1, 1958 11,981 69 38 3,891 45 7,484 454 

Issued during year 573 6 4 324 2 217 20 

Terminated during year, total 774 10 1 405 2 296 60 

Revoked 

Otherwise terminated 774 10 1 405 2 296 60 

In effect June 30, 1959 11,780 65 41 3,810 45 7,405 I 414 

Renewals approved during year 11,491 64 38 3,798 43 7,107 441 

Amended during year I, 501 18 13 695 4 742 29 

Automatically terminated July 1, 1959, by P blic Law 85-859. 
Table,10.-Pirmift for operation relating to alcoholic beverages under the Federal 

Alcohol Administration Act 

Total Distillers 

Warehousing RectiWine 

producers Wine Importers Whole- Status and 

bottling 

fiefs and 

blenders 

blenders tilers 

(1) (2) (3) (4) (5) (6) (7) (8) 

In effect July 1, 1958 14, 335 • 233 • 263 174 • 465 • 62 1,383 11, 755 Issued during year I, 780 31 31 23 39 5 238 1,413 

terminated during year, total_ 1,925 32 47 32 58 11 155 1,590 

Revoked 21 

Otherwise terminated._ 1 20 1,904 32 47 31 58 11 154 1,570 

n effect June 30, 1959 14,190 232 247 165 446 56 1,466 11, 578 'mended during year I, 669 54 116 74 65 14 203 1,143 

Revised. 

Table 11.-Permits relating to tobacco under Chapter 52, Internal Revenue Code, 1954 

Status 

Total 

(1) 

Manufacturers ofDealers in 

tobacco 

materials 

(5) 

Export 

warehouse 

Proprietors 

(6) 

Cigars and 

cigarettes 

(2) 

Tobacco 

(3) 

Cigarette 

papers and 

tubes 

(4) 

In effect July 1, 1958 

Issued during year 

Terminated during year, total 

Revoked 

Otherwise terminated 

In effect June 30, 1959 

Amended during year 

3,216 

258 

667 

26 

190 

15 

2 

2 121 

2, 357 

r94 

2,605 96 22 4 2, 478 5 

2, 605 96 22 s 4 2,478 5 

869 

99 

597 

52 

183 

19 27 

89 

I Permit requirement established, &featly Sept. 3, 158 by Public Law 85-859. 

3 Automatically terminated Sept. 3, 1958, y Public Law 85-859. 

Table 12.-Label activity under Federal Alcohol Administration Act 

Applications received Applications acted upon 

Aro!nit:- 

Certificates issued returned 

Type of label For For Dis- without 

Total approval exemplion 

Total 

Appmvals 

Exemplions 

approved action 

(1) (2) (3) (4) (5) (6) (7) (8) 

Grand total 38, 129 37, 811 318 36,943 36,241 301 401 1,1% 

Distilled spirits, total 16,058 16,041 17 15,575 15,410 12 153 483 

Domestic 14,457 14, 440 17 14,042 13, 914 12 116 415 Imported 1,601 I, 601 1,533 I, 496 37 68 

Wines, teal 20, 086 19, 785 301 19, 426 18, 924 289 213 660 

Domestic 5, 656 5, 355 301 5, 487 5, 135 289 63 169 

Imported 14, 430 14, 430 13,939 13, 789 150 491 

Malt beverages, total. 1, 985 1,985 1, 942 1,907 35 43 

Domestic 1,679 1,679 1,646 1,639 7 33 

Imported 306 306 2% 268 28 10 

116 117 
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Table 14.-Appellate Division processing of protested Income, profits, estate, and gift 

tax cases prior to issuance of statutory notice of deficiency (pre-90-day cases) 

A. Progress of work 

Table 15.-Appellate Division processing of protested income, profits, estate, and gift 

tax cases in which statutory notices of doRciency were outstanding (90-day cases) 

A. Progress of work 

Status 

Number 

of cases 

(1) 

Amount stated in revenue agents report 

(thousand dollars) 

Deficiency 

in tax 

(2) 

Penalty 

(3) 

Overassessment 

(4) 

Pending in pre-90-day status July I, 1958 

Net receipts from district directors during year 

Processed during year, total 

Agreed 

Unagreed overassessments and claim rejections 

Statutory notices issued-transferred to 90-day status 

Pending In pre-90-day status June 30, 1959 

12, 394 

17,379 

484, 653 

460, 904 

32, 534 

27,147 

171,223 

161, 609 

16,475 384,166 26,163 124, 342 

11, 785 

625 

4,065 

242, 833 

593 

140, 740 

14,684 

it 478 

120, 813 

2,124 

1,405 

13,298 561,391 33, 519 208, 489 

1 Deficit figure less than $500. 

B. Results obtained In cases processed 

Method Number 

of cases 

Appellate determination 

(thousand dollars) 

Deficiency 

in tax 

Penalty Overassessment 

Processed during year, total 16,475 271,191 21, 650 127,517 

Agreed 

Unagreed overassessments and claim rejections 

11,785 

625 

123, 453 

6 

6, 245 125,519 

1,912 

Statutory notices issued-transferred to 90-day status 4,065 147, 732 405 87 

I Deficit figure less than $500. 

Status Number 

of cases 

Amount stated in statutory notice 

(thousand dollars) 

Deficiency 

in tax 

Penalty Overassessment 

Pending in 90-day status July 1, 1958 

Net receipts during year, total 

1, 874 

4,384 

46, 414 

154,161 

4,006 

15,638 

5 

101 

Statutory notices issued by Appellate Division 4, 004 146, 606 15, 425 57 

Cases resulting from district directors' statutory notices _ 380 7,555 213 45 

Processed during year, total 4, 928 141, 556 15,119 23 

Agreed 606 15, 607 205 2 

Defaulted 1, 124 16, 155 1, 046 3 

Petitioned to the Tax Court-transferred to docketed status_ 3,198 109, 794 13, 868 19 

Pending in 90-day status June 30, 1959 1, 330 59, 018 4, 525 83 

I Difference from table 14-transferred to 90-day status-is caused by cases being combined or split for the purpose of 

Swing the statutory notice, cases in transit, etc. 

B. Results obtained in cases processed 

Method Number 

of cases 

Appellate determination 

(thousand dollars) 

Deficiency 

in tax 

Penalty Overassessment 

Processed during year, total 4, 928 133, 390 15, 020 33 

Agreed 606 7,441 107 11 

Defaulted 1, 124 16,155 1, 046 3 

Petitioned to the Tax Court-transferred to docketed status_ 3, 198 109,794 13, 868 19 

126 127 
5.649 114, 760 17, 849 12,876 

4,478 

310 

861 

66, 695 

3,342 

44,723 

11,320 

1, 366 

5, 163 

12, 865 

1 

11 

Processed during year, total 

Agreed-stipulated 

Dismissed or defaulted 

Tried before the Tax Court on merits' 

Appellate determination (thousand 

dollars) 

Method Number of 

cases Deficiency 

in tax 

Overassessment 

Penalty 

Table 16.-Appellate Division processing of income, profits, estate, and gift tax cases 

petitioned to the Tax Court (docketed cases) 

A. Progress of work 

Status 

Number of 

cases 

Amount petitioned (thousand dollars) 

Deficiency 

in tax 

Penalty Overassessment 

Pending in docketed status July 1, 1958 

Net receipts during year, total 

Petitions filed in response toDistrict directors' statutory notice 

Appellate Division's statutory notice' 

Cases reconsidered after trial 

Processed during year, total 

Agreed-stipulated 

Dismissed or defaulted 

Tried before the Tax Court on merits 

Pending in docketed status June 30, 1959 

10, 395 

7,002 

• 684, 914 

277,787 

105, 947 

39,973 

6, 559 

1,146 

4,131 

2,824 

47 

167,216 

98,835 

11,656 

28, 345 

11,545 

83 

42 

1,104 

5,649 242,677 37, 405 2, 469 

4,478 

310 

861 

194, 462 

3, 493 

44,723 

30,847 

I. 395 

5, 163 

2,458 

1 

II, 748 720, 024 108, 515 5, 236 

I Difference from table IS-transferred to docketed status-is caused by excluding district director' statutory notices 

considered by Appellate in 90-day status, cases in transit, etc. 

B. Results obtained in cases processed 

18. Represents amounts petitioned. Results as to decisions rendered by the T x Court during the year are shown in table 

Table 11-Receipt and disposal of income, profits, estate, and gift tax cases in the 

Tax Court 

Status Number of 

cases 

(I) 

Amount in dispute (thous nd dollars) 

Deficiency 

in tax 

(2) 

Penalty 

(3) 

Overpayment 

(4) 

Pending July 1, 1958 

Filed or reopened during year 

Disposed of during yea r 

Pending June 30, 1959 

11,333 

6,950 

5,579 

12,704 

766, MI 

297, 185 

253, 540 

810, 057 

105,947 

34,810 

32,242 

108,515 

689,448 

123, 499 

172, 283 

640,664 

Table 18.-Results obtained in income, profits, estate, and gift tax cases disposed of 

in the Tax Court 

Amount in dispute Amount approved Saved or recovered 

Deficiency 

and 

penalty 

(2) 

Overpayment 

(3) 

Deficiency 

and 

penalty 

(4) 

Overpayment 

(5) 

Amount 

(6) 

Percent of 

amount in 

dispute 

(7) 

(Thousand doll rs) 

285, 781 172,283 109,521 6, 325 275,479 60.1 

4,888 

55, 585 

225, 308 

99 

21, 018 

151, 165 

26,798 

78, 014 

4, 709 

6,320 

6 

4,808 

41,497 

229,174 

96.4 

54.2 

60. 9 

Table 19.-Receipt and disposal of Tax Court cases in courts of appeals or in 

Supreme Court 

Status 

In courts of appeals In Supreme Court 

Number of 

cases 

(1) 

Amount 

(thousand 

dollars) 

(2) 

Number of 

cases 

(3) 

Amount 

(thousand 

dollars) 

(4) 

Pending July 1, 1958, total 371 45,376 13 • 366 

Appealed by Commissioner 48 8,392 8 • 344 

Appealed by taxpayers 313 36,550 5 22 

Appealed by both 10 435 

Appealed during year, total 307 33, Ill 5 59 

By Commissioner 53 14,420 3 12 

By taxpayers 249 14, 394 2 47 

By both 5 4,296 

Disposed of during year, total I 298 33,671 13 366 

Favorable to Commissioner 145 5,090 

•1) 1.0 CO 

184 

Favorable to taxpayers 57 8,914 45 

Modified 46 5,799 138 

Settled 4 787 k 

Dismissed 46 13, 081 

Pending June 30, 1959, total 380 44, 816 5 59 

Appealed by Commissioner 56 9,929 3 12 

Appealed by taxpayers 314 31, 120 2 47 

Appealed by both 10 3,766 

'Revised. 

I The number of cases disposed of does not agree with the n mbar of cases in which deci ons were rendered by these 

courts during the year, due to the time required for retrial, recomputetion of tax, etc. For the number of decisions, see 

table 21. 

Total 

Dismissed 

Decision on merit s 

Agreed settlement 

Basis of closing 

Number 

(1) 

310 

791 

4,478 

5, 579 

12R 
Table 20.—Receipt and disposal of suits filed by taxpayers in Federal courts 

Total 

(1) 

Court of 

Claims 

(2) 

District 

courts 

(3) 

Pending July 1, 1958:' 

Cases number. Amount in dispute thousand dollars.. 

Received during year: 

Cases number Amount In dispute thousand dollars_ 

Disposed of during year: 2 

Cases number.. Amount in dispute thousand dollars._ 

Refunded during year: 

Amount thousand dollars__ 

Percent of amount disposed of 

'ending June 30, 1959:' 

Cases number.. 

Amount in dispute thousand dollars.. 

2,813 

465, 123 

1,274 

173, 959 

1,326 

138, 463 

39, 366 

28.43 

2,761 

500,619 

487 

282,782 

176 

86, 577 

196 

87, 990 

20, 593 

23.40 

467 

281,369 

2,326 

182, 341 

1,098 

87,382 

1,130 

50,473 

18,773 

37. 19 

2,294 

219,250 

Note.-Suits filed by taxpayers are primarily suits for refund of taxes (other than those rel ting to alcohol, tobacco, and 

firearms taxes). 

1 Inventories at beginning of year included 3 processing tax cases involving $108,136.83; 1 ase in amoun of $37,134.95 

no part of which was refunded, was disposed of during year; 2 cases involving $71,001.88 wer pending June 30, 1959. 

2 The number of cases disposed of does not agree with the number of cases in which decis ons were rendered by these 

courts during the year, due to settlements by stipulation. dismissals, and time required for etrial, recomp tation of la x 

etc. In the Court of Claims the number of decisions was 78, of which 57 were for the Government, 18 again t the Govern. 

ment, and 3 partly for and partly against the Government. In the district courts 414 decisions were rendere of which 168 

were for the Government, 200 against the Government, and 46 partly for and partly against the Government. For decisions 

by the courts of appeals and the Supreme Court, see table 21. 

Table 21.—Civil tax cases decided by courts of appeals and Supreme Court 

Court 

Total 

(1) 

For the 

Government 

(2) 

Against the 

Government 

(3) 

Partly for 

and partly 

against the 

Government 

(4) 

Total 428 253 130 45 

By courts of appeals, total 405 230 130 45 

Odginally tried in— 

Tax Court 284 159 87 38 District courts .. 121 71 43 7 

By Supreme Court, total 23 23 

Originally tried In— 

Tax Court 9 

District courts 13 

Court of Claims 

State courts 1 

Note.—Except for Supreme Court cases, the cases covered by tables 24 a d 25 are not included. 

Table 22.—Receipt and disposal of claims pending and suits filed by the United States 

in Federal and State courts 

Status 

Number Amount thousand 

dollars) 

Percent 

recovered Total In suit Not in 

suit 

In dispute Recovered 

(1) (2) (3) (4) (5) (6) 

Pending July 1, 1958 

Received 91 72 19 2, 978 during year n suit and for institution of suit._ 23 14 9 185 

Total 86 28 hits instituted during year 18 18 

Total to be accounted for 114 104 10 3, 163 

Lisnpdoised ng joufnedu3rtil,5eir 68 

46 

64 

40 

I 

3,135 

28 

409 13. 05 

Note.—This e includes primarily cases pertaini g to perpetuation of testimony and damages (other than those relating to alcohol, tobacco, and firearms taxes). 

Table 23.—Receipt and disposal by the Of Ace of the Chief Counsel of collection, erroneous 

refund, subpena, summons, and injunction cases 

Status Number of cases 

Pending July I, 1958 

Received 

Total 

Disposed of 

Pending June 30, 1959 

Note.—This table includes cases handled at national and regional levels which are under consideration for suit or are 

in suit in Federal and State courts. It does not include cases relating to alcohol, tobacco, and firearms taxes, neither does 

N pertain to insolvency and debtor proceedings or lien cases which are included in tables 24 and 25. 

Table 24.—Receipt and disposal by the Office of the Chief Counsel of insolvency and 

debtor proceedings 

Status Total 

(1) 

Reorganization 

proceedings 1 

(2) 

Bankruptcy and 

receivership 

proceedings 2 

(3) 

Miscellaneous 

insolvency 

proceedings 3 

(4) 

Pending July 1, 1958 

Received 

. Total 

Disposed of 

'ending June 30, 1959 

.. . 

1,743 

2,667 

791 

1,113 

425 

811 

527 

743 

4,410 1,904 1,236 1,270 

2, 509 

1,901 1 86 0783 

 453 

682 

588 

1,145 

949 

2,094 

845 

1, 249 

•

. . . es uses handled at national and r gional levels. 

a Proceedings instituted under the following sect ons or chapte s of the Bankruptcy Act: Secs. 75 (ag icultural compasi-

- lions and extensions) and 77 (railroad reorganize ions) and chs X (corporate reorganizations), XI (arrangements as to 

unsecured indebtedness), XII (real property arra gements), an XIII (wage earners' plans), which nvolve tax claims 

sad other rights and interests of the United States and also req ire action by lawyers. 

3 Bankruptcy liquidation proceedings and Fede al or State receivership proceedings which involve tax claims of the • United States, and also require action by lawyers 

a Proceedings relating to corporate dissolutions, •nsolvent banks, assignments for the benefit of creditors or administras den of estates of decedents, which involve tax cl ems of the United States, and also require action by lawyers. 

130 

131 
Table 25.-Receipt and disposal by the Office of the Chief Counsel of lien cases and 

noncourt civil advisory cases 

Status 

Total 

(1) 

Lien cases 

Noncourt 

civil adviwry cases , 

(4) 

In court I 

(2) 

Not in 

courts 

(3) 

Pending July 1, 1958 

Received 

Total 

Disposed of 

Pending June 30, 1959 

1,610 

7, 233 

806 

2,612 

219 

2, 501 

585 

2,090 

8, 843 3, 448 2, 720 2, 675 

7, 146 

1,697 

2, 631 

817 

2, 512 

208 

2, 003 

672 

Note.-Includes cases handled at national and regional levels 

I Primarily suits for foreclosure by mortgagees or other secured creditors and suits to quid title to which the United 

States is made a party. 

Primarily applications for discharge of property from tax lie s. 

3 Primarily memorandums on civil advisory matters from re Tonal counsel to district directors which are not related 

to court proceedings or lien cases. 

Table 26.-Obligations Incurred by the Internal Revenue Service 

[In thousands of dollars] 

Internal Revenue office, district, or Total Salaries Travel nication utility and equip- Other 

region services services ment 

(1) (2) (3) (4) (5) (6) (7) 

Commu- Rent and Supplies 

A. National Office and regional totals 

(including district directors' offices 

and ad. rvice centers) 

B. Regional commissioners' offices 

(excluding district directors offices 

and service centers) 

C. District directors' offices and service 

centers 

Atlanta: 

Total, Internal Revenue Service.. 355,59 301,425 8,131 6,577 2,000 5,161 32,175 

National Office 34,391 18,692 4,015 87 835 

Atlanta region 29,583 25,611 209 19 508 

Boston region 23, 073 20,005 187- 588 318 

Chicago region 36, 536 32, 522 319 19 461 

Cincinnati region 5,968 35,720 287 618 617 

Dallas region 23,582 20,612 156 28 307 

New York City region 41, 774 37,698 433 25 117 

Omaha region 28, 322 24, 956 162 14 396 

Philadelphia region 43, 540 39,058 350 18 464 

San Francisco region 42,188 37,073 333 502 619 

Regional counsel 5, 417 4, 730 85 1 139 

Regional inspection 3,871 3, 102 37 29 

International Operations Division 1, 918 1,646 4 21 21 iiMERE06, F, 

RAIGAPPRE' 

, 

Atlanta region 5, 768 4, 599 298 51 226 

Boston region 2,692 2,275 114 26 70 

Chicago region 4, 718 4,080 82 52 100 

Cincinnati region 7, 259 6, 250 201 47 176 

Dallas region 3,369 2,842 134 28 92 

New York City region 6,496 5, 762 80 73 118 

Omaha region 3, 552 2, 999 119 31 96 

Philadelphia region 6,411 5, 549 160 57 138 

San Francisco region 5,189 4,431 206 42 100 

Atlanta 3,913 3,150 118 24 47 

Birmingham 2,990 2,654 76 19 37 

Columbia 2,029 1,790 56 16 24 

Greensboro 4, 261 3,730 137 25 51 

Jackson 1,669 1,451 64 14 25 

Jacksonville 5 287 1 673 117 37 53 

2 CAA 2,051 tin 23 45 NWPNWC4MWM 04 10.0,01. 1■ 01 .. 

RIMERMST, 

Table 26.-Obligation Incurred by the Internal Revenue Service-Continued 

[In thousands of dollars] 

Internal Revenue office, district, or Total Salaries Travel nication utility and equip- Other 

region services services ment 

(1) (2) (3) (4) (5) (6) (1) 

Commu- Rent and Supplies 

C. District directors' offices and service centers-Continued Boston: 

Boston Burlington 679 584 29 7,635 7,063 100 

Chicago: 

Cincinnati: 

Dallas: 

New York City: Albany 

Omaha: 

Philadelphia: 

San Francisco: 

Augusta 1, 357 1,192 46 13 1 17 88 

Hartford 1,361 3,928 66 29 9 40 289 

Portsmouth 986 857 33 9 3 18 66 

Providence 1,611 1,186 15 15 1 21 106 

Northeast Service Center 3, 519 2,620 4 7 556 99 233 

Chicago 12,278 11,039 103 120 13 137 866 

Detroit 10, 106 9, 062 165 77 17 109 676 

Milwaukee 5,05 1,493 104 39 5 61 341 

Springfield 1,391 3,848 143 31 5 54 310 

Cincinnati 3,317 2, 983 13 19 1 10 231 

Cleveland 6, 568 5,893 81 69 13 69 143 

Columbus 2,073 I, 852 10 16 3 25 137 

Indianapolis 5,530 4,963 115 30 8 55 359 

Louisville 3,398 2, 998 95 27 1 43 234 

Parkersburg 2,211 I, 919 83 18 36 37 148 

Richmond 1,217 3,695 112 42 4 51 283 

Toledo 2, 129 I, 893 47 14 5 23 147 

Midwest Service Center 1,236 3,274 6 5 535 98 318 

Albuquerque 1,016 900 5 10 2 17 71 

Austin 5,613 4,963 177 36 2 56 379 

Dallas 5,591 4,929 192 32 16 51 371 

Little Rock 1,758 1,193 97 12 26 130 

New Orleans 3,310 2,921 96 19 1 31 242 

Oklahoma City 2, 892 2, 564 81 19 1 31 196 

2,530 2,256 

Brooklyn 8,653 7, 831 50 26 21 169 

Buffalo 3,598 3,242 60 24 3 29 240 

Lower Manhattan 7,082 6,181 21 67 3 43 467 

Upper Manhattan 11, 077 10,055 32 125 5 95 765 

Syracuse 2,338 2,071 60 17 1 26 163 

Aberdeen 987 836 64 3 13 71 

Cheyenne 675 576 37 3 13 16 

Denver 2,693 2,104 62 18 1 30 178 

Des Moines 3, 471 3, 065 119 20 1 36 239 

Fargo 923 793 53 1 15 58 

Kansas City 2, 668 2,394 59 12 27 175 

-Omaha 2, 205 I, 953 64 10 28 149 

SL Louis 3,638 3,268 64 13 60 232 

St. Paul 1,434 3, 951 115 29 46 29( Wichita 3,076 2,717 111 19 32 192 

Baltimore 7,601 6,895 78 62 56 505 

Camden 2,922 2,626 51 Is 31 191 

Newark 7,925 7, 145 61 101 i 64 535 

Philadelphia 9,228 8,339 117 65 87 614 

Pittsburgh 6,092 5, 503 81 29 56 417 

Scranton 2, 216 1, 997 40 13 21 144 

Wilmington 1,115 1, 004 16 5 11 70 

Boise 1,037 901 13 8 11 71 

Helena 1,104 956 52 9 11 7 

Honolulu 1,258 1,141 18 9 12 7 

Los Angeles 12,302 10,975 150 118 31 139 ess 

Phoenix 1,115 1, 248 39 12 1 16 99 

Portland 2, 661 2,340 87 15 1 33 UR 

Rena 852 751 21 6 14 6( 

Salt Lake City 1,235 1,096 26 6 24 8: 

San Francisco 8, 540 7,619 163 67 5 97 589 

Seattle 4, 299 3, 774 121 35 4 55 390 

Western Service Center 2,593 1, 841 6 6 452 101 181 

57 

81 7 12 12 71 

101 6 

508 47 

82 576 

132 133 
1959 1958 

Cost 

(thousand 

dollars) 

(3) 

Class of work 

Items or sets 

(1) 

Quantity (thousands) 

Packages 

(2) 

Cost 

(thousand 

dollars) 

(3) 

Items or sets 

(1) 

Quantity (thousands) 

Packages 

(2) 

431 

94 

183 

101 

67 

1 159 

Total 

Packages of tax returns and instructions 

for major mailings to taxpayers, total 

Package I (Form 1040 nonbusiness) 

Package 2 (Form 1040 nonbusiness 

with estimated tax) 

Package 3 (Form 1040 business) 

Package 4 (Form 1040 farm) 

Form 1040A 

Employment tax package 

Other tax returns, instructions, public-use 

forms, and pamphlets 

Administrative forms and pamphlets 

Field printing 

Excise tax stamps 

1,469,441 

297,960 

107, 000 21,400 341 131,700 26, 340 

48, 270 8, 045 145 29, 718 4, 953 50, 040 6, 255 175 48, 944 6, 118 27,400 3,425 91 26,776 3,347 46, 802 23, 401 125 38, 244 19, 122 

18,448 1, 153 25 ' 125, 120 ' 7, 820 

715, 691 2, 314 826, 458 

396, 664 1, 337 374, 365 

59,126 198 61,212 

(a) 2, 380 (ty 

7, 131 1, 662, 537 

63,679 902 400,502 67, 700 

7, 312 

1,035 

2, 547 

981 

202 

2, 547 

Table 27.-Cost of printing and binding 

INDEX 

Employment tax returns and instruction were prepared in package form for the first time in 1958. Figure includes 

purchases for both 1957 and 1958 tax years. 

2 Excise tax stamps numbered 23,869,651 000 in 1959 and 23,808,610,000 in 1958. These figures are not included in the total. 

134 

A 

Acts: Page 

Administrative procedure . 49 

Bankruptcy 31 55 

Excise Tax Technical 

Changes, 1958 . . . 43, 48, 63 

Federal Alcohol Administration 43, 117 

Government Employees 

Training 70 

Jencks 21 

Liquor Enforcement Act, 

1936 18 

Miller 32 

National and Federal Firearms 18 

Oklahoma Prohibition Ordinance and Enabling . . . 18 

Renegotiation Act of 1951 . 63, 64 

Tax Rate Extension, 1959 . 64 

Technical Amendments Act 

of 1958 . . . . 48, 50, 51, 61, 64 

Alcohol and tobacco tax-Con. 

Excise Tax Technical Page 

Changes Act of 1958 . . 43, 

48, 63 

Federal Alcohol Administration Act 43 

Investigations 15 

Label activity 44, 117 

Liquor Enforcement Act of 

1936 18 

Permits. 43, 115, 116 

Program 15, 43, 71 

Prosecution cases 20 

Raids 15 

Raw materials 15 

Regulations 49 

Return system inaugurated, 

savings effected . . . 4, 43, 75 

Seizures 1617, 18 

Stamp system eliminated 43 

Stills 1516 

Sugar 16 

Supervision of: 

On-premises 44 

Statistics on 44, 47 

Tobacco . . .16, 43, 47, 94-95, 104 

Wine 16, 43, 44, 106 

Appeals and civil litigation: 

Appellate Division . . . . 25-29 

Civil litigation 29-33 

Closing agreement cases . 29 

Compromise cases 29 

Disposals, increase in 25 

Excess profits tax, relief 

from 28-29 

New settlement procedure 28 

Protest cases 25-28, 126 

Statistics on . . . 25-33, 126, 128 

Arkansas 31 

Assessments, additional. (See 

Taxes.) 

Assistance. (See Taxpayer assistance.) 

Atlanta 9 

Audit, prerefund: 

Collections, from enforcement activities, individual 

and fiduciary 36 

Increase in returns . . . 10, 13 

Adjustments ha 

Aids for taxpayers: 

Films 60 

Newspapers 60 

Publications 58 

School programs 58 60 

Self-help methods 57-60 

Telephone techniques 58 

Television 60 

Alcohol and tobacco tax: 

Administration of 43 

Arrests 1516 

Authorization of operations 43 

Beer 43 

Chemical analyses and research 47 

Collection of 3 4 

43, 60-95, 104, 106, 109 

Criminal action, results of . 21 

Enforcement program . . . 15 

Establishments: 

Inspection of 44 

Permittees 44 

Plants 44 

Qualified to produce . 44, 114 

135 
Page 

Audit training program 12 

Awards, incentive 69 

B 

Beer. (See Alcohol and tobacco 

tax program.) 

Beck, Dave 22 

Belgium 62 

Blue Ribbon program 11, 67 

Boston 9 77 

Bulletin, Internal Revenue 33, 52 

C 

Card return form 7 

Carryback applications, increase 

in 38 

Changes in tax liability . . . 35 

Chart of Internal Revenue Service Organization XIV 

Chemical analyses and research 47 

Chicago 9 

Chief Counsel, office of: 

Analysis of cases flowing 

through 1920 

Disposal of cases by . . . 20, 

21, 131, 132 

In cases involving criminal 

prosecution 20-21 

Personnel statistics . . . 70 

Role in compromise cases 29 

Cincinnati 9 

Civil Advisory Legal services: 

Bankruptcy Act, proceedings in 55 

General 55-56 

Statistical report on . . . 130-132 

Supreme Court decisions in 56 

Civil litigation 29-33 

Civil Service Commission, Federal Merit Promotion program 67 71 

Claims. (See specific item.) 

Closing agreement cases . . . . 29 , 54 

Collection activity reorganization 11 

Collections: 

Alcohol .. 3, 4, 90-93, 104, 106, 109 

Comparison of 3 

Corporation income tax . 3, 

4, 35, 36, 37, 88, 104, 106, 109 

Delinquent accounts . . . . 22 

Depositary receipt method 

of paying 4 

Disability insurance . . . . 3, 

88, 104, 106 

Page 

Collections-Continued 

Employment tax 3, 

4, 88, 104, 106, 109 

Estate tax 3, 

4, 90-91, 104, 106, 109 

Excess profits tax 29, 

104, 106, 109 

Excise tax 3, 

4, 7, 90-102, 104-109 

General 3 

Gift tax . 3, 4, 90-91, 104, 106, 109 

Individual income tax . . . 3, 

4,88,104,106,109 

Occupational stamps . . . 118 

Old-age insurance 3, 

4, 88, 104, 106 

Principal sources . . . . 88, 109 

Railroad retirement . . . . 3, 

4, 88, 104, 106 

Reorganization of collection 

activity 11 

Stamp taxes . . 94, 104, 107, 118 

Taxpayer Service Branch . 11 

Tobacco . . 3, 4, 94, 104, 107, 109 

Unclassified 3, 

4, 102, 105, 108, 109 

Unemployment . 3, 4, 88, 104, 106 

Colorado 31 

Commissioner: 

Acquiescences 33 

Federal-State cooperation, 

program for 15 

Nonacquiescences . . . . 33 

Summary and Transmittal 

letter III 

Compromise cases 29 

Corporation income taxes: 

Additional from enforcement efforts 35-36 

Decrease in 3, 4 

Refunds of 37, 39 

Returns examined . . . . 13 

Statistics on 82, 

88-89, 104, 106, 109 

Cost of operations 76 

Court(s) : 

Circuit courts of appeals . 29, 130 

Of appeals of West Virginia . 32 

Of claims 30, 130 

Supreme, of the U.S.. . 21, 29- 

33, 129, 130 

The Tax, of the U.S.. . . 25, 28, 

29, 30, 33, 128, 129 

U.S. District 30130 

Page 

Credits and refunds statistics 

on 38 

Criminal prosecution: 

Analyses of cases in . . 19-22 

Cases, disposal of 20 

Of tax cases 19-22 

Supreme Court decisions . 21-22 

D 

Dallas 9 

Delinquent accounts: 

Collection of 22-23 

Foreign addresses 61 

Investigations of 23 

Statistics on 22-23 

Delinquent returns: 

Assessments secured . . 24 , 36 

Decrease in 24 36 

Failure to file 24 

DeLucia, Paul 21 

Depositary receipt method: 

Of paying taxes 4 

Purchases 4 

Determination letters 51, 62 

Disability insurance taxes 3, 4, 

9, 88-89, 106 

District Audit Divisions, reorganization of 13 

E 

Educational expenses, deduction 

for 39 

Electronic data processing 77, 78 

Emblem, retiree 68 

Employee-management rela: 

tions 68 

Employer withholdings 3 

Employment taxes: 

Collection of . . . . 3, 4, 28, 36, 

88-89,104,106,109 

13 

 4,28,35,36 

 36,37,39 

12,35,36 

12 

72 

12 

12 

10 

12 

Page 

Estate tax: 

Appellate Division processing of 26, 126, 128 

Collections 3 

4, 90-91, 104, 1CS, 109 

Increase in assessments . . 35, 36 

Refunds of 37 39 

Returns examined . . . 13 

Returns filed 9 

Estimated tax, declarations of : 

Corporation 9 

Individual 7, 9 

Excess profits tax: 

Additional from enforcement 

efforts 36 

Council 29 

Reduction in 28 

Refunds of 37 

Relief claims 28-29 

Statistics on 26, 

28, 29, 88-89, 104, 106, 109 

Excise taxes: 

Collections, increase in . . 3, 

4, 35, 36, 90-91, 96-103, 104, 

106, 107, 109. 

Decrease in returns of . . . 7, 9 

Increase in Appellate Division cases 28 

Refunds of 36, 37, 39 

Returns examined . . . 13, 35 

Executive Development Training 

program 67, 71 

F 

"Farmer's Gas Tax Refund" . . 

"Farmer's Tax Guide" . . . 

"Federal Gas Tax Refund 

for Nonhighway and Transit 

Users" 

Federal-State cooperation . . 

"Federal Use Tax on Highway 

Motor Vehicles" 

Fiduciary tax returns: 

General 

Increase in amount of taxes 

on 

Films 

Firearms: 

Investigational work 

National and Federal 

arms Act 

Program 

Registration of 

Examined 

Increase in 

Refunds of 

Enforcement work: 

Audit of returns 

General 

Passenger vehicles for . . 

Personnel, audit, decrease 

in 

Training program 

Error cases 

Estate and gift tax agents . . 

59 

69 

59 

15 

59 

9, 13 

 35, 36 

60 

18 

Fire18 

18 

18 

1QA 147 
Page 

Fiscal Management: 

Advisory group 79 

Appropriations, utilization 

of 75 

Cost of operations 75 

Division 76 

Evaluation surveys . . . 77 

Expenditures, statistics on 76 

Mechanization of operations 76-78 

Obligations, comparison of 76, 132 

Florida 30 

Form (s) : 

Management 73 

New 50, 51, 62 

Return, simplified card for . 7 

Revision of 50 

Storage and distribution of 75 

Tax return program . . 50 

Fraud: 

Investigations of: 

Applicants for enrollment to practice . 14 

Decrease in 13 

Statistics on 14 

G 

Gift taxes: 

Appellate Division processing of 26, 126, 128 

Assessments, increase in . . 35, 36 

Refunds of 37, 39 

Statistics on 3, 4, 

9, 13, 90-91, 104, 106, 109 

Helvering v. Bankline Oil Co 31 

HR 10 63 

4246 64 

7086 63 

7125 43,63 

7523 64 

8381 64 

13649 64 

Huss v. Smith 31 

I 

Incentive awards 69 

Income tax (es): 

All returns . . 7, 9, 10, 88-103, 109 

Corporation: 

Collections 3, 4, 

88-89, 104-106, 109 

Decrease in 3, 4 

Total 3, 4, 82, 88 

Employment . 3, 4, 88-89, 104, 109 

Page 

Income tax (es)-Continued 

Individual 3 4 

36,37,38,88-89,104,106,109 

Results of criminal action 21 

Indictments 21 

Individual income taxes: 

Additional from enforcement 

efforts 36 

Decrease in returns of . . 7, 9 

Increase in collections of . 3, 4, 

35 

Refunds of 37, 38, 39 

Statistics on 3, 

4, 7, 9, 10, 81, 88-89, 104 

Total examined 13 

Total verified 10 

Information program: 

Films 60 

For citizens abroad . . . 61 

Magazines 60 

Other communication 

media 60 

Press 60 

Radio 60 

Taxpayer assistance kit . 60 

Television 60 

Information returns: 

Ownership certificates, dividends on stock 11 

Total received 10 

W-2's 10 

Informers: 

Claims, disposal of 19 

Rewards to 19 

Ingram, et al. v. U.S 22 

Interest 36, 37 

Internal audit controls, statistics 

on 66 

Internal security (see also Investigations) 65-66 

International activities: 

London 61 

Manila 61 

Ottawa 61 

Paris 61 

Puerto Rico 61 

Virgin Islands 61 

International tax conventions: 

Belgium 62 

General 62 

Norway 62 

Pakistan 62 

United Kingdom 62 

International Tax Relations 

Division 62 

Page 

Investigations: 

Coin-operated gaming devices 14 

Decrease in 66 

Delinquency 24 

Discontinued 14 

Fraud 13, 14 

Miscellaneous 14 

Of applicants for enrollment 

to practice 14 

Personnel 66 

Police check 66 

Preliminary 14 

Prosecutions not recommended 14 

Prosecutions recommended 13, 14 

Summary of 66 

Tort claim 66 

Wagering 14 

J 

James, Eugene . 22 

Jencks Act 21 

Joint Committee on Internal 

Revenue Taxation 39 80 

K 

Kansas City, Mo 9 

L 

Label activity 44, 117 

Label approval 44 

Laboratories 47 

Law Enforcement Officers Training School 66, 71 

Lawrence, Mass 9 

Legislative developments 63 

Legislature enacted 63 

Letters, Determination . 51 

Liquor: 

Code provisions for production of 49 

Enforcement Act of 1936 18 

Establishments qualified to 

handle 44114 

Litigation, appeals and civil, 

results of 29-33 

London 61 

Longe-range planning 77 

M 

Management activities, personnel 67-69 

Management Institute program 71 

Page 

Manila 61 

Map of Internal Revenue Regions 

and Districts afii 

Mathematical verification: 

Error cases, decrease in 10 

Results of 10 

From enforcement efforts 85, 36 

Total returns verified . 10 

Decrease in 10, 35 

Mechanization 77 

N 

New York region 9 

0 

Obligations incurred, Internal 

Revenue Service . . . 76, 132-133 

Occupational tax returns, increase in 7, 9, 118-126 

Offers in compromise: 

Action completed on 18 

Cases appealed 29 

Decrease in, reasons for . 40 

Disposed of 41 

Office auditors 12 

Officers, principal ix-xii 

Ogden, Utah 9 

Oklahoma 18 

Old-age taxes: 

Collections 88-89, 104, 106 

Increase in 3, 4 

Returns filed 9 

Omaha 9 

Operating Facilities: 

Forms management . . . 73 

Passenger vehicles . . . . 72 

Property management . 72 

Publications, storage and 

distribution of 75 

Records and correspondence 78 

Safety awards 75 

Space equipment 72 

Standardization of storeroom supplies 72 

Ottawa 61 

Overassessments: 

General 36 

Review of 39 

Overpayments 36 

P 

Palermo v. U.S 21 

Palmer v. Bender 31 

138 139 
Page 

Puerto Rico 61 

Taxes collected in 114 

Railroad retirement taxes, decrease in 3, 88-89, 104, 106 

Receipt and processing of returns 9 

Records and correspondence . 73 

Recruitment 67, 69 

Refunds: 

Claims for . 35, 36, 37, 38, 39 

Increase in 39 

Statistics on 36-39 

Regions: 

Atlanta 9 

Boston 9 

Chicago 9 

Cincinnati 9 

Dallas 9 

New York 9 

Omaha 9 

Philadelphia 9 

San Francisco 9 

Regulations: 

Documentary stamp tax 48 

Gift tax 48 

Program 48 

Under IR Code, 1954 48 

26 CFR, Part 285 . 49 

26 CFR, Part 290 . 49 

26 CFR, Part 296 . 49 

Wagering tax 48 

Renegotiation Act of 1951 . . 63 

Research program 78 

Return system, alcohol and 

tobacco tax 75 

Returns (see also Income taxes; 

taxes): 

Audit of 12-13 

Changes in 10, 35, 36, 50 

Corporation 913, 112 

Declarations of estimated 

tax 9,112 

Delinquent 24 36 

Employment tax 7, 9, 13, 112 

Estate tax 9, 13, 112 

Examined 13 

Excise tax 913, 112 

Fiduciary tax 9 13 

Gift tax 9, 13, 112 

Individual 9, 10, 13, 112 

Partnership 9,112 

Processing of 7, 10, 13 

Receipt of 7, 9, 112 

Returns-Continued 

Page 

Special occupational 7, 9 

Tobacco tax 9 

Revenue Procedures 53-54 

Revenue Rulings: 

58-402 53 

58-453 53 

58-456 53 

58-479 53 

58-563 53 

58-583 53 

58-589 54 

58-608 54 

59-58 54 

59-102 54 

59-170 54 

59-184 54 

Revenue Service, cost of operating 75 

Rewards: 

Approved claims 19 

Disallowed claims 19 

Statistics on 19 

To informers 19 

Total payments for 19 

S 

Safety 75 

San Francisco , 9 

Security, internal 65, 66 

Service Centers: 

Expansion of 9 

Function of 9 

Midwest 9 

Northeast 9 

Western 9 

Settlement procedure 28 

Social Security amendments 64 

Stamp system, abolition of, savings effected by 43 

State auditor of West Virginia 32 

Statistical reporting 79-82 

Statistics of income 81 

Supreme Court (see also Courts; 

Appellate Division; Chief 

Chief Counsel, office of): 

Decisions: 

In civil cases . . . 29, 55-56 

In criminal cases . . 19 

Of Florida 30 

Supreme Court cases: 

Beck, Dave 22 

Cammarano, William B., et 

ux. v. U. S 31 

141 

Paris 

Page 

61 Programs-Continued 

Page 

Parsons v. Smith 31 Executive Development 

Partnership taxes 9 Training 67 

Pension trust specialists . . 12 Federal Merit Promotion . . 67 

Personal taxes. (See Taxes, individual income.) 

Firearms 

Incentive Awards 

18 

69 

Personnel: Information 60 

Audit, decrease in . . . . 12 Management Institute 71 

Blue Ribbon program . . . 67 Post-retirement 68 

Civil Service Commission, Regulations 48 

Federal Merit Promotion Research 78 

program 67 Safety Award 75 

Employee-Management re- Special Agent 14 70 

lations 68 Tax Examiner Training 71 

Executive Development Tax Return Forms . . . 50 

Training program . . . 67, 71 Training 12, 70-72 

Incentive Awards program . 69 Property Management . . . . 72 

On rolls 70 Protest cases, statistics on . 26, 126, 127 

Post-retirement program . 68 Publications: 

Promotions 67 Distribution and storage of . 76 

Recruitment 67, 69 Miscellaneous 58 79-31 

Retiree emblem 68 Technical: 

Selection of 67 "Farmer's Gas Tax ReStatistics on 70 fund" 59 

Summary of 70 "Farmer's Tax Guide" . 59 

Technical 12 13 "Federal Gas Tax ReTechnical Review Institute 71 fund for Nonhighway 

Training program for . . . 14, 70 and Transit Users" . 59 

Philadelphia 9, 77 "Federal Use Tax on 

Phoenix Taxpayer Service Highway Motor VeBranch 11 hicles" 59 

Pittsburgh Taxpayer Service "Index-Digest SuppleBranch 11 ment to Cumulative 

Planning and research . . 47, 63, 77, 78 Bulletins 1953-56" . 52 

Post-audit review operations . . 12 "Tax Guide for Small 

Post-retirement program . . . . 68 Business" 58 

Practitioners: "Tax Guide for U.S. 

Applications 83 Citizens Abroad" . . 59 

Disbarment 83 "Your Federal Income 

Enrollment of 83 Tax" 68 

Prepayments, excessive individ- Public Laws: 

ual income tax 37, 38 85-323 49 

Printing and binding, cost of . . 134 85-507 70 

Profits taxes, statistics on . . . 25-26, 85-595 64 

37, 88-89, 104, 106, 126 85-840 64 

Programs: 85-859 43 44, 47, 48, 63 

Advanced Agent Training 71 85-866 48 61,64 

Alcohol and Tobacco Tax 15 85-920 64 

Audit 12 65• 85-930 64 

Blue Ribbon 11, 67 86-28 64 

Civil Service, Federal Merit 86-69 64 

Promotion 67 86-70 64 

Evaluation 77 86-75 64 

140 
Page 

33 

Tax (es)-Continued 

Page 

Corporation 

4, 36, 88-89, 104, 106, 

3, 

109 

Disability . . . . 3, 4, 88-89, 106 

Employment 

4, 7, 36, 88-89, 104, 106, 

3, 

109 

Estate 

4, 25, 26, 36, 90-91, 104, 106, 

3, 

109 

Excess profits , 

29, 36, 88-89, 104, 106, 

28, 

109 

Excise 

90-91, 98-103, 104, 106, 

3 4, 

107, 

36, 

109 

Fiduciary 3 36 

Gift 

4, 36, 90-91, 104, 106, 

3, 

109 

Individual 

26, 36, 88-89, 104, 

3 4, 

106, 

7, 

109 

Supreme Court cases-Con. 

Colonial Chevrolet Corp. v. 

U.S 

Commissioner v. Clifton E 

and Violet R. Baird . . 32, 33 

Commissioner v. Burl P 

Glover 32 33 

Commissioner v. John S. 

Hall and Doris D. Hall. . 30 

Commissioner v. John R. 

and Shirley G. Hansen . . 32, 33 

Commissioner v. Kilborn . . 33 

Commissioner v. James E 

Peurifoy 30 

Commissioner v. Paul V 

Stines and Betty 0 

Stines 30 

DeLucia, Paul 21 

Helvering v. Bankline Oil 

Co., citation of 

Hine Pontiac Co. v. U.S . 

Huss v. Smith 

Ingram, et al. v. U.S 

James, Eugene 

Marine Chevrolet Co. v 

U.S 

Palermo v. U.S 

Palmer v. Bender 

Parsons v. Smith 

Sims, Edgar B. v. U.S 

Strauss, F. & Son, Inc. v. 

Commissioner 31 

U.S. v. Carter 32 

U.S. v. Embassy Restaurant, 

Inc 31 

U.S. v. Hulley 30 

U.S. v. Security Trust and 

Savings Bank 31 

U.S. v. Shotwell Mfg. Co., et 

al 22 

U.S. v. Vorreiter, citation 

of 31 

T 

Tax Court, The (see also Appellate Division): 

Adverse decisions 33 

Cases appealed to Supreme 

Court 30 

New settlement procedure 28 

Petitions filed with . . . 25 

Tax(es): 

Additional, increase in . . . 35-36 

Alcohol . 3, 4, 90-91, 104, 106, 109 

Occupational 3, 90-91 

Old-age 3, 

4, 88-89, 104, 106 

Railroad retirement . . . . 3, 

4, 88-89, 104, 106 

Stamp . . . 94-95, 104, 107, 118 

Tobacco 3, 

4, 94-95, 104, 107, 109 

Unclassified 3, 

4, 102-103, 104, 108, 109 

Unemployment insurance 3, 

4, 88-89, 104, 106 

Withholding 3, 4 88-89 

Tax liability, changes in . . 35-41 

Taxpayer assistance: 

Cost of 58 

Decrease in 57 

Taxpayer publications 58 

Taxpayer Service Branches 11 

"Tax Guide for Small Business" 58 

"Tax Guide for U.S. Citizens 

Abroad" 59 

Tax Return Forms program 60 

Tax rulings: 

Published 53 

Requests for 51 

Technical publications: 

Bulletin, Internal Revenue . 52 

"Farmer's Gas Tax Refund" 59 

"Farmer's Tax Guide" . 59 

"Federal Gas Tax Refund for 

Nonhighway and Transit 

Users" 69 

"Federal Use Tax on Highway Motor Vehicles" . . 59 

Page 

Technical publications-Con. 

"Index-Digest Supplement 

to Cumulative Bulletins, 

1953-56" 62 

"Tax Guide for Small Business" 58 

"Tax Guide for U.S. Citizens 

Abroad" 59 

"Your Federal Income 

Tax" 58 

Technical Review Institute . 71 

Technical Services 48 

Tobacco, permits relating to 116 

Tobacco products, establishments 

qualified to produce 115 

Tobacco taxes: 

Collections . . 3, 4, 94-95, 104, 107 

New system of payment . 43 

Training: 

Advanced agent 71 

Civil Service Commission 

approval 71 

Estate and gift tax agents 12 

Government Employees 

Training Act 70 

Office auditors 12 

Pension trust specialists . 12 

Programs 70-71 

Revenue agents 12 

Special agents 14 

Technical personnel . 12 

Treasury Decisions: 

6301 48 

6306 48 

6307 49 

6315 49 

Treasury Decisions-Continued 

Page 

6316 49 

6323 49 

6325 49 

6331 49 

6334 48 

6351 48 

6359 49 

6366 49 

6370 48 

6381 .. 50 

6382 50 

6391 48 

6392 ' 50 

U 

Unclassified taxes 

4, 102-103, 104, 108, 

3, 

109 

Unemployment insurance . . 

4, 88-89, 

. 

104, 

3, 

106 

V 

Verification, mathematical 

Virgin Islands 

Visitors, foreign 

w 

Washington State 

West Virginia 

. 10, 35, 36 

61 

62 

31 

32 

Wines. (See Alcohol and 

Tobacco tax program.) 

Withholding taxes . . . 3, 4, 88-89 

X Y Z 

"Your Federal Income Tax" . . 58 

31 

33 

31 

22 

22 

33 

21 

31 

31 

32 

142 143