Commissioner of 

INTER'NAL
 

REVENUE
 

dfnnuar:ReJlort
 

for the fiscal year ended 

June 30, 1956 

Internal Revenue Service 

United Slates Treasury Department 

Publication No. 55 
UNITED STATES 

GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1957 

For sale by the Superintendent of Documents, U. S. Government Printing Office 

Washington 25, D. 0. - Price 60 cents (paper cover) 

Contents 

Summary and transmittal 

REPORT ON OPERATIONS 

Page 

XI 

Internal revenue collections 5 

General 5 

Individual income taxes 6 

Corporation income taxes 6 

Employment taxes 6 

Other internal revenue collections 7 

Receipt and processing of returns 9 

General 9 

Service centers 10 

Mathematical verification 13 

Information reports 14 

Enforcement work 15 

Audit of returns 15 

Methods of selecting returns for examination 15 

Audit techniques for low-income returns 15 

Taxpayer assistance program 15 

Changes in excise tax area 15 

Returns examined 16 

Fraud investigations 16 

Alcohol and tobacco tax program 19 

Firearms program 20 

Rewards to informers 20 

Cases involving criminal prosecution 21 

Actions by appellate courts 22 

Collection of delinquent accounts 24 

Delinquent returns 26 

Appeals and civil litigation 27 

General 27 

Income, profits, estate, and gift taxes 27 

Excise and employment taxes 29 

Claims for relief from excess profits tax 29 

Closing agreement cases 29 

Other courts 30 

Statements on adverse Tax Court decisions 32 

nr 
Commissioner of Internal Revenue Annual Report 

Page 

Changes in tax liability 33 

Additional taxes 33 

Overassessments and overpayments 36 

Refunds and repayments 36 

Excessive prepayments of individual income tax 37 

Carrybacks 38 

Claims for refund • 39 

Review of overassessments exceeding $100,000 39 

Offers in compromise 40 

Supervision and control of the alcohol and tobacco industries 42 

General 42 

Authorization of operations 42 

On-premises supervision 43 

Inspection of establishments 43 

Chemical analyses and research 44 

Rulings, regulations, and special technical services 45 

Regulations program 45 

General 45 

Alcohol and tobacco tax 46 

Tax return forms program 46 

Tax rulings 47 

Determination letters 47 

Technical publication program 48 

Closing agreement cases 49 

Civil advisory legal services 50 

Aids for taxpayers 52 

General 52 

Direct taxpayer assistance 52 

Taxpayer publications 55 

"Your Federal Income Tax" 55 

"Farmers' Tax Guide" 55 

"Tax Guide for Small Business' 55 

Other publications 55 

Publicity program 57 

High school program 57 

International activities 58 

International operations 58 

International tax conventions 58 

Legislation relating to internal revenue matters 60 

Legislative services performed 60 

Tax legislation during fiscal 1956 60 

Contents V 

Page 

Internal controls 61 

Internal audit 61 

Internal security 62 

Administrative functions 65 

Personnel 65 

Training 67 

Other training activities 68 

Operating facilities 68 

Fiscal management 70 

Enrollment of practitioners 71 

General management improvements and policy changes 72 
VII 

Page 

119 

Contents 

Table 

1. Appellate Division receipt and disposal of income, profits, 

estate, and gift tax cases docketed in the Tax Court (pending 

Page settlement or trial), fiscal year 1956 

2. Results obtained in income, profits, estate, and gift tax cases 

78 

docketed in the Tax Court and disposed of by stipulation 

(agreed settlement), fiscal year 1956 

94 

16. Income, profits, estate, and gift tax cases docketed, stipulated, 

defaulted, and defended on the merits before the Tax Court, 

96 fiscal years 1947 to 1956 

17. Appellate Division receipt and disposal of compromise and 

99 

final dosing agreement cases, fiscal year 1956 

18. Appellate Division receipt and disposal of nondocketed, 

101 

docketed, and compromise cases (income, profits, estate, and 

gift taxes), fiscal years 1947 to 1956 

19. Receipt and disposal of income, profits, estate, and gift tax 

cases in the Tax Court, fiscal year 1956 

20. Results obtained in income, profits, estate, and gift tax cases 

disposed of in the Tax Court, fiscal year 1956 

21. Receipt and disposal of Tax Court cases in courts of appeals or 

in Supreme Court, fiscal year 1956 

22. Receipt and disposal of suits filed by taxpayers in Federal 

courts, fiscal year 1956 

23. Receipt and disposal of claims pending and suits filed by the 

United States in Federal and State courts, fiscal year 1956 . 

24. Receipt and disposal by the Office of the Chief Counsel of 

insolvency and debtor proceedings, fiscal year 1956 

25. Receipt and disposal by the Office of the Chief Counsel of lien 

cases and noncourt civil advisory cases, fiscal year 1956. . . 

Cost of Administration 

26. Obligations incurred by the Internal Revenue Service, fiscal 

year 1956 

108 

27. Cost of printing and binding for the Internal Revenue Service, 

fiscal years 1955 and 1955 

118 

118 

VI Commissioner of Internal Revenue Annual Report 

STATISTICAL TABLES 

Internal Revenue Collections 

Table 

1. Internal revenue collections by sources and by internal revenue 

regions, districts, States, and Territories, fiscal year 1956. . 

2. Internal revenue collections by sources and by quarters, fiscal 

year 1956 

3. Internal revenue collections by sources, fiscal years 1955 and 

1956 

4. Internal revenue collections by principal sources, fiscal years 

1940 through 1956 

5. Internal revenue tax on manufactured products from Puerto 

Rico, by objects of taxation, fiscal years 1955 and 1956. . . 

Alcohol and Tobacco Taxes 

6. Number of establishments qualified to engage in the production, 

distribution, storage, or use of alcohol and alcoholic liquors 

as of June 30, 1955 and 1956, or to engage in the production 

or distribution of tobacco products as of December 31, 1954 

and 1955 

7. Permits relating to industrial alcohol, under chapter 51, Internal 

Revenue Code 1954, fiscal year 1956 

8. Permits for operations relating to alcoholic beverages under the 

Federal Alcohol Administration Act, fiscal year 1956. . . . 

9. Permits relating to tobacco, under chapter 52, Internal Revenue 

Code 1954, fiscal year 1956 

10 Label activity under the Federal Alcoliol Administration Act, 

fiscal year 1956 

Stamp Taxes 

11. Number of occupational tax stamps issued, covering the fiscal 

year 1956, or portion thereof, by class of tax and by internal 

revenue regions, districts, States and Territories 

Cases Receiving Appellate Consideration or in Litigation 

12. Appellate Division receipt and disposal of income, profits, estate, 

and gift tax cases not before the Tax Court (pre-90-day and 

statutory notice cases), fiscal year 1956 

13. Results obtained in Appellate Division disposals of income, 

profits, estate, and gift tax cases not before the Tax Court, 

fiscal year 1956 

104 

104 

105 

105 

105 

119 

119 

120 

120 

120 

121 

121 

122 

122 

123 

123 

126 

127 
Alcohol and Tobacco Tax Dwight E. Avis Collection Robert L Jack 

Appellate H J Donnelly, Jr. Intelligence 1 Perry August 

Audit Ernest H. Vaughn International Operations L Harold Moss 

Technical 

Assistant Commissioner Justin F. Winkle 

Division Directors: 

International Tax Relations Eldon P. King Tax Rulings Harold T. Swartz 

Special Technical Services Ned W. Arick Technical Planning John W. S. Littleton 

VII Commissioner of Internal Revenue Annual Report 

COMMISSIONERS OF INTERNAL REVENUE 

Name 1 State 

Service 

From-- ToGeorge S. Boutwell Massachusetts July 17,1862 Mar. 4,1863 

Joseph J. Lewis ________________________________ Pennsylvania Mar. 18,1863 June 30,1865 

William Orton New York July 1, 1865 Oct. 31,1865 

Edward A. Rollins New Hampshire Nov. 1, 1865 Mar. 10,1869 

Columbus Delano ______________________________ Ohio Mar. 11,1869 Jan. e, 1871 

Alfred Pleasonton New York Jan. 3, 1871 Aug. 8,1871 

John W. Douglass Pennsylvania Aug. 9, 1871 May 14,1875 

Daniel D Pratt Indiana May 15, 1875 July 31,1876 

Green B. Raum Illinois Aug. 2, 1876 Apr. 30,1883 

Walter Evans Kentucky May 21,1883 Mar. 19,1885 

Joseph S. Miller ________________________________ West Virginia Mar. 20, 1885 Mar. 20,1889 

John W. Mason do Mar. 21, 1889 Apr. 18,1893 

Joseph S. Miller do Apr. 19,1893 Nov. 26,1896 

W. St. John Forman Illinois Nov. 27,18% Dec. 31,1897 

Nathan B. Scott West Virginia Jan. I, 1898 Feb. 28,1899 

George W. Wilson Ohio Mar. 1,1899 Nov. 27,1900 

John W. Yerkes Kentucky Dec. 20, 1900 Apr. 30,1907 

John G. Capers South Carolina June 5,1907 Aug. 31,1909 

Royal E. Cabell Virginia Sept 1,1909 Apr. 27,1913 

William H. Osborn North Carolina Apr. 28,1913 Sept. 25,1917 

Daniel C. Royer South Carolina Sept. 26,1917 Mar. 31,1920 

William M. Williams Alabama Apr. 1,1920 Apr. 11,1921 

David H. Blair North Carolina May 27,1921 May 31,1929 

Robert H. Lucas Kentucky June 1, 1929 Aug. 15,1930 

David Burnet Ohio Aug. 20, 1930 May 15,1933 

Guy T. Helvering Kansas June 6,1933 Oct. 8,1943 

Robert E. Hannegan Missouri Oct. 9,1943 Jan. 22,1944 

Joseph D. Nunan, Jr New York Mar. 1,1944 June 30,1947 

George J. Schoeneman Rhode Island July 1,1947 July 31,1951 

John B. Dunlap Texas Aug. 1,1951 Nov. 18, 1952 

T. Coleman Andrews ___________________________ Virginia Feb. 4,1953 Oct. 31, 1955 

Russell C. Harrington Rhode Island Dec. 5,1955 

Note.-Office of Commissioner of Internal Revenue created by act of Congress, July , 1862. 

1 In addition, the following were Acting Commissioners during periods of time when t ere was no Commissioner holding 

the office: John W. Douglass, of Pennsylvania, from Nov.1, 1870, to Jan. 2, 1871; Henr C. Rogers, of Pennsylvania, from 

May 1 to May 10, 1883; John J. Knox, of Minnesota, rom May 11 to May 20,1883' Robert Williams, Jr., of Ohio, from Nov. 

28 to Dec. 19, 1900; Millard F. West, of Kentucky, from Apr. 12 to May 26, 1921; H. F Mires, of Washington, from Aug. 

15 to Aug. 20, 1930; Pressly R. Baldridge, of Iowa, f om May 15 to' June 5, 1933; Haro d N. Graves, of Illinois, from Jan. 

23 to Feb. 29. 1944,• John S. Graham, of North Caroli a, from Nov.19, 1952. to Jan.19, 1953; Justin F. Winkle, of New York 

from Jan. 20 to Feb. 3, 1953; and 0. Gordan Delk, a Virginia, from Nov. 1 to Dec. 5, 155. 

PRINCIPAL OFFICERS OF THE INTERNAL REVENUE 

SERVICE AS OF JUNE 30, 1.956 

NATIONAL OFFICERS 

Office of the Commissioner 

Commissioner Russell C. Harrington 

Deputy Commissioner 0 Gordon Delk 

Technical Advisor to the Commissioner Leo Speer 

Director, Public Information Division James C. Rivers 

Director of Practice George C. Lea 

Operations 

Assistant Commissioner _______________________________________________________________________ Clifford W. Stowe 

Division Directors: 

Principal Officers ix 

Inspection 

Assistant Commissioner Harry J. Trainor 

Division Directors: 

Internal Audit Francis I. Geibel 1 Internal Security Vernon C. Acres 

Administration 

Assistant Commissioner Harrell T. Vance 

Division Directors: 

Fiscal Management Gray W. Hume, Jr. Personnel and Training Edwin N. Montague 

Operating Facilities Bruce McNair 

Planning 

Assistant Commissioner Richard W. Nelson! 

Division Directors: 

Planning James R. Turner a Statistics Ernest J. Engquist, Jr. 

Chief Counsel 

Chief Counsel John Potts Barnes 

Assistant Chief Counsels: 

Administration John W. Burros Litigation Rudy P. Herb-% 

Claims Vacancy Technical Herman T. Railing 

Enforcement E Riley Campbell 

REGIONAL AND DISTRICT OFFICERS. 

 Atlanta Region 

Regional Commissioner Ellison C. Palmer 

Assistant Regional Commissioners: 

Administration Burton M. Graham Audit Frank A. Winter 

Alcohol and Tobacco Tax Louis E Howell Collection James C. Van Voorhis 

Appellate Norman C. Bailey Intelligence Allen T. Hollinrake 

District Directors: 

Atlanta, Ga Paul Cobb Jackson, Miss lames L Enochs 

Birmingham, Ala George D. Patterson, Jr. Jacksonville, Fla Laurie W. Tomlinson 

Columbia, S. C Robert C. Pitts Nashville, Tenn James M. Rountree 

Greensboro, N. C Philip K. Sanders 

Regional Counsel William H. Loeb 

Regional Inspector David L Lowry, Jr. 

Boston Region 

Regional Commissioner Wilber A. Gallahan 

Assistant Regional Commissioners: 

Administration Maurice J. Taggart Audit Walter F. Burke 

Alcohol and Tobacco Tax Harold L Henneberry Collection Albert C. Hughes 

Appellate Howard D. Taylor Intelligence John J. Denson 

District Directors: 

Augusta, Maine Whitney L. Wheeler Hartford, Conn Harold R. All 1 

Boston, Mass Frank J. Cavanagh Portsmouth, N. H Charles W. Emlet 

Burlington, Vt John W. Gaynor Providence, R. I John A. O'Connell 

Regional Counsel John W. Edwards 

Regional Inspector Donald W. Bacon 

Director, Northeast Service Center, Lawrence, Mass Benjamin H. Fisher 

Chicago Region 

Regional Commissioner Delferd L Olsen 

Assistant Regional Commissioners : 

Administration Milton T. Houghton Audit Edward D. Myers 

Alcohol and Tobacco Tax William N. Woodruff Collection Horace H. Stikeleather 

Appellate Clarence W. Sebring Intelligence Hugh S. Loyd 

District Directors: 

Chicago, Ill Delbert J. Luippold Milwaukee, Wis George Reisimer 

Detroit, Mich Albert M. Menninger Springfield, Ill Hanle J. White 

Regional Counsel John D. Kiley 

Regional Inspector Winslow B. Randall 

1 Acting. 
Audit 

Collection 

Intelligence 

V. Lee Phillips 

 Roger R. Kaiser 

Harold B. Holt 

x Commissioner of Internal Revenue Annual Report 

Cincinnati Region 

Norman B. Eshleman 

Melvin Burton 

 William J. Grabo 

 Thomas P. McGovern 

William M. Gray 

 Philipp L. Charles 

 Clifford W. Glolzbach 

Gilbert C Hooks 

Clarence E. Price 

 Gordon M. Anderson Regional Counsel 

-Raglan& Commissioner 

Assistant Regional Commissioners: 

Administration Orland V. Steele 

Alcohol and Tobacco Tax William K. Lilley 

Appellate Charles L Hodgkins 

District Directors: 

Aberdeen, S. Dak William C. Welsh Kansas City, Mo Edwin 0. Bookwalter 

Cheyenne, Wyo Frank G. Clark Omaha, Nebr James L. McCrory 

Denver, Colo George H. Allan St. Louis, Mo Ernest M. Flinn 

Des M Frank M. Halpin S t. Paul, Minn Arthur R. Knox 

Fargo, N. Dek 

oines, Iowa 

 Byron J. Rockwood 

 Wichita, Kens Gustave F. Koehler 

Regional 

Douglas L. Barnes 

Regional inspector 

nal Counsel Harry R. wail 

Director, Midwest Service Center, Kansas City, Mo Arnold S. Dreyer 

Philadelphia Region 

,. Regronal Commissioner L. Alfred Chamberlin 

Assistant Regional Commissioners: 

Administration Donald 0. Hays Audit A. James D'Angelo 

Alcohol and Tobacco Tax Louis DeCarlo Collection Edward R. McHugh 

Appellate William E. Steynen Intelligence Wesley E. Craig 

District Directors: 

Baltimore, Md Clarence I. Fox, Jr. Pittsburgh, Pa John H. Bingler 

Camden, N.1 Chris L. Gross Scranton, Pa Francis P. Graham 

Newark, N.1 Joseph F. J. Mayer Wilmington, Del Horace L. Brown 

Philadelphia, Pa Edgar A. McGinnes Cecil H. Haas 

Regional Counsel William A. Costello Regional Inspector 

San Francisco Region 

Regional Commissioner 

Assistant Regional Commissioners: 

Administration Homer C. Gant 

Alcohol and Tobacco Tax Henry G. Morthorst 

Appellate Joseph B. Harlacher 

District Directors: 

Boise, Idaho Calvin E. Wright 

Helena, Mont Thomas M. Robinson 

Honolulu, Hawaii Henry Robinson 

Los Angeles, Calif Robert A. Riddell 

Phoenix, Ariz Wilson B. Wood 

Regional Counsel 

Regional Inspector 

1 Acting. 

Summary and Transmittal 

TREASURY DEPARTMENT, 

OFFICE OF COMMISSIONER OF INTERNAL REVENUE, 

Washington, D. C., December 19, 1956. 

DEAR MR. SECRETARY: 

The fiscal year 1956 was a year of solid progress for the Interna 

Revenue Service. 

It was a year of larger collections, more returns filed, more audit examina 

tions, more prosecutions, and reduced backlogs of delinquent accounts 

These gains were accompanied by several less obvious achievements 

Work backlogs were reduced in several categories, and important steps were 

taken toward resolving processing problems by establishing mechanize( 

regional Service Centers. Appellate case inventories moved upward slight!: 

from their abnormally low levels of the year before. Additional assessment 

were off slightly but showed an upward trend in the latter part of the yea 

as the result of the increased audit examinations. 

After five years of numerous organizational and procedural changes, ou 

effort last year was to stabilize conditions so as to promote efficiency ant 

more satisfactory working conditions. With the same goals of improving 

morale and raising work standards, we abolished the quota system 

measuring production of revenue agents and collection officers, thereby 

emphasizing quality over quantity in our enforcement activities. Then 

is reason to believe these policies are beginning to pay off in both quality ant 

quantity of work accomplished. 

A thoroughgoing reappraisal of our training courses for revenue agent 

and collection officers was made during the year. We are, as a result 

installing improvements that give promise for the future of our Service. 

Detailed statements of the Service's many work programs will be fount 

in the accompanying annual report of this office. 

84441/41thilei 

Commissioner of Internal Revenue. 

Hon. GEORGE M. HUMPHREY, 

Secretary of the Treasury. 

Regional Commissioner 

Assistant Regional Commissioners: 

Administration Alvin M. Kelley Audit 

Alcohol and Tobacco Tax Henry R. Peterson Collection 

Appellate Jesse F. Gregory Intelligence 

Distnct Directors: 

Cincinnati, Ohio Russell A. Welch Louisville, Ky 

Cleveland, Ohio Parker C. Williams Parkersburg, W. Va 

Columbus, Ohio Nathaniel Looker Richmond, Va 

Indianapolis, Ind Gary Campbell Toledo, Ohio 

Regional Inspector 

Dallas Region 

Regional Commissioner 

Assistant Regional Commissioners: 

Administration Vacancy 

Alcohol and Tobacco Tax Joseph F. Black 

Appellate William G. Cullen 

District Directors: 

Austin, Tex Robert L Phinney 

Albuquerque, N. Mex Steven P. Vidal 

Dallas, Tex Ellis Campbell, Jr. 

Regional Counsel 

Regional Inspector 

New York Region 

Regional Commissioner Alfred W. Fleming 

Assistant Regional Commissioners: 

Administration Norman D. Nowak Audit Richard D. Donoghue 

Alcohol and Tobacco Tax William E. Dunigan Collection Raymond A. Hennessy 

Appellate Ralph M. Home I Intelligence Francis J. Kennedy 

District Directors: 

Albany, N. Y Riley J. Ratters° Lower Manhattan Donald R. Moysey 

Brooklyn, N. Y Thomas E. Scanlon Upper Manhattan Harold B. Agleam 

Buffalo, N. 'I Eugene C. Coyle, Jr. Syracuse, N. Y Alva 

Arthu r 

M. B. Meyers 

te 

Regional Counsel Frank S. T 

B

utted, Jr. 

Regional Inspector 

Omaha Region 

Herbert D. Smith 

B. Frank White 

Audit Dallas A. Sims 

Collection Carl E. Webb 

Intelligence William E. Beloate, Jr. 

Little Rock, Ark Olin S. Godwin 

New Orleans, La Chester A. Usry 

Oklahoma City, Okla Earl R. Wiseman 

J. Marvin Kelley 

Paul A. Hankins 

Ernest C. Wright 

Audit Joseph M. Cullen 

Collection Homer 0. Creasman 

Intelligence Walter H. Thomas 

Portland, Dreg Ralph C. Granquist 

Reno, Nov Vaughn W. Evans 

Salt Lake City, Utah Charles L Fox 

San Francisco, Calif Harold Hawkins 

Seattle, Wash William E. Frank 

Melvin L. Sears 

Scott C. McCort 
XU 

REPORT 

ON 

• 

(aOPERATIONS 

sofJune 30, 1956). 

411■111■11, 

lot 

J 

0 
Note.—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. 

3 
1956 

INTERNAL REVENUE 

COLLECTIONS 

fiscal years 1955 and 1956 

wail 

I 

•••• •""' 

BILLIONS OF DOLLARS 

corporation 

income and 

profits taxes 

Individual 

income taxes 

employment 

taxes 

1955 18.3 

1955 31.7 

7.3 

all other 

(estate, gift 

and excise) 

10.2 

11.2 

TOTALS: 1955-$66.3 billion 

6.2 

INTERNAL REVENUE COLLECTIONS 

General 

Internal revenue collections rose from $66,288,692,000 in the fiscal year 

1955 to $75,112,649,000 in fiscal 1956, representing an increase of $8,823„ 

957,000, or more than 13 percent. 

This overall rise i-i collections was supported by significant percentage 

rises in all major classes of taxes, ranging from 8.6 percent for excise taxes 

(including alcohol and tobacco taxes) to 25 percent for estate and gift taxes. 

The largest increases occurred in corporation income taxes, which rose 

by $3,033,802,000, and withheld individual income taxes, which rose by 

$2,762,051,000. The rise in withheld income taxes was attributable to 

a large gain in total payments of wages and salaries by employers. The 

advance in corporation tax collections reflected a large increase over the 

preceding year in corporate profits. 

A comparison of collections by major categories follows: 

Internal revenue collections, fiscal years 1955 and 1958 

[In thousands of dollars. For details, see appendix table 3, pp. 96-98] 

Source 

Fiscal year 

1955 1956 

Income taxes: 

Corporation 

Individual: 

Withheld by employers I 

Other I 

Total individual income taxes 

Total income taxes 

Employment taxes: 

Old-age insurance 

Unemployment insurance 

Carriers taxes-old-age benefits 

18, 264,720 21, 298, 522 

21, 253, 625 

10, 396,180 

24,015,676 

11,321, 966 

31,650, 106 35, 337,642 

49, 914, 826 56, 636,164 

5, 339, 573 

279, 986 

600,106 

6, 336, 805 

324, 656 

634, 323 

Total employment taxes 6, 219, 665 7,295, 784 

Estate and gift taxes 936,267 1, 171, 237 

Alcohol taxes 2,742,840 2, 920, 574 

Tobacco taxes 

Other excise taxes 

I, 571,213 

4, 896, 530 

1, 613, 497 

5,470, 124 

Taxes not otherwise classified a 7, 352 5, 269 

Grand total 66, 288,692 75,112, 649 

s Estimated. Collections of individual income tax withheld are not reported separately from old-age insurance taxes on 

wages and salaries. Similarly, collections of individual income tax not withheld are not eported separately from old-age 

insurance tax an self-employment income. The amount of old-age insurance tax collect ons shown is based on estimates 

made by the Secretary of the Treasury pursuant to the provisions of sec. 109 (a) (2) of the Social Security Act Amendments 

of 1950 and includes both classes of old-age insurance taxes mentioned above. The est mates shown for the 2 classes of 

individual incometaxes were derived by subtracting the old-age insurancetax estimates f om the combined totals reported. 

The collections of withheld individual income tax include amounts subsequently transferred to the Government of Guam 

under the provisions of Public Law 630, approved August I, 1950. 

a Includes amounts of unidentified and excess collections, depositary receipts outstanding 6 months or more for which 

no tax account can be found, and profit from sale of acquired property. Previously included in "Excise taxes, received 

with returns and from sale of stamps.") 

401908-57-2 

5 
6 Commissioner of Internal Revenue Annual Report 

Individual Income Taxes 

During the fiscal year 1956, total individual income taxes, including those 

withheld and not withheld, rose by more than 11 percent, or $3,687,536,000 

above the preceding fiscal year's amount, and carried the total for fiscal 

year 1956 up to $35,337,642,000. This reflected, primarily, the effects of 

increased personal incomes. Approximately two-thirds of the total individual income taxes were collected through withholding. 

Corporation Income Taxes 

Corporation income taxes recovered sharply during fiscal year 1956. 

The advance from the previous fiscal year amounted to almost 17 percent 

or $3,033,802,000. 

This advance in corporate tax collections during fiscal year 1956 reflects, 

for the most part, the current effects of the sharp rise in corporate profits 

during 1955. The increase would have shown up even more strongly if it 

had not been for the fact that the 1955 collections were supplemented by 

accelerated payments under the Revenue Act of 1950 while the 1956 figures 

had no corresponding factor. Before 1950, a corporation had the right to 

pay each year's tax in 4 equal installments, spread out over the succeeding 

year. Under the Revenue Act of 1950, the proportions payable in the first 

2 installments were gradually increased, year by year, through fiscal year 

1955, and the proportions payable in the last 2 installments were reduced. 

Acceleration was completed in fiscal year 1956, during which the tax for 

the income year 1955 was payable in 2 equal installments. Also, the 

Internal Revenue Code of 1954 added to this schedule (in the case of corporations with over $100,000 liability) 2 more payments of estimated tax 

for the current year. 

Employment Taxes 

Aggregate collections of employment taxes during fiscal year 1956 rose 

by $1,076,119,000, or more than 17 percent over the preceding fiscal year, 

and reached a total of $7,295,784,000. Although collections of all major 

categories of employment taxes showed significant rises during the 1956 

fiscal year, the most substantial increase occurred in Federal old-age insurance taxes. 

The taxes collected in this category rose by more than 18 percent above 

the preceding fiscal year, and amounted to $6,336,805,000, including about 

$500,000,000 resulting from self-employment taxes which, beginning 

January 1, 1955, included farmers'. Other changes in the Federal Insurance 

Contributions Act—such as raising the maximum amount subject to tax 

from $3,600 to $4,200, extending the coverage to farm employees, and 

liberalizing the eligibility requirements for domestic servants—served to 

Report on Operations 7 

expand the amount of collections of Federal old-age insurance taxes. 

As a result of these new statutory developments, together with an increase 

in employee compensation, the rise in collections from Federal old-age 

insurance taxes accounted for 93 percent of the total gain in employment 

tax collections. 

Elimination of quarterly installment payments, and the consequent 

concentration of receipts in the fiscal year 1956, contributed to a rise in 

taxes collected under the Federal Unemployment Tax Act of 16 percent, 

yielding a total for the year of $324,656,000. Receipts of taxes under the 

Railroad Retirement Tax Act rose to $634,323,000. 

Other Internal Revenue Collections 

Other internal revenue collections, consisting of estate and gift taxes, 

alcohol and tobacco taxes, and other excise taxes, amounted to 

$11,180,701,000 during fiscal year 1956. This exceeds the amount collected in the preceding year by $1,026,499,000. It essentially reflects the 

increase in taxpayers' personal consumption expenditures, together with 

a sharp recovery in personal incomes from the 1954 level. 
NUMBER OF 

RETURNS FILED 

fiscal years 1955 and 1956 

FIGURES IN MILLIONS 

individual and 

fiduciary 

declarations of 

estimated tax 

(individuals) 

1955 1.0 

partnerships 

1956 1.0 

1 955 .8 

6.3 

6.3 

corporations 

1956 .9 

17.5 

employment 

18.9 

excise and 

all other 

taxes 

4.7 

4.5 

TOTALS: 1955-88.7 million 

inca—an A millinn 

58.3 

58.6 

RECEIPT AND PROCESSING OF RETURNS 

General 

During 1956, 90,288,000 returns were filed, representing an increase of 

1,638,000 returns, or approximately 2 percent above the number filed in 

the previous fiscal year. 

About 84 percent of the rise in the total number of returns occurred in 

the category of employment tax returns, resulting primarily from changes 

in the Federal Insurance Contributions Act. As a result of extending this 

act to include workers previously not covered, particularly farm laborers 

and self-employed farmers, the number of employment tax returns rose by 

1,379,000 over the last fiscal year, and by 1,800,000 over fiscal year 1954. 

Almost half of the increase in employment tax returns was due to the filing 

of Forms 943 for agricultural employees. 

Although amendments in the social security field had the most pronounced effect upon the rise in the number of returns filed, the general 

advance in economic activity during 1955 had some effect, particularly 

upon the number of corporate returns filed. 

The new estimated tax return for large corporations (Form 1120—ES 

for a corporation with estimated tax liability of more than $100,000) accounted for a small part of the increase in volume of returns; about 29,00( 

Forms 1120—ES were filed in the fiscal year 1956. The shift from a stamp 

to a returns basis for the payment of beer and wine taxes also contributec 

to the rise. Form 2034 for beer and Form 2050 for wine were introducec 

in January 1955. The fiscal year 1955 experienced a half-year's filing o 

such returns, while fiscal year 1956 experienced a full-year's filing. 

9 
10 Commissioner of Internal Revenue Annual Report 

A comparison of the number of returns filed in the last 2 fiscal years, by 

principal types of returns, follows: 

Number of returns filed, by principal type of return, fiscal years 1955 and 

1956 

[Figures in thousands 

Type of return 

Fisca year 

1955 1956 

Income taxes: 

Individual—citizens and resident aliens 

All other individual and fiduciary 

Total individual and fiduciary 

Declarations of estimated tax 

Partnerships 

Withholding agents 

Corporation 

Other I 

57, 610 

678 

57,941 

699 

58, 289 58, 640 

6,303 

1,036 

10 

836 

221 

6,330 

1,028 

10 

869 

280 

Total income tax returns 66, 695 67, 156 

Employment taxes: 

Withheld income tax and old-age insurance 16,864 18,265 

Railroad retirement and unemployment insurance 649 628 

Total employment tax returns 17,513 IS, 892 

Estate tax 40 44 

Gift tax 58 68 

Special occupational taxes 1,441 1,223 

All other excise taxes 2, 900 2, 905 

Grand total 68, 650 90, 288 

Includes exempt organization income tax returns and includes for 1956 24,000 Form 1040 PR returns filed in Puerto 

Rico with respect to self-employment tax only. 

2 Includes returns previously classified as both "excise taxes" and "all other." 

Of the total number of returns filed during 1956, the proportions filed 

in the various categories remained approximately the same as last year. 

Individual tax returns accounted for 65 percent of the total returns filed 

as compared with 66 percent during the previous year, corporate returns 

accounted for approximately 1 percent during 1956 and 1955, and employment tax returns accounted for 21 percent during 1956 as compared 

with 20 percent during the last fiscal year. 

For individuals filing income tax returns, 1956 represents the second 

year of experience with the postponed filing date, from March 15 to April 

15, and there was a noticeable shift in the filing pattern during 1956, 

since certain taxpayers gave delayed recognition to the postponement. 

Service Centers 

Experimentation with large-scale mechanical processing of Forms 1040A 

in the Processing Branch at Kansas City during the 1955 filing year proved 

successful, and the tabulating machine program was extended in 1956 by 

the establishment of another major installation to service the northeastern 

Report on Operations 

1 1 
AddressingPackagesof Income Tax Returnsand Instructions,NortheastService Center. 

12 Commissioner of Internal Revenue Annual Report Report on Operations 13 

part of the country. The Processing Branch was reorganized as the Midwest Service Center, servicing 10 States in the Middle West. The second 

installation, designated the Northeast Service Center and located at 

Lawrence, Mass., services the 6 New England States, plus New York and 

New Jersey. 

The service center program calls for the processing, by means of tabulating machine equipment, of all Forms 1040A filed in the districts concerned and of certain Forms 1040 which reported income and deductions 

similar to those on Form 1040A. The volume of individual income tax 

returns processed by the centers in 1956 totaled almost 11,000,000. 

Additional operations performed in the centers include the establishment 

and the subsequent processing of accounts receivable originating from the 

returns processed in the centers, mathematical verification of selected 

returns otherwise processed in the districts, processing of taxable declarations of estimated tax filed by individuals, matching of information documents, and mailing of returns. 

Large-scale mechanical operations are being further extended for processing returns filed in 1957. A Western Service Center is being established 

in Ogden, Utah, to service the 8 States in the San Francisco region. The 

Midwest Service Center's operations are being expanded to include two 

additional States. The programs of the service centers will be enlarged to 

include the processing of all claims for refund of Federal tax on gasoline 

used on a farm, Form 2240, which are filed throughout all district offices. 

Mathematical Verification 

The number of returns checked for mathematical errors during fiscal 

year 1956 showed a moderate increase over the preceding year, partly due 

to the increase in volume of individual income tax returns filed. A much 

sharper increase, however, was observed in the number of returns with 

tax change. During fiscal year 1955, 1 out of every 42 returns verified 

resulted in tax change; during 1956, 1 out of every 34 returns resulted in 

change. Increases of 29 percent were noted both in the number of returns 

with tax change, and also in the gross amount of tax change, which included both tax increases and tax decreases. During 1956, $76,266,000, 

or 70 percent of total tax change, represented increased amounts due 

from taxpayers. This was 18 percent more than the comparable figure 

during the preceding fiscal year. Tax decreases during 1956, representing 

amounts returned to taxpayers, aggregated $32,601,000 which is 65 percent 

more than the amount of tax decreases during 1955, 
Type of return 

Individual and fiduciary Corporation Total Item 

Fiscal 

year 1955 

Fiscal 

year 1956 

Fiscal 

year 1955 

Fiscal 

year 1956 

Fiscal 

year 1955 

Fiscal 

year 1956 

Number of returns verified 

Number of returns on which changes were made 

Amount of tax increase 

Amount of tax decrease 

42,615 

1, 013 

$62, 838 

$19,317 

43, 758 

1,314 

$74, 855 

$32, 147 

690 

7 

$1,711 

8417 

825 

3 

1$454 

43, 305 

1,020 

$64,549 

$19,734 

44, 582 

I, 317 

$76, 266 

$32,601 

14 Commissioner of Internal Revenue Annual Report 

The results of the mathematical verification of income tax returns during 

the last 2 years are shown in the following table: 

Income tax returns mathematically verified, fiscal years 1955 and 1956 

/Figures in thousands] 

Information Reports 

Internal Revenue Service has been receiving and processing annually 

more than 200,000,000 information documents. The documents include 

Forms W-2 (employers' statements of wages paid and tax withheld), Form 

1099 (information returns on payments of dividends, interest, and various 

other items), and lesser numbers of other types of information documents. 

During fiscal year 1956 processing of these documents was concentrated 

in the Midwest Service Center. Future processing of information documents will be undertaken by all service centers in operation. 

ENFORCEMENT WORK 

Audit of Returns 

The examination of returns continued to receive one of the highest 

priorities in the enforcement program. Emphasis was placed on improved 

operations and procedures. Of particular significance were the improvements made in methods of selecting returns for examination, in the techniques for auditing low-income returns, in the taxpayer assistance program, 

and in the organizational and procedural structure of the excise tax work. 

Although some of the benefits from the last-named improvement were 

not fully realized in fiscal 1956, all of these advances, plus other behindthe-lines activities too numerous to mention, were factors in effecting an 

increase in the number of returns examined by the district audit divisions. 

Methods of selecting returns for examination.—Along with the adoption of 

other changes dictated by experience in analyzing results of the examination 

of returns selected in the prior year, there was established in the audit 

divisions of the district offices the position of chief classifying officer. By 

thus centralizing responsibility for the local returns selection and classification program, and by giving special study to the types of returns requiring 

examination in each district, the overall effectiveness of this important 

segment of enforcement was materially increased. 

Audit techniques for low-income returns.—Steps were taken which, if successful, 

will expand the scope of the audit activity substantially through the use of 

mechanical equipment in the processing of low-income returns. As a 

part of this operation, experimental use was made of mechanized equipment of area service centers to address and prepare for mailing questionnaires 

to taxpayers in the verification of their returns. The results of this experiment are being evaluated with a view toward extending the procedure on a 

national basis. 

Taxpayer assistance program.—Technical personnel was again detailed to 

assist taxpayers in the preparation of their returns during the filing period. 

As a result of new methods, particularly self-help described on page 52, a 

smaller number of returns examining employees was used in the program, 

leaving a larger force of agents and auditors to carry on direct enforcement 

activities during the filing period. 

Changes in excise tax area.—Policy changes with respect to excise tax 

examination procedures were implemented by revisions of organizations 

and staffing principles. The latter provided for more agents to specialize 

in excise tax work in each district office and will result in a stepped-up 

volume of excise tax examination work. 

15 
16 Commissioner of Internal Revenue Annual Report 

Returns examined. —During the fiscal year 1956, more than 4,331,000 

returns were disposed of after selection for examination. Of this total 

2,389,000 returns were examined through contact with the taxpayer, 

while the balance was scrutinized and closed without taxpayer contact. 

This represents an increase of 354,000 or 17 percent in the number of 

returns examined by contact with the taxpayer over the preceding fiscal 

year. 

A comparison of the number of examinations by type of returns follows: 

Number of tax returns examined, fiscal years 1955 and 1956 

[Figures in thousands] 

Type of return 

Fiscal year 

1955 1956 

Income and profits tax: 

Corporation 

Individual and fiduciary 

Total income and profits tax 

Estate and gift tax 

Excise and employment tax_ 

Total returns examined 

147 

1,643 

166 

1,951 

1,790 

25 

220 

2,117 

27 

245 

2,036 2,389 

Note.—For periods prior to January 1955 the figures represent the number of returns covered by examiners' reports 

submitted for review. BeginningJanuary 1955 the figures represent examined returns disposed of by the Audit Division. 

The figures shown for excise and employment tax exclude 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 431,000 for the fiscal year 1955 and 964,000 

for the fiscal year 1956. 

In addition to the regular examination of selected returns, field examinadons are required in connection with each offer-in-compromise case 

disposed of. During the fiscal year, there were 8,290 such cases, involving 

income, profits, estate, gift, excise, employment, and withholding taxes. 

(See table in the section on Offers in Compromise.) This activity involved 

the expenditure of 156 man-years by technical personnel. 

Other important functions in the audit area include the issuance of 

determination letters (see section on Rulings, Regulations, etc.) and the 

holding of informal conferences with taxpayers who did not agree with 

the examining officers' proposed adjustments to their tax liabilities. A 

total of 281 man-years was expended on these activities-155 on determination letters and 126 on informal conferences. 

Fraud Investigations 

The fraud investigation program was strengthened by a number of 

developments during the year. 

Report on Operations 17 

The impact of increased manpower on this program is evident from the 

year's record of operations. A group of 282 special agents was added to 

the rolls in the latter part of the prior fiscal year, bringing the total of 

special agents to 1,559. The new agents completed their primary training early in fiscal 1956 and were assigned to regular duties. The number 

of all types of investigations completed by the special agents increased from 

28,430 to 34,886. These included unnumbered (preliminary) investigations, numbered (full-scale extensive) investigations, investigations of applications for admission to practice before the Treasury Department, and 

charges against enrolled practitioners. The most significant increases are 

those of completed full-scale tax fraud investigations, from 1,939 to 2,714, 

and of tax fraud cases in which prosecution was recommended, from 

903 to 1,368. 

A policy was adopted for the post review by assistant regional commissioners of nonprosecution cases investigated by district offices. This practice 

will increase uniformity in the interpretation and application of the 

criminal sections of the Internal Revenue Code, and also serve as a basis 

for instruction and training of Intelligence technical personnel. 

Meetings of the regional Intelligence reviewer-conferees, with National 

Office representatives, were initiated to increase uniformity in the overall 

application of policies and procedures in the review of Intelligence reports 

at the regional level. 

The issuance of (1) a statement of Intelligence responsibilities and functions of the regional office and guides for their performance and evaluation; 

(2) an outline of means for regional officials to guide, evaluate, and review 

district office actions; and (3) a statement of the district director's responsibilities and functions relating to Intelligence, provides management techniques for use by field officials in discharging their management responsibilities of guidance, evaluation, and followup actions to be taken in the 

Intelligence program. 

Control measures adopted during this fiscal year have resulted in expediting cases containing a recommendation for prosecution where the 

expiration of the period of limitation on prosecution is imminent. This 

minimizes the disproportionate number of such cases ordinarily forwarded 

during the months of August, September, and October; thus resulting in 

easing the backlogs of such cases in the offices of assistant regional commissioners and regional counsels and in the Department of Justice. 

A policy was inaugurated during the last quarter of the fiscal year for 

increased effort in the investigation of wagering and coin-operated gaming 

device violations. The effort is aimed at the independent initiation and 

development of cases against the important operators and in situations 

involving widespread noncompliance. 
SEIZURES AND 

ARRESTS FOR 

LIQUOR LAW 

VIOLATIONS 

fiscal years 1955 and 1956 

218,023 

253,912 

Report on Operations 19 

A summarynof investigations by the special agents in the fiscal years 1955 

and 1956 follows: 

Number of tax fraud and other Investigations completed by Intelligence 

Division, fiscal years 1955 and 1956 

Type 

Fins year 

1955 1956 

Suspected fraud and miscellaneous type cases: 

Unnumbered cases: 

Fraud 

Wagering 

Coin-operated gaming devices 

Miscellaneous 

Total unnumbered cases investigated 

Numbered cases: 

Prosecution recommended: 

Fraud 

Wagering 

Coin-operated gaming devices 

Miscellaneous 

Prosecution not recommended: 

Fraud 

Wagering 

Coin-operated gaming devices 

Miscellaneous 

Investigations discontinued: 

Fraud 

Wagering 

Coin-operated gaming devices 

Miscellaneous 

Total numbered cases investigated 

Other Investigations: 

Applications for admission to practice before the Treasury Department 

Charges against enrollees to practice 

Total other Investigations 

Grand total of all investigations 

16,150 

2,097 

141 

19,874 

2,474 

1,142 

142 

18, 388 24, 121 

903 

957 

2 369 

24 

1,036 

123 

2 149 

24 

595 

39 

9 7 

5 

1, 368 

734 

235 

42 

1,346 

99 

55 

10 

689 

65 

7 

4,231 4,650 

5,726 

85 

6, 039 

76 

5,811 6,115 

28, 430 34,886 

I Specific Information not available. Such cases are included in unnumbered fraud cases for fiscal year 1955. 

2 Coin-operated gaming device cases were reported with fraud cases in the 1955 annual report. 

Alcohol and Tobacco Tax Program 

Seizures and arrests for violations of alcohol, tobacco, and firearms tax 

laws increased during the year. As compared with the preceding fiscal 

year, the seizure of stills rose almost 16 percent; wine gallons of nontaxpaid 

distilled spirits also rose by more than 16 percent; and the appraised value 

of property seized rose from $3,405,314 to $3,851,035, an increase of 13 

percent. The number of arrests; including 18 arrests for tobacco tax 

violations and 429 arrests for firearms violations; rose from 10,545 to 11,380, 

an increase of 8 percent. 

12,509 

14,499 

10,545 

arrests 

(number) 11,380 

stills seized 

-(number) 

illegal liquor 

seized 

(wine gallons) 

7,375,304 1955 

mash seized 

(wine gallons) 8,843,208 
Number of claims 

Status 

Fiscal year 

1955 

Fiscal year 

56 

Pending July I 

Received during year 

Disposed of during year 

Rejected 

Allowed: 

Number 

Amount 

Pending June 30 

6,414 6,624 

3,049 3,908 

2,839 3,038 

2,263 2,560 

576 478 

$602, 817 $563, 979 

6,624 7,494 

Status Fiscal year 

1955 

Fiscal year 

1956 

Pending July 1 I 

Received during year: 

With recommendation for prosecution 

With requests for opinion 

Total 

Disposed of during year: 

Prosecution not warranted 

Department of Justice declined to prosecute 

Prosecution s 

Opinions delivered 

All other closings 

Total 

Pending June 30 

3,802 3,377 

Z 112 2,215 

74 103 

2,186 2,318 

+613 208 

182 + 336 

1,635 1,769 

94 114 

87 128 

2,611 2,555 

3,377 3,140 

20 Commissioner of Internal Revenue Annual Report 

A comparison of seizures and arrests follows: 

Seizures and arrests for liquor, tobacco, and firearms violations, fiscal 

years 1955 and 1956 

Item 

Flue year 

1955 1956 

Seizures: 

Stills (number) 12, 509 14, 499 

Nontaxpaid distilled spirits (wine gallons) 212,285 247,277 

Nontaxpaid wines (wine gallons) 5, 738 6 635 

Mash (wine gallons) 7, 375,304 

, 

8, 643,208 

vehicles (number) 2, 739 3,229 

Property (appraised value) $3, 405, 314 $3, 851, 035 

Arrests (number) 10, 545 I 11, 380 

Includes 18 arrests for tobacco tax violations and 429 arrests for firearms violations. 

Not.—Includes seizures and arrests in cases adopted, as well as originated by the Alcohol and Tobacco Tax Division 

During the year 29 arrests were made and 1,777 wine gallons of taxpaid 

liquor and 27 vehicles (the liquor and property being valued at $58,540) 

were seized in connection with the importation, or attempts at importation, 

of liquors into the State of Oklahoma in violation of the Liquor Enforcement Act of 1936. In the tobacco enforcement program, investigations 

were made which resulted in 18 arrests. 

Firearms Program 

The results of investigative work under the National and Federal Firearms Acts and the Act of August 9, 1939 (49 U. S. C. 781) included 429 

arrests, the seizure of 76 vehicles, and the making of 380 cases. Registrations during the year totaled 2,358. The reduction in registrations from 

37,076 in the preceding year reflected a decrease in the manufacture of 

firearms requiring registration. 

Rewards to Informers 

During the fiscal year over 3,900 claims were filed by individuals, as informers, seeking rewards under section 7623 of the Internal Revenue Code 

of 1954. Out of these claims and others pending from prior years, 478 were 

allowed; resulting in awards totaling $563,979 paid to informers who 

submitted specific information actually leading to detection of violations 

of the internal revenue laws and consequent assessment and collection of 

taxes and penalties. The claims allowed represent 16 percent of all claims 

disposed of, or slightly less than the same percentage in the prior fiscal year. 

The remainder were disallowed either because they could not be substantiated, or because they could not fulfill the eligibility requirements of the 

regulations. 

Report on Operations 21 

The following table shows the receipts and disposition of claims for reward during the fiscal years 1955 and 1956: 

Receipt and disposal of claims for informers' rewards, fiscal years 1955 

and 1956 

Cases Involving Criminal Prosecution 

The program of criminal prosecutions against flagrant violators of the 

tax laws continued with increased tempo during the year. Altogether, 

1,955 cases involving 1,928 defendants were forwarded to the Department 

of Justice, an increase of about 12 percent over the preceding year. Of 

the new cases, 762 (with 766 defendants) arose from the wagering tax. The 

remainder involved income and other tax cases. 

An analysis of cases flowing from the special agents through the Enforcement Division of the Chief Counsel's office and the Department of Justice 

follows: 

Receipt and disposal of cases In Enforcement Division, fiscal years 1955 

and 1956 

I Includes cases awaiting action in Department of Justice. 

2 Includes 392 coin-machine cases and 5 cases in which taxpayer died prior to referral to Department of Justice. 

Includes 191 wagering tax cases. 

404408-57--8 
900 

600 

300 

0 5,000 

'52 '53 '54 '55 '56 '52 '53 '54 

*Includes pleas of guilty and nolo contendere 

INCOME 

MISCELLANEOUS 

and 

,e 

/ 

/WAGERING 

I 

I 

CONVICTIONS* IN CRIMINAL TAX CASES 

for the fiscal years 1952 through 1956 

6,200 

5,600 

5,900 

5,300 

ALCOHOL, 

TOBACCO, and 

FIREARMS 

'55 '56 

22 Commissioner of Internal Revenue Annual Report 

Grand jury indictments in income tax cases and other miscellaneous tax 

cases rose during the fiscal year from 532 to 831, an increase of 56 percent. 

Indictments in wagering tax cases dropped during the fiscal year from 890 

to 762, a decline of 14.4 percent. In alcohol, tobacco, and firearms tax 

cases, indictments and informations increased 7 percent from 6,345 to 

6,787. 

In cases reaching the courtroom, 6,586 defendants pleaded guilty or nolo 

contendere, 1,062 were convicted after trial, 535 were acquitted, and 979 

were dismissed. 

A comparison of indictments and courtroom actions for the last 2 years 

follows: 

Results of criminal action, fiscal years 1955 and 1956 

Number of defendants 

Action 

Income tax and miscellaneous cases: I 

Indictments returned 

Disposals: 

Plea—guilty or nolo contendere 

Convicted after trial 

Acquitted 

Nol-prossed or dismissed 

Total disposals 

Wagering tax: 

Indictments returned 3 

Disposals: Plea—guilty or nolo contendere 

Convicted after trial 

Acquitted 

Nol-prossed or dismissed 

Total disposals 

Alcohol, tobacco, and firearms taxes: 

Indictments returned 

Disposals: 

Plea of guilty 

Convicted after trial 

Acquitted 

Nol-prossed or dismissed 

Total disposals 

Total: 

Indictments returned 

Disposals: 

Plea—guilty or nolo contender 

Convicted after trial 

Acquitted 

Nol.prossed or dismissed 

Total disposals 

I Includes estate, gift, payroll, and miscellaneous excise taxes other than wagering, alcohol, tobacco, and firearms taxes. 

2 Includes 61 related to cases in which there were pleas or convictions, 14 In which defendant died, 5 In related cases 

in which the princial defendant die d, 1 related to n cquittal, and 5 because of serious illness 

Includes defendants prosecuted on the basis of i

a

nfo

a

rmations. 

Actions by appellate courts.—The appellate courts sustained convictions in 

several important income tax criminal cases. 

Report on Operations 23 

Following the favorable decisions of the Supreme Court upholding the 

use of the net worth method in determining corrected net income in 

criminal tax cases, 10 cases involving such evidence were reaffirmed by 

courts of appeals following remand by the Supreme Court for reconsideration in the light of the decision in Holland v. United States, 348 U. S. 121. 

The Supreme Court denied further review in 9 of the 10 cases. The tenth 

case reached the Supreme Court for the second time on the basis of alleged 

procedural error during trial. The Supreme Court denied 29 petitions 

for certiorari brought by individuals seeking review of convictions for 

criminal violations of the internal revenue laws. 

Decisions during the year included the Supreme Court's affirmance of 

the conviction of Frank Costello for tax evasion, 350 U. S. 359. In that 

case the Court held that the indictment was not invalid because it was 

based on hearsay testimony of the agents of the Internal Revenue Service 

as to their findings. In a second criminal tax case the Supreme Court 

held that a defendant was not entitled to a jury instruction, in a felony 

trial, that he could be found guilty of a misdemeanor because the acts necessary to establish the felony were identical to those required to establish a 

misdemeanor under the 1939 Code. Berra v. United States, 351 U. S. 131. 

The Second Circuit on April 10, 1956, affirmed the convictions of Henry 

W. Grunewald, Washington influence peddler, and Daniel A. Bolich, 

523 

92 

52 

107 

705 

132 

46 

2112 

687 

37 

21 

22 

6, 787 

6, 125 7, 319 

7,767 

7,666 9,162 
Number Amount 

Status 

Fiscal year 

1955 

Fiscal year 

1956 

Fiscal year 

1955 

Fiscal year 

1956 

Assemblies issued 1 

Closed: 

Collected 

Returned as uncollectible 

Abatements and other 

Total 

Pending June 30: 

Active 

Inactive 4 

Total 

2, 064 

1,526 

123 

• 208 

2,360 

1.311 

238 

1, 549 

599, 919 1,082,113 

• 636, 967 824, 504 

• 110,454 160, 085 

1118, 533 167,942 

865,955 1,152, 531 

1, 024, 615 905, 791 

624, 936 682, 217 

1,649, 551 1, 588, 008 

2,307 

1,943 

200 

216 

1,857 

1, 505 

195 

1,311 

DELINQUENT ACCOUNT ACTIVITY, FISCAL YEARS 1955 AND 1956 

1956 1955 1956 Fiscal Year 1955 

MILLIONS OF ACCOUNTS 

2 . 5 — CLOSED DURING YEAR 

KNN 

ALL OTHER CLOSING 

PENDING JUNE 30 

24 Commissioner of Internal Revenue Annual Report 

former Assistant Commissioner of Internal Revenue, on charges of conspiracy to defraud the United States in the exercise of its governmental 

functions of administering the internal revenue laws and of detecting and 

prosecuting violations of the internal revenue laws free from improper 

influence, dishonesty, fraud, and corruption. 

Hyman Harvey Klein, a Baltimore liquor dealer who made a fortune 

during World War II on sales of Canadian whisky, and others were convicted for conspiracy to defraud the United States by impeding, impairing, 

obstructing, and defeating the lawful functions of the Department of the 

Treasury in the collection of the revenue. This case was pending on appeal 

to the Second Circuit at the end of the fiscal year. 

Collection of Delinquent Accounts 

The drive to reduce the volume of delinquent accounts was accorded 

one of the Service's top priorities during the year. For many years, there 

had been a tendency for both the number and dollar amount of such accounts to increase almost every year. A small reduction was actually 

achieved in 1956. Whether this new trend can be maintained will depend 

on economic, as well as technical and administrative, factors. 

During the year, the Service continued the policy of assigning its collection officers to work primarily on delinquent accounts, and to devote 

remaining time to enforcement efforts such as canvassing. This plan 

was fruitful, and 2,360,000 delinquent accounts were closed, as compared 

with 1,857,000 during the preceding year. This is an increase of 27 

percent. Number of closings by collection, by which means 82 percent of 

all accounts were closed, increased 27 percent. Dollar amounts of closings 

by collection increased by 29 percent. 

By the end of fiscal year 1956, the inventory of delinquent accounts had 

dropped by 3 percent from 1,549,000 cases on hand June 30, 1955, to 

1,505,000 on hand June 30, 1956. Dollarwise, inventory dropped by 

almost 4 percent from $1,649,551,000 to $1,588,008,000. The decrease in 

inventory is particularly noteworthy when it is considered that some 

243,000 more delinquent account assemblies were issued in fiscal year 1956 

than were issued in the previous fiscal year. 

The increase in the number of assemblies issued is not indicative of an 

increase in the number of tax delinquents. It is the result of an accelerated 

program which is aimed at earlier contact with the delinquent taxpayer 

by the field collection force. In prior years, policy called for the issuance 

of a first notice, followed by a second notice, and subsequent assignment 

to the field collection force if payment was not forthcoming as a result of 

the notices. During 1956 the second notice was discontinued. First notices were promptly issued on accounts which showed tax payments to be 

due. If such payments were not made within the prescribed period, the 

Report on Operations 25 

delinquent accounts were assigned for enforced collection action. Thus 

a substantial portion of the increase in issuances is represented by current 

year tax accounts which under prior procedure would not have reached 

a delinquent status until fiscal year 1957. 

The following table presents the data on collection of delinquent accounts: 

Taxpayer delinquent accounts, fiscal years 1955 and 1956 

[Figures in thousands] 

1 The assembly comprises several parts, all for office use, exc pt one which is a notice to the taxpayer I dicating legal 

action unless immediate payment is made. 

2 Amount shown covers only the period January—June 1955. 

3 Amounts of abatements and other closings for periods prior to Ian. 1, 1955 are excluded. 

• Consists of DARK pending accounts on which collection has been deferred such as cases involving military personnel, 

offers in compromise, etc. 

• Revised. 
Status 

Pending July 1 

Received during year 

Disposed of during year: 

Closed 

Petitioned 

Total 

Pending June 30 

Number of cases 

Fis19l5gear Fisc1a9l

56

ear 

13, 578 9,111 

10, 608 13, 816 

11, 897 10,612 

3, 178 2,476 

15, 075 13, 088 

9,111 9, 839 

Number of cases 

Status 

Fisca

1955

l year Fiscal year 

1956 

Pending July 1 

Received during year 

Disposed of during year: 

Settled by stipulation 

Closed by dismissal or default 

Tried before Tax Court on merits 

Total 

Pending June 30 

4, 087 

201 

1, 027 

3,523 

186 

801 

5, 315 4, 510 

7, 961 8, 422 

4,781 

8, 495 7,961 

4,971 

26 Commissioner of Internal Revenue Annual Report 

Delinquent Returns 

During the fiscal year 1956, as certain districts arrived at a current status 

and a balanced inventory of delinquent accounts, they were in a position 

to shift some of their enforcement effort to obtaining delinquent returns. 

The additional resources allocated to this investigative function resulted in 

a total of 838,284 delinquent returns of all tax categories secured during the 

fiscal year. This represents an increase of 9 percent over the 767,125 

secured during the preceding year. The amounts of tax, interest, and 

penalty with respect to the delinquent returns secured during the fiscal 

year 1956 aggregated $86,689,000, or 11 percent over the $77,770,000 

secured during 1955. 

The vast majority of these delinquent returns were quarterly payroll and 

excise tax returns. Only a small percentage were annual income tax 

returns. 

APPEALS AND CIVIL LITIGATION 

General 

Appellate offices succeeded in their goal of maintaining their workloads 

in a substantially current condition. This meant that cases were handled 

about as rapidly as taxpayers and their representatives were prepared to 

proceed with them. 

In the preceding year, emphasis was placed on reducing backlogs of cases. 

The resultant disposal of a large number of older cases put the appellate 

offices in a position to process cases promptly to the extent permitted by 

the complexity of the issues and the high standards of technical analysis. 

Despite a marked increase in case receipts during the fiscal year 1956 

compared with 1955, the objective was substantially attained. 

Income, Profits, Estate, and Gift Taxes 

The following tables reflect the results of case dispositions by regional 

appellate divisions for the fiscal years 1955 and 1956: 

Appellate Division receipt and disposal of protested income, profits, 

estate, and gift tax cases not before the Tax Court, fiscal years 1955 

and 1956 

Appellate Division receipt and disposal of petitioned income, profits, 

estate, and gift tax cases, fiscal years 1955 and 1956 

27 
APPEALS 

(income, estate, and 

gift taxes) 

fiscal years 1955 and 1956 

NONDOCKETED CASES 

received 

during year 

1 955 1 0,608 

1 956 

disposed of 

during year 

pending 

June 30 

1 955 

1 3,088 

1 955 L 9,111 

9,839 

Number of cases 

Status 

Fiscal year 

1955 

Fiscal year 

1956 

Pending July 1 - - - - - -

Received during year - - - -

Disposed of during year: 

_ Settled by agreement 

Unagreed partial allowances and claim rejections - - - - - - - - - - - - - - - - - - - - - - - - 

Total - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 

• 

Pending June 30 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 

276 

434 

240 

662 

173 

297 

354 

262 

470 616 

240 286 

DOCKETED CASES 

received 1 955 4,781 

during year 1 956 4,971 

disposed of 1 955 5,315 

during year 1 956 4,510 

pending 1 955 7,961 

June 30 8,422 

Report on Operations 29 

Excise and Employment Taxes 

The following table reflects the results in excise and employment taxes: 

Appellate Division receipt and disposal of protested excise and employment tax cases, fiscal years 1955 and 1956 

Claims for Relief From Excess Profits Tax 

During the year the Excess Profits Tax Council concentrated its efforts 

on the remaining nondocketed section 722 cases and the settlement or 

trial of docketed section 722 cases. 

The inventory of nondocketed cases was reduced from 9 corporations (4 

in Council and 5 in field) claiming refunds of $35,000,000 to 6 corporations 

(3 in Council and 3 in field) claiming $30,000,000. No new claims were 

filed. 

The inventory of docketed cases, with 8 new cases received during the 

year, was reduced from 501 to 414 corporations. The 414 cases in inventory at the close of June 30, 1956, involved claimed refunds of $898,000,000. 

Of the 95 docketed cases closed, 13 were tried before the Tax Court and 

82 were settled and stipulated before the Court. Of the 82 cases settled, 

50 were stipulated without any change in the Commissioner's statutory 

notice. 

Closing Agreement Cases 

Closing agreement cases involving completed transactions by taxpayers 

were also handled on a current basis. (For rulings on closing agreements 

involving prospective transactions, see p. 49.) 
Status 

Pending July I, 1955 

Received during year 

Disposed of during year 

Pending June 30, 1956 

Number of 

Cases 

27 

73 

93 

7 

Number of cases 

Status 

In courts of 

appeals 

In Supreme 

Court 

Pending July 1, 1955 

Appealed 

383 

388 

6 

5 

Total to be accounted for 

Disposed of during year: 

Favorable to Commissioner 

Favorable to taxpayers 

Modified 

Settled 

Dismissed 

Total 

Pending June 30, 1956 

771 II 

152 

77 

35 

6 

61 

6 

331 7 

440 4 

30 Commissioner of Internal Revenue Annual Report 

A table reflecting the number of such cases follows. 

Appellate Division receipt and disposal of closing agreement cases, fiscal 

year 1956 

Other Courts 

Report on Operations 31 

The distribution of these cases, by court involved and according to the 

nature of the decision, is as follows: 

Cases Involving tax Issues decided by Federal civil courts, fiscal year 1956 

For the 

Government 

Against the 

Government 

Partly for and 

partly against 

the Government 

Total 

District courts 170 234 60 

iSto' '' 

Courts of appeals 54 43 2 

Court of Claims 12 23 3 

Supreme Court I 3 

Total 237 303 65 605 

The results of appeals from decisions of the Tax Court to other courts 

during the year follow: 

Cases in appellate courts on appeals from decisions of the Tax Court, 

fiscal year 1956 

During the year, in addition to the appeals from Tax Court decisions 

noted above, there were 605 cases involving tax issues decided by the 

Federal civil courts (exclusive of bankruptcy, receivership, insolvency, 

compromise, and liquor cases). These cases involve principally suits for 

refund filed by taxpayers in Federal courts (see table 22) and suits filed by 

the United States in Federal and State courts for collection of taxes (see 

table 23). 

As of June 30, 1956, there were 2,973 civil cases (principally suits for 

refund and for collection of taxes) involving tax questions pending in 

district and State courts, 88 pending in courts of appeals, 492 pending in 

the Court of Claims. 

Four civil cases (see "Enforcement" section for criminal cases) were 

decided by the Supreme Court. 

The case of Huntington Beach Company v. United State; 76 S. Ct. 395, was 

decided on February 27, 1956, in favor of the Government. In reversing 

the Ninth Circuit in Commissioner v. Southwest Exploration Company (C. A. 

9, 1955), 220 F. (2) 58, the Court held that the contribution by the 

upland owners of the use of their land as drilling sites for offshore oil was 

an investment in the oil in place sufficient to establish their economic 

interest. Their income was dependent entirely on production and the 

value of that interest decreased with each barrel of oil produced. The 

upland owners, rather than the producers, were entitled to depletion on 

the income received by such owners. The decision was of importance in 

that it further extended the concept of what constitutes an "economic 

interest," a prerequisite for depletion on oil and gas income. 

The case of Capoeman v. Squire, 351 U. S. 1, was decided on April 23, 

1956, in favor of the taxpayer. The issue was whether proceeds of the 

sale of standing timber on certain land on the Quinaielt Indian Reservation, allotted in trust, were taxable to the restricted Indian allottees. The 

Government contended that the income of Indians, as that of other citizens, 

is subject to income tax in the absence of a definitely expressed exemption. 

The Court held that the proceeds are not subject to tax. The decision is 

based upon the treaty, the trust patent and the General Allotment Act 

under which the Secretary of the Interior, upon becoming satisfied that 

an allottee is competent, is authorized to issue to such allottee a patent in 

fee simple, after which "all restrictions as to sale, incumbrance or taxation 
32 Commissioner of Internal Revenue Annual Report 

of said land shall be removed." The Court determined a congressional 

intent to subject an allotment to taxes only after a patent in fee is issued to 

the allottee. "Reinvestment income" was distinguished by the Court from 

the type of direct income under consideration. 

Anderson, Clayton & Company v. United States, 350 U. S. 55, was decided on 

November 7, 1955, in favor of the taxpayer. The Court held that a corporation did not realize taxable gain from the sale of treasury stock to employees where the corporation was not dealing in its own shares "as it 

might in the shares of another corporation" within the contemplation of 

Treasury Regulations 111, section 29.22 (a)-15. Purchases and sales of 

the treasury stock were pursuant to a written agreement between the corporation and its stockholders which restricted ownership to members of 

the management group, and some of the stock was sold to other executives 

at a price below that for which it had been acquired. The Court considered 

it irrelevant that the stock had not been retired and new shares issued 

since, viewed in its entirety, the transaction was "limited to a wholly 

intracorporate purpose with no element of speculation or gain." This 

decision permitted the closing of several pending cases involving sales of 

treasury stock to employees under similar circumstances. 

The case of Leslie Salt Company v. United States, 350 U. S. 383, was decided 

on March 5, 1956, in favor of the taxpayer. The Court held that the 

corporation's nonnegotiable 3% percent promissory notes evidencing a 

$4,000,000 loan from two insurance companies, maturing over a 15-year 

period, containing no interest coupons, not engraved or issued in registered 

form, and executed simultaneously with loan agreements imposing restrictions upon the corporation for the lender's protection, are not subject 

to the documentary stamp tax on "debentures" or "certificates of indebtedness" under section 1801 of the Internal Revenue Code of 1939. This decision was decisive of approximately 165 similar cases which were pending 

in the district courts and the courts of appeals. 

Statements on adverse Tax Court decisions. —There were published in the 

Internal Revenue Bulletin acquiescences of the Commissioner in 407 

adverse decisions of the Tax Court and nonacquiescences in 69 adverse 

decisions. 

CHANGES IN TAX LIABILITY 

Additional Taxes 

Additional taxes assessed, including interest and penalties, found to be 

due from taxpayers as a result of audit, of obtaining delinquent returns, and 

of mathematical verification procedures, amounted to $1,412,823,000 during fiscal year 1956. This amount represented a decrease of 4.5 percent 

from the previous fiscal year. 

Although there was an overall decline, there was also a substantial 

increase in certain types of audit activities such as prerefund audit, the 

audit of delinquent returns, and mathematical verification. As a result of 

prerefund audit during the fiscal year 1956, the amount of additional tax, 

interest, and penalty rose from $33,877,000 during the preceding fiscal 

year to $73,759,000, an increase of 118 percent. Likewise, the tax, interest, 

and penalty on delinquent returns rose from $77,770,000 during the fiscal 

year 1955 to $86,689,000 during the fiscal year 1956, an increase of more 

than 11 percent. Additional income tax resulting from mathematical 

verification increased 18 percent. 

The decrease in additional taxes resulting from enforcement efforts 

occurred mainly in the area of the regular audit of corporate, individual, 

and fiduciary returns, and in the audit of employment tax returns. Additional tax, interest, and penalty resulting from regular audit of corporate 

returns declined from $587,131,000 during the fiscal year 1955 to $566,-

074,000 during the fiscal year 1956, a decrease of approximately 4 percent. 

In the case of the regular audit of individual and fiduciary returns, the 

decline was from $586,560,000 to $480,889,000, a decrease of 18 percent. 

The audit results of employment tax returns fell off from $8,826,000 to 

$5,700,000, a decline of more than 35 percent. 

There are a number of factors which contributed to the decline in additional tax from audit during the fiscal year 1956, none of which denoted any 

slackening of audit activity. Actually, as shown on page 16, there was a 

substantial increase in the number of returns examined. First of the 

factors in the slightly reduced audit assessments was the drive during the 

calendar year 1954 to reduce backlogs, which produced an abnormal increase in the flow of cases reaching the assessment stage. By July 1955, 

this flow of cases had assumed more normal proportions, with an attendant 

decrease in additional assessments from fiscal 1955. 

A second factor was a decrease in interest assessments. Many of the 

audit and appellate cases closed during the 1954 drive involved tax years 

extending back into World War II and the years immediately following. 

The amounts finally assessed in these cases included sizable amounts of 

interest. When the drive on the older cases was completed, both audit 

33 
TAX, INTEREST, AND 

PENALTY RESULTING 

FROM ENFORCEMENT 

EFFORTS 

fiscal years 1955 and 1956 

1.1.7:11 

MILLIONS OF DOLLARS 

additional tax, 

interest, and 

penalty resulting 

from audit 

increase in tax 

resulting from 

mathematical 

verification 

amount of tax, 

interest, and 

penalty assessed on 

delinquent returns 

TATA I C • 1 Cgg-C1 .170 

1955 65 

76 

78 

87 

Report on Operations 3 

and appellate efforts were directed toward cases involving later tax yea : 

with correspondingly smaller amounts of interest accrued This "catchini 

up" process caused the interest component of additional assessments 

decrease from $215,682,762 in fiscal 1955 to $175,810,565 in fiscal 1956. 

A third element contributing to the decrease is the fact that last yea] 

results included a few extremely large assessments which have not be 

matched in size in the cases closed this year. For example, one group 

related income tax cases included in the total for fiscal year 1955 involve 

approximately $30,000,000 in additional assessments. 

While these factors account for the decline in additional assessments, 

should be emphasized that the additional assessment figures for any give 

period of time should not be regarded as an•adequate measure of the e : 

forcement work done during that period. This is due to the length of tin 

which may elapse between the date of completion of the investigative wo : 

and the date when the tax has been finally determined and the addition 

assessment entered officially on the books. To illustrate: the audit adjw 

ment proposed by the revenue agent may not be acceptable to the ta 

payer, and he may request an informal conference. This procedure w 

typically consume a few weeks. Further nonagreement by the taxpay 

may result in the issuance of a 30-day letter, and in some cases the 90-di 

statutory notice may be required. Thus, several months may elapse befo 

an assessment can be entered, even if the case does not go beyond the juri 

diction of the Audit Division. 

In general, the larger the amount in dispute, the more likely is the ta 

payer to take full advantage of all opportunities for appellate considerath 

of his case. The time required to see this procedure to its conclusion w 

be measured in terms of months, and in the exceptionally large and compb 

cases, in terms of years. 

This is not to say that the level of additional assessments is unaffected 1 

changes in the level of audit activity. It simply means that the "pipelim 

through which cases travel in reaching the assessment stage has sever 

branches, and that the dollar volume of cases emerging is affected by bo 

(1) the volume of tax changes initially recommended at the audit level, ai 

(2) changes in the volume and rate of flow of cases in different branches 

the pipeline. 

The criteria which more accurately reflect the level of audit activity a 

the number of tax returns examined and the additional assessment reem 

mended during a given period. The number of income, estate, and g 

tax returns examined in fiscal 1956 was 2,143,000, representing an increa 

of 18 percent over fiscal 1955. The dollar volume of additional tax n 

ommended at the audit level has shown a steady upward trend over the pz 

year. The amount recommended for assessment in 1956 was $1,253,411,00 

an increase of 14 percent over the amount of $1,099,226,000 recommend' 

during 1955. Expressed in terms of additional tax and penalties mew 
36 Commissioner of Internal Revenue Annual Report 

mended by each examiner (both field and office audit), the total recommended during fiscal 1956 averaged $96,157 per examiner, as compared 

with $84,902 for fiscal 1955. 

The following table shows a comparison of additional taxes for the fiscal 

years 1955 and 1956, by general classes of tax: 

Tax, Interest, and penalty resulting from enforcement efforts, fiscal 

years 1955 and 1956 

to thousands of dollars/ 

Item 

Fisca year 

1955 1956 

Additional tax, interest, and penalty resulting from audit 

Income and profits taxes: 

Corporation income and profits 1587,131 566,074 

Individuals and fiduciaries: 

Prerefund audit 33, 877 73, 759 

Regular audit 586,560 480,889 

Total, income and profits taxes 11, 207, 568 1,120, 723 

Employment taxes 8,826 5, 700 

Estate and gift taxes 1 108,235 108,063 

All other taxes 11,932 15,381 

Total, resulting from audi t 1 1, 336, 560 1,249,868 

Increase in income tax resulting from mathematical verification 

Individuals and fiduciaries 62,838 n. a. 

Corporations 1, 711 n. a. 

Total 64,549 76,266 

Tax, interest, and penalty on delinquent returns 77, 770 86,689 

Total, excluding claims disallowed 1 1,478,879 1,412,823 

Claims disallowed 

Amount 552, 046 

Grand total n. a. 1,964,869 

n. a.-Not available. 

I Revised. 

2 Includes withheld Income tax. 

Overassessments and Overpayments 

Refunds and repayments.-The total amount of refunds and repayments, including interest, drawbacks and stamp redemptions, rose from 

$3,513,105,000 during fiscal year 1955 to $3,772,359,000 during fiscal year 

1956, an increase of more than 7 percent. 

While the total amount of refunds and the total number of refunds 

both increased somewhat, the amount of interest allowed on refunds 

dropped from $62,127,000 during the previous fiscal year to $53,747,000, a 

decline of more than 13 percent. 

Report on Operations 37 

The principal increase was in refunds resulting from excessive prepayment of individual income tax. These refunds increased by more than 14 

percent. 

The following table shows by class of tax the number and amount of 

refunds and interest allowed during fiscal years 1955 and 1956: 

Number and amount of internal revenue refunds, including Interest, 

during fiscal years 1955 and 1956 

Class of tax 

Number Amount refunded or paid 

refu ded) 

Interest a lowed (ineluded i amounts 

Fiscal year 

1955 

Fiscal year 

1956 

Fiscal year 

1955 

Fiscal year 

1956 

Fiscal year 

1955 

Fiscal year 

1956 

Corporation income and profits taxes__ 

Individual income and employment 

taxes: 

Excessive prepayment income 

tax 

Other income tax and old-age insurance s 

Railroad retirement 

Unemployment insurance 

Total individual income and 

employment tax 

Estate tax 

Gift tax 

Alcohol taxes , 

Tobacco taxes 

Manufactures' and retailers' excise 

taxes 

Redemption of stamps: 

Alcohol 

Tobacco 

Others 

Total stamp redemptions 

Dther 0 

Total refundsof internal revenue. 

49,188 64, 081 

(In thousands of dollars) 

447, 280 453, 659 143, 355 35, 549 

'30,402,667 

4 I, 810, 702 

116 

13, 487 

4 33,392,248 

655,019 

91 

16,871 

12, 715, 537 

+254,452 

94 

2,239 

3, 106, 728 

121,416 

61 

2,287 

15,415 

1 10,860 

16 

105 

6,768 

8,890 

16 

68 

1 32,226,972 34, 064, 229 12, 972, 322 3, 230, 493 116,396 15, 741 

2,777 

378 

6, 854 

163 

2, 535 

3,219 

445 

8,382 

398 

2,084 

12,952 

596 

I 49, 408 

309 

1 10,458 

10,728 

1,014 

52,063 

2, 028 

2, 303 

1, 484 

79 

79 

(4) 

260 

1,336 

165 

1 

(4) 

76 

1,932 

1,642 

983 

1,323 

2,012 

I, 544 

4, 472 

2, 757 

1, 923 

2,031 

4, 023 

1, 711 

10 

(I) 

9 

9 

1 

297 

4, 557 4, 879 9, 151 7, 766 19 307 

21,957 43,755 10,639 12,305 453 572 

1 32,315,381 34, 191,472 4 3,513,105 3, 772, 359 462,127 53, 747 

1Revised. 

a Figures have not been reduced by amounts of $66,000,000 in 1956 and $51,000,000 in 1955, reimburs d from the Federal old-age and survivors insuranc trust fund. 

Includes drawbacks. 

Less than $500. 

Includes narcotics, silver, and wage ing stamps previously reported separately. 

0 Includes capital stock tax and wage ing tax (excise) previously reported separately. 

Preliminary. 

Excessive prepayments of individual income tax.-Excessive prepayments of 

the individual income tax through withholding by employers and from 

overpayment of estimated tax still account for the great majority of refunds 

made to taxpayers. 

404408-57-4 
Refunds 

Taxable year 

Credits 

Number Principal Interest Number Amount 

1951 

1952 

1953 

1954 

1955 2 	

29,043 $1, 903, 827 $3, 523 590 $179, 999 

30, 152 2, 373, 989 1,626 1,020 396, 081 

31, 591 2, 739, 932 3, 879 1, 130 462, 818 

I 33, 138 2, 932, 261 3, 559 1 1, 681 573, 243 

3 32, 210 2, 886, 969 471 = 902 286, 801 

Number 

Status 

Amount claimed Amount allowed 

Fiscal year 

1955 

Fiscal year 

1956 

Fiscal year 

55 

Fiscal year 

1956 Fiscal year 1955 

Fiscal year 

1956 

In thousands of dollars 

Pending July 1 

Applications received 

Applications adjusted, total 

Allowed in whole 

Allowed in part 

Rejected 

Pending June 30 

15, 213 50, 840 101, 396 

45, 972 • 377, 688 "259, 696 

53, 033 • 327, 132 320, 014 

43, 750 • 299, 465 279, 911 

2, 899 17, 225 21, 551 

6, 384 10, 442 18, 552 

8, 152 • 101,396 "41, 078 

7, 038 

• 45, 892 

• 37, 717 

• 32, 517 

1, 595 

3, 605 

• 15, 213 

• 314, 467 

• 299, 963 

14, 505 

297, 920 

280, 354 

17, 566 

38 	Commissioner of Internal Revenue Annual Report 

Despite the postponed filing date to April 15 for tax year 1954 returns, 

almost 32,000,000, or 97 percent, of the total number of refunds with 

respect to such returns were scheduled by June 30, 1955. Over 1,000,000 

refunds on 1954 tax year returns were scheduled after June 30. The 

number of refunds relative to tax year 1955 returns scheduled from January 

through June 1956 totaled about 32,200,000, or slightly more than in the 

comparable period of the preceding year. The average amount scheduled 

through June 30, 1956, with respect to 1955 tax year returns, averaged 

almost $90, as compared with an average with respect to 1954 tax year 

returns of $88 refunded in the entire calendar year 1955 and almost $87 

in the first six months of 1955. 

The following table shows number and amount of refunds and credits, 

and interest paid out, as a result of excessive prepayments of tax, for 

returns filed for the tax years 1951 through 1955 (usually received and 

processed in following fiscal years): 

Excessive prepayments of individual income tax, taxable years 1951-55 

[Figures in thousands] 

1 Includes 176,000 returns requiring split between credit to ensuing ax year or prior year and current year refund. 

Figures are preliminary and reflect refunds or credits to June 30, 1956. Revised figures to Dec. 31, 1956, will appear 

in next year's report. 

a I ncludes 178,000 returns requiring split between credit to ensuing tax year or prior year and current year period. 

Report on Operations 39 

Receipt and disposal of tentative carryback adjustments, fiscal years 

1955 and 1956 

• Revised. 

Claims for refund.-During the year, district audit divisions processed 

286,640 claims for refund. These claims involved a total of $506,239,000, 

of which $353,885,000 or 70 percent was disallowed. 

Approximately 80 percent of the total number but only 16 percent of 

the dollar amount of these claims involved individual income taxes. On 

the other hand, the number of claims involving corporation income and 

profits taxes represented only 8 percent of the number and 80 percent of 

the amount of money claimed. However, only 22 percent of the amount 

claimed by corporations was allowed as compared with an allowance of 

two-thirds of the amounts claimed by individuals. 

An analysis of the action taken on these claims for refund follows: 

Claims for refund closed by district audit div'sions, fiscal year 1956 

Amount 

[In thousands of dollars] 

Class of tax Number 

Claimed 

by 

taxpayer 

Carrybacks.-More current processing was achieved in connection with 

applications of businesses to reduce prior year tax liabilities by carrying 

back net operating losses under section 172 (b) of the Code. 

As of the end of fiscal year 1956, the number of applications pending 

was 8,152, a reduction of more than 46 percent from a year before. The 

amount involved in claims pending was $41,078,000, which was 59 percent 

less than the amount involved at the close of the previous year. 

During the fiscal year adjustments were allowed in whole or in part on 

46,649 applications, representing 76.2 percent of the total applications on 

hand. The amount claimed in these adjustments was $301,462,000, of 

which $297,920,000 was allowed. 

Following is a comparison of carryback adjustments received or processed 

during the last 2 years: 

Disallowed 

by audit 

division 

Individual income taxes 

Corporation income and profits taxes 

Estate tax 

Gift tax 

Excise taxes 

Employment taxes_ 

Total 

Review of overassessments exceeding $100,000.-A total of 205 cases involving 

overassessments of $160,420,683 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 exceeding $100,000. These figures 

compared with 178 cases involving $522,634,410 reported in the preceding 

year. 

Allowed 

228, 753 

22, 843 

710 

187 

7, 623 

26.524 

80, 530 

402, 582 

6, 851 

759 

10, 475 

5, 042 

51, 036 

89, 654 

2, 242 

197 

5, 334 

3,891 

29,494 

312,928 

4,610 

562 

5,141 

1,151 

286,640 506,239 152,355 353,885 
Report on Operations 41 

OFFERS IN COMPROMISE 

The program of decentralizing work on offers in compromise was extended further during the year, and resulted in another substantial reduction 

in backlogs. 

In line with the decentralization policy, authority was extended to District 

Directors and Regional Counsels to make final determinations on substantially all tax and ad valorem penalty offers in compromise involving 

liabilities under $5,000. Practically all specific penalty offers have likewise 

been fully decentralized. This realignment has resulted in more expeditious 

closing of cases, more effective utilization of personnel and the elimination 

of considerable administrative and review activities in the National Office. 

Progress was also highlighted by a real improvement in the quality of 

the investigative reports, better development of technical and accounting 

issues and elimination of misunderstandings relative to jurisdictional questions. In addition, increased emphasis has been placed on improving 

compromise techniques and developing policy issuances. A handbook for 

compromise personnel at all Service levels was developed. This publication is designed specifically as a reference work to facilitate the investigation, consideration and disposition of offers in compromise. It embodies 

the legal, technical and operational phases of the overall compromise program, setting forth Service policy and principles of administration, which 

have not previously been coordinated for use at district and regional levels. 

Compromise cases on hand at the end of the year totaled 8,178 for all 

Revenue Service levels. This total, when compared with the 21,105 cases 

pending at the end of fiscal 1953, reflects the success of the drive commenced 

in 1954 to reverse the longtime trend toward increasing inventories of compromise cases. 

District Directors, together with the Assistant Regional Commissioners 

(Appellate) and the Compromise Branch of the National Office, received 

6,701 tax offers and disposed of 7,693 offers, leaving a total of 4,900 tax 

offers on hand as of June 30, 1956. In addition, these offices received 

11,765 specific and delinquency penalty offers and disposed of 12,420, 

leaving a total of 2,902 penalty offers on hand as of June 30, 1956. 

The Chief Counsel and the Regional Counsels consider tax offers in cases 

in which court proceedings (except the Tax Court of the United States) 

are involved, or criminal prosecution is pending. During the year these 

offices received 618 tax offers and disposed of 597 offers, leaving a total of 

268 offers on hand as of June 30, 1956. 

The Alcohol and Tobacco Tax Division considers all offers relating to 

alcohol, tobacco, and firearms taxes and penalties. It received 753 tax 

and penalty offers and disposed of 770 offers, leaving a total of 108 offers 

on hand as of June 30, 1956. 

40 

A comparison of the compromise cases closed in all categories for the 

fiscal years 1955 and 1956 follows: 

Offers in compromise disposed of, fiscal years 1955 and 1956 

Type of tax or penalty 

Number Liabilities Offers 

Fiscal 

year 1955 

Fiscal 

year 1956 

Fiscal 

year 1955 

Fiscal 

year 1956 

Fiscal 

year 1955 

Fiscal 

year 1956 

Offers accepted 

Income, profits, estate, and gift taxes 

Excise taxes 

Employment and withholding taxes 

Alcohol taxes 

Delinquency penalties on all taxes 

Specific penalties 

Total 

Offers rejected or withdrawn 

Income, profits, estate, and gift taxes 

Excise taxes 

Employment and withholding taxes 

Alcohol taxes 

Delinquency penalties on all taxes 

Specific penalties 

Total 

• 

1,640 

305 

1,323 

134 

11,280 

4,513 

1,712 

366 

1,524 

115 

6,992 

[In thousands of dollars] 

3,806 	

48,128 

1,328 

2,904 

238 

5,451 

38,323 

3,375 

3,688 

338 

2,249 

13,609 

389 

1,324 

38 

865 

154 

10,836 

851 

1,430 

50 

481 

105 

19, 195 14, 515 58, 048 47, 973 16, 379 13,753 

3, 004 

363 

1,367 

205 

1, 363 

34 

2, 643 

434 

1,611 

195 

2, 052 

30 

84, 148 

3,369 

4,347 

715 

1, 220 

82, 749 

3,865 

6,248 

768 

1, 392 

14, 636 

568 

1,210 

41 

239 

10 

12, 437 

683 

1, 318 

59 

320 

12 

6, 336 6, 965 93, 799 95, 022 16, 704 14,829 
SUPERVISION AND CONTROL OF THE 

ALCOHOL AND TOBACCO INDUSTRIES 

General 

Continuing progress was maintained during the year toward simplifying 

supervision of the legal alcohol industry. (Activities relating to illicit 

alcohol appear on pages 19 and 20 in the section on "Enforcement Work.") 

A survey committee composed of members of the Revenue Service with 

the cooperation of the industry has continued to develop a comprehensive 

program to modernize the alcohol tax structure. The committee's recommendations with respect to a comprehensive revision of chapters 51, 52, 

and 53 of subtitle E of the Internal Revenue Code of 1954 were considered 

by both a subcommittee of the House Committee on Ways and Means and 

the full House Committee on Ways and Means, and, with minor modifications, were adopted by the full committee. A bill, H. R. 12298, incorporating the proposed revisions of law, was introduced in the House of 

Representatives upon August 9, 1956, by Representative Aime J. Forand, 

but time did not permit for a report thereon by the House Committee on 

Ways and Means, or for consideration of the bill by the House of Representatives. Further administrative improvements have been achieved 

through the amendment of regulations to curtail storekeeper-gauger supervision of operations at distilleries and internal revenue bonded warehouses, 

and to shift certain clerical duties to the proprietor. The shifting of 

responsibilities and transfer of storekeeper-gauger manpower to more urgent 

duties will result in reduced cost of supervision. 

To augment this program, additional improvements in internal operating 

procedures were initiated which included simplified accounting for distilled spirits in storage in bonded warehouses, and streamlined,procedures 

for the issuance of and accounting for wholesale liquor dealer and export 

stamps. 

Detailed tabulations relating to the production of alcohol, distilled 

spirits, beer, wine, and tobacco manufactures during the fiscal year 1956 

(corresponding to the tables which appear in the appendix of issues of this 

report for the fiscal year 1952, and earlier years) 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. 

Authorizations of Operations 

The totals of permits issued, terminated, suspended, and in effect at the 

beginning and the end of the fiscal year, under the provisions of chapters 

51 and 52 of the Internal Revenue Code, and sections 3 and 4 of the Federal 

42 

Report on Operations 43 

Alcohol Administration Act, are shown in appendix tables 7, 8, and 9 on 

pages 104 and 105, and the totals of all liquor and tobacco establishments 

qualified under the Internal Revenue Code at the end of the fiscal year 

are shown in appendix table 6 on page 104. One hundred thirty-five 

applications for approval of interlocking directorates under section 7 of 

the Federal Alcohol Administration Act were acted upon. Table 10, 

showing the number of certificates of label approval and exemption from 

label approval issued under the provisions of section 27 U. S. C. 205, 

appears in the appendix on page 105. 

On-premises Supervision 

During the fiscal year 1956;storekeeper-gauger supervision was provided 

at registered distilleries, fruitldistilleries, internal revenue bonded ware- i

houses (including bottling-in-bond departments), industrial alcohol plants 

and bonded warehouses, denaturing plants, distillery denaturing bonded 

warehouses, rectifying plants, and taxpaid bottling houses (and bonded 

wineries when brandy or other wine spirits are added to wine). These 

facilities accounted for the production of 485,483,890 proof gallons of 

ethyl alcohol, the denaturation of 498,614,315 proof gallons of ethyl 

alcohol, the warehousing of 38,164,509 proof gallons of ethyl alcohol, the 

production of 234,932,922 tax gallons of distilled spirits of various kinds, 

the warehousing of 854,755,283 tax gallons of distilled spirits, the taxpayment on 165,537,118 tax gallons of distilled spirits, including alcohol, 

the rectification of 83,451,296 proof gallons of distilledspirits and wines, 

and the bottling of 184,745,492 wine gallons of distilleds spirits. 

Inspection of Establishments 

Inspections of establishmentrfor:the fiscal year aggregated 52,072, of 

which 37,922 related to plants and permittees other than dealers. During 

the previous fiscal year total inspections numbered 52,558, of which 

38,199 related to plants and permittees other than dealers. 

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

which were inspected and had no on-premises supervision produced alcoholic 

beverages and tobacco products as follows: 90,697,911 barrels (of 31 

gallons each) of beer, 159,146,862 wine gallons of still wine, 2,177,507 

wine gallons of effervescent wines, 3,301,835 wine gallons of vermouth, and 

210,094 wine gallons of special natural wines other than vermouth. The 

inspected tobacco plants, in the calendar year 1955, produced 5,834,341,325 

cigars, 412,308,934,848 cigarettes, and 199,120,245 pounds of other 

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

The total reported inspections include periodic inspections of all qualified 

plant operations and permittees, special inspections such as those covering 
44 Commissioner of Internal Revenue Annual Report 

plant changes, claims, surveys or instructional activities, investigations 

incidental to the qualification or requalification of establishments, and 

investigations of alleged infractions of law and regulations. As an incidental duty in their regular enforcement work, enforcement personnel also 

made 127,627 inspections of retail liquor dealers and 525 inspections of 

nonpermittee wholesale liquor dealers. 

Chemical Analyses and Research 

The National Office laboratory received 5,414 samples for examination 

during the year, while 34,415 samples were received in the 12 field laboratories. About 13 percent of the National Office samples and approximately 

20 percent of the samples received in the field were of narcotics. Both 

the National Office and field laboratories have joined with other governmental, State, and private laboratories in studies leading to improved 

official methods of analysis as represented in the publication of the eighth 

edition of "Official Methods of Analysis" of the Association of Official 

Agricultural Chemists. A research program, principally concerned with 

problems encountered in the examination of samples and certain phases 

of the use of chemical markers for distilled spirits, has been carried out in 

both the National Office and field laboratories during the past year. 

Thirteen papers reporting the results of the studies were published in 

scientific journals of national circulation and nine others appeared as 

Internal Revenue publications. 

RULINGS, REGULATIONS, AND SPECIAL 

TECHNICAL SERVICES 

Regulations Program 

General.—The monumental task of revising all of the internal revenue 

regulations to accord with the enactment of the Internal Revenue Code 

of 1954 dominated the work of the Service's technical personnel again 

during the last fiscal year. The year's work brought the assignment substantially nearer completion, although much more remains to be done. 

Considerable progress was made in publishing portions of the Income 

Tax Regulations and the Employment Tax Regulations, first in proposed 

form and some in final form. Appreciable progress also was made in publishing portions of the regulations under the procedural and administrative provisions of the Code. 

Forty-nine notices of proposed rule making and 22 Treasury Decisions 

relating to regulations under the 1954 Code were published during the 

year. This compares with 15 notices and 5 Treasury Decisions published 

during fiscal year 1955. The following are items deserving special mention: 

(1) Regulations relating to consolidated returns (T. D. 6140). 

(2) Regulations relating to corporate distributions and adjustments 

(T. D. 6152). 

(3) Regulations relating to withholding on payment under a wage 

continuation plan made after December 31, 1955 (T. D. 6155). 

(4) Regulations under sections 104, 105, and 106 of the 1954 Code, 

relating to compensation for injuries and sickness, etc. (T. D. 6169). 

(5) Regulations under subchapter K, chapter 1 of the 1954 Code, 

relating to partners and partnerships (T. D. 6175). 

(6) Regulations under section 167 of the 1954 Code, relating to 

depreciation (T. D. 6182). 

Regulations under public laws other than the 1954 Code became an 

increasingly important factor in the program of issuing new regulations. 

To the extent feasible, legislation enacted during both sessions of the 84th 

Congress, which amended provisions of the 1954 Code, was taken into 

account and given effect in existing projects for regulations under the 1954 

Code. For example, regulations required under the Social Security 

Amendments of 1954, the Tax Rate Extension Acts of 1955 and 1956, and 

various public laws relating to excise tax and other matters were absorbed 

into, and made a part of, the new regulations program. One notice of 

proposed rule making and six Treasury Decisions were published during 

the fiscal year under public laws other than the 1954 Code. 

45 
46 Commissioner of Internal Revenue Annual Report 

Also processed to completion during the fiscal year ended June 30, 1956, 

were 5 other Treasury Decisions and 3 related executive orders. These 

Treasury Decisions conformed existing regulations to subsequent court 

decisions or administrative determinations that the rules in existing regulations should be changed or clarified. 

Alcohol and tobacco tax.-Of the 29 regulations required to implement the 

alcohol and tobacco tax provisions of the 1954 Code, 27 have been issued. 

Two tobacco tax regulations remain to be issued; 26 CFR, part 285, relating to cigarette papers and tubes, and 26 CFR, part 290, relating to the 

exportation of tobacco materials and products. 

Treasury Decisions of major import issued during the year included: 

T. D. 6151, effective October 1, 1955, reduced the requirements for 

recordkeeping and submission of reports by liquor dealers. 

T. D. 6159, effective January 10, 1956, except for records and report 

requirements which were effective March 1, 1956, reduced nighttime 

supervision of distilleries and transferred to proprietors certain recordkeeping duties formerly performed by storekeeper-gaugers. 

T. D. 6165, effective March 27, 1956, eliminated weighing of certain 

packages prior to dumping or transfer and delegated certain authorities 

and responsibilities to warehousemen. 

T. D. 6166, effective May 1, 1956, permitted persons other than 

brewers to export taxpaid beer. 

T. D. 6185, effective July 1, 1956, extended the returns system for 

the collection of alcohol and• tobacco taxes, previously in effect for 

wine and beer, for the payment of taxes on cigars. 

Tax Return Forms Program 

Numerous laws enacted during the fiscal year 1956 required minor revisions of existing forms and instructions. During the year, approximately 

200 public-use forms, instructions, and circulars were reviewed or revised. 

The primary objective was rearrangement and refinement of the forms and 

instructions, with few changes in basic contents. The following changes 

are noteworthy: 

(1) Form 1040, U. S. Income Tax Return, was rearranged so that 

entries on pages 3 and 4 are made only by taxpayers having income 

from sources other than salaries and wages. Payments and refunds of 

less than one dollar were eliminated, unless, in the case of a refund, 

it is requested by the taxpayer. The instructions include a new rate 

table to simplify the computation of tax involving split-income benefits. 

Schedule F (Form 1040), Schedule of Farm Income and Expenses, 

and related instructions were revised to provide for the computation 

and reporting of self-employment tax, applicable to farmers for years 

ending after 1954, 

Report on Operations 47 

(2) Form 1041, U. S. Fiduciary Income Tax Return, was rearranged 

so that "simple trusts" not having capital gains make entries only on 

pages 1 and 2. A separate Schedule J (Form 1041), Allocation of 

Accumulation Distribution, was provided for the throw-back provisions 

of subchapter J of the Code in the case of complex trusts. 

(3) Form 1120, U. S. Corporation Income Tax Return, was reduced 

from "legal" size to letterhead size. It is basically a four-page form, 

with optional schedules on the fifth and sixth pages. 

The enactment of legislation required the initiation of three new forms 

during the fiscal year. Form 2240, Claim for Refund of Federal Tax on 

Gasoline Used on a Farm, a punch-card type of form, was printed and 

widely distributed in order to enable farmers to file claims pursuant to 

Public Law 466. Pursuant to the Highway Revenue Act of 1956, the Service began the development of Form 2265, a return of excise taxes on certain 

floor stocks, and Form 2290, a return of the excise tax on the use of certain 

trucks and buses. 

Tax Rulings 

A total of 37,504 requests for tax rulings and technical advice were processed during the year. The requests included 34,125 from taxpayers and 

3,379 from field offices of the Internal Revenue Service. In addition 

15,807 technical conferences with taxpayers and their representatives were 

held on these and related matters. 

An analysis of the cases processed, by subject matter, is as follows: 

Requests for tax rulings and technical advice processed fiscal year 1956 

Subject Taxpayers' 

requests 

Field 

requests 

Total 

Income and excess profit taxes 

Excise taxes 

Employment and self-employment taxes 

Estate and gift taxes 

Engineering questions (depreciation, etc.) 

Total 

28, 

2, 

1, 

934 

530 

257 

785 

619 

1, 599 

732 

695 

189 

164 

30, 

3, 

1, 

533 

262 

952 

974 

783 

34, 125 3, 379 37, 504 

Determination Letters 

In addition to the rulings described above, which are issued by the Tax 

Rulings Division of the National Office, thousands of determination letters 

were issued by the Audit Divisions of the District Directors' offices in the 

field. Determination letters are issued by field offices only where a reply 

can be made on the basis of clearly established rules as set forth in statutes, 

regulations, court decisions, published rulings, etc. (as distinguished from 

new, novel, or difficult matters which must be referred to the National 

Office). 
48 Commissioner of Internal Revenue Annual Report 

During the year, a new procedure was instituted which enables taxpayers to appeal to the National Office in connection with adverse determination letters relating to pension and profit-sharing plans. 

An analysis of the scope of the determination letter program as applied 

to employee benefit plans and to exempt organizations during the past 

year follows: 

Pension trust and exempt organization determination letters issued 

during fiscal year 1956 

Pension trust plans 

Item 

Profit 

sharing 

Initial qualifications: 

Approved 

Employees participating under plan 

Total number employed 

Disapproved 

Terminations 

Closed without issuance of determination letter 

Technical Publication Program 

The scope of the weekly Internal Revenue Bulletin was widened during 

the year by the addition of a new series of "Revenue Procedures" to the 

"Revenue Rulings" and other features of this key publication of the 

Service. 

Whereas "Revenue Rulings" state the Service's interpretation and 

application of the substantive or technical phases of the law, the new 

"Revenue Procedures" cover administrative and procedural matters, 

particularly those statements of practices and procedures which affect the 

rights or duties of taxpayers. 

The policy of delaying most rulings on the 1954 Code pending the 

issuance of applicable regulations, together with additional channels of 

review required in connection with some Revenue Rulings on the 1954 

Code, necessarily reduced the number of rulings published during the 

year. The number declined from 801 in the previous year to 672 this year. 

Among the more significant Revenue Rulings published in the Bulletin 

during the year were the following: 

Benefits paid from a particular trust pursuant to a supplemental 

unemployment plan are not wages subject to the withholding of 

employment or income taxes, but are taxable as income (Rev. Rul. 

56-249, I. R. B. 56-24, 110). 

Report on Operations 49 

The question of the deductibility of expenses paid for trips to 

business conventions especially where opportunities for personal vacationing are involved is discussed in Rev. Rul. 56-168, I. R. B. 56-17, 6. 

The Service revoked I T. 1694 and now holds that allowances made 

to a clergyman to cover the cost of a parsonage are exempt from 

taxation under the 1939 Code (Rev. Rul. 56-58, I. R. B. 56-9, 10). 

The Revenue Service does not accept the decision in the case of 

Arthur R. Kinter et ux. (216 Fed. (2d) 418) which attributed corporate 

status to an association of doctors for pension trust purposes. The 

Service will continue to regard the association as a partnership and 

the doctors as employers (Rev. Rul. 56-23, I. R. B. 56-4, 9). 

A comparison of the rulings published in the last 3 years follows: 

Revenue rulings and procedures published in fiscal years 1954, 1955, and 

1956 

Fiscal year 

1954 1955 1956 

Income tax 

Excise tax 

Employment taxes 

Estate andgift taxes 

Excess profits tax 

Engineering issues 

Alcohol and tobacco taxes 

Firearms 

Administrative and miscellaneous 

Total 

During the year a program was commenced to publish in separate 

pamphlet form some of the Treasury Decisions issued under the 1954 

Code which were of exceptional interest and value to Revenue Service 

employees. These pamphlets are also available to tax practitioners and 

others who have an interest in specific regulations. The first such pamphlet, Internal Revenue Service Publication No. 246, contained the regulations related to consolidated returns. 

In addition to the Internal Revenue Bulletin, which is the Service's 

technical journal, many other publications for the assistance of taxpayers 

are published. These are described on page 55. 

Closing Agreement Cases 

Work was kept substantially current on closing agreements involving 

prospective transactions. (For action on cases involving completed transactions, see p. 29.) 

1,579 

87,470 

252,529 

10 

113 

60 

Exempt 

organizaPension or tions 

annuity 

Stock 

bonus 

2,824 17 5, 373 

531, 410 177, 290 

1,376,046 904, 355 

18 1 342 

73 

166 

4 1, 482 

197 337 279 

88 111 116 

40 71 72 

20 51 32 

13 9 2 

15 26 115 

40 168 122 

6 15 15 

13 13 19 

432 801 672 
50 Commissioner of Internal Revenue Annual Report 

The following table reflects the action of the Tax Rulings Division as to 

cases of this type: 

Tax Rulings Division receipt and disposal of closing agreement cases, 

fiscal year 1956 

Status Number of 

cases 

7 

Pending July 1, 1955 23 

Received during year 26 

Disposed of during year 4 

Pending June 30, 1956 

Civil Advisory Legal Services 

The program which decentralized to the nine regional counsel offices a 

considerable portion of legal work on civil advisory matters formerly 

performed in the National Office was continued and strengthened. The 

decentralized legal tasks relate to proceedings under the Bankruptcy Act, 

receiverships and other insolvencies, Federal tax liens in quiet title actions 

and suits for foreclosure by mortgagees and other secured creditors, the 

discharge of property from liens, the release of liens, the administration of 

estates of decedents or incompetents, and the handling of offers in compromise (see appendix tables 24 and 25), as well as to the legal work involved in connection with collection cases. (See appendix table 23.) 

Under the program of decentralization there was, however, an expansion 

of authority in the processing of certain offers in compromise. During the 

fiscal year the authority of District Directors to act with finality in considering offers in compromise was extended to include offers involving tax 

liabilities of $500 or more, but less than $5,000, and certain specific and 

delinquency penalty offers. Concurrently, the Chief Counsel decentralized 

to the nine regional counsels the task of reviewing such offers in compromise. 

This task formerly was accomplished in the National Office. 

No changes were inaugurated in the procedures previously adopted under 

which proofs of claim in liquidating bankruptcies, wage earners' plan proceedings, receiverships, decedents' estates, and other miscellaneous insolvencies are retained in the District Directors' offices, unless and until it 

appears that legal advice or services are required. These procedures are 

designed to eliminate the necessity of handling in the Chief Counsel's 

office, at either National or Regional level, cases which do not require the 

advice or services of an attorney. These cases usually involve proceedings 

in which no objections are interposed to the allowance of the claims for 

Federal taxes filed therein. Similarly, no changes were made in the 

procedure whereby recommendations by District Directors with respect to 

the initiation of collection cases, whether by institution of a suit or by 

intervention in an already pending proceeding, are forwarded for handling 

Report on Operations 51 

to the appropriate Regional Counsel rather than to the National Office 

of the Chief Counsel. 

The performance of the function of rendering "on the spot" legal advice 

to District Directors in connection with matters involving civil advisory 

problems was further emphasized. Each Regional Counsel has continued 

and expanded the program under which legal personnel competent to 

handle civil advisory matters visit each District Director's office at regular 

intervals. In this way District Directors are able to secure immediate 

answers to many of their questions without being required to reduce their 

inquiries to writing. 

During the fiscal year 1956 two cases pertaining to one of the types of 

problems considered in connection with civil advisory legal work were 

decided by the United States Supreme Court. On October 10, 1955, the 

United States Supreme Court sustained the Government in a case of major 

importance regarding the relative priority of Federal tax liens and mechanics' liens when it decided the case of United States v. Colotta, 350 U. S. 

808, reversing 79 So. 2d 474 (Sup. Ct. of Miss.). This case was followed by 

the Supreme Court's decision on April 9, 1956, in the case of United States 

v. White Bear Brewing Co., 350 U. S. 1010, reversing 227 F. 2d 359 (C. A. 

7th). The two cases stand for the proposition that a mechanic's lienor, at 

least for purposes of Federal taxation, must be considered essentially like 

the holder of an attachment or a garnishment or a landlord's lien before it 

has matured into a judgment and that therefore a mechanic's lien is 

inchoate until reduced to a conventional judgment which has become a 

lien in accordance with locally prescribed procedures. In each case the 

liens of the United States were given priority although they arose after the 

mechanic's lien became effective under State law but had not been reduced 

to judgments. The decisions extended to mechanics' liens the doctrine 

previously applied by the Supreme Court in the cases of United States v. 

Security Trust Co. (1950) 340 U. S. 47; United States v. Acri (1955) 348 U. S. 

211; United States v. Liverpool and London and Globe Insurance Co. Limited (1955) 

348 U. S. 215; and United States v. Scovil (1955) 348 U. S. 218 to attachments, 

garnishment and landlord's liens before judgment. The Colotta and White 

Brewing Co. cases are decisive of a number of cases pending before the lower 

courts and before the Revenue Service involving the question of priority of 

Federal tax liens over mechanics' liens. 
Report on Operations 53 

404408 57-5 

AIDS FOR TAXPAYERS 

General 

Significant improvements were made during the last year in the various 

programs conducted by the Revenue Service to help taxpayers meet their 

obligations under the voluntary assessment system. The goal in these 

changes was to improve service to the public and, at the same time, reduce 

direct and indirect costs of the program. 

These aids for taxpayers have been expanding ever since the tax base 

was broadened in the early years of World War II to include the large 

majority of employed persons and other income recipients. 

The principal aid programs (other than technical, audit, and appellate 

activities discussed elsewhere in this report) are described below: 

Direct Taxpayer Assistance 

Expanded telephone service, publicity, and education programs last 

year reduced by more than 30 percent the number of taxpayers who found 

it necessary to come to field offices for assistance in preparing income tax 

returns during the annual filing period. 

Also, more intensive use of "self-help" and "group assistance" techniques 

made it possible to serve these people with 44 percent less manpower than 

in the preceding year. 

Nearly 7,000,000 individuals came to field offices for help during the 

filing period, compared with more than 10,000,000 the year before. The 

number of man-days of work by Revenue employees to serve these taxpayers was reduced from 359,467 in the 1955 filing period to 200,978 in 

the 1956 period. Since this work is usually done by employees taken off 

of urgent audit and collection work, the saving of man-days meant increased 

time spent on enforcement activities. 

In addition to the assistance rendered during the annual filing period 

technical personnel of the Audit Divisions also expended 107,024 man-days 

assisting taxpayers during the other months of the fiscal year. 

Part of this improved result was due to the increasing effectiveness of 

the telephone question-answering service which is set up early each year. 

Nearly 5,000,000 taxpayers placed such calls last year. Usually, taxpayers 

who are able to get the answer to one or two questions by this method are 

able to complete their own income tax returns without further assistance. 

The same principle was used on a wider scale in organizing "self-help" 

programs in field offices. Facilities were provided so that taxpayers cot ld 

prepare their own returns as far as possible, and Revenue Service instructors stood by to answer questions which might arise. 

52 
54 Commissioner of Internal Revenue Annual Report Report on Operations 55 

Examples of Internal Revenue General and Technical Publications. 

Also expanded last year was the somewhat similar "group-help" program. Under this method, taxpayers are assembled in classroom fashion 

so that Revenue instructors can advise numbers of them at the same time. 

Since it is the policy of the Service to give all practical aid to taxpayers, 

personal assistance continued to be given whenever necessary. Insufficient personnel, however, prevents the Service from undertaking the preparation of complicated and detailed returns of businesses and other taxpayers who normally require professional advice or prepare their own 

returns. 

Taxpayer Publications 

Major steps were taken to improve the publication of tax pamphlets 

needed by the general public. These included: 

"Tour Federal Income Tax."—The booklet, "Your Federal Income Tax," 

which has been the principal nontechnical Revenue publication for several 

years, was completely revised in content, phrasing, and format. Greater 

use was made of examples and an effort was made to simplify explanations. 

Also included for the first time were filled-out samples of returns. 

This pamphlet is sold at cost by the Superintendent of Documents of the 

Government Printing Office in Washington, D. C., and is also available 

at some field offices. Sales increased to nearly 400,000 copies, a gain of 

more than 100,000 over the previous year. 

"Farmers' Tax Guide."—A significant new development in taxpayer 

education during the fiscal year 1956 was the preparation and publication 

by the Revenue Service of a 64-page booklet entitled "Farmers' Tax Guide." 

This guide booklet was developed in collaboration with the U. S. Department of Agriculture Extension Service, and it presents comprehensive 

coverage of the income and self-employment tax matters applying to 

farmers. One million copies of this guide booklet were distributed to farmers throughout the country. Reports from farm areas indicated that 

farmers found the booklet very helpful, and plans were made to continue 

and improve this publication. 

"Tax Guide for Small Business."--With the cooperation of the Senate 

Select Committee for Small Business and the Small Business Administration, the Service began work on a special pamphlet for operators of small 

businesses. It is expected to be ready for distribution in time for the next 

return filing period. It will provide answers to Federal tax questions pertaining to sole proprietorships, partnerships, and corporations. 

Other publications.—As a guide to taxpayers who travel in their business, 

the Service published for the first time a "Travel Expense Circular" in 

question and answer form. Another circular explained how the Federal 

income tax law applies to losses from hurricanes, floods, and other disasters. 

This proved to be of benefit to the thousands of citizens and businesses who 
56 Commissioner of Internal Revenue Annual Report Report on Operations 57 

suffered losses when severe hurricanes and floods struck various sections of 

the country last fall Another widely distributed booklet has been made 

available to the half million of United States citizens who are residing 

abroad, explaining the special provisions of the Federal tax law applicable 

to them. 

Publicity Program 

During fiscal year 1956, the National Office of the Revenue Service prepared and released a total of 63 news releases for dissemination by the 

press, radio, television, and other communications outlets, covering timely 

tax subjects of widespread interest to the public at large. 

The National Office also furnished a "Taxpayer Assistance Kit" to each 

of the Revenue field offices for use during the return filing period Each 

kit contained more than 30 news releases and a number of spot announcements for radio and television, each touching on a matter of timely importance to taxpayers. Also furnished were six 1-minute films and a series of 

eight 20-second spot slides for television projection, plus a number of spot 

announcements for television and radio containing helpful hints for taxpayers. 

High School Program 

Further growth was noted in the program of helping the Nation's high 

schools to provide basic income tax information to students. Over 3,000,000 

high school pupils received instruction under the program, utilizing special 

texts and other teaching materials provided by the Revenue Service. The 

program now covers more than 95 percent of the 30,000 secondary schools, 

both public and private, in the United States. Such materials also are 

used in many colleges and universities, and by many civic and business 

groups. 

This program is designed to help students prepare their own returns if 

they work, and to understand basic tax procedures which will be important 

to them later when they enter business or a profession. Frequently 

students are able to assist their parents and friends with material learned 

in these courses. 

Usingthe Revenue Service's Income Tax CourseinaBaltimore High School. 
Report on Operations 59 

INTERNATIONAL ACTIVITIES 

International Operations 

A number of significant measures were taken during the year to improve 

and strengthen the administration and enforcement of the tax laws as they 

apply to United States taxpayers abroad. The primary purpose of these 

measures was to bring about an increase in the level of voluntary compliance among such taxpayers. These measures included: 

1. The establishment of the International Operations Division in the 

National Office, and the centralization in that Division of primary 

responsibility for the Service's operations in all areas of the world 

except the continental United States, Alaska, and Hawaii. Heretofore, 

those responsibilities have been divided among all the district and 

regional offices and the National Office, which made extremely difficult the effective administration of our tax laws overseas. The plan is 

to have returns from foreign and overseas addresses filed, audited, and 

otherwise handled in the new division to the same extent that domestic 

returns are processed in the district offices in the United States. 

2. The establishment abroad, in areas where substantial numbers of 

United States taxpayers are concentrated, of several additional foreign 

posts. These were Manila, Philippines; Ottawa, Canada; and Frankfurt, Germany; and were in addition to the Service's overseas offices 

in Paris, France; San Juan, Puerto Rico; and Balboa, Canal Zone. 

International Tax Conventions 

Significant progress was made during the year in the program of avoiding 

double taxation of income of mixed domestic and foreign source. This 

double taxation by two countries is a recognized impediment to international commercial activity and investment. 

Particularly noteworthy was the signing of the first tax convention with 

a Latin American nation, which occurred with the signature of a pact 

with Honduras on June 25, 1956. Although this instrument has not yet 

been ratified, it may be the forerunner of a number of other conventions 

with the republics to the south of the United States. The economic structure and investment interests of the Latin American countries differ materially from those of industrialized nations, and their governments desire 

somewhat different treaty provisions than the conventions which have 

heretofore been concluded with Canada and various European countries. 

Other developments included: 

An income tax convention and an estate tax convention with Italy, both 

negotiated and signed in 1955, were ratified by the United States but not 

by Italy until after the close of the fiscal year. 

A formal agreement was signed with France whereby United States 

licensors who invented or developed patents or secret processes are exempted from the French turnover tax on royalties received from licensees 

in France. The necessary evidence to establish their character as inventor 

or developer is prescribed. 

A protocol to the income tax convention with the Netherlands took effect 

upon exchange of ratifications November 10, 1955, and on the same date 

notes were exchanged, pursuant to the provisions of the protocol, whereby 

the income tax convention with the Netherlands was extended to the 

Netherlands Antilles as of January 1, 1955, with minor modifications. 

A protocol amending the income tax convention with France was 

negotiated and signed on June 22, 1956. 

Late in the year negotiations were opened in Washington with a Pakistan 

delegation for an income tax convention with that country. 

Sixty-seven foreign officials from 24 countries visited the National Office 

during the year to study the administration and operation of the United 

States tax laws. 

58 
LEGISLATION RELATING TO 

INTERNAL REVENUE MATTERS 

Legislative Services Performed 

The Revenue Service provided technical assistance to the other offices 

of the Treasury Department and to the Tax Committees of the Congress in 

connection with the legislative enactments during the fiscal year relating 

to internal revenue matters. This technical assistance included participation in the drafting of legislation, such as the Highway Revenue Act of 

1956 (P. L. 627) and the farmers' gasoline tax refund bill (P. L. 466) and 

the related committee reports. During the year 146 reports on bills were 

prepared and forwarded to the Office of the Special Assistant to the 

Secretary compared to 47 reports forwarded during fiscal 1955. 

The Revenue Service developed and presented to the Special Assistant 

to the Secretary for consideration in connection with the Department's 

legislative program a number of legislative proposals. These proposals 

relate primarily to matters which would be of assistance to the Revenue 

Service in the administration of the tax laws. 

Tax Legislation During Fiscal 1956 

During July 1955 the Ways and Means Committee considered over 100 

minor tax bills and reported out 41 of them. Twenty-one of the bills 

reported were passed by the first session of the 84th Congress. 

In addition to the Highway Revenue 'Act of 1956 and the farmers' 

gasoline tax refund bill referred to above, the second session of the 84th 

Congress passed a bill relating to the taxation of life insurance companies 

(P. L. 429), the Tax Rate Extension Act of 1956 (P. L. 458) relating to 

corporation normal tax rates and certain excise taxes, the Bank Holding 

Company bill (P. L. 511), and 12 minor tax bills. In addition the Ways 

and Means Committee spent a substantial amount of time on general 

excise tax revision and a draft of a bill on this subject was nearing completion 

at the end of the fiscal year. 

60 

INTERNAL CONTROLS 

Internal Audit 

During the year, major improvements in the development of detailed 

plans and time budgets for internal audit activities resulted in a more 

effective utilization of available manpower as well as an increase in the 

number of audits completed. More timely reporting was provided 

management through adoption of a policy for direct issuance of reports by 

regional inspectors and continued efforts in the development of audit 

programs resulted in a more uniform and comprehensive audit coverage 

of the offices examined. 

The internal audit function includes the independent review and appraisal 

of all internal revenue operations to assure that responsibilities at all 

organizational levels are properly discharged and provides a basis for constructive action by the Service officials concerned. Internal audit objectives cover the systematic verification and analysis of operating policies, 

practices, and procedures as well as accounts, financial transactions, and 

reports. Activities are closely coordinated with those of the Internal 

Security Division, both at the Regional and National Offices levels. 

Statistics covering the internal audit activity of the 9 regional inspection 

offices for the fiscal year 1956 follow: 

Internal audits, started and completed, fiscal year 1956 

Activity 

In process, 

July 1, 

1955 

Started Completed 

In process, 

June 30, 

1956 

Regional counsels' offices 

CO flOOr I, CO 

• 

3 Regional commissioners' offices: 

Collection 

Audit 

Intelligence 

Alcohol and Tobacco Tax 2 Appellate 1 AdmInistrative 

Total 7 50 51 6 

District directors' divisions: 

Collection 16 53 57 12 Audit 12 57 55 14 Intelligence 10 52 52 10 Administrative 10 55 57 8 

Total 48 217 221 44 

Grand total 55 267 272 50 

61 
62 Commissioner of Internal Revenue Annual Report 

In addition to the regular audits shown above, the Internal Audit Division conducted a number of special examinations at the request of Service 

officials. These included: a comprehensive review of admissions tax activides in 29 district offices; a verification of district office reconciliations of 

revenue receipts deposited; an examination of cost estimates for processing 

of tax returns by area service centers; and a survey of the National Office 

Training Division. Regional inspection personnel interviewed taxpayers 

and taxpayer representatives in connection with an Internal Revenue 

survey of existing informal conference procedures. The Internal Audit 

Division also assisted the General Accounting Office in its audit of the 

reporting requirements prescribed by section 1311 of the Supplemental 

Appropriation Act of 1955 by examining administrative expense appropriation obligations in 3 of the 9 regional offices. 

Internal Security 

The most noteworthy achievement of the Internal Security Division during the fiscal year was a tremendous increase in case production. There 

were 7,063 personnel investigations closed during fiscal year 1956, compared 

with 4,463 in fiscal year 1955, or an increase of 58 percent. This increase 

was accomplished with no increase in personnel during the year. Many 

factors contributed to this surge in production, including streamlining of 

work, a more effective case assignment system, reduction of time spent in 

writing reports, and better trained personnel. 

Increased emphasis was placed on brevity, uniformity, and logical arrangement of material and evidence in investigative reports and revision 

of the progress report system to provide for more informative briefing by 

inspectors on the status of important cases. 

One of the major programs in the National Office during the year was 

the completion of an extensive instructional handbook which contains 

basic information and guidance for internal security inspectors. This 

handbook will be distributed early in fiscal year 1957. 

An important procedural change was made during the year by designating a new category of investigations, Special Inquiry (Complaints). Previously all cases involving allegations of misconduct on the part of Internal 

Revenue employees were designated as Conduct Cases. Now where complaints are received which necessitate investigation but are not specific, 

or fail to definitely identify the accused, or emanate from a person whose 

reliability appears questionable, a Special Inquiry rather than a Conduct 

Case is initiated. This new procedure is designed to protect an employee 

from the stigma which may unfortunately attach simply because he has 

Report on Operations 63 

been the subject of a "conduct" investigation, even though such investigation disclosed that he was mistakenly or vindictively accused of wrongdoing. The majority of cases initiated as Special Inquiry (Complaints) 

are closed on the basis of discreet preliminary inquiry indicating no 

wrongdoing. 

On March 19, 1956, Inspection assumed responsibility for conducting 

Federal Tort Claim investigations in all cases where formal investigations 

are required. This function was previously performed by the Alcohol and 

Tobacco Tax Division. 

June 30, 1956, marked the first full year of operation under the Memorandum of Agreement, signed by the Secretary of the Treasury and the 

Attorney General, for carrying out the provisions of Public Law 725 which 

provides for investigation by the FBI of certain criminal cases. There has 

been complete harmony between the FBI and Inspection in operating 

under the Agreement. 

Occasionally the query is aptly made, "Who inspects the inspectors?" 

A twofold program exists within the Department in this regard for inspection 

of the Internal Security operation. The Office of the Assistant Secretary 

for Enforcement, Treasury Department, has established a program for 

periodic inspections of the Inspection Service and all other Treasury inspection activities to assure that such inspections meet the standards and 

criteria prescribed by the Bureau of the Budget. In addition, comprehensive inspections of the Internal Security Division offices of the various 

Regional Inspectors are made periodically by teams from the National Office, 

under the supervision of the Chief, Special Investigations Branch. Six such 

inspections were made during the fiscal year. - 

Seventeen Internal Security Division inspectors completed the Treasury 

Law Enforcement School during the fiscal year. In 3 of the 6 schools 

held during the year, Inspection as a team finished second among the 

several Treasury enforcement bureaus represented. 

Confidential Defense Clearance letters were issued by Inspection to 1,119 

employees during the year. 

In addition to the personnel investigations reflected in the statistical 

table which follows, the Inspection Service conducted police checks on 

1,655 employees who received temporary appointments for 90 days or less. 
64 Commissioner of Internal Revenue Annual Report 

Statistics on personnel investigations and disciplinary actions 

Fisca year 

1955 1956 

Personnel investigations 

Number of cases closed: 

Character and security investigation 2,985 4, 868 

Conduct investigation 829 1,003 

Special inquiries I 649 1,192 

Total 4,463 7,063 

Disciplinary actions against employees as a result of personnel investigations 

Separation of employees (by type of offense): 

Bribery, extortion, or collusion 12 7 

Embezzlement or theft of Government funds ar property 5 8 

Failure of employee to pay proper tax 20 26 

Falsification or distortion of Government reports, records, et c 115 145 

Unauthorized outside activity 5 12 

Failure to -properly discharge duties 4 9 

Personal misconduct unrelated to tax cases 38 50 

Refusal to cooperate 2 1 

Divulgence of confidential information 1 6 

Acceptance of fees or gratuities 6 13 

Other misconduct 28 31 

Total separations 236 308 

Suspended from duty and pay 

Reprimanded, warned, transferred or demoted 

32 

214 

47 

326 

Total disciplinary actions 482 681 

I Designated "Other investigations" in 1955 Fiscal Year Report • Special Inquiries include principally National Agency 

Check and Inquiry and "Complaint" type investigations. 

'Includes resignations, retirements, or other separations while employees were under investigation or before administrative decision made on disciplinary action where investigations disclosed derogatory information 

ADMINISTRATIVE FUNCTIONS 

Personnel 

Staffing throughout the Service remained substantially the same as in 

fiscal 1955. 

One of the few changes resulted from a planned reduction of 114 positions in the force of storekeeper-gaugers. This reduction resulted from 

simplified procedures and other operational improvements and made 

possible an increase in the enforcement staff of the alcohol and tobacco 

tax activity. 

A comparison, by categories, of the number of employees at the end of 

the year with the number at the end of the prior year, follows: 

Personnel on Rolls, June 30, 1955 and 1956 

Branch of service 

Number on payroll 

as of June 30 

1955 1956 

National Office 2,675 2,583 

Regional and District Offices: 

Supervisory personnel 477 484 

Enforcement personnel: 

Collection officers 5,585 5,660 

Office auditors 2,135 2,127 

Returns examiners 1,274 1,361 

Revenue agents 11,255 10,862 

Special agents 1,559 1, 549 

Alcohol tax inspectors 465 481 

Alcohol tax investigators 891 922 

Storekeeper-gaugers 1,038 894 

Total enforcement personnel 24,202 23,856 

Other permanent personnel: 

Legal 268 277 

Other technical 2,657 2,922 

Clerical (excluding temporary), messengers and laborers 20,402 20,196 

Total, other permanent personnel 23,327 23,395 

Total, permanent personnel, regional and district offices 48, 006 47,735 

Temporary employees 209 364 

Grand total 50,890 50,682 

For the first time in the history of the Revenue Service, an extensive 

program was inaugurated to recruit trainee revenue agents from college 

campuses. There were 341 trainee revenue agents appointed and commitments for future appointment were obtained from 112. Approximately 

95 percent of the recruited trainee revenue agents are young college graduates who majored in accounting. Several regions conducted similar 

vigorous recruiting campaigns for trainee collection officers. 

65 
returns 

examiners 

il $i 1955 1,274 

,* 1956 1,361 

Ws,. 

R9 

1955 11,255 

10,862 

revenue 

agents 

national 

office it, 

1955 2,675 

1056 2,583 

regional and district offices 

collection 

officers 

office 

auditors 

,0 1955 

*:* 

jr 

,:k• 4.:. 

1955 

1956 

% 

5 

5,585

,660 

2,135 

2,127 

Report on Operations 67 

Another major move was the development of new or revised qualification standards covering technical positions for the purpose of making the 

requirements more realistic, both in terms of job requirements and in 

delineation of lines of advancement. The Civil Service Commission approved and published a revised occupational definition for internal revenue 

agent positions. All professional tax accounting positions formerly in the 

accounting and other series are now included in th( ,ent series. Thin 

will materially aid recruitment, training, reassigarn- -omotion of 

employees. 

A significant accomplishment in the field of position classification was 

the development of classification guides for evaluating internal revenue 

agent and special agent positions. By providing equitable pay for employees and clarifying the differences among grade levels, the issuance of 

such guides contributes significantly toward improved morale, better 

utilization of skills, and more realistic planning of careers within the Service. 

A plan was put into operation on a trial basis at the Midwest Service 

Center for the systematic use of cash awards for superior work performance 

to encourage higher production among employees such as card-punch 

operators. The results of the pilot study will be analyzed and it is hoped 

to extend the program to other production-type employees throughout 

the Service. 

Noteworthy progress has been made in the Service's Incentive Awards 

Program. There were 4,317 suggestions received and 727 awards were 

made. Both figures about double those of last year. The amount paid 

in awards and the total estimated savings realized as a result of employee 

suggestions and other contributions also increased substantially. 

Greater recognition for superior work performance and special acts and 

services was made during fiscal year 1956. One hundred and forty employees were given cash awards for their special contributions to the work 

of the Service. 

special . 1955 1,559 

agents ni 

..t,., 1956 1,549 

M alcohol tax 1955 2,394

:=0 

personnel fr: 1956 

TOTALS: 1955-50.890 

Training 

Management training for supervisors and executives was given intensive 

attention. The inauguration of an Executive Development Program, conducted at the National Office to train outstanding high-grade employees, 

selected on a servicewide basis for promotion to key positions, was highly 

successful. The 11 participants who completed their training in June were 

placed in Assistant District Director or equivalent executive positions. 

Preliminary work for selection of members of the second class, to commence in January 1957, was begun. 

Basic supervisory development programs were undertaken in all the 

regions and several regions began advanced executive development 

programs. 

24,013 

24,243 

2,297 

clerical, all 

other field 

personnel 
68 Commissioner of Internal Revenue Annual Report 

Two 10-day basic supervisory development institutes were held at the 

University of Michigan. Each session was attended by 50 group supervisors of audit and collection personnel. The success of these institutes 

spurred planning for an expansion of institute-type training to include 

Assistant Regional Commissioners, District Directors, Assistant Directors, 

and Division Chiefs to be held at the University of Rhode Island, Miami 

University, and the Montecito School at Santa Barbara, Calif., during the 

summer of 1956. 

As the result of a survey conducted of the training courses at the Advanced Training Center, University of Michigan, it was decided to discontinue this particular phase of the agent training program. The survey 

indicated that the agents needed a more specialized type of instruction 

than was available at a public university, and that the hardships imposed 

upon agents in leaving their homes for the 4-month training semester tended 

to interfere with the fulfillment of the goal of the project. A special committee was designated to examine in detail the entire revenue agent training 

program. This committee consisted of a professor of law, a public accountant, and a District Director of Internal Revenue, and will report its 

recommendations to the Commissioner on how the future revenue agent 

training program, including both basic and advanced training, should be 

constituted. 

Correspondence course training in accounting and tax law, which is an 

important phase of the training program, had become badly bogged down 

due to an increasing backlog of ungraded lessons. This was overcome by 

temporarily assigning extra personnel to this work and by introducing 

new procedures which markedly reduce the time for grading lessons and 

otherwise streamline administration of the correspondence training 

program. 

Other training activities.—Excellent progress has been made in developing 

in-service training courses for frontline personnel in the alcohol and tobacco 

tax area. During the year a 10-text correspondence course on Criminal 

Investigative Procedure was distributed, 7 training publications were 

issued which related to plant inspection and supervision, work was initiated 

in developing other training material for the tobacco tax function, and 

alcohol and tobacco tax inspectors without previous accounting background were directed to complete the Service's fundamental accounting 

course. 

Operating Facilities 

Worthwhile progress was made in the paperwork management area, 

particularly with respect to (1) improvements in the format and composition of form letters, and (2) the creation of fewer and better forms (administrative forms, schedules relating to tax return forms, etc.) designed 

Report on Operations 69 

for the simplest preparation and the most economical processing. (For 

revision of major technical tax return forms, see p. 46.) 

In one region 1,000 forms used by district offices were consolidated into 

200 regional forms and consolidation of an additional 1,300 district forms 

into 300 regional forms is anticipated. Another noteworthy example of 

the results of a study involving both forms and procedure was the elimination of the assembly and the transcription of about 4,000,000 tax computation adjustment notices, which will release a substantidl number of typing 

man-years for other work and reduce the amount of interest paid on 

refunds. 

In addition to making possible improved internal practices and more 

effective use of personnel, the reduced number and better quality of format 

and text of form letters are expected to improve taxpayer relations. 

Improved. procedures were developed for handling and storing income 

tax returns, which reduce equipment costs from $5.50 to 500 per foot of 

records, decrease the amount of floor space needed to file returns by 

approximately two-thirds, provide faster reference, and facilitate retirement 

of returns to Federal Records Centers. 

Servicewide progress on the disposal and retirement of inactive records 

continues to represent a significant savings in file equipment and space. 

A paperwork survey of one National Office division resulted in the reduction 

of more than 50 percent of the division's records holdings. 

Progress continued in a servicewide program for the consolidation and 

improvement of space. The most significant accomplishment was the 

acquisition of space for service center operations. Space for the Northeast 

Service Center was obtained at Lawrence, Mass. Considerable renovation 

work was completed to permit occupancy December 15, 1955. Space for 

the establishment of the Western Service Center during fiscal year 1957 

was secured at Ogden, Utah. The space, surplus to the Army requirements, was made available at much less cost to the Internal Revenue Service 

than was originally estimated for the service center location. 

Negotiations were completed for new buildings in Albany, N. Y., and 

Columbia, S. C.; also for larger consolidations of space in New Haven, 

Conn.; Oklahoma City, Okla.; Lower Manhattan, N. Y.; and Newark, 

N. J. Completion of the new Peachtree-Baker Building, Atlanta, Ga., 

occupied early in September, brought together in one building all regional 

and district office activities in Atlanta. 

An intensive and aggressive property utilization program was pursued 

to augment the furniture and equipment replacement program. An outstanding illustration was the locating and transferring from district offices 

of $200,000 worth of equipment of the $250,000 needed for new service 

center operations. 

As a part of the intensified safety campaign, safety awards have been 

established to encourage accident prevention throughout the Service. 

41144AR-157-ft 
70 Commissioner of Internal Revenue Annual Report 

Eight districts received awards for completing the calendar year 1955 without a lost-time accident. The National Office received the Secretary's 

Safety Award for completing over 3,000,000 man-hours without a losttime accident during the same period. The first Internal Revenue Service 

Annual Regional Safety Award was presented to the Omaha Region for 

having the lowest accident frequency rate of any region during the year. 

Requirements for income tax packages were balanced against production 

and resulted in substantial savings. New purchasing procedures for tax 

forms were instituted enabling the Government Printing Office to issue 

invitations for supplying paper at a much earlier date than ever before. 

The extra time thus allowed manufacturers will also be advantageous to 

the Government. 

The most significant individual improvement in printing and publication was the designing of a new, smaller cigarette tax stamp. 

Fiscal Management 

Of note in budget activity in 1956 was effective execution of the financial 

plan For the first time in recent Revenue Service history virtually the 

same number of man-years was realized as was estimated prior to the 

beginning of the fiscal year as available under appropriated funds. More 

man-years were obtained in certain enforcement personnel categories, 

including revenue agents and special agents, than originally planned. 

Obligations for personal services and travel were 99.2 percent of the planned 

costs for these two items. 

Publication of the "1956 Financial Plan compared with the 1957 Budget," 

a 120-page booklet which was widely used throughout the fiscal year by 

those engaged in "tracking" and execution of the financial plan, aided in 

this accomplishment. Preparation of preliminary estimates and budget 

ceiling requests was extended to the regional offices, thus giving the field 

the opportunity to collaborate on the long-range planning inherent in the 

budget operation. 

In the accounting area the preparation and posting of obligation documents was greatly simplified by development of a revised procedure for the 

activity distribution of all expenses except salaries and travel. Effective 

with the fiscal year 1957, this distribution will be done annually at the 

National Office, as a part of the budget operation rather than on each 

individual obligation document. 

Report on Operations 71 

An analysis of obligations, by classes of expenditures, follows: 

Obligations Incurred by the Internal Revenue Service, fiscal years 1955 

and 1956, by activity and by class of expenditure 

[In thousands of dollars] 

Activity 

Salaries Other T tal 

Fiscal 

year 1955 

Fiscal 

year 1956 

Fiscal 

year 1955 

Fiscal 

year 1956 

Fiscal 

year 1955 

Fiscal 

year 1956 

Technical 3,865 4,060 171 300 4,036 4,360 

Collection 95, 914 101, 141 13, 406 18,200 109,320 119,341 

Audit 87, 337 94, 639 5, 272 6, 950 92,609 101, 589 

Intelligence 10,999 13, 167 L 130 1,411 12, 129 14, 578 

Alcohol and tobacco tax 18, 237 19, 405 2;440 2, 723 20,677 22, 128 

Appellate 8, 419 9, 031 329 424 8, 748 9, 455 

Legal service 5, 821 6, 193 450 512 6, 270 6, 705 

Inspection 2,996 3,347 547 552 3,543 3,899 

Statistical reporting 1,522 I, 553 462 352 1,984 1, 905 

Executive direction 2, 395 2, 466 695 779 3,090 3, 245 

Supervision and administration (proratable)..._ 10,406 11, 570 6,021 1,120 16,428 12,690 

Total 247,911 266, 572 30, 923 33,323 278, 834 299,895 

Enrollment of Practitioners 

On February 7, 1956, the Department published in the Federal Register 

an interpretation of its rules of practice set forth in Circular 230. The 

statement confirms the past policy of the Department and to that end, in 

effect, declares: 

(1) That the Congress has placed upon the Department the responsibility of administering the nationwide system of Federal tax laws and 

that in discharging such responsibility it is essential that the Department follow a uniform interpretation of its rules of practice, as distinguished from the varying interpretations reflected in certain decisions 

by State courts. 

(2) That the Department does not have the responsibility nor the 

authority to regulate the professional activities of enrollee lawyers and 

enrollee accountants beyond the scope of their practice as defined in 

section 10.2 (b) and nothing in Circular 230 is so intended. 

(3) That under section 10.2 (z) of the rules, enrollees, whether 

lawyers or accountants, must observe the canons of ethics of their 

respective professions. 
72 Commissioner of Internal Revenue Annual Report 

The processing of applications for enrollment and of disbarment cases 

was kept current. Listed below are comparative statistics showing the 

disposition of cases for the fiscal years 1955 and 1956: 

Disposition of enrollment and disbarment cases, fiscal years 1955 and 1956 

Type of case 

Fisca year 

1955 1956 

General enrollment—attorneys and agents: 

Applications for enrollment approved 4,397 4,522 

Applications for enrollment disapproved 52 28 

Applications withdrawn on advice of the Director 150 138 

Applications abandoned 24 25 

Special enrollment to practice before the Internal Revenue Service: 

Applications approved by reason of examination 

Applications approved pursuant to standards and procedures based upon former service 

with the Treasury Department. (Sec. 12. Department Circular No. 230, revised.) 136 139 

Applications approved by reason of having passed CPA examination though CPA certificates 

not issued 13 19 

Applications of former employees denied 12 15 

Applications withdrawn 15 

Applications abandoned 52 35 

Renewal of enrollment cases: 

Applications for renewal approved 751 710 

Applications for renewal disapproved 19 7 

Applications for renewal withdrawn 40 41 

Applications for renewal abandoned 2 4 

Disbarment cases: 

Disbarments 3 H 

Resignations accepted 6 6 

Resignations accepted with prejudice 3 

Repnmands issued 12 19 

Suspensions 14 6 

Closed without action 17 21 

Formal complaints pending against enrolled persons.. 50 34 

General Management Improvements and 

Policy Changes 

Continuous attention was given to the means for improving management 

policies and procedures in the Revenue Service, and several important 

changes were made. 

The most important of these events was to place all regional and district 

offices (other than Regional Counsels and Regional Inspectors) under the 

responsibility and authority of the Assistant Commissioner (Operations). 

After a 3-year experiment in having field offices report directly to the 

Commissioner's office, it was found advisable to bring the field offices in 

closer relationship with the officials immediately responsible for planning 

and evaluating their programs. 

Another significant change abolished the system of production quotas 

on the work of individual revenue agents and collection officers. The new 

policy emphasizes that these officers should do their best work consistent 

with the different conditions in each case, and that quality should not be 

sacrificed for volume of cases. Reports from field offices indicate that the 

new policy improved the morale of the affected employees, and it is expected 

to result in increased production. 

Report on Operations 7: 

Further changes are discussed under the other chapters of this report 

including the revision of the taxpayer assistance program, the introduction 

of the return system in collecting cigar taxes, the adoption of a smalle 

cigarette tax stamp to reduce printing cost, and the modification of the 

Form 1040A type of income tax return to permit taxpayers to compute 

their own taxes. 

The Service continued its efforts, through the Treasury Department anc 

the Department of Health, Education and Welfare, to obtain legislatior 

to simplify the reporting of payroll taxes. 

The National Office stepped up materially its program of research. The 

most extensive surveys, utilizing questionnaires and interviews, were con. 

ducted among (a) taxpayers who come to Revenue offices for assistance in 

preparing income tax returns, and (b) practitioners, taxpayers, and revenue 

officials who are affected by the informal conference procedure. 
APPENDIX 

STATISTICAL 

TABLES 
Note.—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 and 11. 

A map of the districts appears on page XII. 

Internal Revenue 

Collections 

Tables 1-5 
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94 Commissioner of Internal Revenue Annual Report 

Table 2.-Internal revenue collections by sources and by quarters, fiscal year 1956 

Iln thousands o dollars] 

Sources of revenue 

Quarter endedSept. 30, 

1955 

(1) 

Dec. 31, 

1955 

(2) 

Mar. 31, 

1956 

(3) 

June 30, 

1956 

(4) 

Corporation income and profits taxes 1 

Individual income and employment taxes: 

Income tax not withheld 2 

Income tax withheld and old-age insurance a 

Railroad retirement 84 

Unemployment insurance 

Total individual income and employment taxes 

Estate tax 8 

lift tax 

klcohol taxes: , 

Distilled spirits: 

Excise: 

Imported (collected by Customs) 

Domestic 

Rectification 

Special or occupational n 

Other s 

Total distilled spirits taxes 

Wines, cordials, etc.: 

Excise: 

Imported (collected by Customs) 

Domestic 

Special or occupational se 

Floor stocks tax 

Total wines, cordials, etc., taxes 

Beer: 

Excise 

Special or occupational as 

Floor stacks tax 

Total beer taxes 

Total alcohol taxes 

(flame taxes: 7 

Cigarettes 

Cigars 14 

Manufactured tobacco 

Other 16 

Total tobacco taxes 

Stamp taxes on documents, other instruments, and playing 

cards: 

Issues and transfers of bonds of indebtedness, or capital 

stock, foreign Insurance policies and deeds of conveyance: 

Sales by postmaster 

Sales by directors 

Other 58 

Total stamp taxes on documents, other instruments, and 

playing cards 

I, 974, 870 2, 133, 835 8, 993, 456 8, 196, 361 

2, 076, 776 

7, 121, 132 

160, 200 

18,913 

624,417 

7, 115, 547 

157, 520 

19,028 

3, 767, 276 

7,834, 471 

156, 228 

278, 876 

5, 361, 791 

7,773,038 

160, 375 

7,839 

9, 377, 021 7, 916, 512 12, 036,851 13, 303, 042 

220, 207 

I, 984 

240, 598 

4, 340 

287, 552 

24, 362 

305, 509 

86, 685 

57, 665 

409, 002 

5,680 

8, 955 

588 

91, 990 

496, 844 

7, 537 

577 

445 

53, 570 

394, 976 

5, 335 

420 

290 

63, 812 

453,823 

5, 832 

4,522 

379 

481, 889 597,393 454, 591 528,369 

924 

18, 074 

707 

( a) 

2, 043 

23, 789 

38 

(a) 

I, 066 

19, 363 

54 

( a) 

1, 226 

20,095 

372 

(0) 

19, 704 25,870 20,483 21,693 

227,503 

3, 046 

(a) 

168,755 

155 

4 

162, 702 

191 

1 

206,481 

1,742 

2 

230,549 168, 914 162,893 208,225 

732, 142 792, 177 637, 968 758,287 

388,283 

II, 572 

4,791 

210 

370,111 

12, 090 

4,524 

244 

388,200 

10, 942 

4,621 

152 

402,451 

10, 436 

4,758 

113 

404,856 386,969 403,913 417, 758 

5,205 

18,364 

1,567 

7,940 

20, 410 

I, 893 

9,703 

18, 208 

1, 823 

8,113 

20,088 

1, 613 

25,136 30,243 29, 734 29,814 

Footnotes on p. 100. 

Internal Revenue Collections 9E 

Table 2.-Internal revenue collections by sources and by quarters, fiscal year 1956- 

Continued 

[In thousands of dollars] 

Sources of revenue 

Quarter endedSept. 30, 

1955 

(I) 

Dec. 31, 

1955 

(2) 

Mar. 31, 

1956 

(3) 

June 30, 

1956 

(4) 

Manufacturers' excise taxes: 

Gasoline 260, 212 279, 116 255, 879 235, 190 

Lubricating oils 24, 107 15, 122 17, 873 17, 482 

Tires (wholly or in part of rubber) and inner tubes 49, 476 46, 457 40, 570 41,368 

Automobile truck and bus chassis and bodies and parts 

and accessories for automobiles and motorcycles 464, 339 391,440 446, 660 409,165 

Electric, gas, and oil appliances, mechanical refrigerators 

quick-freeze units, air-conditioners, etc 32, 286 29,303 26, 742 31,810 

Radio sets, television sets, phonographs, components, etc 33,482 42, 634 50,073 34,909 

Other 57 44, 050 43, 362 48, 815 44, 090 

Total manufacturers' excise taxes 907, 953 847, 434 886, 611 814,015 

Retailers' excise taxes:3 

Furs 3,334 5,148 12,951 6,829 

Jewelry 33, 611 30, 341 57, 826 30, 561 

Luggage 13,676 11,578 20,408 11,858 

Toilet goods 18, 490 18, 060 27, 121 20, 105 

Total retailers' excise taxes 69,111 65, 127 118,306 69, 352 

Miscellaneous excise taxes:3 

Sugar 20,688 24, 455 18, 907 18, 844 

Long-distance telephone, telegraph, cable, radio, etc 57,131 55,048 53, 526 56, 743 

Leased wires 4, 777 4, 623 4, 821 4, 872 

Local telephone service 82. 965 76, 639 74, 892 81,195 

Transportation of oil by pipeline 8,341 8.191 9,072 10,077 

Transportation of persons, seats and berths 55, 582 50, 793 59, 142 49, 387 

Transportation of property 108,911 122,033 109, 655 109, 981 

Leases of safe deposit boxes 1,315 1,279 1,242 1,676 

Club dues and initiation fees 13, 041 10, 126 9, 963 14, 041 

Bowling alleys, pool tables, etc 1,932 297 116 609 

Coin-operated amusement and gaming devices 8, 855 894 655 3, 843 

Admissions-Theaters, concerts, athletic contests, attn.__ 26, 889 31,286 22, 176 23, 666 

Admissions-Roof gardens, cabarets, etc 10, 330 10, 891 10, 689 10, 345 

Narcotics, including marihuana and special taxes ]a 314 150 153 384 

Coconut and other vegetable oils processed 23 4,457 4,648 4,572 4,857 

Diesel fuel (including special motor fuels) 7,091 5,166 6,488 5,719 

Wagering-Occupational 315 87 89 148 

Wagering-Excise I, 651 I, 556 I, 594 1, 585 

Other (including repealed taxes) 15 1 5 6 

Total miscellaneous excise taxes 414,598 408,162 387,758 397, 980 

Undistributed depositary receipts of excise taxes 3 ( -11, 022) 1,520 (-16,236) (-6,038) 

Unclassified advance payments of excise taxes I, 498 (-888) (-90) 47 

Taxes not otherwise classified aa 2,119 873 387 1,890 

Grand total, all Internal revenue taxes 3 14, 120, 473 12, 826, 902 23, 790, 571 24, 374, 703 

Footnotes on p. 100. 
Sources of revenue 

1955 1956 

Fiscal year 

Alcohol taxes-Continued 

Beer: 

Excise tax per barrel of 31 gallons, $9 

Floor stocks tax (tax-paid stocks on hand) 

Special or occupational taxes: 

Brewers, 500 barrels or more, $110 per year; less than 500 barrels, $55 

per year 

Wholesale dealers in beer, $100 per year 

Retail dealers in beer, $22 per year 

Total beer 

Total alcohol taxes 

737,233 765,441 

7 6 

34 31 

1,225 1,155 

4, 285 3, 949 

742,784 770,581 

2, 742, 840 2, 920, 574 

78 88 

673 628 

9,274 8,881 

4,025 4,148 

25,353 24,474 

3,091 3, 053 

3, 706 3, 710 

46 58 

2 91 

1, 504, 197 I, 549, 045 

693 622 

20, 064 18, 693 

12 7 

1,571,213 1,613,497 

26,388 30, 961 

78, 901 77,069 

60 53 

6, 700 6, 843 

112,049 114,927 

69,818 74,584 

• 954, 658 1, 030, 383 

20 14 

• 141, 961 159, 733 

• 22, 355 18,139 

8, 366 9, 576 

134,805 189,434 

I, 047, 813 I, 376, 372 

• 136,709 145,797 

50, 859 71, 064 

18,673 22, 854 

136, 849 161, 098 

8, 287 12, 324 

10, 783 12, 776 

38,004 49,078 

5, 808 6, 160 

57, 281 70, 146 

15,157 17,373 

8,112 8, 503 

5, 347 5, 150 

12, 401 14, 302 

949 I, 153 

• 2, 885, 016 3, 456,013 

96 Commissioner of Internal Revenue Annual Report 

Table 3.-Internal revenue collections by sources, fiscal years 1955 and 1956 

[In thousands of dollars] 

Sources of revenue 

Fscal year 

1955 1956 

Corporation income and profits taxes: 

Regular 55 

Exempt organization business income tax 53 

18, 262, 571 

2,150 

21, 297, 167 

1,355 

Total corporation income and profits taxes 18, 264, 720 21, 298, 522 

Individual income and employment taxes: 

Income tax not withheld 10, 724, 120 11, 830, 260 

Withheld taxes: 

Income tax and old-age insurance: 23 

Received with returns 25, 673, 490 29, 280, 756 

Undistributed depositary receipts a 592,068 563, 431 

Total income tax and old-age insurance 26, 265, 558 29,844, 187 

Railroad retirement: 

Railroad employment compensation tax received with returns, 12 percent 

of taxable portion of payrolls to 12/31/54, 1235 percent thereafter 597, 218 628, 610 

Railroad employees' representative tax received with returns, 12 percent of taxable portion of payrolls to 12/31/54,1234 percent thereafter 44 133 

Undistributed depositary receipts 2,844 5,580 

Total railroad retirement 600, 106 634, 323 

Total withheld taxes 26, 865,663 30,478, 510 

Unemployment insurance, 3 percent of taxable portion of payrolls 279, 986 324,656 

Total individual income and employment taxes 37, 869, 770 42,633,426 

Estate tax 5 

Gift tax 848,492 

87,775 

1,053, 867 

117,370 

Alcohol taxes: 

Distilled spirits: 7 

Excise taxes: 

Imported (collected by Customs) $10.50 per gallon 242, 848 267, 037 Domestic, $10.50 per gallon 1, 626, 255 1, 754, 644 Seizures, penalties, etc 1, 497 1, 654 Floor stocks tax (tax-paid stocks on hand) 45 43 

Rectification tax, per proof gallon, 30 cents 

Export stamps, 10 cents per cask and 5 cents per case 25 

23,867 

8 

24,384 

Container stamps, 1 cent per bottle, or cent if less than 3k pint: 21 

Bottled in band 519 

Bottled other than in bond 6,213 

Stills or worms manufactured, $22 each 6 5 

Special or occupational taxes: 

Manufacturers of stills, $55 per year 

Rectifiers: 6 6 

Less than 500 barrels, $110 per year 8 6 500 barrels or more, $220 per year 21 28 

Wholesale liquor dealers, $200 per year 1,272 1,272 

Retail dealers in liquor or medicinal spirits, $50 per year 14, 367 13,069 

Nonbeverage manufacturers of spirits, $25, $50, $100 per year 105 94 

Total distilled spirits I, 917, 038 2,062,242 

Wines, cordials, etc.: 

Excise taxes: 

Imported (collected by Customs) 4,689 5, 259 

Domestic 77,135 81,321 

Floor stocks tax (tax-paid stocks on hand) 2 1 

Special or occupational taxes: 

Wholesale dealers in wines or in wines and beer, $200 per year 106 115 

Retail dealers in wines or in wines and beer, $50 per year 1, 085 1, 056 

Total wines 83,017 87,751 

Footnotes on p. 100: 

Internal Revenue Collections 97 

Table 3.-Intemal revenue collections by sources, fiscal years 1955 and 1956- 

Continued 

iln thousands of dollars] 

Tobacco taxes: 7 

Large cigars classified by intended retail prices: 

Class A, tax per thousand, $2.50 

Class B, tax per thousand, $3 

Class C, tax per thousand, $4 

Class D, tax per thousand, $7 

Class E, tax per thousand, $10 

Class F, tax per thousand, $15 

Class G, tax per thousand, $20 

Small cigars, tax per thousand, 75 cents 

Cigar and cigarette floor stocks tax (tax-paid stocks on hand) 

Cigarettes per thousand, class A (small) $4, class B (large) $8.40 

Cigarette papers (55 cent) and tubes (1 cent) 

Manufactured tobacco (chewing, smoking, and snuff), 10 cents per pound 

Court fines, penalties, and taxes on leaf tobacco sold ar removed in violation of sec. 

5731, Internal Revenue Code of 1954 

Total tobacco taxes 

Stamp taxes on documents, other instruments, and playing cards: 

Issues and transfers of bonds of indebtedness, or capital stock, foreign insurance 

policies, and deeds of conveyance: 

Sales by postmasters 

Sales by directors 

Silver bullion transfers, 50 percent of profit 

Playing cards, per pack, 13 cents 

Total stamp taxes on documents, etc 

Manufacturers' excise taxes: 3 

Lubricating oils, per gallon, 6 cents 

Gasoline, per gallon, 2 cents 

Floor stocks tax, gasoline, 55 cent per gallon 

Tires (wholly or in part of rubber), per pound, 5 cents 

Inner tubes, per pound, 9 cents 

Mechanical pencils, pens, and lighters, 10 percent 

Automobile truck and bus chassis and bodies, 8 percent 

Other automobile chassis and bodies and motorcycles, 10 percent 

Parts and accessories for automobiles and motorcycles, 8 percent 

Electric, gas, and oil appliances, 5 percent 

Electric light bulbs, 10 percent 

Radio and television sets, phonographs, components, etc., 10 percent 

Phonograph rccords, 10 percent 

Musical instruments, 10 percent 

Refrigerators, freezers, air-conditioners, etc., 5 percent except for self-contained 

air-conditioning units which are 10 percent 

Matches, per thousand, 2 cents, and fancy wooden or colored stems, 554 cents._ 

Business and store machines, 10 percent 

Cameras, lenses, and film, 10 percent 

Sporting goods, 10 percent 

Fishing rods, creels, etc., 10 percent 

Firearms, shells, and cartridges, 11 percent 

Pistols and revolvers, 10 percent 

Total manufacturers' excise taxes 

Footnotes on p. 100. 
a

s 

0 

2 

0 •ea 

• 

0 

cc 

at 

0 P. .1 a, 

71 4 

c it 0. 

3 -0 - 

E 

t 

8 

S 

O 

3 

78, 512 

212,458 

17, 793 

290,198 • 33,458 

• 200, 465 • 398, 039 • 5, 553 

41,963 

3, 364 

14, 994 

416 

20 

44 

3 

15 

ISO 

267 

5 

98 Commissioner of Internal Revenue Annual Report 

Table 3.-Internal revenue collections by sources, Fiscal years 1955 and 1956- 

Continued 

[In thousands of dollars] 

Fisca year 

Retailers' excise taxes:3 

Furs, 10 percent 

Jewelry, 10 percent 

Luggage, 10 percent 

Toilet goods, 10 percent 

Total retailers' excise taxes 

Miscellaneous excise taxes: 3 

Sugar, per pound, approximately 16 cent 

Telephone, telegraph, cable, radio, 10 percent 

Leased wires, 10 percent: wire and equipment service, 8 percent 

Local telephone service, 10 percent 

Transportation of oil by pipeline, 416 percent 

Transportation of persons, 10 percent 

Transportation of property, 3 percent of amount paid, except coal which is 4 cents 

per ton 

Use of safe deposit boxes, 10 percent 

Club dues and initiation fees, 20 percent 

Bowling alleys, pool tables, etc., $20 per alley or table 

Coin-operated amusement and gaming devices, $10 and $250 per device 

Admissions: 

Admissions, 1 cent for each 10 cents or major fraction thereof of the amount 

paid 22 

Ticket brokers' sa les, 10 percent for amounts in excess of box office price m 

Leases of boxes or seats, 10 percent of the amount for which similar accommodations are sold 22 

Roof gardens, cabarets, etc., 20 percent of total paid for admissions, services, 

etc 

Admissions sold by proprietors in excess of established price, 50 percent of 

such excess 

Total admissions taxes 

Narcotics (opium, coca leaves, or derivatives thereof): 

Opium, coca leaves, etc., per ounce or fraction thereof, 1 cent 

Opium order blanks, per hundred, $1 

Accepted offers in compromise, etc., on account of narcotics tax violations.... 

Special taxes: 

Importers, manufacturers, and compounders, $24 per year 

Wholesale dealers, $12 per year 

Retail dealers, $3 per year 

Practitioners, $1 per year 

Dealers in untaxed narcotic preparations, and laboratories, $1 per year... 

Total narcotics taxes 

Marihuana taxes 

Coconut and other vegetable oils processed: 

Coconut oil from the Philippines, per pound, 3 cents 

Coconut oil from Trust Territory, per pound, 3 cents 

Coconut oil from other United States possedsions, per pound, 3 cents 

Coconut oil and combination containing coconut oil (other than in preceding listing), per pound, 5 cents 

Other, per pound, 3 cents 

Total coconut and other vegetable oils processed 

Adulterated and process or renovated butter and filled cheese 

Firearms transfer and occupational taxes 

Diesel fuel, including special motor fuels, 2 cents per gallon 

Wagering: 

Occupational, $50 

Excise. 10 percent 

Other receipts (including repealed taxes) 

Total miscellaneous excise taxes 

Undistributed depositary receipts-excise taxes 3 

Unclassified advance payments of excise taxes 

Taxes not otherwise classified 22 

Grand total all internal revenue taxes 3 

Footnotes on p. 100. 

Internal Revenue Collections 99 

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Sources of revenue 

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66, 288,692 

23 

11 

• 22, 692 

835 

6,973 

4 

113,298 

1,389 

7,352 

292, 145 

145,357 

27,053 

142, 366 

50,896 

71, 829 

105,139 

492 

377 

39,271 

77 

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46 

17 

47 

2, 776 

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43 

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(-31,776) 

567 

5, 269 

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639 

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(0) 

321, 896 

82,894 

222,449 

19, 094 

315, 690 

35,681 

214, 903 

450, 579 

5, 512 

47, 171 

2, 955 

14, 246 

102,979 

482 

490 

42,255 

67 

146, 272 

28, 261 

152,340 

57, 519 

83, 776 

18,535 

16, 542 

35 

132 

32 

1,795 

423 

23 

47 

3 

14 

180 

263 

4 

957 

45 

d 

a 
100 Commissioner of Internal Revenue Annual Report 

Footnotes for Tables I, 2, 3, and 4 

•Less than $500. 

I Includes tax on business income of exempt organizations. 

2 Includes old-age insurance tax on self-employment income. Rates of tax are as follows: 

Individual income tax: Graduated rates from 20 percent on first $2,000 net income in excess of exemption to 91 

percent on amount over $200,000. 

Self-employment tax: 3 percent of self-employment income. 

Under revised accounting procedures effective July 1, 1954, tax payments made to banks under the depositary receipts 

system are included in internal revenue collections for the month in which the depositary receipts are issued instead of 

the month in which tax returns supported by the depositary receipts are received in internal revenue offices. The revised 

procedure conforms to the practice followed in other Treasury Department reports dealing with internal revenue receipts. 

The classes of taxes affected by this change are shown in table 3, p. 96. It is not possible to make a complete classification of such payments until the returns are received. 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 classes of tax. The collections of withheld individual income tax include amounts subsequently transferred to the Government of Guam under the provisions of Public Law 630, approved August 1, 1950. 

Includes railroad employment compensation tax and tax on railroad employee representatives. 

a Advance payments of estate and gift taxes are reported in combined amount only and for the purpose of this tabulation are included in estate tax. The total amount of such advance payments for 1956 is $19,381,000. 

Lower Manhattan district includes Puerto Rico; Baltimore district includes Maryland and the District of Columbia; 

Seattle district includes Washington and Alaska. 

7 Included are amounts of tax collected in Puerto Rico upon articles of merchandise of Puerto Rican manufacture 

coming into the United States. For amounts of such collections see table 5. Prior to 1955 such collections were shown 

separately but were excluded from overall collections results. 

8 Includes special or occupational taxes on manufacturers of stills, rectifiers, wholesale liquor dealers, retail dealers 

in liquor or medicinal spirits, and nonbeverage manufacturers of spirits. 

9 Includes floor stocks tax; tax on stills or worms manufactured; and seizures, penalties, etc. 

10 Includes special or occupational taxes on wholesale and retail dealers in wines or in wines and beer. 

11 includes $538.76 of floor stocks tax. 

12 Includes special or occupational taxes on brewers and wholesale and retail dealers in beer. 

18 Includes $6,047.03 of floor stocks tax. 

14 Includes taxes on large cigars, classes A through G, and on small cigars. 

10 Includes floor stocks taxes, 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. 

18 Includes taxes on silver bullion transfers and on playing cards. 

09 Includes taxes on mechanical pens, pencils, and lighters; electric light bulbs; phonograph records; muscial instruments; matches; business and store machines; cameras, lenses, and film; sporting goods; fishing rods, creels, etc.; 

firearms, shclls, and cartridges; and pistols and revolvers. 

18 Includes taxes on ticket brokers' sales, leases on boxes or seats, and admissions sold by proprietors in excess of 

established price, as well as general admissions tax. 

19 Includes all narcotics and marihuana taxes. 

20 Includes taxes on coconut oil from the Philippines, the Trust Territory, and United States possessions as well as 

other coconut and vegetable oils processed. 

21 Includes undistributed depositary receipts and unclassified advance payments of excise taxes. 

99 Includes amounts of unidentified and excess collections, depositary receipts outstanding 6 months or more for which 

no tax account can be found, and profit from sale of acquired property. In previous annual reports these amounts were 

included in "Miscellaneous excise taxes—Other." 

23 Corporation income and profits tax rates: First $25,000 of net income, normal tax of 30 percent for taxable years 

beginning before April 1, 1955; 25 percent for taxable years beginning after Mar. 31, 1955. Net income in excess of 

$25,000, surtax of 22 percent. Normal tax and surtax rates also apply to net income derived by certain exempt organizations from unrelated trade or business. 

24 Rates of income tax withheld and old-age insurance taxes: 

Income tax withheld: Wages in excess of exemptions taxed at 18 percent. 

Old-age insurance taxes (including employers' and employees' taxes): Taxable portion of payrolls taxed at 4 

percent. 

n Effective Jan. 1, 1955, container stamps and export stamps are furnished without charge. 

98 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 

17 Beginning Jan. 1951, withheld income taxes and social security employment 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 previous annual reports. 

Revised. 

Internal Revenue Collections 101 

Table 5.—Internal revenue tax on manufactured products from Puerto Rico, by objects 

of taxation, fiscal years 1955 and 1956 

1ln thousands of dollars] 

Articles taxed 

Fisca year 

1955 1956 

Distilled spirits, excise tax 16,285 16,795 

Distilled spirits, rectification tax 459 488 

Cigars, large: 

Class A 

Class B 

Class C 6 4 

Class D 4 8 

Class E 642 903 

Class F 3 2 

Class G 1 

Cigars, small 

Cigarettes, small 

Chewing and smoking tobacco 2 2 

Total 17,402 18,204 

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 section 7652 (a) (3) of the Internal Revenue Code of 

1954. Such amounts are included in overall collections results (tables 1 through 4). Reports prior to 1955 included in 

the overall results only the amounts of such taxes collected at United States ports of entry. 

404408-57-8 
Alcohol and 

Tobacco Taxes 

Tables 6-10 
48 

5 12,249 

620 

470 

33 

7, 592 

262 

35 

4 

In effect July I, 1955 

Issued 

Terminated: 

Revoked 

Otherwise terminated 

In effect June 30, 1956 

Renewals approved 

Amended 

Industrial 

alcohol 

plants, 

bonded 

warehouses, 

and denaturing 

plants 1 

Users ofTotal 

Dealers 

in 

specially 

denatured 

alcohol 

Specially 

denatured 

alcohol 

Specially 

denatured 

rum 

Tax-free 

alcohol 

Carriers 

of 

tax-free 

and 

specially 

denatured 

alcohol 

311 

4, 031 

368 

3,974 

3,750 

1,459 

73 

5 

9 

69 

67 

13 

48 

47 

2 

788 

12, 081 

11, 341 

2, 236 

51 

452 

424 

50 

350 

7, 504 

7, 022 

700 

5 

34 

31 

12 

464 

524 

164 

151 292 

2, 127 

921 

2, 803 

Manufacturers ofTobacco 

Cigarette 

papers and 

tubes 

Dealers in 

tobacco 

materials 

In effect July 1. 1955 

Issued 

Terminated: 

Revoked 

Otherwise terminated 

In effect June 30, 1956 

Amended 

171 

817 

178 

93 

222 

51 

119 

2,300 

98 

383 

3,341 

327 

Cigars and 

cigarettes 

Total 

2 

Alcohol and Tobacco Taxes 105 

Table 8.-Permits for operations relating to alcoholic beverages, under the Federal 

Alcohol Administration Act, fiscal year 1956 

Distillers 

Warehousing 

and 

bottling 

RectiPiers 

Wine 

producers 

and 

blenders 

Wine 

blenders 

Importers Wholesalers 

Total 

In effect July I, 1955 

Issued 

Terminated 

Revoked 

Otherwise terminated 

In effect June 30, 1956 

Amended 

257 

27 

35 

35 

249 

57 

303 

36 

50 

50 

289 

135 

192 

23 

37 

37 

178 

78 

549 

39 

76 

76 

512 

90 

66 

17 

20 

20 

63 

9 

1, 289 

182 

162 

2 

160 

1,309 

155 

12, 775 

1,628 

1,969 

29 

1, 940 

12,434 

1, 107 

15, 431 

1,952 

2, 349 

31 

2, 318 

15,034 

1,631 

Table 9.-Permits relating to tobacco, under Chapter 52, Internal Revenue Code 1954, 

fiscal year 1956 1 

1 The permit system for the tobacco industry was established by the Internal Revenue Code 1954 and became effective upon adoption of regulations implementing the C de. 

Table 10.-Label activity under Federal Alcohol Administration Act, fiscal year 1956 

App ications received Applications acted upon 

For 

approval 

For 

exemption Total 

Certificates issued 

Disapproved Total Approvals Exemptions 

Distilled spirits 

Domestic 

Imported 

Total 

Wines 

Domestic 

Imported 

Total 

Malt beverages 

Domestic 

Imported 

14,042 

1, 512 

72 14,114 

1, 512 

13,227 

1, 272 

57 143 

45 

13,427 

1, 317 

15,554 72 15,626 14,499 57 188 14, 744 

7,539 

10, 862 

339 7,878 

10, 862 

6, 939 

9,954 

347 92 

96 

7,378 

10, 050 

18, 401 339 18,740 16,893 347 188 17,428 

1, 184 

271 

1,184 

271 

1, 083 

192 

22 

20 

1, 105 

212 

Total I, 455 1,455 I, 275 42 1, 317 

Grand total 35,410 411 35,821 32,667 404 418 33,489 

104 Commissioner of Internal Revenue Annual Report 

Table 6.-Number of establishments qualified to engage in the production, distribution, 

storage, or use of alcohol and alcoholic liquors as of June 30, 1955 and 1956, or to 

engage in the production or distribution of tobacco products as of Dec. 31, 1954 and 1955. 

June 30 

1955 

Alcohol, distilled spirits, beer, wines, etc. Industrial alcohol: 

Industrial alcohol plants 

Industrial alcohol bonded warehouses 37 

Industrial alcohol denaturing plants 47 

Dealers in specially denatured alcohol 46 

Users of specially denatured alcohol and rum 35 

Reprocessors, rebottlers, etc., of specially denatured alcohol articles 4, 077 

Users of tax-free alcohol 1, 545 Distilled spirits: 7, 592 Fruit distilleries 

Registered distilleries 102 

Internal revenue bonded warehouses 95 

Distillery denaturing bonded warehouses 221 Taxpaid bottling houses 2 Rectifying plants 52 Beer: Breweries 141 Wine: 283 Bonded wine cellars 

Taxpaid wine-bottling houses 621 

Vinegar: Vinegar factories using vaporizing process 111 Beverage dealers: 7 Importers 

Wholesale dealers in liquors 1, 290 

Wholesale dealers in beer 7, 555 Retail dealers in liquors 11,461 Retail dealers in beer 277,466 Other: 164, 323 

Manufacturers of nonbeverage products (drawback) 

Bottle manufacturers I, 049 Carriers 87 

Fruit-flavor concentrate plants_. - 

16 

470 

Dec. 31 

Tobacco 

1954 

Manufacturers of tobacco 

Manufacturers of cigars and cigarettes 246 Sea stores warehouses 1,016 Export warehouses 

6 

58 

Table 7.-Permits relating to industrial alcohol, under Chapter 51, Internal Revenue Code 

1954, fiscal year 1956 

1 

 Permits cover industrial alcohol plants, bonded warehouses, and denaturing plants, either singly or in combination. 

Class of establishment 

1955 

1956 

36 

43 

44 

34 

4, 020 

1, 424 

7, 504 

101 

94 

213 

2 

53 

133 

266 

580 

136 

7 

1, 309 

7, 329 

11,087 

274, 877 

168, 180 

1, 040 

85 

452 

20 

222 

881 

58 

5 
Stamp Taxes 

Table 11 
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Cases Receiving 

Appellate Consideration 

or in Litigation 

Tables 12-25 

404408-57--9 
Pending July 1, 1955 

Received during year 

Disposed of during year: 

Closed by stipulation-agreed settlement 

Closed by dismissal or default 

Tried before the Tax Court on merits 

Total 

Pending June 30, 1956: 

In hands of technical advisers 

In hands of regional counsel_.--_____. 

Total 

505,211 

206,105 

159,345 

4,710 

34,364 

114,837 

31,422 

33,175 

1, 207 

4, 788 

Fiscal year Docketed Stipulated Defaulted 

118 Commissioner of Internal Revenue Annual Report 

Table 12.-Appellate Division receipt and disposal of income, profits, estate, and gift 

tax cases not before the Tax Court (pre-90-day and statutory notice cases), fiscal 

year 1956 

Cases Receiving Appellate Consideration or in Litigation 119 

Table 14.-Appellate Division receipt and disposal of income, profits, estate, and gift 

tax cases docketed in the Tax Court (pending settlement or trial), fiscal year 1956 

Amount stated in statutory notice 

Status Number of 

cases 

(1) 

Amount stated in revenue agent's report 

or in statutory notice 

Penalty Overassessment 

(4) 

Status 

Number of 

cases 

(1) 

Deficiency 

in tax 

(2) 

Penalty 

(3) 

Overassessment 

(4) 

(In thousands of dollars) 

(In thousands of dollars) 

8,128 406,530 27,603 

983 32, 761 4, 876 

13, 816 351, 588 34, 284 

10,612 254,539 15,363 

2, 476 104, 182 13, 226 

13,088 358, 721 28, 589 

154,121 

356 

154,477 

12,917 

1,289 

3, 021 

377 

4, 510 

2, 999 

5,423 

8,422 

Table 15.-Results obtained in income, profits estate, and gift tax cases docketed in the 

Tax Court and disposed of by stipulation (agreed settlement), fiscal year 1956 

Pending July I. 1955: 

Awaiting Appellate Division action 

Awaiting taxpayer's action on statutory notice directed or 

sustained 

Received during year 

Disposed of during year: 

Closed 

Petitioned to the Tax Court 

Total 

Pending June 30, 1956: 

Awaiting Appellate Division action 

Awaiting taxpayer's action on statutory notice directed or 

sustained 

Total 

195, 115 

78 

100,144 

140, 790 

69 

8,848 391, 952 33,867 

991 40, 206 4, 307 

9,839 432, 158 38, 174 

140, 859 

7,961 

4,971 

3, 523 

186 

801 

213, 292 

299,604 

198,419 

512, 896 107, 088 

39, 170 

56,946 

50,142 

10, 808 

3, 398 

3, 514 

7, 294 

Table 13.-Results obtained in Appellate Division disposals of income, profits, estate, 

and gift tax cases not before the Tax Court, fiscal year 1956 

Decision of Appellate Division 

Number of 

cases 

0) 

Stipulations 

filed 

Cases ______________________________________________________________________________ number_ _ 

Deficiency in tax thousand dollars__ 

Penalty 

Overassessment do__ 

Net deficiency and penalty do __ 

Table 16.-Income, profits, estate and gift tax ases docketed, stipulated, defaulted, and 

defended on the merits before the Tax Court, fiscal years 1947 to 1956 

Disposal Amount of 

Penalty 

Amount of 

overassessment 

Item 

3, 523 

63, 805 

12,065 

11,908 

63, 962 

8,062 

481 

352 

806 

130 

781 

10, 612 

44 (*) 1947 

23 2,425 1948 

149,340 6,723 135,101 

1949

1950 

132,613 

1951 

1952 

1953 

1954 

1955 

1956 

Total 

3, 652 1, 913 217 

4, 402 2,526 458 

4, 537 3,065 413 

5,362 2, 732 419 

6,137 3, 364 541 

6,870 3, 326 596 

7, 122 4, 189 520 

4, 194 5,465 300 

4,971 4,018 201 

4, 574 3, 605 186 

51, 821 34, 203 3, 851 

'Less than $500, 

Agreements before statutory notice (including agreed overassessments and agreed claim rejections) 

Agreements on directors' statutory notice during 90-day period. 

Agreements on reconsideration after Appellate Division's statutory notices 

Defaults on Appellate Division's statutory notices (no petition 

filed) 

Defaults on directors' statutory notices sustained by Appellate 

Division (no petition filed) 

Unagreed overassessments and claims rejections 

Total 

(In t ousands of dollars) 

Number 

Defended on 

the merits 

(4) 

791 

949 

946 

956 

1, 064 

1, 002 

1,014 

1,191 

1, 027 

801 

9,741 
Basis of closing Overpayment 

(5) 

Overpayment 

(3) (1) 

Percent of 

amount in 

dispute 

(7) 

Amount 

(6) 

Deficiency 

and 

penalty 

(4) 

Deficiency 

and 

penalty 

(2) 

Amount in dispute Amount pproved Saved or recovered 

Number 

(In thousands of dollars) 

Dismissed 

Decision on merits 

Agreed settlement 

186 

I, 078 

3, 523 

5,918 

48,531 

192,520 

2, 419 

15, 518 

72, 999 

5,913 

21,650 

75,870 

1,603 

1, 931 

8,332 

35, 565 

146, 939 

99.9 

55.5 

55.3 

Total 4, 787 246,969 90,936 103,433 3, 534 190, 836 56.5 

120 Commissioner of Internal Revenue Annual Report 

Table 17.-Appellate Division receipt and disposal of compromise and final closing 

agreement cases, fiscal year 1956 

Status Compromise 

cases 

Final closing 

agreement 

cases 

Pending July 1, 1955 

Received during year • 283 27 

Disposed of during year: 442 73 

Accepted, granted, or approved 

Rejected 158 

Withdrawn 270 

62 

Total 

490 93 

Pending June 30, 1956 

235 7 

• Revised. 

Type of case and 

status 

Fiscal year 

1947 

(I) 

1948 

(2) 

1949 

(3) 

1950 

(4) 

1951 

(5) 

1952 

(6) 

1953 

(7) 

1954 

(8) 

1955 

(9) 

1956 

(10) 

Nondocketed cases 

Receipts 

Disposals 

Pending lune 30 

Docketed cases 

Receipts 

Disposals 

Pending lune 30 

Compromise cases 

Receipts 

Disposals 

Pending lune 30 

Total cases 

Receipts 

Disposals 

'ending lune 30 

_ . . 

5, 325 

5,243 

5,882 

3, 332 

2,986 

4,272 

1, 075 

863 

861 

9,732 

9, 092 

11,015 

7, 515 

5,473 

7, 924 

4, 598 

3,879 

4,991 

1, 629 

1,293 

1,197 

13,742 

10, 645 

14,112 

8,036 

6,108 

9,852 

4, 624 

4,484 

5,131 

2, 434 

1,942 

1,689 

15, 094 

12, 534 

16, 672 

7, 384 

6,896 

10, 340 

5, 335 

4,097 

6,369 

3, 810 

2,327 

3,172 

16, 529 

13, 320 

19,881 

7, 014 

7,147 

10,207 

6, 115 

4,941 

7,543 

3, 862 

3,348 

3,686 

16,991 

15, 436 1 5,944 

21,436 

7, 398 

7,528 

0 1 ,077 

6, 434 

4,971 

9,006 

3,184 

3,445 

3,425 

17,016 

22, 508 

i 20, 962 

18,674 

19, 365 

7, 677 

5,763 

10, 920 

I, 742 

3,263 

1,904 

30, 381 

20, 700 

32, 189 

8, 950 

14,737 

13,578 

4, 433 

6,858 

8, 495 

807 

2,085 

626 

14,190 

23, 680 

22, 699 

10, 608 

15,075 

9,111 

4, 781 

5,315 

7,961 

• 415 

• 758 

• 283 

• 15,804 

"21, 148 

"17, 355 

13, 816 

13,088 

9,839 

4, 971 

4,510 

8,422 

442 

490 

235 

19,229 

18,088 

18, 496 

itevisea. 

Receipts of nondoc eted cases for the fiscal year 1953 include 10,06 cases tr nsferred ram internal revenue agents, 

conference sections m rged into the Appellate Division during 1952 under Reorganization Plan No. 1 of 1952. 

Table 19.-Receipt and disposal of income, profits, esta e, and gift tax cases in he Tax 

Court, fiscal year 1956 

Amount in dispute 

Cases Receiving Appellate Consideration or in Litigation 121 

Table 20.-Results obtained in income, profits, estate, and gift tax ca es disposed of in 

the Tax Court, fiscal year 1956 

Table 21.-Receipt and disposal o Tax Court cases in courts of appeals or in Supreme 

Court, fiscal year 1956 

Status 

In courts of appeals In Supreme Court 

Number 

of 

cases 

Amount 

(thousand 

dollars) 

Number 

of 

cases 

Amount 

(thousand 

dollars) 

Pending July I, 1955: 

I -- 

Appealed by Commissioner 59 4,681 316 Appealed by taxpayers 309 15,936 1, 753 Appealed by both 15 3,493 

Total 383 24,110 6 2,069 

Appealed during year: 

By Commissioner 75 6, 224 2 192 By taxpayers 301 23, 940 3 839 By bath 12 1,689 

Total 388 31,853 5 I, 030 

Disposed of during year: 

Favorable to Commissioner 152 7, 255 6 1,687 Favorable to taxpayers 77 4, 672 Modified 35 4,185 1 435 Settled 6 881 Dismissed 61 2,628 

Total 331 19,621 7 2,122 

Pending June 30, 1956: 

Appealed by Commissioner 51 5,445 2 178 Appealed by taxpayers 375 30, 326 2 799 Appealed by bath 14 571 

Total 440 36, 343 4 977 

Table 18.-Appellate Division receipt and disposal of nondocketed, docketed, and 

compromise cases (income, profits, estate, and gift taxes) fiscal years 1947 to 1956 

Status 

Number of 

cases 

( 1) 

Deficiency 

in tax 

(2) 

Overpayment 

(4) 

Penalty 

(3) 

(In t ousands of dollars) 

Pending July 1, 1955 

Filed or reopened during year 

Disposed of during year 

Pending June 30, 1956 

9,243 

5, 002 

4, 787 

9,458 

597,621 

224, 278 

212, 586 

609,313 

124, 388 

17, 083 

34, 383 

107, 088 

1, 080, 048 

76, 073 

90, 936 

1, 065, 186 
122 Commissioner of Internal Revenue Annual Report 

Table 22.—Receipt and disposal of suits filed by taxpayers in Federal courts, fiscal year 

1956 

Courts 

Pending July 1, 

1955 

Receive during 

y ar 

Dispo ed of 

during year 

Refunded Pending July I, 

1956 

Number 

(1) 

Amount 

in dispute 

(thousand 

dollars) 

(2) 

Number 

(3) 

Amount 

in dispute 

(thousand 

dollars) 

(4) 

Number 

(5) 

Amount 

in dispute 

(thousand 

dollars) 

(6) 

Amount 

(thousand 

dollars) 

(7) 

Percent 

(8) 

Number 

(9) 

Amount 

in dispure 

(thousand 

dollars) 

(10) 

Court of claims 

District courts 

Total 1 

493 

2,351 

160, 212 

117,059 

162 

889 

87, 587 

58, 155 

163 

781 

19, 216 

37, 267 

5,159 

13,162 

26.8 

35.3 

492 

2,459 

228, 582 

137, 946 

2, 844 277, 270 1, 051 145, 742 944 56,484 18,321 32.4 2, 951 366, 528 

I Six processing tax cases, $259,876.63'n dispute, were pe ding July 1, 1955; cases involving $15,713.97, o part of 

which was refunded, were disposed of during the year; 4 ca es $244,162.66 in ispute, were pendi g July 1, 1956. 

Note.—Suits filed by taxpayers are prim rily suits for refund of taxes or to enjoi the collection of to es (other han those 

relating to alcohol, tobacco, and firearms taxes). For distrit lion of these cases by court involved nd accord ng to the 

nature of the decision and for cases on appeal see table and text on pp. 30 and 31. 

Table 23.—Receipt and disposal of claims pending and suits filed by the United States 

in Federal and State Courts, fiscal year 1956 

Status 

Number Amount thousand 

doll rs) Percent 

recovered 

In suit Not in suit Total In dispute Recovered 

Pending July I, 1955 

Received during year in suit and for institution 

of suit 

Total 

Suits instituted during year 

Total to be accounted for 

Disposed of during year 

Pending July 1, 1956 

612 

45 

201 

22 

813 

67 

$30,215 

7,125 

657 

114 

223 

114 

771 109 880 37, 339 

253 

518 

25 

84 

278 

602 

14, 766 

$22,573 

$5, 071 34.3 

Note.—This table pertains primarily to suits to collect taxes or to reco er erroneo s refunds (other than t ose relating 

to alcohol, tobacco, and firearms taxes). Howe er, it does at include nsolvency a d debtor proceedings or lien cases 

in court which are included in tables 24 and 25. 

Cases Receiving Appellate Consideration or in Litigation 123 

lame Z4.—neceipT ana cusposso oy me voice or ne tmer tounser or insolvency ana 

debtor proceedings; fiscal year 1956 

Bankruptcy Miscellaneous 

Reorganization and re- insolvency 

proceedings 2 ceivership 

proceedings a 

proceedings 4 Total 

(1) (2) (3) 

Pending July 1, 1955 824 627 697 2,148 

Received during year 880 714 673 2,267 

Total cases 1,704 1,341 1,370 4,415 

Disposed of during year 1,002 956 837 2,795 

Pending June 30, 1956 702 385 533 1,620 

I Includes cases handled at national and regional le els. 

2 Proceedings instituted under the following sections or chapters of t e Bankruptcy A t: secs. 75 (agri ultural compositions and extensions) and 77 (railroad reorganization ) and chs. X (corporate reorganizations), XI (arr ngements as to 

unsecured indebtedness), XII (real property arrangem nts), and XIII (wage earners plans) which involv tax claims and 

other rights and interests of the United States, and also require actio by legal personnel. 

a Bankruptcy liquidation proceedings and Federal or State receiver hip proceedings which involve t x claims of the 

United States, and also require action by legal person el. 

4 Proceedings relating to corporate dissolutions, inso vent banks, assi nments for the benefit of credito s or administration of estates of decedents which involve tax claims f the United States, and also require action by I gal personnel. 

Table 25.—Receipt and disposal by the Office of the Chief Counsel of lien cases and 

noncourt civil advisory cases; fiscal year 1956 

Lien cases Noncourt 

civil 

advisory 

In courts Not in 

court a 

cases 4 Tote 

(I) (2) (3) 

Pending July 1, 1955 1, 075 186 330 1,591 

Received during year 1.543 1, 842 1,650 5, 035 

Total cases 2,618 2,028 1,980 6,626 

Disposed of during year 2, 070 1, 882 1, 587 5,539 

Pending June 30, 1956 548 146 393 1,087 

I Includes cases handled at national and regional levels. 

Primarily suits for foreclosure by mortgagees or other secured creditors and suits to q iet title to which the United 

States is made a party. 

Primarily applications for discharge of property from tax lie s. 

4 Primarily memorandums on civil advisory matters from Re ional Counse to District Directors which are not related 

to court proceedings or lien cases. 
Cost of 

Administration 

Tables 26-27 
Cost of Administration 127 

126 Commissioner of Internal Revenue Annual Report 

Table 26.-Obligations incurred by the Internal Revenue Service, fiscal year 1956 

In thousands of dollars] 

district, or region services services ment 

Internal Revenue office, Salaries Travel nication Rent utilityand equip- equip Other Total 

Commu- Suies 

(1) (2) (3) (4) (5) (6) (7) 

A.National office and regional totals (including Directors' offices) Total, Internal Revenue 

B.Regional offices (excluding Di- rectors' offices) 

C.District Directors cffices ktianta: 

Boston: 

ihicago: 

Cincinnati: 

ffillas: 

Service 266, 572 7, 149 6, 078 1,973 5, 070 13, 053 299, 895 

Cincinnati region 29, 407 866 250 175 537 466 31,701 

San Francisco region Regional counsel 31,188 853 306 225 524 536 33, 632 

Regional inspection 3,633 87 71 II 121 45 3,968 2,604 396 29 11 22 27 3,089 

ittlanta region Boston region I 4, 078 190 41 19 193 205 4, 726 2, 521 44 24 173 95 74 2,931 :hicago region 3, 757 75 41 42 83 76 4, 074 :incinnati region Belles region 5,642 192 34 11 146 143 6, 168 

Yew York City region 2,391 113 21 18 80 88 2,711 

3maha region 0 5,377 77 61 1 120 101 5,737 5, 700 156 41 135 149 187 6, 368 0hiladelphia region 5,157 121 46 90 107 99 5,620 Ian Francisco region 4,008 140 41 113 111 4,413 

National office Atlanta region 16, 019 528 8 807 105 922 8, 373 29, 754 

Boston region I 22, 594 868 175 181 471 529 24,818 

Chicago region 16,452 349 161 192 257 211 17,622 30,046 550 255 383 435 427 32, 096 

Dallas region New York City region 18,589 793 148 209 409 526 20, 674 

Omaha region 2 34,172 349 365 135 511 1,032 36, 564 

Philadelphia region a 25,759 905 169 141 457 452 27, 883 36, 108 605 340 205 407 428 38,093 

Atlanta Birmingham 3,123 120 22 11 43 55 3,374 

Columbia 2, 426 85 20 19 29 29 2, 608 

Greensboro 1,578 58 9 4 26 21 1, 696 3,169 129 21 84 46 85 3,534 Jackson 1,297 63 9 8 21 24 1,422 Jacksonville Nashville 3,932 129 32 34 66 56 4, 249 2, 991 92 20 3 45 59 3,210 

Augusta Boston 1,127 52 11 1 20 17 1,228 

b dington 6,758 108 78 4 57 52 7, 057 

Nat ord 507 25 6 4 11 8 561 

Portsmouth 3, 401 70 21 8 44 32 3,576 

Providence 804 33 6 2 15 13 873 1,333 16 14 15 17 I, 395 

Chicago Detroit 10,474 80 105 212 154 131 11,156 Milwaukee 8,004 142 54 111 94 118 8,523 

Springfield 4,368 III 31 1 62 52 4, 625 3,443 141 24 18 42 50 3, 718 

Cincinnati Cleveland 2,652 45 16 2 49 30 2,794 

Columbus 5, 368 81 60 116 65 72 5,762 1,710 41 16 31 20 1,818 Indianapolis Louisville 4,483 121 29 6 83 55 4, 777 

Parkersburg 2, 668 100 28 6 41 34 2, 877 

Richmond 1, 774 82 16 5 32 28 1,937 

Toledo 3,369 160 40 12 57 54 3, 692 1,742 45 12 17 34 26 1,876 

Albuquerque Austin 794 38 7 2 25 13 879 

Dallas 4,529 195 36 161 91 96 5,108 

Little Rock 4,461 188 36 12 73 50 4, 820 

New Orleans 1,422 87 12 5 33 29 I, 588 

Oklahoma City 2,647 97 18 10 50 220 3,042 2, 345 75 19 2 56 29 2.526 

Footnotes on p. 127. 

Table 26.-Obligations incurred by the Internal Revenue Service, fiscal year 1956- 

Continued 

[In thousands of dollars] 

district, or region services services ment 

Internal Revenue office, Salaries Travel nication utility and equip- Other Total 

Commu- Rent and Supplies 

(1) (2) (3) (4) (5) (6) (7) 

New York City: 

Albany 2,150 45 17 39 22 2,273 

Brooklyn 6,621 36 81 45 117 88 6, 988 

Buffalo 3, 112 54 22 16 42 31 3,277 

Lower Manhattan 6,449 45 71 19 68 693 7,345 

Syracuse 1, 907 64 16 5 37 29 2, 058 

Upper Manhattan 8,554 29 97 49 88 69 8,886 

Omaha: 

Aberdeen 732 51 4 15 10 812 

Cheyenne 472 38 4 15 6 535 

Denver 2,163 63 22 28 25 2, 301 

Des Moines 2,781 110 15 2 41 25 2, 974 

Fargo 705 47 5 9 II 777 

Kansas City 2,117 63 10 34 29 2, 253 

Omaha 0,777 69 9 1 35 21 1,912 

St. Louis 2,953 70 11 1 41 47 3, 123 

St. Paul 3, 835 124 26 I 55 64 4, 105 

Wichita 2, 525 113 22 35 26 2,721 

Philadelphia: 

Baltimore 6, 664 81 64 8 48 71 6, 936 

Camden 2, 065 46 13 23 23 2, 170 

Newark 6, 301 59 78 77 60 75 6,650 

Philadelphia 7, 925 108 94 2 77 75 8,281 

Pittsburgh 4, 991 84 28 19 47 43 5, 212 

Scranton 1, 924 41 13 5 18 25 2,026 

Wilmington 819 14 4 4 7 5 853 

San Francisco: 

Boise 818 46 9 4 15 15 907 

Helena 822 53 8 14 16 913 

Honolulu 1,071 33 11 16 12 1,143 

Los Angeles 9,456 158 98 159 125 130 10,126 

Phoenix 1,046 41 II 2 25 23 1,148 

Portland 2, 027 83 15 1 32 55 2, 213 

Reno 617 19 6 1 16 7 666 

Salt Lake City I, 006 25 7 14 10 1, 062 

San Francisco 6,976 123 61 22 105 97 7,384 

Seattle 3, 341 131 40 36 47 59 3,654 

I Includes Northeast Service Cent r. 

Includes Midwest Service Center. 

a Includes International Operations Division. 

Table 27.-Cost of printing and binding for Internal Revenue Service, fiscal years 1955 

and 1956 

/Figures in thousands] 

Rua year 

Class of work 1955 

Quantity Cost Quantity Cost 

1956 

Tax return forms and other public-use forms and instructions 928, 222 $3,216 

Administrative forms and pamphlets 557, 301 I, 279 

All field printing 13, 655 65 

Excise tax stamps 2, 345 

Total 1,499, 178 $6, 906 

The method of reporting has been changed starting in the fi cal year 1956. The figures given for the fiscal year 1955 

were adjusted to correspond to the new framework for purposes of comparison. 

I, 066,127 $3, 687 

324,044 935 

32,000 97 

2, 305 

1, 422, 171 $7,024 
rf 

INDEX 

Accounting simplified, distilled spirits 

Accounts, delinquent: 

Analysis, 2-year period 

Closures, percentage of, increase in 

Collection program accelerated 

Administration, cost of: 

By activity, 2-year comparison 

By office and class of expenditure 

Printing and binding 

Agriculture, Department of, Extension Service 

Agricultural Chemists, Association of 

Alcohol and tobacco taxes: 

Alcohol taxes: 

Accounting simplified 

Collections: 

By regions, districts, States and Territories 

Comparison: 

2-year period 

1940-1956 

Quarterly 

Total amount 5, 

Offers in compromise disposed of 

Refunds, number and amount 

Enforcement program: 

Criminal action, results of 

Dealers, liquor, inspections of 

Investigations, firearms 

Seizures and arrests, liquor and tobacco law violations 

State of Oklahoma, violations of Liquor Enforcement Act of 1936 

Label activity under the Federal Alcohol Administration Act 

Laboratories: 

Analysis, chemical 

Research program 

Scientific journals, results of studies published in 

Obligations incurred 

Offers in compromise 

Permits authorizing operation: 

Alcohol, industrial, total number 

Establishments qualified, number of 

Federal Alcohol Administration Act, under the 

Tobacco, relating to 

Personnel 

Plants and permittees, inspection of 

Puerto Rico, manufactured products, collections 

Regulations 

Revenue Rulings published 

Stamps, beer and wine changed to return system 

Supervision, storekeeper-gauger, amount of production under 

Tabulations, production 

Tax structure, program to modernize and simplify 

81, 

Page 

42 

25 

24 

24 

71 

126 

127 

55 

44 

42 

80 

96 

99 

94 

83, 94, 97 

41 

37 

22 

19, 204 4 

 19, 20 

20 

42, 105 

44 

44 

44 

71 

40, 41 

104 

42, 104 

42, 105 

43, 105 

65 

43 

101 

46 

49 

9 

43 

42 

42 

129 
130 Commissioner of Internal Revenue Annual Report 

Alcohol and tobacco taxes—Continued 

Tobacco tax: Page 

Cigar tax, collection by return 73 

Collections: 

By region, district, State, and Territories 84 

Comparison: 

2-year period 5, 97 

1940-1956 99 

Increase in 7 

Quarterly 94 

Refunds, amount of 37 

Seizures and arrests 19, 20 

Training, in-service 68 

Transfer of Federal tort claims investigations 63 Appellate Division: 

Case receipts, increase in 27 

Dockets substantially current 27 

Excess profits tax 29 

Obligations incurred, total 71 

Suits, receipt and disposal of: 

Taxpayers, filed by, in Federal courts 122 

United States, filed by, in Federal and State courts 122 

Tax cases: 

Not before the Tax Court, tax case results 118, 120 

Receipt and disposal of: 

Backlog reduced 27 

Closing agreement 30, 120 

Offers in compromise 40, 120 

Pre-90-day and statutory notice 118 

Protested, 2-year comparison 27, 29 

Tax Court cases: 

Decisions, appeals from 30 

Petitioned, comparison, 2-year period 27 

Receipt and disposal of tax cases: 

Comparison, 10-year period 120 

Docketed, pending settlement or trial 119 

In courts of appeals or Supreme Court 121 

Status, fiscal year 1956 120 

Results obtained in disposal of: 

By stipulation 119 

Closures, fiscal year 1956 121 

Comparison, 1947-1956 120 

Audit: 

Determination letters: 

Adverse, appeal of 48 

Exempt organizations 48 

Pension trust 48 

Internal: 

Activities, regular, statistics covering 61 

Examinations, special 62 

Functions and objectives 61 

Obligations incurred, by class 71 

Return examination: 

Additional taxes, interest and penalties assessed: 

Analysis, 2-year period 36 

Decline in, reasons for 33 

Delinquent returns 33, 36 

Offers in compromise 40 

Index 

Audit—Continued 

Return examination—Continued 

Additional taxes, interest and penalties assessed—Continued 

131 

Page 

Prerefund 33, 36 

Verification, mathematical 13, 33, 36 

Increase in number, reasons for: 

Equipment, mechanized program 15 

Excise tax procedures implemented 15 

Selection, method of, improved 15 

Taxpayer assistance, new methods for 15 

Number examined, comparison, 2-year period 16 

Offers in compromise 16 

Awards, cash and incentive 67 

Bank Holding Company bill 60 

Bankruptcy Act 50 

Budget operation, field collaboration in 70 

Chief Counsel, Office of (see also Regional Counsel): 

Appellate courts, actions by 22 

Courtroom cases, results of 22 

Criminal action cases, 2-year period 22 

Decentralization of review of some offers in compromise 5 

Federal civil courts, cases decided 31 

Indictments, increase in 22 

Obligations incurred, by class 71 

Offers in compromise 40 

Receipt and disposal of cases: 

Civil advisory, lien and noncourt 123 

Enforcement Division 21 

Insolvency and debtor proceedings 123 

Suits filed by: 

Taxpayers in Federal courts 122 

United States in Federal and State courts 122 

Tax Court cases. (See Appellate Division.) 

Civil Service Commission 67 

Closing agreement cases: 

Final 120 

Tax Rulings Division, pending in 50 

Transactions, prospective 49 

Collections, internal revenue, total: 

All taxes 5, 93 

Comparison: 

2-year period 5, 98 

1940-1956, by source 99 

Increase in, reasons for 5 

Quarterly, by source 95 

Regions, districts, States, and Territories, by source 92 

Conventions, tax. (See Tax conventions and protocols.) 

Courts: 

Appeals, in, or Supreme Court, status of cases in 121 

Decisions affecting the Service: 

Second Circuit decision 23 

Supreme Court decisions 23, 31, 51 

District and State, pending tax cases 31 

Federal and State: 

Tax issues, cases involving 30 

United States, suits filed by 122 
132 Commissioner of Internal Revenue Annual Report 

Courts—Continued Page 

Federal civil courts, cases decided by 30 

Federal, suits filed by taxpayer 122 

Criminal action, results of, analysis, 2-year period 22 

Employment taxes: 

Collections, total: 

All types 5, 79 

By regions, district, States, and Territories 78 

Comparison: 

2-year period 96 

1940-1956 99 

Quarterly 94 

Farmers, self-employment 6, 9 

Farm laborers 6, 9 

Federal old-age insurance 6, 10, 37, 78 

Increase in 5, 6, 9 

Offers in compromise 40 

Protested tax cases, receipt and disposal of 29 

Refunds, number and amount 37 

Returns examined, number of 16 

Returns filed, number of 10 

Revenue Rulings, publication of 49 

Tax liability, changes in 33, 36 

Tax rulings and technical advice processed, requests for 47 

Enforcement. (See Alcohol and tobacco taxes, Audit, Office of Chief Counsel, 

and Intelligence Division.) 

Engineering issues: 

Advice, technical, requests for 47 

Revenue Rulings, publication of 49 

Enrollment and disbarment: 

Case statistics 72 

Investigations, fraud 16, 19 

Practitioners, policy statement on uniform treatment of 71 

Estate and gift taxes: 

Collections, total: 

By regions, districts, States, and Territories 79 

Combined taxes 5 

Comparison: 

2-year period 5, 96 

1940-1956 99 

Increase in 5, 10 

Quarterly 94 

Offers in compromise 41 

Receipt and disposal of tax cases: 

Nondocketed, comparison, 10-year period 120 

Pre-90-day and statutory notice 118 

Protested and petitioned, comparison, 2-year period 27 

Refunds, number and amount 37 

Returns examined, number of 16 

Returns filed, number of 10 

Revenue Rulings, publication of 49 

Tax cases, not before the Tax Court 118 

Tax Court cases: 

Receipt and disposal of: 

Petitioned, comparison, 2-year period 27 

Status, fiscal year 1956 120 

Index 

Estate and gift taxes—Continued 

Tax Court cases—Continued 

Results obtained: 

By stipulation 

Closures, total for fiscal year 

Comparison, 1947-1956 

Tax liability, changes in 

Tax rulings and technical advice, requests processed 

Excess profits tax. (See Appellate Division.) 

Excise taxes: 

Collections, total: 

Combined taxes 

Manufacturers: 

By region, districts, States, or Territories 

Comparison: 

2-year period 

1940-1956 

Quarterly 

Miscellaneous: 

By regions, districts, States, and Territories 

Comparison, 2-year period 

Quarterly 

Retailers: 

By regions, district, States and Territories 

Comparison, 2-year period 

Quarterly 

Criminal action, results of 

Offers in compromise 

Increase in 

Cases, tax, protested, receipt and disposal of 

Refunds, number and amount 

Returns examination implemented 

Returns examined, number of 

Returns filed, number of 

Revenue Rulings, publication of 

Revision of 

Tax rulings and technical advice, requests processed 

Expenditures, analysis of 

Farmer : 

Gasoline tax refund bill 

Self-employment tax 

Federal Alcohol Administrations Act 

Federal Bureau of Investigation 

Federal Insurance Contributions Act 

Federal Unemployment Tax Act 

Firearms Acts, National and Federal: 

Investigations 

Revenue Rulings, number published 

Stamps, tax, number issued 

Foreign officials, tax law study 

Forms: 

Consolidation and simplification 

Printing, cost of 

Tax returns program 

General Accounting Office 

Government Printing Office 

Health, Education and Welfare, Department of 

Highway Act of 1956 

133 

Page 

119 

121 

120 

36 

47 

7 

86 

97 

99 

95 

88 

98 

95 

88 

98 

95 

22 

41 

5 

29 

37 

15 

16 

10 

49 

60 

47 

71 

13 

6, 9 

42, 105 

63 

6, 9 

7 

19 

49 

114 

59 

68 

127 

9, 46 

62 

70 

73 

47 

404408-57-10 
134 Commissioner of Internal Revenue Annual Report 

Income and profits taxes: 

Collections, total: Page 

By regions, districts, States, and Territories 78 

Comparison: 

2-year period 5, 96 

1940-1956 99 

Increase in 5, 6 

Quarterly 94 

Compromise cases, 10-year period 120 

Criminal action, results of 22 

Enforcement efforts, results of 36 

Individual income, excessive prepayment of 37 

Conventions, international 58 

Increase in, percentage and reasons for 5 

Postponed filing date 10 

Refunds, number and amount 37 

Refunds, claims for 39 

Returns examined, number of 16 

Returns filed, number of 10 

Revenue Rulings, publication of 49 

Service centers, returns processed in 13 

Tax cases: 

Not before the Tax Court, results of 118 

Receipt and disposal of: 

Nondocketed, comparison, 10-year period 120 

Pre-90-day and statutory notice 118 

Protested and petitioned, comparison, 2-year period 27 

Tax Court cases: 

Receipt and disposal of: 

Comparison, 10-year period 120 

Petitioned, comparison, 2-year period 27 

Status, fiscal year 1956 120 

Results obtained: 

By stipulation 119 

Closures, total for fiscal year 121 

Comparison, 1947-1956 120 

Tax liability, changes in 33, 36 

Tax rulings and technical advice, requests processed 47 

Informers, claims for rewards 20 

Inspection (see also Security, internal; Audit, internal): 

Investigations, Federal tort claims transferred to 63 

Obligations incurred, by class 71 

Reports, direct issuance by Regional Inspectors 61 

Intelligence Division, fraud investigations: 

Cases completed, 2-year period comparison 19 

Cases, nonprosecution, post review of 17 

Conferences instituted, Regional-National Office 17 

Criminal prosecution, cases involving 21 

Management techniques issued 17 

Obligations incurred, by class 71 

Personnel, investigative, results from increase in 17 

Prosecution cases, control measures adopted 17 

Violations, wagering and gaming 17 

International Operations Division: 

Posts, foreign, established 58 

Returns centralized, foreign and overseas addresses 58 

Internal audit (See Audit, internal.) 

Internal revenue. (See Collections.) 

Index 13! 

Pag 

Joint Committee on Internal Revenue Taxation, review of overassessments 3 

Justice, Department of 17, 2 

Management improvements: 

Cooperation, closer, between field and Operations 

Form 1040A and other forms, modification of 

Quotas, production, abolished 

Research program accelerated 

Taxes, payroll, effort to simplify 

Taxpayer assistance program revised 

Net worth method 2 

Offers in compromise: 

Cases disposed of, comparison 2-year period 4 

Cases, receipt and disposal of 12 

Decrease in backlog, reasons for 4 

Regional Counsel, decentralization continued 5 

Old-age insurance: 

Collections, total: 

• Comparison, 2-year period 5, 9 

Increase in, reasons for 

Quarterly 

Refunds, number and amount 

Returns filed, number of 1 

Organizations, exempt, determination letters 4 

Overassessments and overpayments (see also Refunds): 

Carryback adjustments received and disposed of 

Refunds and credits exceeding $100,000 3 

Personnel (see also Security, internal): 

Enforcement: 

On rolls, total number 

Guides, classification, development of 

Technical, revision of qualification standards for 6 

Total, comparison, 2-year period 

Printing and publication: 

Forms packages, income tax 

Procedures, purchasing, revised 

Stamp, cigarette tax, new design a saving 70, 7 

Property utilization program 

Publication program, technical (see also Regulations, internal revenue): 

Internal Revenue Bulletin; number of Revenue Rulings published: 

Comparison, 3-year period 4 

Decline in number 

Public laws, factor in issuing regulations 

Puerto Rico, manufactured products, tax on 

Railroad Retirement Tax Act: 

Collections, total: 

By region, districts, States, and Territories 

Comparison, 2-year period . 5, S 

Increase in 

Quarterly 

Refunds, including interest 

Records, retirement of inactive 

Recruitment, revenue agents 

Refunds, internal revenue: 

Claims for 

Gasoline for farm use, tax 

Income tax, excessive prepayment of individual 

7 

 46, 7 

7 

7 

7 

 52, 7 

9 

3 

3 

6 

4 

4 

1( 
136 Commissioner of Internal Revenue Annual Report 

Refunds, internal revenue—Continued Page 

Number and amount 36 

Stamps, tax, redemption of 36 

Regional Counsel, civil advisory matters 50 

Regulations, internal revenue: 

Number published during year 45 

Public laws, important factor in issuing 45 

Revision program nearer completion 45 

Treasury Decisions published in pamphlet form 45, 49 

Returns, tax: 

Cigar, beer, and wine stamps changed to 9, 73 

Delinquent: 

Audit of 33 

Number secured, increase in 26 

Errors, mathematical: 

Comparison, number verified, 2-year period 14 

Percentage checked and amount of tax changes 13 

Reason for increase in number checked for 13 

Handling and storing, improved 69 

Number filed: 

Comparison, 2-year period • 10 

Increase, percentage of 9 

Processing, service:centers: 

Expansion plans 13 

Information documents processed 14 

Operations performed 13 

Tabulating machine program 10 

Revenue Act of 1950 6 

Rulings, tax, and technical advice: 

Requests, number of: 

By subject 47 

Total processed 47 

Safety campaign and awards 69 

Self-employment taxes 5, 6, 9 

Service centers (see also Returns, tax), space for 69 

Security, internal: 

Case designation change 62 

Handbook, instructional 62 

Increase, case production 62 

Inspections periodic, by Treasury Department 63 

Investigations: 

Federal tort claims 63 

Personnel statistics 64 

Small Business Administration 55 

Social Security Amendments of 1954 45 

Space, consolidation and improvement of 69 

Stamp taxes: 

Cigarette tax stamp redesigned 70, 73 

Collections, total: 

By regions, districts, States, and Territories 84 

Comparison, 2-year period 97 

Quarterly 94 

Liquor, wholesale 42 

Redemptions, stamp 36 

Return system, beer and wine changed to 9 

Special-taxpayers, total number 115 

Special-tax stamp purchases by region and district 112 

Index 137 

Fag. 

Supplemental Appropriation Act of 1955 6l 

Supreme Court of the United States. (See Courts; Appellate Division; Chief 

Counsel, Office of.) 

Tax conventions and protocols 58, 5! 

Tax Court of the United States. (See Courts; Appellate Division; Chief Counsel, 

Office of.) 

Taxpayers abroad 57, 51 

Taxpayer assistance: 

News releases, spot announcements and:slides 

Publication program 5! 

Self and group:help expanded 5: 

Student, civic, and business group instruction 5' 

Telephone question-answering service expanded 5: 

Tax Rate Extension Act of 1956 61 

Technical assistance, legislative enactments: 

Tax committees of Congress 61 

Treasury Decisions 61 

Technical, obligations incurred, by class, total 7 

Tobacco tax. (See Alcohol and tobacco tax.) 

Training: 

Advanced Training Center discontinued 

Executive and supervisory development programs undertaken 6' 

Revenue agents, committee studying program for 6: 

Treasury Law Enforcement School 6 

Treasury, Department of 17, 24, 63, 7 

Unemployment insurance: 

Total collections: 

By regions, districts, States, and Territories 7 

Comparison, 2-year period 5, 9 

Quarterly 9 

Refunds, number and amount 3 

Returns filed, number of 1. 

Wagering tax: 

Collections, total 93, 95, 9. 

Criminal action, indictments and results of 2 

Criminal prosecution, results of 2 

Investigations, number of 1 

Ways and Means Committee, tax bill consideration 6 

Withholding 5, 6, 3 

J. S. GOVERNMENT PIIINTSNG OFFICE:1957