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Summary and Transmittal 

TREASURY DEPARTMENT 

OFFICE OF THE COMMISSIONER OF INTERNAL REVENUE 

Washington, D.0 ., September 28, 1960. 

DEAR MR. SECRETARY : 

The Internal Revenue Service in the last year has, I believe, 

crossed the threshold into a new era of major improvements in enforcement and processing. 

It was a period during which our "Long-Range Plan" for achieving these goals was developed so thoroughly that the executive and 

legislative authorities were convinced of the necessity and practicality of the plans and approved the necessary budget for the first, 

year implementation. 

As a result, a program for installing automatic data processing 

systems advanced to the point where (1) Martinsburg, West 

Virginia, was selected for the National Computer Center, (2) the 

Atlanta Region was chosen to conduct a pilot operation, (3) a selection of electronic equipment was made after analysis of proposals from the leading manufacturers, (4) drafting of procedures began, and (5) the selection and training of specialized personnel started. Actual installation should begin sometime next 

year and actual pilot operations can be expected early in 1962. 

Simultaneously, several hundred additional revenue agents, 

revenue officers, and other enforcement personnel were recruited 

as a part of the plan to expand enforcement facilities to keep pace 

with electronic processing—especially, to assure that the Service 

will be in a position to make use of the data and follow up the leads 

which should flow from the ADP system. 

While these important new plans for the future were being developed, the Service compiled an enviable record of accomplishments in its regular activities. Collections were the highest in history. Audit examinations were increased, resulting in the highest 

amount of additional assessments ever produced from enforcement activities. Increased effectiveness of the delinquent account 

collection work caused inventories of delinquent accounts to be 

substantially reduced and, at the same time, freed personnel for a 

larger and more successful campaign to obtain delinquent returns. 

iii 
DANA LATHAM, 

Commissioner 

of Internal Revenue. 

HON. ROBERT B. ANDERSON, 

Secretary of the Treasury. 

iv Summary and Transmittal 

The detailed record of the Service's various activities is contained in the attached annual report. Contents 

Summary and transmittal 

Commissioners of Internal Revenue 

Principal officers of the Internal Revenue Service 

Map of Internal Revenue regions and districts 

Chart of Internal Revenue Service organization 

REPORT ON OPERATIONS 

Page 

iii 

ix 

ix 

xii 

xiii 

Internal revenue collections and refunds 3 

General 3 

Corporation income taxes 4 

Individual income taxes 4 

Employment taxes 4 

Other internal revenue collections 4 

Internal revenue refunds 6 

Interpretation and communication of tax law to taxpayers 7 

General 7 

Regulations program 7 

Tax rulings and determination letters 11 

Tax return forms program 15 

Taxpayer publications 18 

Public information program 21 

Taxpayer assistance program 23 

Receipt and processing of returns and related documents 26 

Number of returns filed 26 

Information returns 29 

Service center functions 29 

Refunds covering excessive prepayments 29 

Carryback allowances 30 

Plans for automatic data processing 31 

Enforcement activities 33 

General 33 

Mathematical verification 33 

Audit of returns 34 
vi Contents ■ 

Contents vii 

Enforcement activities—Continued Page STATISTICAL TABLES 

Appeals 

Overassessments reported to Joint Committee 

38 

42 Internal Revenue Collections 

Civil litigation 42 Table Page 

Delinquency investigations and delinquent returns 49 1. Internal revenue collections by sources and by internal 

Fraud investigations 50 revenue regions, districts, States, and other areas 108 

Alcohol and tobacco tax enforcement 51 2. Internal revenue collections by sources and by quarters.. 124 

Firearms program 55 3. Internal revenue collections by sources 126 

Cases involving criminal prosecution 56 4. Internal revenue collections by principal sources, fiscal 

Federal-State cooperation 58 years 1940-1960 129 

International operations 59 5. Number of returns filed by internal revenue regions, disInformants' rewards 60 tricts, States, and other areas 132 

Summary of additional tax from enforcement 61 6. Internal revenue tax collected in Puerto Rico on manuCollection of delinquent accounts 63 factured products coming into the United States, by 

Offers in compromise 66 objects of taxation 134 

Civil advisory legal services 

Supervision of the alcohol and tobacco industries 

67 

69 Alcohol and Tobacco Taxes 

General 69 7. Establishments qualified to engage in the production, disAuthorization of industry operations 69 tribution, storage, or use of alcohol and alcoholic liquors. 135 

On-premises supervision 71 8. Establishments qualified to engage in the production or 

Inspection of establishments 72 distribution of tobacco products 135 

Chemical analyses and research 73 9. Permits relating to distilled spirits under chapter 51, InLegislative developments 74 ternal Revenue Code, 1954 136 

Legislative preparations 74 10. Permits for operations relating to alcoholic beverages under 

Legislation enacted 75 the Federal Alcohol Administration Act 137 

Tax conventions 77 11. Permits relating to tobacco under chapter 52, Internal 

Management activities 78 Revenue Code, 1954 138 

Major administrative improvements and policy changes. 78 12. Label activity under Federal Alcohol Administration Act. 139 

Personnel 82 Stamp Taxes 

Training 86 13. Number of occupational tax stamps issued, covering fiscal 

Operating facilities 88 year 1960, or portion thereof, by class of tax and by 

Fiscal management 93 internal revenue regions, districts, and States 140 

Long-range planning 

Current research program 

94 

95 Cases Receiving Appellate Consideration 

Coordinated evaluation program 95 or in Litigation 

Advisory Group 96 14. Appellate Division processing of protested income, profits, 

Internal controls 97 estate, and gift tax cases prior to ,issuance of statutory 

Statistical reporting 100 notice of deficiency (pre-90-day cases) 148 

Enrollment of practitioners 103 15. Appellate Division processing of protested income, profits, 

Assistance to foreign tax officials 104 estate, and gift tax cases in which statutory notices of 

deficiency were outstanding (90-day cases) 149 

16. Appellate Division processing of income, profits, estate, 

and gift tax cases petitioned to the Tax Court (docketed 

cases) 150 
viii C ontents 

Table Page 

17. Office of Chief Counsel - -Processing of income, profits, 

estate, and gift tax cases in the Tax Court 150 

18. Office of Chief Counsel-Results obtained in income, 

profits, estate, and gift tax cases disposed of in the Tax 

Court 151 

19. Office of Chief Counsel-Processing of Tax Court cases in 

courts of appeals or in Supreme Court 151 

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

courts 152 

21. Office of Chief Counsel-Civil tax cases decided by the 

courts of appeals and Supreme Court 152 

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

collection, erroneous refund, subpena, summons, and 

injunction cases 153 

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

insolvency and debtor proceedings 153 

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

lien cases and noncourt civil advisory cases 153 

Cost of Administration 

25. Obligations incurred by the Internal Revenue Service . . . . 154 

26. Quantities of tax forms prepared and cost of printing 156 

INDEX 

Principal Officers ix 

COMMISSIONERS OF INTERNAL REVENUE 

Name I State 

Service 

From- ToGeorge S. Boutwell 

Joseph J. Lewis 

William Orton 

Edward A. Rollins 

Columbus Delano 

Alfred Pleasonton 

John W. Douglass 

Daniel D. Pratt 

Green B. Raum 

Walter Evans 

Joseph S. Miller 

John W. Mason 

Joseph S. Miller 

W. St. John Forman 

Nathan B. Scott 

George W. Wilson 

John W. Yerkes 

John G. Capers 

Royal E. Cabell 

William H. Osborn 

Daniel C. Roper 

William M. Williams 

David H. Blair 

Robert H. Lucas 

David Burnet 

Guy T. Helvering 

Robert E. Hannegan 

Joseph D. Nunan, Jr 

George J. Schoeneman 

John B. Dunlap 

T. Coleman Andrews 

Russell C. Harrington 

Dana Latham 

Massachusetts 

Pennsylvania 

New York 

New Hampshire 

Ohio 

New York 

Pennsylvania 

Indiana 

Illinois 

Kentucky 

West Virginia 

do 

do 

Illinois 

West Virginia 

Ohio 

Kentucky 

South Carolina 

Virginia 

North Carolina 

South Carolina 

Alabama 

North Carolina 

Kentucky 

Ohio 

Kansas 

Missouri 

New York 

Rhode Island 

Texas 

Virginia 

Rhode Island 

California 

July 

Mar. 

July 

Nov. 

Mar. 

Jan. 

Aug. 

May 

Aug. 

May 

Mar. 

Mar. 

Apr. 

Nov. 

Jan. 

Mar. 

Dec. 

June 

Sept. 

Apr. 

Sept. 

Apr. 

May 

June 

Aug. 

June 

Oct. 

Mar. 

July 

Aug. 

Feb. 

Dec. 

Nov. 

17, 1862 

18, 1863 

1, 1865 

1, 1865 

11, 1869 

3, 1871 

9, 1871 

15, 1875 

2, 1876 

21, 1883 

20, 1885 

21, 1889 

19, 1893 

27, 1896 

1, 1898 

I, 1899 

20, 1900 

5, 1907 

1, 1909 

28, 1913 

26, 1917 

I, 1920 

27, 1921 

1, 1929 

20, 1930 

6, 1933 

9. 1943 

1, 1944 

1, 1947 

I, 1951 

4, 1953 

5, 1955 

5, 1958 

Mar. 

June 

Oct. 

Mar. 

Jan. 

Aug. 

May 

July 

Apr. 

Mar. 

Mar. 

Apr. 

Nov. 

Dec. 

Feb. 

Nov. 

Apr. 

Aug. 

Apr. 

Sept. 

Mar. 

Apr. 

May 

Aug. 

May 

Oct. 

Jan. 

June 

July 

Nov. 

Oct. 

Sept. 

4, 1863 

30, 1865 

31. 1865 

10, 1869 

2, 1871 

8, 1871 

14, 1875 

31, 1876 

30, 1883 

19, 1885 

20. 1889 

18, 1893 

26, 1896 

31, 1897 

28, 1899 

27, 1900 

30, 1907 

31, 1909 

27, 1913 

25, 1917 

31, 1920 

11, 1921 

31, 1929 

15, 1930 

15, 1933 

8, 1943 

22. 1944 

30, 1947 

31, 1951 

18, 1952 

31, 1955 

30, 1958 

Inspection 

Assistant Commissioner Vernon D. Acree, Jr. Division Directors: 

Internal Audit Francis I. Geibel Internal Security William A. Kolar 

Operations 

Assistant Commissioner William H. Loeb Executive Assistant to Assistant Commissioner Arthur H. Klotz Division Directors: 

Alcohol and Tobacco Tax Dwight E. Avis Collection Robert L. Jack Appellate H J Donnelly, Jr. Intelligence H Alan Long Audit J B. Sefert International Operations Dean J. Barron 

Note.-Office of Commissioner of Internal Revenue created by act of Congress, July 1, 1862. 

157 In addition, the following were Acting Commissioners during periods of time when there was no Commissioner holding 

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

May 1 to May 10, 1883; John J. Knox, of Minnesota, from 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, from May 15 to June 5, 1933; Harold N. Graves, of Illinois, from Jan. 23 

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

from Ja n. 20 to Feb. 3, 1953; and 0. Gordon Delk, of Virginia, from Nov. 1 to Dec. 5, 1955, and from Oct. 1 to Nov. 4, 1958. 

PRINCIPAL OFFICERS OF THE INTERNAL REVENUE 

SERVICE AS OF JUNE 30, 1960 

NATIONAL OFFICERS 

Office of the Commissioner 

Commissioner 

Deputy Commissioner Dana Latham 

Charles I. Fox Administrative Assistant to the Commissioner Wilber A. Gallahan 

Division Directors: 

Operating Facilities Bruce McNair Training Edwin N. Montague Personnel Amos N. Latham, Jr. 

Fiscal Management Officer 

Technical Adviser to the Commissioner Gray W. Hume, Jr. 

Leo Speer Director, Public Information Division 

Director, Reports Division Lawrence George 

Harry K. Dellinger 

xii Regions and Districts Service 
Report on Operation 
INTERNAL REVENUE 

COLLECTIONS AND REFUNDS 

NOTES 

All yearly data are on a fiscal 

year basis, unless otherwise specified. 

For example, data headed "1960" pertain to the fiscal year ended June 30, 

1960, and "July 1" inventory items 

under this heading reflect inventories as of July 1, 1959. 

In many tables and charts, figures 

have been rounded and therefore will 

not necessarily add to the printed 

totals which are based on unrounded 

figures. 

General 

Internal revenue collections amounted to $91,774,803,000 in the 

fiscal year 1960, the highest total in history. This represents an 

increase of $11,976,830,000, or 15 percent, over the $79,797,973,000 

collected in fiscal year 1959. 

All major classes of tax contributed to the overall increase. 

Income taxes of all types rose $8,298,872,000, or 14 percent. Employment tax collections increased by $2,304,845,000, or 26 percent. 

Amounts collected from excise taxes in 1960 exceeded the amounts 

collected in 1959 by $1,105,192,000, or 10 percent. Estate and gift 

taxes rose by $273,366,000, or 20 percent. 

A comparison of collections by major categories follows : 

Internal revenue collections 

[In thousands of dollars. For details, see table 3, p. 1261 

1960 1959 

Grand total 

triconataxes, total 

Corporation 

Individual, total 

Withheld by employers a 

Other 2 

Employment taxes, total 

Old-age and disability insurance 2 

Unemployment insurance 

Railroad retirement 

Estate and gift taxes 

Excise taxes, total 

Alcohol taxes 

Tobacco taxes 

Other excise taxes 

Taxes not otherwise classified 3 

Note.-Calendar year figures by regions, districts, States, and other areas, for selected types of taxes, may be obtained 

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

I Collections are adjusted to exclude amounts transferred to the Government of Guam. For details, see table 1, p.108, 

and footnote 5, p. 130. 

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

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

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

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

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

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

estimates from the combined totals reported. 

Includes amount of unidentified and excess collections. 

Source 

91, 774,803 79, 797,973 

67, 125, 126 58, 826,254 

22, 179,414 18,091, 509 

44, 945, 711 40,734, 744 

31, 674, 588 29,001, 375 

13,271, 124 11,733, 369 

II, 158, 589 8, 853, 744 

10, 210.550 8, 004,355 

341. 108 324, 020 

606,931 525,369 

1,626, 348 1,352, 982 

II, 864, 741 10,759, 549 

3,193, 714 3,002, 096 

1, 931, 504 1, 806, 816 

6, 739, 522 5, 950, 637 

5,444 

564655 0 - 60 - 2 

3 

B Annual Report 

Internal Revenue Refunds 

Refunds of internal revenue increased slightly during 1960 in 

both number and dollar amount. The number of refunds totaled 

38,011,000 compared with 37,580,000 in 1959. The aggregate 

amount refunded, including interest, was $5,293,571,000 compared 

with $5,156,969,000 in 1959. 

The major portion of internal revenue refunds consists of individual income tax refunds resulting from excessive prepayments. 

During 1960, refunds of this type numbered 35,591,000 and 

amounted to $4,163,835,000, including interest, compared with 

35,073,000 refunds totaling $3,956,326,000, issued in 1959. 

The amount of interest allowed on refunds increased by $6,958,-

000, or 10 percent, from $69,480,000 in 1959 to $76,438,000 in 1960. 

The largest increase was in interest allowed on refunds of corporation income and profits taxes resulting from regular audit and 

from excessive prepayments, but this was offset by a decrease in 

interest allowed on refunds of individual income and employment 

taxes. 

Included in the refunds of manufacturers' and retailers' excise 

taxes were 1,426,000 gasoline tax refunds made to farmers, transit 

systems, and users of nonhighway vehicles, which aggregated approximately $106,300,000, an increase of about 7 percent over 1959. 

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

of refunds and interest allowed during the last 2 years. 

Internal revenue refunds, including interest 

Type of tax 

Number 

Amount refunded 

(principal and interest-thousand dollars) 

Amount of interest 

included thousand 

doll rs) 

1960 1959 1960 1959 1960 1959 

Total refunds of internal revenue I __ 

Corporation income and profits taxes 

Individual income and employment taxes, 

total 

Excessive prepayment income tax 

Other income tax and old-age and disability insurance 

Railroad retirement 

Unemployment insuranceEstate tax 

Gift tax 

Excise taxes, total 

Alcohol taxes 3 

Tobacco taxes 3 

Manufacturers' and retailers' excisetaxes. 

All other excise taxes I 

Not otherwise classified 

238, 011, 214 37, 579, 642 25,293,571 5, 156, 969 76,438 69, 480 

93, 305 

4 36, 442, 618 

96,577 

36, 032, 736 

740,276 

4,339.812 

829, 083 

4,122,110 

54. 939 

17,595 

46,617 

19,108 

2 35, 590, 900 

837, 024 

69 

14,625 

35, 073, 009 

930,098 

158 

29, 471 

'4,163,835 

173, 351 

66 

2,561 

3.956,326 

162,203 

149 

3.431 

6,918 

10,614 

2 

62 

6,569 

12, 449 

21 

68 

4,947 

581 

1, 459. 043 

4,730 

590 

I, 435, 535 

20, 954 

1,609 

189,941 

21, 827 

806 

182, 366 

2,233 

125 

1,499 

2,487 

73 

1,096 

11,652 

1.847 

1, 429, 686 

15,858 

8,888 

2,063 

I, 410. 033 

14,551 

67.210 

4,894 

111,174 

6,663 

63,716 

8,446 

102, 703 

7.502 

3 

( 4 ) 

709 

786 

4 

374 

718 

10, 720 9,474 978 777 47 99 

•Less than $500. 

Figures have not been reduced to retie t reimbursem nts from the Federal Old age and Survivors Insu ante Trust 

Fund, amounting to $89,190,000 in 1960 and $83,430,000 in 1959, and tram the Highway Trust Fund, amounting to 6109,357.000 

in 1960 and $96,900,000 in 1959. 

2 Net of 80,435 undeliverable checks totaling $4,309,000. 

Includes drawbacks and stamp redemptions. 

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

INTERPRETATION AND 

COMMUNICATION OF TAX LAW 

TO TAXPAYERS 

General 

One of the primary functions of the Service is to prepare and 

distribute the basic regulations, rules, tax forms, and instructions 

needed by taxpayers in discharging their duties and exercising 

their rights under the internal revenue laws. To aid taxpayers in 

obtaining a clear understanding of their rights and responsibilities, 

a series of tax guides is also published and information is disseminated through the various news media. Additional assistance 

needed by taxpayers in the preparation of their returns is provided 

at district and local offices. 

Regulations Program 

General.-Enactment of the Life Insurance Company Income 

Tax Act of 1959 (P.L. 86-69) , and the act relating to manufacturers' excise tax on bicycle tires and tubes (Pt. 86-418) , required the issuance during the fiscal year of temporary regulations to permit taxpayers to make the elections, conclude necessary 

business transactions, etc. These temporary regulations were the 

subject of four Treasury Decisions that were published within a 

few weeks of the enactment of the laws. 

Two major regulations under the 1954 Code were completed during the fiscal year, bringing the total of completed major tax regulations to six. The two new regulations completed are : 

Regulations Relating to Miscellaneous Excise Taxes Payable by Return 

( T.D. 6461 ) to supersede Regulations 1, 48, and 99. 

Employment Tax Regulations (T.D.'s 6190, 6199, 6200, 6259, 6354, and 

6472) to supersede Regulations 107, 114, 120, and 128. 

In all, 59 Treasury Decisions, 4 Executive Orders, and 41 notices 

of proposed rulemaking were published during the fiscal year (not 

including those covering alcohol and tobacco taxes, described on 

7 
8 Annual Report 

pp. 9 and 10) . In addition to the temporary regulations and the 

new complete regulations noted above, some of the more important 

regulations published are as follows: 

Manufacturers and Retailers Excise Tax Regulations under sections 4111, 

4121, and 4131 of the Code. These regulations published in the Federal 

Register for October 30, 1959, as Treasury Decision 6423, provide the 

regulations relating to the excise tax on refrigeration equipment, electric, gas, and oil appliances, and electric light bulbs. They provide a 

new concept for determining whether air conditioners shall be taxable as a household type unit. 

Income Tax Regulations under sections 1371 through 1377, 442, and 

6037 of the Code, relating to small business corporations. These regulations published in the Federal Register for December 19, 1959, as 

Treasury Decision 6432, provide the manner in which certain small 

business corporations may elect to be treated as partnerships instead 

of corporations for tax purposes. 

Income Tax Regulations under section 162 of the Code, relating to lobbying expenditures. These regulations published in the Federal Register 

for December 29, 1959, as Treasury Decision 6435, provide the manner 

for determining whether certain expenditures were for lobbying purposes, and thus not allowable as a deduction for tax purposes. 

Income Tax Regulations under section 6081 of the Code, relating to extension of time for filing returns. These regulations published in the 

Federal Register for December 31, 1959, as Treasury Decision 6436, 

provide that taxpayers seeking an extension of time for filing Form 

1040 or Form 1040W must furnish the Service with certain information. 

Income Tax Regulations under sections 611, 612, 613, 615, 616, and 621 

of the Code, relating to natural resources. These regulations published in the Federal Register for January 21, 1960, as Treasury Decision 6446, concern depletion deduction in the case of mines, oil and 

gas wells, and other natural resources. 

Sixteen public hearings on the provisions of proposed regulations 

were held in accordance with the provisions of the Administrative 

Procedure Act. Approximately 500 taxpayers or their representatives participated in these public hearings. 

During the fiscal year plans were formulated, and a considerable 

amount of the work was accomplished, to republish in one document various regulations that were issued on a piecemeal basis. 

These include the income tax regulations, the employment tax regulations, and the regulations on procedure and administration. 

Alcohol and tobacco taxes.-The regulations revision program 

begun in 1959 and completed in 1960 was the most extensive and 

significant in the history of alcohol and tobacco taxes. 

Report on Operations 9 

Public Law 85-859, enacted September 2, 1958, incorporated 

Revenue Service recommendations for modernization of the distilled spirits provisions of the Internal Revenue Code, together 

with minor revisions in the wine and beer statutes. By June 30, 

1960, the regulatory program necessitated by Public Law 85-859, 

as it relates to the liquor industry, had been completed. The responsibility of proprietors for the proper conduct and control of 

their operations has been recognized and the conduct of operations 

and utilization of facilities have been made subject only to such 

controls as are reasonably necessary to protect the Government's 

interest. 

One new regulation, 26 CFR Part 201, "Distilled Spirits Plants," 

and 14 Treasury Decisions were issued, effective July 1, 1959, to 

implement the mandatory provisions of Public Law 85-859 which 

were effective on that date, and to provide for the orderly transition from then existing nine different establishments to a single 

distilled spirits plant. During fiscal year 1960 the regulatory program, under Public Law 85-859, was completed. Two new regulations were issued, three regulations were reissued, and seven regulations were amended, comprised as follows : 

NEW REGULATIONS 

26 CFR Part 211, "Distribution and Use of Denatured Alcohol and Rum," 

26 CFR Part 213, "Distribution and Use of Tax-Free Alcohol," 

REISSUED REGULATIONS 

26 CFR Part 194, "Liquor Dealers," 

26 CFR Part 201, "Distilled Spirits Plants," 

26 CFR Part 252, "Exportation of Liquors," 

AMENDED REGULATIONS 

26 CFR Part 175, "Traffic in Containers of Distilled Spirits," amended 

by Treasury Decision 6471, 

26 CFR Part 186, "Gauging Manual," amended by Treasury Decision 

6467, 

26 CFR Part 212, "Formulas for Denatured Alcohol," amended by Treasury Decision 6474, 

26 CFR Part 240, "Wine," amended by Treasury Decision 6475, 

26 CFR Part 245, "Beer," amended by Treasury Decision 6473, 

26 CFR Part 260, "Liquors and Articles From Puerto Rico and the Virgin 

Islands," amended by Treasury Decision 6478, 

26 CFR Part 261, "Importation of Distilled Spirits, Wines, and Beer," 

amended by Treasury Decision 6477. 

Nine regulations were superseded by the above new regulations 

and Treasury Decisions to become effective on July 1, 1960. A total 

of 19 regulations, issued under the Internal Revenue Code, now re- 
10 Annual Report 

lath to the permissive activities of the liquor industry. This regulatory program necessitated numerous changes in forms : 57 forms 

were revised, 25 new forms were developed, and 85 forms were 

eliminated. Simplification of forms and reduction of paperwork 

were the primary objectives of the forms program. 

Pursuant to public hearings held to consider amendments to 

Regulations No. 4, Relating to Labeling and Advertising of Wine 

(27 CFR Part 4), and Regulations No. 5, Relating to Labeling and 

Advertising of Distilled Spirits (27 CFR Part 5), Treasury Decisions 6409, 6410, and 6411 were issued during the fiscal year. 

Subsequent to an earlier amendment of Regulations No. 4, giving 

the Service authority to require certificates of origin and identity 

(T.D. 6319 issued October 4, 1958) , wines from the following countries have been covered by the compulsory certification system : 

(1) France (wines containing 14 percent or less alcohol by volume) , 

(2) Spain (Riojo wines), (3) Germany (all wines), and (4) 

Hungary (all wines). 

New tobacco export regulations in 26 CFR Part 290 were issued, 

to become effective July 1, 1960. These regulations implement the 

1954 Code, as amended by the Excise Tax Technical Changes Act 

of 1958. They combine in one part the regulations relating to the 

exportation (including supplies for vessels and aircraft) of tobacco 

materials, tobacco products, and cigarette papers and tubes, without payment of tax ; the qualification of, and operations by, export 

warehouse proprietors ; and the allowance of drawback on taxpaid 

tobacco products and cigarette papers and tubes exported. On May 

20, 1960, the cigarette papers and tubes regulations in 26 CFR Part 

285 were published as a notice of proposed rulemaking. These 

proposed regulations relate to the manufacture, importation, and 

removal of cigarette papers and tubes ; implement the 1954 Code, 

as amended by the Excise Tax Technical Changes Act of 1958 ; and 

supersede 26 CFR (1939) Part 140, Subpart N. 

Treasury Decisions of major import issued during the year in 

the tobacco tax area includeT.D. 6424, effective January 1, 1960, and T.D. 6457, effective June 1, 1960, 

which implemented the provisions of the 1954 Code, as amended by 

section 202 of the Excise Tax Technical Changes Act of 1958 (P. L. 

85-859) with respect to tobacco materials and tobacco products. 

Report on Operatione 11 

Tax Rulings and Determination Letters 

General.—Rulings and determination letters are issued to individuals and organizations upon written request, whenever appropriate in the interests of sound tax administration, as to their 

status for tax purposes and as to the tax effects of their acts or 

transactions, prior to their filing of returns or reports as required 

by the revenue laws. 

Requests for tax rulings.—During the year, 36,595 requests from 

taxpayers for rulings and requests from field offices of the Service 

for technical advice were processed by the National Office. The 

number processed included 33,224 requests which had been received from taxpayers or their representatives and 3,371 requests 

received from field offices. At the close of the fiscal year, 8,856 

requests for rulings and technical advice were on hand to be 

processed. 

In addition to the processing of rulings and technical advice, 

15,432 formal and informal technical conferences or consultations 

were held with taxpayers or their representatives. 

An analysis of the rulings and technical advice processed, by 

subject matter, follows : 

Requests for tax rulings and technical advice processed 

Subject Total Taxpayers' 

requests 

Field 

requests 

Total 36,595 33,224 3,371 

Income and excess profits taxes 29, 122 28, 034 I, 088 

Employment and self-employment taxes I, 036 800 236 

Estate and gift taxes 807 616 191 

Alcohol and tobacco taxes 2, 111 1.053 1, 058 

Other excise taxes 2, 865 2, 223 642 

Engineering questions (depreciation, etc.) , 654 498 156 

Determination letters.—Determination letters are issued by district offices in reply to inquiries which can be answered on the 

basis of clearly established rulings and regulations. Determinations requested of district offices involving new or complex issues 

are referred to the National Office for consideration. 

District offices received 10,583 requests for determinations pertaining to the initial qualification or termination of employee benefit plans and 11,708 requests from organizations seeking to establish their exemption from Federal income taxes. Determination 

letters were issued in 9,299 cases involving employee benefit plans 

and 5,237 cases involving exempt organizations, with less than 3 

percent of the letters involving adverse determinations. The fol- 
Type 1960 1959 

Total 

Income tax 

Employment taxes 

Estate and gift taxes 

Alcohol and tobacco taxes 

Other excise taxes 

Firearms 

Engineering issues 

Administrative and miscellaneous 

459 546 

216 224 

22 21 

9 10 

58 71 

127 191 

4 4 

11 6 

12 19 

Report on Operations 13 

cipal decline was in the number of excise tax rulings published. 

These totaled 127 compared to 191 published in 1959. 

A comparison of the rulings and procedures published in 1959 

and 1960 follows : 

12 Annual Report 

lowing table provides additional details as to the type of employee 

benefit plans involved and the nature of the determinations : 

Determination letters issued on employee benefit plans and 

exempt organizations 

Item 

Employee benefit plans 

Exempt 

organizaProfit- tions 

sharing 

Pension or 

annuity 

Stock 

bonus 

Initial qualifications: 

Approved 4, 369 4, 328 30 4, 907 

Employees participating under plan 190,460 591,304 2,895 

Total number employed 609,452 1,160,948 6,647 

Disapproved 41 31 330 

Terminations 233 264 3 

Closed without issuance of determination letter 276 177 4 1,433 

Note—Since determination letters forthe initial qualification o lerminatimi o employee benefit plans are not mandatory, 

it is not possible to determine from an accumulation of these figures how many plans remain in existence. 

Under established procedure taxpayers may appeal adverse 

field determinations relating to employee benefit plans. During 

the year 31 appeals were considered by the National Office. Of 

these, 18 appeals were decided in favor of the taxpayer ; 9 decisions 

were against the taxpayer ; and 4 decisions were partially in favor 

of the taxpayer. 

Closing agreements.—Closing agreement cases involving the tax 

status of prospective transactions are considered by the Tax Rulings Division of the National Office. Two cases were received during the year and were pending at the close of the year. 

Publication of rulings and procedures.—The procedures for selecting, preparing, and processing Revenue Rulings for publication 

in the Internal Revenue Bulletin were streamlined to expedite the 

publication of significant rulings. The time required for publication has been reduced to the point where priority rulings are generally published within three or four months after their issuance. 

Preliminary work was done in the preparation of the "IndexDigest Supplement to Cumulative Bulletins 1957-1960" to be pub-. 

lished in the latter part of fiscal year 1961. Corresponding in 

format to the index-digest covering the 1953-56 Cumulative 

Bulletins, this publication will serve as a reference guide to the 

rulings, procedures, decisions, and other matters published in the 

4-year period. As in the preceding edition, the material will appear in digest form and by topical arrangement, including a listing 

of the published items by law section involved. 

The number of rulings and procedures published in the Internal 

Revenue Bulletin during 1960 decreased by 16 percent. The prinRevenue rulings and procedures published . 

Among the more significant Revenue Rulings and Procedures 

published during the year were the following: 

A real-estate board whose primary purpose or activity is the operation 

of a multiple listing system is not exempt from Federal income tax as an 

organization described in section 501(c) (6) of the Code (Rev. Rul. 

59-234, C.B. 1959-2,149). 

A stock option issued under a plan which requires the Treasury Department to assume the function of making determinations of fair market 

value for the purpose of fixing the option price does not qualify as a 

restricted stock option (Rev. Rul. 59-243, C.B. 1959-2, 123). 

Income derived from the operation of newspapers by a corporation, as purported agent, and by its corporate owners, as purported principals, is 

partly attributable to each corporation, the amounts thereof to be determined on the basis of the facts involved (Rev. Rul. 59-247, C.B. 

1959-2,14). 

A pinball machine which is so equipped that it is especially adapted for 

gambling purposes is a coin-operated gaming device per se, and evidence 

of actual payoffs is not necessary in order to hold applicable thereto 

the $250 special tax (Rev. Rul. 59-294, C.B. 1959-2, 340). 

A provision in a newly established pension plan providing for the return 

of the employer's contributions if the plan fails to qualify will not, of 

itself, prevent qualification of the plan (Rev. Rul. 59-309, C.B. 1959-2, 

117). 

A ruling was published which discusses the income, estate, and gift tax 

consequences of a transfer of property to a minor pursuant to either 

the Uniform Gifts to Minors Act or the Model Gifts of Securities to 

Minors Act (Rev. Rul. 59-357, C.B. 1959-2,212). 

Rules were set forth with respect to the withholding of income tax on 

amounts paid to and received by employees as daily transportation 

and per diem allowances to cover expenses for meals and lodging, etc., 

while working on construction and other projects in remote areas 

(Rev. Rul. 59-371, C B 1959-2, 236). 

Depreciation of construction equipment sustained by a taxpayer in erecting a capital improvement for his own use is not an allowable deduc- 
14 Annual Report 

tion but becomes a part of the cost of the capital improvement (Rev. 

Rul. 59-380, C.B. 1959-2, 87). 

The spin-off of a hotel business for stock in a new corporation is not a 

nontaxable exchange where hotel earnings were used to acquire substantial properties for the retained business during the 5-year period 

preceding the date of distribution (Rev. Rul. 59-400, C.B. 1959-2, 114). 

Telephone companies which keep their records in accordance with the uniform system of accounts prescribed by the Federal Communications 

Commission may, under certain conditions, file quarterly Federal excise tax returns reporting only "net tax due" and using estimated 

amounts in the separate categories of communication services (Rev. Rul. 

60-7, I.R.B. 1960-1, 25). 

A ruling was published to announce the position of the Internal Revenue 

Service as to the application of the doctrine of constructive receipt to 

a number of deferred compensation arrangements (Rev. Rul. 60-31, 

I.R.B. 1960-5, 17 ) . 

Claims for refund of overpayments of the so-called "collected" excise taxes 

may be filed by the "taxpayer" within 3 years after the return is filed 

by the collecting agency ( Rev. Rul. 60-58, I.R.B. 1960-6, 75). 

The Service published a ruling in which it set forth criteria and guides 

to be applied in determining the deductibility of educational expenses 

(Rev. Rul. 60-97, I.R.B. 1960-11, 9). 

Basic guides and criteria were published to announce and illustrate 

Service position on the deductibility of traveling expenses incurred by 

construction workers (Rev. Rul. 60-189, I.R.B. 1960-20, 12). 

The cost of hens and baby chicks purchased for egglaying or for raising 

and sale may be deducted in the year of payment by cash method 

farmers, provided such method is consistently followed and clearly 

reflects income (Rev. Rul. 60-191, I.R.B. 1960-20, 22). 

A licensed small-loan company will not become subject to personal holding company tax solely by reason of its adoption of a plan, authorized 

by State law, of precomputing interest on loans (Rev. Rul. 60-194, 

I.R.B. 1960-20, 26). 

The several areas of the Internal Revenue Code of 1954 in which the 

Service will not issue advance rulings and determination letters were 

described in a special Revenue Procedure published by the Service 

(Rev. Proc. 60-6, I.R.B. 1960-12, 27). 

Seventy-one Technical Information Releases were issued during 

the year, 14 of which announced the position of the Internal Revenue Service with respect to adverse court decisions having an important effect on tax administration. Among the more important 

releases issued were the following : 

The application of the retailers' excise taxes to sales of taxable articles 

for use or disposition by the purchaser as awards, premiums, prizes, 

advertising media, or for similar purposes, depends in part upon the 

nature of the seller's business ( T.I.R. 170, August 18, 1959). 

The restyling or remodeling of the cabinet or the overhauling or replacement of minor parts of a used piano does not constitute a rebuilding 

operation for purposes of the manufacturers' excise tax; however, where 

major components are replaced, the piano is considered to be rebuilt and 

Report on Operations 15 

subject to the manufacturers' excise tax on musical instruments (T.I.R. 

174, September 8, 1959). 

Amounts deposited in vending machines which dispense only merchandise 

of nominal value do not constitute amounts paid for food, refreshment, 

or merchandise for purposes of the cabaret tax, even though such vending machines are located in roof gardens, cabarets, or other similar 

places ( T.I.R. 180, September 28, 1959). 

For purposes of the depletion deduction, a deposit of sand and gravel is 

not considered a quartzite deposit; the contrary court decision in the 

case of W. R. Bonsai Company will not be followed ( T.I.R. 183, October 

26, 1959 ) . 

The simultaneous conveyance (for cash) and leaseback (for 30 years) of 

business property is considered one integrated transaction under which 

there is an exchange of like properties, with cash as boot; the contrary 

court decision in the case of Jordan Marsh Company will not be followed (T.I.R. 194, December 18, 1959). 

Three Technical Information Releases were issued to announce the steps 

being taken and the rules to be followed by the Internal Revenue Service 

in dealing with tax abuses in connection with entertainment and employee expense accounts ( T.I.R. 198, December 21, 1959; T.I.R. 204, 

January 13, 1960; T.I.R. 221, April 4, 1960). 

The Service announced that it will continue its general policy of taxing 

prepaid income in the year of receipt; the contrary court decision in the 

case of Brenner Radio, Inc., will not be followed (T.I.R. 205, January 

19, 1960 ) . 

Accrual-method taxpayers may not deduct 2 years' property taxes in any 

one calendar year merely because the State changed its laws to advance 

the assessment and lien dates from January 1 to the preceding December 31 ( T.I.R. 214, March 4, 1960). 

A Technical Information Release was issued to describe the types of situations in which aliens would be permitted to depart from the United 

States or its possessions without having to obtain certificates of compliance or "sailing permits" (T.I.R. 225, April 21, 1960). 

The Service outlined the administrative appeals procedure available to a 

taxpayer residing abroad whose return is audited by the International 

Operations Division (T.I.R. 227, May 2, 1960). 

Tax Return Forms Program 

Although legislative amendments did not play a major role in the 

tax return forms program, a number of important revisions were 

made during the year. Also, a number of new forms and documents were issued. As in prior years, numerous suggestions and 

recommendations for revising the forms and instructions were received from taxpayers, practitioners, and Service employees. In 

keeping with the Service's continuous management improvement 

program, these suggestions were carefully studied with a view toward forms simplification and betterment, and many valuable suggestions were adopted. 
16 Annual Report 

Revision of tax forms.—A total of 247 forms, instructions, and 

documents were revised or reviewed. Some of the more significant 

changes in major forms were : 

Form 1040A. U.S. Individual Income Tax Return (less than $10,000 

total income). One of several steps taken to improve the reporting 

of dividends and interest in the 1959 tax return forms was a change 

in the caption for line 6 on Form 1040A to read "Interest, dividends, 

and other wages," instead of "Other income." 

Form 1040. U.S. Individual Income Tax Return. As in the case of Form 

1040A, changes were made in Form 1040 to emphasize the necessity for 

reporting dividends and interest. A number of other improvements 

were also made, such as (1) designating the place for attaching cheeks 

or money orders (to facilitate processing), (2) requiring information 

as to the internal revenue district where unpaid Federal tax accounts 

were outstanding, and (3) mentioning specifically on the form that if 

wife (or husband) is filing a separate return, an exemption for such 

husband or wife must not be claimed. 

Form 1120. U.S. Corporation Income Tax Return. Form 1120 for tax 

year 1959 was reduced from 6 pages to 4 pages. The profit and loss 

statement was restored to page 1, and supporting schedules were placed 

on pages 2 and 3. The tax computation was placed at the end of the 

supporting schedules. The revised format resembles that used in the 

1964 and earlier corporation return forms. 

Form 1065. U.S. Partnership Return of Income. The format of the 

return for 1959 was changed in an effort to simplify the form. All 

income items were consolidated at the top of page 1 and the questions 

were placed at the bottom of the page. The depreciation schedule on 

page 3 of the return was revised to develop specific information as to 

additional first year depreciation claimed. Also, the balance sheet was 

revised so as to provide a more complete classification of items. 

Tax return forms for 1960 and subsequent years will give effect 

to new rules adopted by the Service in April 1960 for dealing with 

entertainment and employee expense accounts. More detailed reporting in respect to these items will be required on the income tax 

returns of employers (including corporations, partnerships, and 

sole proprietors) as an important step in an enforcement program 

aimed at the elimination of tax abuses in these areas. (For a description of the program, see p. 80.) 

New tax forms issued.—A number of important new tax forms 

and documents were developed and issued during the year to simplify reporting for millions of taxpayers, to implement the Service's intensive campaign on unreported interest and dividends (see 

p. 81), and to improve administration and service to taxpayers. 

Among these issuances were : 

Form 1040W. U.S. Individual Income Tax Return—Optional Short 

Form for Wages and Salary Income and Not More Than $200 of Interest and Dividends. This new form is designed for use by taxpayers 

Report on Operations 17 

whose incomes consist primarily of wages, who wish to itemize deductions, and who do not require the more detailed regular Form 1040. 

Form 2688. Application for Extension of Time To File U.S. Individual 

Income Tax Return. A form to be filed by individuals to secure an 

extension of time to file Form 1040 or Form 1040W. 

Form 2758. Application for Extension of Time To File U.S. Fiduciary 

or Partnership Return. A form to be filed by fiduciaries or partnerships to secure an extension of time to file Form 1041 or Form 1065. 

Document No. 5219, a notice to all taxpayers to include all interest and 

dividends on their returns. The Service printed and issued 42,000,000 

copies of this notice, with the cooperation of corporations, banks, and 

savings and loan and other financial institutions. These firms used 

the notices as an insertion with their own notices of payment of interest 

and dividends, and many reproduced large numbers at their own 

expense. 

Document 5219A, a special message to corporate payers of dividends and 

interest, regarding the inclusion of dividends and interest by recipients, 

and containing a specimen of Document 5219. The Service printed 

and distributed 650,000 copies of this notice. 

Document No. 5242, a notice to be mailed with Form 941, Employer's 

Quarterly Federal Tax Return, calling attention to the new punch card 

format of Form 941. 

Document No. 5244, a notice furnished taxpayers cashing Series E Savings Bonds calling attention to the taxability of interest. 

Document No. 5247, a poster reminder that interest credited to a taxpayer's account must be reported on his Federal tax return. 

Form 940. (Punch Card). Employer's Annual Federal Unemployment 

Tax Return. This is a new tabulating card format which replaced 

the old Form 940, in order to permit the machine processing of these 

returns in the service centers. 

Form 941. (Punch Card). Employer's Quarterly Federal Tax Return. 

The new tabulating card format was used exclusively beginning with 

the first quarter of 1960, replacing the old Form 941. 

Form 2687. Gasoline Floor Stocks Tax Return-1959. Following enactment of Public Law 86-342, providing for an increase of 1 cent per 

gallon in the tax on gasoline, this new form was developed. 

Distribution of tax forms.—Early distribution of all major tax 

forms to district offices this year contributed to improved taxpayer 

relations. Through rigid scheduling and excellent cooperation 

from the Government Printing Office, all major tax forms were for 

the first time made available in all district and subordinate offices 

by December 1. This, in turn, enabled the district offices to 

promptly assemble bulk orders from tax consultants, banks, and 

institutions, and to package, address, and mail or distribute them 

as completed orders without making repeated partial shipments of 

back orders. Quantities of tax forms prepared and printing costs 

involved are shown in table 26, p. 156. 

In the New York City area, the regional office centralized the distribution of tax forms and publications rather than having the job 
18 Annual Report 

done by the district offices in the area. This was done during the 

period from November through April. It allowed fuller utilization 

of temporary man-years provided for forms distribution ; reduced 

demands on New York City district offices' permanent staff in connection with receipt, storage, and issuance of tax forms ; afforded 

faster service to banks, post offices, practitioners and taxpayers ; 

and reduced by a considerable degree the number of telephone and 

in-person requests to the district offices for forms and publications. 

Taxpayer Publications 

The objectives of the Service's Taxpayer Publications Program 

are to educate taxpayers as to the requirements of the Federal tax 

laws and to provide clear, understandable, and detailed answers to 

specific problems, so as to enable taxpayers to properly compute 

their taxes with a minimum of assistance from Service personnel. 

Your Federal Income Tax, IRS Publication No. 17, is perhaps the 

best known of the Service publications, next to the return forms 

and instructions. It is a "best seller" among Government publications sold by the Superintendent of Documents. The 1960 edition 

contains 144 pages, an increase of 16 pages over the 1959 edition. 

Its price also was increased from 350 to 400. The booklet contains 

simplified nontechnical explanations and examples of thousands of 

problems confronting individual taxpayers when they prepare their 

income tax returns. The 1960 edition, in addition to explanations 

of about 160 new rules resulting from changes in law, regulations, 

and administrative rulings, also contains other improvements in 

clarity, organization, and scope of subject matter covered. The 

booklet is sold by the Superintendent of Documents, U.S. Government Printing Office, Washington 25, D.C., and by local Internal 

Revenue offices. It may also be purchased from various cooperating 

newspapers and other non-Government organizations throughout 

the country. Approximately 500,000 copies were sold in 1960. 

Tax Guide for Small Business, IRS Publication No. 334, also was 

increased in size from 128 pages to 144 pages and in price from 

350 to 400. This booklet explains and answers in plain nontechnical language most of the Federal tax problems confronting the 

small business and professional man. It contains detailed explanations of the tax results flowing from the establishment of a new 

business, the operation of a going business, and the disposition of a 

business, whether it is a sole proprietorship, a partnership, or a 

corporation. Federal income, excise, employment, self-employReport on Operations 19 

ment, and withholding taxes are explained. A tax calendar and 

a tax checklist are included, as well as a detailed subject index. 

Copies are available to the public through the same channels as 

Your Federal Income Tax. Approximately 140,000 copies were 

sold. 

Farmers' Tax Guide, IRS Publication No. 225, is a 64-page 

pamphlet directed especially to farm tax problems. Further improvements were effected in the 1960 edition as a result of suggestions received from readers, representatives of the Extension Service of the U.S. Department of Agriculture, and field personnel of 

the Internal Revenue Service. One million copies of this booklet 

were distributed free to farmers, principally through county extension agents. 

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

a 24-page booklet explaining the Federal income tax responsibilities of U.S. citizens who reside or work abroad. About 400,000 

copies of the 1960 edition were distributed through consulates and 

other Government offices to U.S. citizens abroad. 

U.S. Tax Guide for Aliens, IRS Publication No. 433, a new 27- 

page pamphlet, explains the U.S. tax status of aliens, both resident 

and nonresident. This pamphlet sets forth the distinction between resident and nonresident aliens and the tax provisions applicable to each. It also explains the basis for determining whether 

or not an alien is engaged in trade or business in the United States 

and the tax provisions applicable in either case. In addition it 

contains a general discussion of the tax-sparing provisions of U.S. 

tax treaties. Nearly 100,000 copies of this pamphlet have been 

sent to district offices and to .U.S. embassies and consulates overseas 

for free distribution. 

Other pamphlets on the taxation of aliens or nonresident U.S. 

citizens which may be obtained without charge from district offices 

or U.S. embassies and consulates are the following International 

Operations Division Information Guides : 

No. 1—Fulbright Awards and U.S. Income Tax 

No. 2—Income Tax Deductions of Members of the Foreign Service, Department of State 

No. 3—Change of Status Year for Nonresident Alien Taxpayers 

No. 4—Claims for Recovery of Manufacturer's Excise Tax on Exported 

Articles 

No. 5—Social Security Coverage for Clergymen and Religious Workers 

Abroad 

No. 6—Preparation of Form 1040B 

No. 7—Foreign Scholars and U.S. Income Tax 

584655 0-60 3 
20 Annual Report 

Motor Fuel Tax Pamphlets.—These publications were revised to 

explain the latest rules in regard to the various Federal motor fuel 

taxes. They consist of : 

Federal Tax on Motor Fuel, IRS Publication No. 349 

Federal Gasoline Tax Refund for Nonhighway and Transit Use, IRS 

Publication No. 378 

Farmer's Gasoline Tax Refund, IRS Publication No. 308 

Teaching Taxes, IRS Publications No. 19, 21, 22, and 27 comprise a series of students' handbooks, teachers' guides, and other 

training aids furnished free of charge to high schools and colleges 

for use in the "Teaching Taxes" program, described on p. 23. 

Other publications.—A total of 37 other taxpayer assistance 

documents were distributed free to taxpayers. These publications 

range in size from 2 pages to 16 pages. Their distribution ranged 

from 1,000 copies to 110,000 copies. Each publication contains a 

detailed explanation of the rules applicable to certain problem 

areas. The publications are used to answer taxpayers' inquiries on 

specific problems and they are also available upon request in district offices. They serve to expedite and increase the effectiveness 

of the Taxpayer Assistance Program during the filing period and 

to minimize the need for individual assistance to taxpayers by personnel of the Internal Revenue Service. The booklets are also 

utilized as supporting statements for adjustments proposed in 

revenue agents' reports as a result of the examination of taxpayers' 

returns. The booklets cover the 

Document 

No. 

Personal Exemptions and 

following subjects : 

Document 

No. 

Depreciation, Depletion, 

Dependents 5013 Amortization 5050 

Employee Expenses 5014 Business Expenses 5051 

Sick Pay 5016 Child Care 5052 

Selling Your House 5017 Retailers' Excise Tax___ 5054 

Retirement Income and Manufacturers' Excise 

Credit 5018 Tax 5055 

Medical and Dental Ex- Excise Tax on Communipenses 5020 cations 6056 

What Is Income 5045 Occupational Stamp 

Tax Calendar and Check Taxes 5057 

List 5046 Tax on Admissions and 

Self-Employment Tax 5047 Dues 5059 

Sales and Exchanges of Investment Income 5060 

Assets 5048 Net Operating Loss 5062 

Entertainment for Busi- Interest Deductions 6074 

ness 5049 Taxes 5075 

Report on 

Document 

No. 

Filing Your Tax Return_ 5107 

Installment and Def erredPayment Sales 5108 

Alimony 5109 

Miscellaneous Deductible 

Expenses 5110 

Tax Withholding and Estimated Tax 5111 

Casualties, Thefts, Condemnations 5174 

Operations 21 

Document 

No. 

Accounting Periods and 

Methods 5175 

Bad Debts 5176 

Withholding From Wages 

by Employer 5177 

Repairs and Improvements 5178 

Partnerships 5179 

Corporations 5180 

Sale of a Business 5181 

If Your Return Is Examined 5202 

Public Information Program 

The Service continued to carry out an active public information 

program, employing all available media. The purpose of this program is to aid taxpayer understanding of the tax laws and thus to 

facilitate compliance with the statutes and regulations. 

Work was started on a new, 27-minute, documentary color film 

which will replace an earliqr production, "Since the Beginning of 

Time." The new film will bd used for national and local telecasts 

and bookings before schools, civic groups, and luncheon clubs, as 

the earlier one was. 

More than 100 press releases were issued during the year to 

newspapers, tax services, and other news media. These press 

releases dealt with a variety of subjects. Some were in the form 

of announcements to taxpayers of new or changed policies of the 

Service, others were announcements of administrative actions, and 

still others served to report collection and enforcement activities. 

Tax calendar items were featured in releases by regional and 

district offices. 

Statistical releases reporting the highlights and availability of 

detailed statistical studies of the items shown on tax returns filed 

were also issued. 

Prior to the 1960 filing period, a complete public information 

kit was issued to field offices. This kit included releases, suggested scripts, anecdotal material, and radio and television spot 

announcements. 

A new program of providing television announcements for use 

throughout the entire year, as well as during the filing period, was 

arranged with the television networks. 
22 Annual Report Report on Operations 23 

This was the seventh consecutive year in which the Service provided students' handbooks, teachers' guides, and other teaching 

aids, free of charge, under the "Teaching Taxes" program. Over 

2,700,000 students and 66,000 teachers participated, in more than 

22,000 schools. These materials also have been used in a variety of 

educational projects, such as adult educational courses, in addition to their use in public and private high schools and colleges. 

The information program gave special attention to new or 

changed policies of the Service in two areas : the reporting of income from interest and dividends, and the reporting of expense 

account reimbursements (see pp. 80 and 81) . A series of news 

releases and statements was issued on these subjects and they were 

given special treatment in the information kit used during the 

filing period. 

Taxpayer Assistance Program 

During the filing period each year the Service provides taxpayers 

with advice and assistance in the preparation of their income tax 

returns. Aid is provided by one of three methods : individual assistance, "self-help," or telephone service. Emphasis is placed on 

the last two methods, which not only encourage taxpayers to assist 

themselves to the greatest extent possible but also save the time 

of both taxpayers and Service personnel. 

Annual Taxpayer Assistance Institutes also are conducted each 

year, prior to the filing period, for the purpose of training representatives of Government organizations and business firms with 

large numbers of employees. The persons attending these institutes are then able to assist fellow employees in preparing their 

income tax returns. 

In addition to the assistance provided by these methods, the 

Service has taken other steps to promote better understanding of 

the tax requirements. Among the factors contributing to better 

understanding are the Service publicity and educational programs, 

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

simplified tax forms, Form 1040A and the new Form 1040W. 

A total of 10,213,000 taxpayers requested aid during the 1960 

filing period. While this represents a slight increase over the 

10,173,000 seeking assistance in 1959, the entire increase for 1960 

was in the telephone service. Approximately 53 percent of the taxpayers assisted in 1960 were handled by telephone which is the 

quickest and most economical method. Since the advantages of 

this service have been publicized, fewer taxpayers are requesting 

individual and self-help assistance in preparing their returns. 
Taxpayers 

Assisted 

Individual assistance 1,508,600 

Self-help assistance 5,434,900 5,083,600 5,037,100 4,551,600 4,305,000 

779,400 

618,100 454,500 

1,011,300 

During the 1960 filing period, the number of taxpayers receiving individual assistance was 455,000 compared with 618,000 in 

1959. Self-help assistance was provided 4,305,000 taxpayers in 

1960, a decrease of 5 percent from the 4,552,000 taxpayers furnished this type of assistance in 1959. Under this method, a group 

of taxpayers prepare their returns with the aid of a Service employee who moves about within the group to answer specific 

questions. 

The average number of taxpayers assisted per man-day increased 

from 96 in 1959 to 107 in 1960, due mainly to increased use of telephone service. Various telephone companies contributed to this 

improvement by informing their customers of the availability of 

this service. 

The man-days devoted to assisting taxpayers continued its downward trend which began in 1956. During 1960, there were 110,803 

man-days spent on the program, representing an 11 percent 

reduction from the 1959 figure of 124,025 man-days. 

Through better planning and use of improved techniques in 

providing assistance, the district offices effected a reduction of 

$231,038 in the cost of the program. For 1960, the cost of the 

Taxpayer Assistance Program amounted to $2,665,280 compared 

to $2,896,318 in 1959. 

Telephone assistance 4,826,800 4,908,000 5,111,400 5,003,300 5,453,200 

Totals 11,770,300 11,002,900 10,988,500 10,172,900 10,212,700 

1956 1957 1958 1959 1960 
RECEIPT AND PROCESSING OF 

TAX RETURNS AND RELATED 

DOCUMENTS 

Number of Returns Filed 

In the 1960 fiscal year, 94,399,000 tax returns of all classes were 

received by the Internal Revenue Service. This was 1,571,000, 

or 1.7 percent more than the number received in the preceding year. 

The largest increase occurred in individual income tax returns 

where the combined total of Forms 1040, 1040W, and 1040A showed 

an increase of 1,271,000, or 2.1 percent over the previous year. In 

filing their returns for tax year 1959, more than seven million taxpayers took advantage of the simplified return Form 1040W which 

was made available for the first time to taxpayers whose income 

consists only of wages and salaries, regardless of amount, and not 

more than $200 of dividends and interest. The combined total of 

1040 and 1040W filers increased by 101,000 over the previous year, 

an increase of 0.2 percent. An increase of 1,170,000, or 6.8 percent, in Form 1040A returns was due primarily to continued efforts 

of the Service to increase the use of this simplified card return 

form. 

Individual declarations of estimated tax numbered 6,292,000, 

which represents an increase of 190,000, or 3.1 percent from the 

preceding year. 

Employment tax returns totaled 20,227,000, which was 1.9 percent more than the number in the preceding year. 

Major changes among other classes of tax returns were a decrease of 157,000 in special occupational tax returns and a decline 

of 225,000 in all other excise tax returns. In 1959 the number of 

special occupational tax returns was abnormally large because 

many wholesale and retail liquor dealers purchased stamps for 

both 1959 and 1960, due to the accelerated purchase date provisions 

of Public Law 85-389. In 1960, these same dealers purchased 

stamps only for 1961, resulting in a corresponding decrease in 

Report on Operations 27 

returns for 1960. The new law also revised the definitions of 

wholesale dealers and retail dealers to conform in general to the 

trade understanding of these terms. As a result of the changes in 

definitions, a number of dealers who were formerly required to 

pay both classes of occupational taxes are now required to pay tax 

only as a retailer or as a wholesaler. 

A comparison of the number of returns filed in fiscal years 1960 

and 1959 is shown below. Summary data are also shown on 

pages 101 and 102 with respect to the major types of income reported by individuals and corporations for recent years. 

Number of returns filed, by principal type of return 

(Figures in thousands. For details, see table 5, p. 1321 

Type of return 

Grand total 

Income tax returns, total 

Individual and fiduciary, total 

Individual—citizens and resident aliens, total 

Forms 1040 and 1040W I 

Form 1040A 

All other individual and fiduciary 

Declarations of estimated tax, total 

Individual 

Corporation 

Partnership 

Corporation 

Other 

Employment tax returns, total 

14, 729 

3, 671 

580 

23 

1, 224 

Gift tax 

Excise taxes, total 

Occupational taxes 

Form 720 (Retailers, manufacturers, etc.) Alcohol 

Tobacco 

Other 

r Revised. 

Returns on Form 1040W are Included in the 1960 column only, this having been the first year in which this form was filed. 

Employers' returns, Form 941 

Employers' returns, Form 942 (Household employees) 

Employers' returns, Form 913 (Agricultural employees) 

Railroad retirement, Forms, CT-1, CT-2 

Unemployment insurance, Form 940 

Estate tax 

20, 227 

1960 

1,166 

Z 351 

26 

17 

309 

60, 456 

42,060 

18, 396 

62 

91 

3, 868 

61,260 

70,151 

94,399 

6, 309 

6,292 

17 

I, 016 

I, 072 

493 

804 

1959 

r 1, 323 

2, 928 

r 92,828 

'68, 584 

14, 405 

Z 671 

569 

1,202 

19,847 

61 

85 

4,250 

41,959 

17,226 

60, 008 

59,185 

6, 102 

18 

6, 120 

1, 007 

998 

451 

824 

26 
Totals 1959 --92.8 

Number of 

Returns Filed 

(millions) 

Individual 

and 

Fiduciary 

Declarations of 

Estimated Tax 

(Individual) 

Partnership 

1.0 

1.0 

Corporation 

1 .0 

1.1 

Employment 

Excise and 

All Other 

Report on Operations 29 

Information Returns 

Nearly 325 million information returns were received during 

1960. Of these returns, more than 208 million were Forms W-2 

(employers' statements of wages paid and tax withheld) including 

copies filed by employers and the copies filed by employees as attachments to their income tax returns. Forms 1099 (information 

returns on payments of dividends, interest, and various other 

items) totaled nearly 110 million. The remaining information 

documents included nearly 6 million Forms 1087, Ownership Certificates—Dividends on Stock, and small numbers of other types of 

documents. 

Service Center Functions 

During fiscal year 1960, the area service centers processed to 

completion 47.3 million individual income returns, Forms 1040, 

1040W and 1040A. Of these, 41.8 million were 1959 returns filed 

during the 1960 filing period and 5.5 million were 1958 returns filed 

during 1959. 

In addition, 4.6 million individual estimated tax declarations 

were processed. Accounts receivable were established for appropriate individual income tax returns and declarations. 

All districts received the benefit of service center mailing and 

delinquency check operations on employment tax returns, Form 

941, for one or more quarters and on unemployment tax returns, 

Form 940. In 1961 all returns on Forms 940 and 941 will be 

handled in the service centers. 

During the period January 1 through June 30, 1960, service centers received 52.1 million individual income tax returns for processing, or 87.3 percent of the total filed. This was an increase of 

approximately 11 million over the same period last year. The increase was largely due to the scheduling of additional returns for 

shipment to the centers by the districts served. 

Plans were completed to utilize electronic equipment in the 

Northeast Service Center beginning January 1, 1961. This advanced equipment will replace to a large degree the punch card 

systems now used. It is planned to extend the electronic systems 

to the Midwest and Western Service Centers for operation 

beginning January 1, 1962. 

Refunds Covering Excessive Prepayments 

During the 6-month period ended June 30, 1960, nearly 34.5 

million refunds were scheduled on individual income tax returns 

filed for the 1959 tax year. The bulk of the refunds relating to 
Refunds Credits 

Tax year 

Number 

(thousands) 

Principal 

(thousand 

dollars) 

Interest 

(thousand 

dollars) 

Number 

(thousands) 

Amount 

(thousand 

dollars) 

1959 

1958 

1957 

19% 

1955 

1954 

3, 932, 619 

3, 978, 226 

23, 726, 000 

3, 323, 779 

3, 074, 128 

2, 932, 261 

34, 474 

35, 154 

35, 155 

34.096 

33, 274 

33, 138 

515 

3,933 

23, 192 

3, 936 

3, 589 

3, 559 

1,527 

1,756 

1,828 

1,602 

1,5% 

1,681 

582,670 

756, 887 

732,840 

599,012 

543,501 

573, 243 

30 Annual Report 

tax year 1959 were scheduled by the end of May, just 6 weeks after 

the filing deadline. The refunds scheduled on the tax year 1959 

returns averaged $114 per item as compared with an average of 

$111 per item for the refunds scheduled through June 1959 on the 

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

on tax year 1959 returns increased 15 percent and 8 percent, 

respectively. 

The following table shows the number and amount of refunds 

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

prepayments of individual income tax on returns filed for the tax 

years 1954 through 1959 (usually received and processed by June 

30 of the following year) : 

Refunds and credits resulting from excessive prepayments of 

individual income tax 

Note.-For 1956 and subsequent years, returns requiring spit credit to ensuing (or prior) tax year an current year 

refund are counted under both headings. 

Figures are preliminary and reflect refunds or credits to Jun 30, 1960. Revised figures o Dec. 31, 1960 will appear 

in next year's report. 

2 Principal and interest for tax year 1957 are estimated. 

Carryback Allowances 

During 1960, there was a decrease in the filing of applications 

for tentative adjustments of prior years' income taxes to give 

effect to operating loss carrybacks. This represents a reversal in 

the upward trend of the past two years, during which filings increased substantially. A reduction in filings by corporate taxpayers accounted for the entire decrease. 

Applications adjusted in 1960 numbered 62,500, with tax reductions amounting to $505,217,000. As compared with 1959, the 

number of cases handled decreased by 7 percent and the dollar allowances decreased by $113,878,000, or 18 percent. 

With fewer applications filed and disposals running well above 

receipts the inventory of cases under consideration was reduced 

by nearly 60 percent. The 1960 year-end inventory was the lowest 

in both number and amount for any year since 1951. 

Report on Operations 31 

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

Receipt and disposal of tentative carryback applications 

Status 

Number Amount (thousand dollars) 

1960 1959 

Claimed Adjusted 

1960 1959 1960 1959 

Pending July 1 8,284 10,336 68,619 76, 316 

Applications received 57,709 65,178 492, 501 651, 047 

Applications adjusted, total 62,500 67,230 532, 064 658, 744 

Allowed n. a. n. a. 505,217 619, 095 

Disallowed n. a. 27,771 42,465 

Pending June 30 3,493 8, 284 29, 056 68, 619 

n. a.-Not available. 

Plans for Automatic Data Processing 

The Service is going forward with plans to develop and install, 

over a period of several years, a system that will use automatic data 

processing equipment extensively in performing its accounting, 

clerical, and statistical operations. The decision to support the administrative and enforcement activities of the Service with highly 

efficient electronic computing machinery grew out of the need for 

dealing with a rapidly expanding workload that has already overtaxed the present data processing facilities, and the need to install 

a system that will consolidate into a single account on magnetic 

tape transaction data involving each taxation entity. 

The following broad objectives are expected to be achieved 

through application of automatic data processing techniques and 

the master file concept to the enforcement and revenue-producing 

operations of the Service: 

1. Systematic check on failure of individuals and business entities to file returns. 

2. Verification of mathematical accuracy of returns filed and 

computation of tax or refunds due. 

3. Determination of taxpayer indebtedness for prior year taxes 

of all types prior to issuance of a current refund, and identification 

of duplicate refunds. 

4. Provision for a consolidated tax account for each taxpayer 

that will reflect current tax status at any given point in time. 

5. Matching of data reported on information documents with 

corresponding data on taxpayer returns. 

6. Classification of returns for audit purposes. 
32 Annual Report 

7. Preparation of management, operating, and statistical 

reports. 

During the past year, detailed plans and specifications were 

developed and major computer manufacturers were invited to propose systems that would meet the Service's automatic data processing requirements through 1969. Proposals submitted were 

subjected to critical review to determine that proposed system 

variations were not in violation of mandatory requirements imposed by the specifications ; that adequate provision had been made 

for the processing of the data volumes described in the specifications; that the characteristics and capacities of the equipment 

proposed were consistent with a company's claim of a machine 

capability to process stipulated workloads within specified time 

limits; and that cost data were accurate and consistent with 

equipment configurations and schedules. Following this review 

of the proposals, a selection of equipment was made and work was 

started on the development of procedures for the system. 

In 1961, a Computer Center will be activated at Martinsburg, 

W. Va., and a pilot Service Center will be established in the Atlanta 

region to begin returns processing in January 1962. Experience 

gained from the pilot operation will permit systematic and gradual 

expansion to a fully operational national system by 1969. 

ENFORCEMENT ACTIVITIES 

General 

Our national tax system is characterized by an exceptionally 

high degree of voluntary tax compliance, with the vast majority 

of taxpayers responding conscientiously to their obligations under 

the tax laws enacted by the Congress. While this high degree of 

voluntary compliance reduces both the extent and difficulty of tax 

enforcement problems, there remain substantial numbers of taxpayers who fail to recognize their full responsibility or are unaware 

of legal requirements affecting them. Other taxpayers seek to 

avoid or evade as much of their tax liability as possible. 

The enforcement functions of the Service are concerned with the 

verification and correction of tax liabilities established by voluntary filings, and with ascertaining and collecting taxes and penalties from those who wholly, or largely, ignore their tax responsibilities. These functions are of vital importance, not only for 

the substantial amounts of revenue thereby obtained, but because 

effective and impartial enforcement action is necessary to maintain 

public confidence in our tax system. 

Mathematical Verification 

During the year, 50,156,000 individual income tax returns filed 

on Forms 1040, 1040W, and 1040A were mathematically verified. 

This was a decrease of about 3 percent from the preceding year. 

This decrease is primarily attributable to lack of manpower to perform all verification work during 1960. 

Notwithstanding the 3-percent decline in the number of returns 

verified, the number of error cases disclosed by mathematical verification increased by slightly more than 12 percent. Among the 

error cases, the number with a tax increase rose 14 percent, while 

the number with a tax decrease rose 9 percent. The tax increases 

averaged $85 while the average tax decrease was $69. The aggregate amount of tax increases was $112,066,000, compared with 

33 

III 
34 Annual Report 

$84,688,000 in 1959, while tax decreases totaled $48,564,000, compared with $42,268,000 in the preceding year. 

The results of mathematical verification of individual income tax 

returns during the last 2 years are shown in the following table : 

Individual income tax returns mathematically verified 

Item 

Type of return 

Total Forms 1040 and 1040W' Form 1040A 

1960 1959 1960 1959 1960 1959 

Number of returns verified thousands._ 

Number of returns on which changes were made 

thousands.. 

Returns with increase: 

Number thousands_. 

Amount thousand dollars__ 

Returns with decrease 

Number thousands__ 

Amount thousand dollars__ 

50,156 

2, 017 

1,313 

112,066 

704 

48,564 

• 51, 570 

1,800 

1,153 

84,688 

647 

42, 268 

37, 254 

I, 361 

944 

81,112 

417 

26,745 

39, 534 

1,278 

857 

62,664 

421 

25,406 

12, 902 

656 

369 

30,953 

287 

21,819 

• 12,035 

522 

295 

22,023 

226 

16,862 

Revised. Returns an Form 1040W are included in the 1960 column only, this having been the first yea in which this form was 

filed. 

Audit of Returns 

General.—For several years, special effort has been directed 

toward improving audit operations and examination techniques, 

thereby enabling the Service to increase the number of returns 

examined each year. 

During 1960, further operational improvements were made in 

the audit area. Among these were revised procedures for addressing various case records and letters to taxpayers in connection with 

the audit of prerefund returns. Under the new procedures, the 

service centers preaddress the records and letters, thereby releasing clerical manpower in the district offices for other audit operations. As a further means of conserving clerical manpower, new 

procedures were installed for recording and controlling audit activity on refund claims. To speed up the audit of excise and employment tax returns, a revised notification letter to taxpayers was 

developed. 

Several major studies were undertaken relating to office audit, 

informal conference, and service branch operations of district audit 

divisions. The office audit study contemplates further expansion 

of low-cost methods in achieving broader audit coverage. By 

encouraging wider use of the informal conference procedures in 

district offices, the Service is endeavoring to speed the settlement 

of tax disputes. Work measurement and simplification is the objective of the service branch study. 

Report on Operation? 35 

Classification and selection of returns for examination.—Prior to 

each year's filing period, the regional offices plan the audit program 

for their districts. The development of guidelines for the classification and selection of returns for examination is an important 

phase of this planning. 

The purpose of the classification process is to select the returns 

most in need of audit, based on potential adjustments to tax liability 

which would produce an overassessment or a deficiency of a substantial amount. Other criteria governing the selection of returns 

include local knowledge of noncompliance and provision for adequate audit coverage of the various types of returns and classes of 

taxpayers. 

It is impractical for technical personnel to classify each return 

among the ever-increasing number filed. Therefore the Service 

has applied carefully tested methods to identify and segregate for 

classification those returns in the mass of filings which are likely 

to require attention. The mechanized processing operations at 

the service centers have made it possible to identify additional 

returns with significant audit characteristics and refer such returns to the district audit divisions for consideration. 

During fiscal year 1960, nearly 19 million income, estate, and 

gift tax returns were classified and about 3 million were referred 

to district audit divisions for further consideration. In addition to 

returns selected through the classification process, audit divisions 

considered returns related to refund claims and returns in which 

examinations were mandatory by reason of taxpayers' requests or 

statutory requirements. 

Number of returns examined.—The examination of a return involves a contact with a taxpayer or his representative for the purpose of verifying or adjusting items appearing in a return. An 

office audit examination is one in which the Service contacts a taxpayer by correspondence or by interview on Internal Revenue premises. A field examination is conducted by personal contact with 

the taxpayer or his representative at the taxpayer's home or place 

of business. Field examinations generally involve returns of 

greater complexity which require highly developed professional accounting skills. 

During 1960, 3 million returns were examined by district audit 

divisions. Of this number, 2,089,000 returns were examined by 

office audit and 911,000 by field examination. As compared with 

1959, office audits rose 8 percent, reflecting the further expansion of volume audit operations among low-income returns. Field 

examinations decreased 4.6 percent due to the continued emphasis 

504655 0 —GO 
36 Annual Report 

on utilization of the professional abilities of the field examiners on 

more qualitative examinations. 

A total of 641,831 returns were closed by district audit divisions 

without taxpayer contact, where further study of the returns, 

prior-year records, and other background information indicated 

that examinations were not warranted. 

The following table compares the number of returns examined 

for the last 2 years : 

Number of tax returns examined 

[Figures in thousands' 

Type of return 

Total Field audit Office audit 

1960 1959 1960 1959 1960 1959 

Grand total 

Income tax, total 

Corporation 

Individual and fiduciary 

Estate and gift tax 

Excise and employment tax I 

3,000 2,888 911 954 2,089 1,933 

2,736 2,595 682 725 2,054 1,870 

165 

2,571 

173 

2,422 

163 

519 

170 

555 

2 

2,052 

3 

1,867 

27 

236 

29 

264 

25 

203 

26 

204 

2 

33 

3 

6C 

I Excludes examinations resulting in no tax change where such exam nation was made from the taxpayer's copies o r 

returns in the course of an audit covering both income and excise and/o employment taxes. 

Additional tax resulting from audit.—Almost $1.8 billion in 

additional tax, penalties, and interest was assessed in 1960 as a result of the audit of returns. This represents an increase of $168 

million over the preceding year and is the largest amount ever produced by this activity. 

Practically all of the increase occurred in assessments involving 

corporation income and profits taxes. Slight increases were registered in the additional assessments from audit of estate, gift, and 

excise tax returns but the decreases in the amounts from audits of 

individual and fiduciary income tax returns and employment tax 

returns more than offset these gains. The decrease in the employment tax area is attributable in part to a realignment of functional 

responsibilities between the audit and collection divisions for the 

verification of employment tax returns. 

The amounts shown in the following table comprise additional 

assessments made at all stages of audit and appellate consideration, 

including those resulting from Tax Court and appeals court determinations. The tax and penalties involved in delinquent returns 

Report on Operations 37 

secured as a result of audit activity are not included below but 

are shown under "Delinquency Investigations and Delinquent 

Returns," p. 49. 

Additional assessments resulting from audit 

[In thousands of dollars' 

Type of tax 

Additional tax, penalties, and 

interest assessed 

1960 1959 

Total 

Income and profits taxes, total 

Corporation income and profits 

Individual and fiduciary: 

Prerefund audit 

Regular audit 

Estate and gift taxes 

Employment taxes I 

Excise taxes 

1,786,915 1,619,148 

1,576,657 1,422,657 

910,597 

102,517 

563,543 

747,426 

97,775 

577,455 

175,719 

2,888 

31,651 

164,528 

6,338 

25,624 

I Includes withheld income tax. 

Claims for refund.—The number of refund claims closed by district audit divisions dropped from 485,758 in 1959 to 357,615 in 

1960, with the principal reduction occurring in the individual income tax area. Claims activity in this area had risen temporarily 

in 1959 by reason of retroactive regulations issued in April 1958, 

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

allowable. 

Despite the decrease in number, the total amount claimed rose 

from $415,685,000 in 1959 -to $677,022,000 in 1960. The rise was 

mainly attributable to a few unusually large corporation income tax 

claims and to the release from suspense status of excise tax claims 

involving large amounts, dealing with the deductibility of warranty 

charges from manufacturers' selling prices. 

Of the $677,022,000 claimed, refunds were allowed in aggregate 

amount of $161,396,000, while $515,625,000 was disallowed. 

About 36 percent of the amount claimed on individual income tax 

claims was disallowed but 78 percent of the amount involved in 

corporation income tax claims was disallowed. Due to a court decision favorable to the Government, dealing with warranty charges, 

over 96 percent of the amount claimed by excise taxpayers was 

disallowed. 
38 Annual Report 

Data on claims for refund closed during 1960 are shown below : 

Claims for refund closed by district audit divisions 

Amount (thousand dollars) 

Claimed by Allowed Disallowed 

taxpayer 

Total 

Individual income tax 

Corporation income tax 

Estate tax 

Gift tax 

Excise taxes 

Employment taxe 

Appeals 

Income, profits, estate, and gift tax cases.-The number of protested income, profits, estate, and gift tax cases received in pre90-day and 90-day status by the regional appellate divisions 

decreased in 1960. This is the first decrease since the sharp 

upward trend in receipts began in 1954. The significant factor 

contributing to this decline was the increased emphasis on improved examination, review, and informal conference in the district audit divisions. 

Disposals during 1960 were greater than those for 1959. The 

larger volume of disposals and fewer receipts resulted in a marked 

decrease in inventories. 

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

States also decreased somewhat in 1960. This, coupled with an 

increased number of disposals, reversed the prior trend of increasing inventories. 

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

during the last 2 fiscal years. Additional details relating to these 

cases, including dollar amounts involved and results obtained in 

cases processed, are shown in tables 14, 15, and 16, pp. 148 

through 150. 

Report on Operations 39 

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

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

Status 

Number of cases 

1960 1959 

Pending in pre-90-day status July I 13,298 12,394 

Net receipts from district directors during year 16,001 17,379 

Processed during year, total 18, 368 16, 475 

Agreed 13, 021 11,785 

Unagreed overassessment and claim rejections 942 625 

Appellate Division statutory notices issued-transferred to 90-day status 4, 405 4,065 

Pending in pre-90-day status June 30 10, 931 13, 298 

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

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

cases) 

Status 

Number of cases 

1960 1959 

Pending in 90-day status July 1 1, 330 I, 874 

Net receipts during year, total 4,661 4.384 

Statutory notices issued by Appellate Division 4,324 4,004 

Cases resulting from district directors' statutory notices 337 380 

Processed during year, total 4,723 4,928 

Agreed 711 606 

Defaulted 1,159 1,124 

Petitioned to the Tax Court-transferred to docketed status 2, 853 3,198 

Pending in 90.day status June 30 1,268 1,330 

'Difference from preceding table is caused by cases being combined or split for tho purpose of issuing t e statutory 

notice, cases in transit, etc. 

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

petitioned to the Tax Court (docketed cases) 

Status 

Number of cases 

1960 1959 

Pending in docketed status July 1 II, 748 10, 395 

Net receipts during year, total 6, 562 7, 002 

Petitions filed in response toDistrict directors' statutory notices 3,829 4,131 

Appellate Division's statutory notices 1 

Cases reconsidered after trial 

2, 678 

55 

2, 824 

47 

Processed during year, total 6, 821 5, 649 

Agreed-stipulated 5,511 4,478 

Dismissed or defaulted 384 310 

Tried before the Tax Court an merits 926 861 

Pending in docketed status June 3 0 11,489 11,748 

Class of tax Number 

357,615 677,022 161,396 515,625 

316,005 

24,289 

I, 425 

246 

10, 193 

5,457 

102, 396 

357,123 

23,260 

849 

191,603 

1,791 

65,324 

79,473 

7,174 

382 

7,801 

1,239 

37, 071 

277,650 

16, 086 

467 

183,799 

552 

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

notices considered by Appellate in 90-day status, cases in transit, etc. 
Report on Operations 41 

Excise and employment taxes.—There was a decrease in the number of excise and employment tax cases received and a small increase in disposals. 

The following table reflects the results in this area : 

Appellate Division processing of protested excise and employment tax cases 

Status 

Number of cases 

1960 1959 

Pending July 1 

Received during year 

Processed during year, total 

Settled by agreement 

Closed without agreement 

Pending June 30 

I, 037 

1, 318 

1,460 

799 

I, 656 

1,418 

764 

696 

675 

743 

895 1, 037 

Claims for relief from excess profits tax.—There was further 

progress during the year in the disposition of claims for relief 

from the World War H excess profits tax (Sec. 722, Internal Revenue Code of 1939) . The number of cases pending in the Tax Court 

was reduced from 38 to 20; and no nondocketed cases were pending before the Excess Profits Tax Council. The results for the year 

were as follows : 

Claims for relief from excess profits tax pending in the Tax Court 

Closing agreement cases.—Final closing agreement cases relating to completed transactions are considered by the Appellate 

Division. The table shown below reflects the activity in this area 

during the year 1960. (Rulings on proposed closing agreements 

involving prospective transactions are discussed on p. 12.) 

Appellate Division processing of final closing agreement cases 

Appeals 

Income, profits, estate, and gift taxes 

METHOD OF DISPOSAL 

OF APPELLATE 

DIVISION CASES 

Agreement reached 

hefore issuance of 

statutory notice 

13,021 

Unagreed overassessment or 

claim rejection 942 

Taxpayer defaulted 

after issuance of 

statutory notice 

Settlement reached 

after petition to 

Tax Court but 

before trial 

Dismissed by 

Tax Court or 

taxpayer defaulted 

after petition 

Tried in Tax Court 

Totals 

310 

384 

Agreement reached 

while statutory 

notice was pending 111 

1959-19,789 

5,511 

Number of 

cases 

mount claimed 

(thousand 

dollars) Status 

38 

18 

20 

Pending July 1 

Received 

Closed 

Pending June 30 

147,419 

31,569 

115,850 

Status 1960 1959 

Pending July 1 

Received during year 

Processed during year 

Pending June 30 

12 

31 

36 

7 

7 

32 

32 

7 
42 Annual Report 

Overassessments Reported to Joint Committee 

A total of 542 cases involving overassessments of $328,770,244 

was reported to the Joint Committee on Internal Revenue Taxation 

in accordance with the provisions of section 6405 of the Internal 

Revenue Code of 1954 which requires review by the committee of 

all refunds and credits of income, war profits, excess profits, estate, 

or gift tax exceeding $100,000. These figures compare with 300 

cases involving $373,187,163 reported in the preceding year. 

Civil Litigation 

Litigation results.—The Supreme Court decided 19 tax cases 

last year, sustaining the Government's position in 12 cases. 

The circuit courts of appeals decided 348 tax cases (exclusive of 

bankruptcy, receivership, insolvency, lien, compromise, and liquor 

cases) . The Government's position was supported, in whole or 

in part, in 257 of these cases. 

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

wishes, sue for refund in the Court of Claims or in a United States 

District Court. Last year the district courts decided 168 cases 

for the Government, 170 for the taxpayer, and 43 cases partly for 

the Government and partly for the taxpayer. The Court of Claims 

decided 43 cases for the Government, 21 cases for the taxpayer, 

and 6 partly for each. 

At the year-end there were pending in district courts 2,485 civil 

cases involving tax questions (principally suits for refund of taxes, 

other than those relating to alcohol, tobacco, and firearms taxes, but 

also including perpetuation of testimony and damage actions) and 

465 were pending in the Court of Claims. 

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

tables 20 and 21 on page 152. 

Decisions of Supreme Court.—Among civil cases (see pp. 57 

and 58 for criminal cases) decided by the Supreme Court were the 

following: 

In Commissioner of Internal Revenue v. Fred N. Acker, 361 U.S. 87, decided on November 16, 1959, the Supreme Court affirmed the decision 

of the United States Court of Appeals for the Sixth Circuit which had 

decided, contrary to the Commissioner's contention, that Sec. 294(d) (2) 

does not authorize the treatment of a taxpayer's failure to file a declaration of estimated tax as the equivalent of a declaration estimating 

no tax and that the regulation which purports to do so is not supported 

by the statute and is invalid. The taxpayer, without reasonable cause, 

failed to file a declaration of his estimated income tax for any of the 

years 1947 through 1950 and the circuit court had sustained the addiReport on Operations 43 

tion to the tax for failure to file under Sec. 294(d) (1) (A), which issue 

was not before the Supreme Court. 

On January 18, 1960, the Court decided the case of United States v. Price, 

361 U.S. 304, reversing the decision of and remanding the case to the 

Court of Appeals for the Ninth Circuit (263 F. 2d 382). The Court 

of Appeals had affirmed the opinion of the District Court that a waiver 

of restrictions on assessment and collection of a tax executed by the 

taxpayer under the provisions of § 272(d) of the Internal Revenue 

Code of 1939 prior to the issuance of the notice of deficiency (the socalled 90-day letter) was invalid. The taxpayer had argued that there 

was no "determined" deficiency until the 90-day letter was issued, and 

that accordingly there could be no valid waiver affecting such a nonexistent tax. The Court of Appeals for the Ninth Circuit had in two 

previous instances in 1936 taken the position argued for by the taxpayer. The taxpayer had asserted that the fact that Congress had 

considered these decisions and had still not amended the law, showed 

that it had accepted the Ninth Circuit's position. The Supreme Court, 

after examining the legislative history of the waiver provision of the 

1939 Code, concluded that the intent of Congress had been to permit 

a taxpayer to pay the tax and stop the running of interest, and that 

to reach a further conclusion that a taxpayer was to be without power 

to stop the running of interest until a 90-day letter was issued would not 

conform to this purpose. It dismissed the argument that a deficiency 

was not "determined" until the issuance of the notice of deficiency as 

contrary to the plain sense of the provision which contemplates, first, 

a determination of a deficiency, and then the sending of a notice. It 

should be noted that the 1954 Code specifically authorizes a waiver prior 

to the issuance of a 90-day letter. 

On March 21, 1960, the decision for the Government in Walter W. Flora 

v. United States (1958), 357 U.S. 63, was affirmed on rehearing in 

Walter W. Flora v. United States, 362 U.S. 145. It involved the question of whether a taxpayer must pay the full amount of an income tax 

deficiency before he may challenge its correctness by a suit for refund. 

The Court originally considered the case on writ of certiorari from the 

Court of Appeals for the Tenth Circuit and affirmed. The Court based 

its determination on what it considered to be Congressional intent; it 

went back to dicta in Cheatham v. United States (1875), 92 U.S. 85, 

which said that statutes at that time (R.S. 3226) required full payment 

as a condition precedent to the right to sue for refund, and noted that 

current statutes (28 U.S.C. 1346(a) (1)) employed identical language 

and were not intended to alter the Cheatham rule. The Court specifically noted that the statute establishing the Tax Court in 1924 constituted a partial remedy for hardship cases. In other hardship cases 

the Court stated that amelioration was a matter for Congress, not the 

Court. Justice Whittaker dissented. 

The Court noted in its second opinion that the taxpayer's petition for 

rehearing was focused almost exclusively upon a single clause in the 

prior opinion—"there does not appear to be a single case before 1940 

in which a taxpayer attempted a suit for refund of income taxes without paying the full amount the Government alleged to be due" (367 

U.S. at 69). The Court granted the petition so that it could comment 

upon the material introduced upon reargument. It found that out of 
44 Annual Report 

approximately 40,000 pre-1940 suits, exhaustive research had revealed 

only nine in which the issue was present and that the Commissioner had 

contested jurisdiction in six of those. The Court stated that the 

remaining three were without significance and that the reargument 

strengthened rather than weakened its original statement. It also 

stated that the basic reasons for its decision would be unaffected by 

the constancy or inconstancy of administrative practice. Justices 

Whittaker, Frankfurter, Harlan, and Stewart dissented. This decision 

resolves what has been a very controversial and significant issue in tax 

litigation. A contrary decision would have permitted taxpayers to 

make token payments on deficiency assessments and by a suit for 

refund for such payment to test the correctness of the entire assessment. Such a rule probably would have resulted in a substantial change 

in taxpayers' choice of forums for litigation. 

On April 25, 1960, the Court decided the case of New Hampshire Fire 

Insurance Co. v. Scanlon, 362 U.S. 404, affirming the per curium decision 

of the Court of Appeals for the Second Circuit (267 F. 2d 941). The 

District Court had held that the plaintiff, surety on a bond of a taxdelinquent contractor, could not, by a petition to quash the district 

director's levy on the city of New York to reach a fund alleged to be 

due the contractor, obtain a determination of the rights of the parties 

to the property involved. The plaintiff argued that 28 U.S.C. § 2463, 

which states that all property taken under any revenue law of the 

United States shall be deemed to be in the custody of the law and 

subject only to the orders and decrees of the courts of the United States, 

gave those courts custody of the property and power to dispose of the 

issue of ownership summarily. The Supreme Court cited the legislative 

history of § 2463 as indicating a congressional purpose to protect the 

property in the revenue officer's custody and not to transfer custody 

to the federal courts. Even construing the section as transferring 

custody, the Supreme Court concluded that it would not follow that 

cases and controversies involving ownership of property should be tried 

in summary fashion. 

In Commissioner of Internal Revenue v. Mose Duberstein et al., 80 S. Ct. 

1190, the Supreme Court held on June 13, 1960, in reversing the Court 

of Appeals for the Sixth Circuit, that the Tax Court was warranted in 

concluding that the transfer of a Cadillac automobile to the taxpayer 

from a business friend for furnishing names of potential customers was 

a recompense for past services or an inducement to be of further 

service in the future rather than a gift. Whether a transfer is a gift 

or compensation turns on the basic reason for the transferor's action. 

A gift in the statutory sense, said the Court, proceeds from a detached 

and disinterested generosity out of affection, respect, admiration, charity or like impulses. 

Also on June 13, 1960, the Court decided the case of Stanton et ux. v. 

United States, 80 S. Ct. 1190. With four dissents, the Court vacated 

and remanded a decision in favor of the Government by the Court of 

Appeals for the Second Circuit, which was considered in conflict with 

the decision of the Sixth Circuit in Duberstein insofar as the proper 

approach to be taken in determining when a transfer of property constitutes a gift. The Government petitioned for certiorari in Duberstein 

and acquiesced in the taxpayer's petition in this ease. The Stanton 

Report on Operation? 45 

case involved the question of whether a specific transfer of money by a 

corporation to an employee following his resignation constituted a gift 

or taxable compensation under section 22(b) of the 1939 Code. The 

Government argued that since the issue was a question of law or at least 

a mixed question of law and fact, it was within the power of the Second 

Circuit to reverse the District Court decision for taxpayer without finding it clearly erroneous. The Court held that the issue was purely 

factual but remanded the case to allow the District Court to make 

new and adequate findings of fact. The Court rejected the request of 

the Government to formulate a general rule or test sufficiently definite 

to enable lower courts to readily determine what constitutes an excludable gift. The decision failed to establish any specific rules of law 

to govern the issue but left the question to be decided by fact-finding 

tribunals upon their "experience with the mainsprings of human 

conduct." 

In another case decided on June 13, 1960, the Court affirmed the decision of the Seventh Circuit in United States v. Allen Kaiser, 80 S. Ct. 

1204. The Seventh Circuit had reversed the District Court, which had 

entered judgment for the Government n.o.v. The Supreme Court decision was against the Government. The issue was whether strike benefits, received from a labor union by both union members and nonmembers alike, were tax-exempt gifts (section 102(a) of the Code) or 

taxable income (section 61(a) of the Code) to the recipients. The 

amounts received were dependent upon individual need, and were also 

dependent upon the availability of unemployment compensation or 

local public assistance. Recipients were encouraged to engage in 

picketing, but benefits were not contingent on such activity. The Court 

refused to set up a test for determining when a transfer constitutes 

a gift or compensation, but held that this is a factual determination 

to be determined by the trial court upon each set of facts. 

On June 13, 1960, the Court, in the case of Manufacturers National Bank 

of Detroit v. United States, 80 S. Ct. 1103, reversed the decision of the 

District Court for the District of Michigan (176 F. Supp. 291), the 

case having been appealed by the Government directly to the Supreme 

Court under sections 1255 and 2101 of Title 28 of the United States 

Code. The question presented was whether an estate tax provision 

(section 811(g) of the Internal Revenue Code of 1939, as amended 

by section 404 of the Revenue Act of 1942) requiring, in the computation of the statutory gross estate, the inclusion of proceeds of insurance 

on the life of the decedent to the extent the insurance has been purchased with premiums paid by the decedent, regardless of other aspects 

of ownership, is unconstitutional as an apportioned direct tax or as a 

deprivation of property without due process of law. The District Court 

had held that the statute, as applied in this case, was unconstitutional; 

it reasoned that since the decedent had parted with all incidents of 

ownership, there was no transfer of property at death. The Supreme 

Court, in reversing, held that the tax laid on the "ripening" at death 

of rights paid for by the decedent is not a direct tax and that the tax is 

not retroactive in its impact. 

Also on June 13, 1960, the Court decided the cases of United States v. 

Brosnan and Bank of America National Trust and Savings Assn. v. 

United States, 80 S. Ct. 1108, affirming the decision of the Court of 
46 Annual Report 

Appeals for the Third Circuit in the first case (264 F. 2d 762) and reversing the decision of the Court of Appeals for the Ninth Circuit in 

the second case (265 F. 2d 862). The two cases involved substantially 

the same issue, namely, whether an inferior Federal tax lien is extinguished by the foreclosure of a superior mortgage lien in accordance 

with State law, even though the United States was not, and need not 

be under State law, a party to the foreclosure. In Pennsylvania a 

confession-of-judgment provision in the mortgage was utilized to obtain judgment against the mortgagor-taxpayer pursuant to which the 

real property was sold; in California both real and personal property 

were sold by the trustee pursuant to powers of sale contained in a deed 

of trust and two chattel mortgages. The Court (in a 5-to-4 opinion) 

analyzed the legislative history of Federal lien enforcement and found 

that the provisions of the law dealing with the means whereby private 

lienors could obtain the removal of the Federal tax lien (26 U.S.C. 

§ 7424 and 28 U.S.C. § 2410) were permissive rather than exclusive 

procedures. It emphasized the use of the word "may" in those statutes. 

Finding no Federal statutory bar to the use of State procedures, the 

majority declared that it believed it desirable to adopt as Federal law 

the applicable State law governing divestiture of Federal tax liens (except to the extent Congress may have entered the field) so as not to 

displace well-established State procedures governing the enforcement 

of the network of competing private property interests. The dissent 

strongly argued that the cardinal principle of uniformity in the tax 

scheme demanded that the extinguishment of inferior Federal tax liens 

be done on a uniform basis, and pointed out that the majority opinion 

opens up 50 separate and different rules of procedure. 

On June 20, 1960, the case of Cory Corporation et al. v. Sauber, 80 S. Ct. 

1331, was decided in favor of the Government. The taxpayers sued for 

refunds of excise taxes collected on sales of two air conditioning units 

sold under sections 3405(c) and 4111 of the Internal Revenue Codes 

of 1939 and 1954, respectively (self-contained air conditioning units, 

etc.). The Commissioner, under his authority to prescribe regulations, 

had held that the tax applied to units that had "a total motor horsepower of less than one horsepower." (See S.T. 934, C.B. 1948-2, 180; 

Rev. Rul. 54-462, C.B. 1954-2, 410.) The District Court held that the 

rulings referred to actual—not nominal or rated—horsepower. The 

Court of Appeals, 7th Circuit (266 F. 2d 68), reversed on grounds that 

the units in question were clearly of the household type because made 

to meet the needs of a household, that the horsepower was irrelevant, 

and that the rulings were void. The Supreme Court reversed the Court 

of Appeals, holding that the Commissioner's rulings were not void and 

that the horsepower test is a permissible one. The cases were remanded 

to the Court of Appeals for further findings as to whether the word 

"horsepower" as used in the rulings meant actual horsepower or 

nominal rated horsepower. 

On June 20, 1960, the Supreme Court decided the case of Aquilino v. 

United States, 80 S. Ct. 1285, vacating the decision of and remanding 

the case of the New York Court of Appeals (146 N.B. 2d 774). The 

State court had held that the Federal tax lien on a sum of money due 

the taxpayer-contractor from the owner had taken effect prior to the 

claims of the plaintiff-subcontractors. The plaintiffs had argued that 

Report on Operations 47 

under § 36–a of the New York Lien Law the contractor had no property 

interest in the sum of money due from the owners to which the Federal 

tax lien could attach. The lower State courts had agreed and had been 

reversed by the New York Court of Appeals. The opinion of the 

majority of the Court pointed out that State law controls in determining 

the nature of the legal interests in property and that Federal law 

determines the priority of competing liens. On the grounds that the 

State court had not resolved the conflict between the plaintiffs' contention that there was no property interest in the taxpayer-contractor and 

the Government's contention that § 36–a gave the plaintiffs a mere lien, 

the Court vacated the judgment and remanded the case so that the 

property interests of the taxpayer under State law might be ascertained. 

The dissent (referring to both Aquilino and Durham Lumber Co. cases) 

argued that, since the Court had in a long line of cases preferred the 

Federal tax lien over the subcontractor's lien in situation similar to 

this case, for purpose of the Federal tax lien statutes no different result 

should obtain whether State law purports to prefer subcontractors over 

contractors by giving the subcontractors a lien on the contractor's rights 

against the owner or by giving them a prior right to collect the debt 

itself. It pointed out that the relevant incidents of the relationship 

between subcontractors and contractors are the same whether the subcontractors' interests are labeled "property" or "lien". 

In another June 20, 1960, decision, the Court decided the case of United 

States v. Durham Lumber Co., 80 S. Ct. 1282, affirming the decision of 

the Court of Appeals for the Fourth Circuit (257 F. 2d 570). The 

Referee in bankruptcy had held that the rights of the Government 

under its tax lien, in a fund deposited in the proceeding by the owner 

of the property upon which the taxpayer-contractors (now bankrupts) 

had performed work, were superior to those of the defendant-subcontractor. The District Court reversed and the reversal was affirmed by 

the Court of Appeals. That Court stated that the nature and extent 

of the general contractors' property rights were governed by State law 

and that under the North Carolina General Statutes the general contractors did not have a property interest in the face amount of the fund 

but only in the residue after payment of unpaid subcontractor's claims. 

The majority opinion of the Supreme Court agreed with this conclusion. (For a statement concerning the dissent see Aquilino above.) 

On June 27, 1960, the case of United States v. Cannelton Sewer Pipe 

Company, 80 S. Ct. 1681, was decided in favor of the Government. It 

involved the question of whether a miner-manufacturer's "gross income 

from mining" for percentage depletion purposes on fire clay and shale 

could be based on its gross receipts from the sale of its finished vitrified 

sewer pipe and related products. The taxpayer maintained that it 

could not sell its fire clay and shale into the existing market at a profit 

because of the high operating costs of its deep mine. The Government 

took the position that the taxpayer's allowance for percentage depletion 

should be computed on the same base as that utilized by nonintegrated 

miners, who did not fabricate their raw material into a finished product. 

The Court found that Congress intended to grant miners a depletion 

allowance based on the constructive income from the raw mineral 

product, if marketable in that form, and not on the value of finished 

articles. The Court also rejected the taxpayer's argument that, because it could not sell its minerals into the existing market at a profit, 
48 Annual Report 

they were not commercially marketable; it held that all the processes 

used by nonintegrated miners before shipping the raw fire clay and 

shale would be available to an integrated miner-manufacturer to the 

same extent but no more. The Court did not rule as to the correct 

depletion base for miner-manufacturers where there was no evidence 

that the crude minerals were marketable in their crude form. This 

question had previously been decided in favor of the taxpayer in the 

lower courts in such cases as United States v. Merry Brothers Brick & 

Tile Company, (C.A. 5, 1957) 242 F. 2d 708, cert. den. 355 U.S. 824, 

and United States v. Dragon Cement Company, Inc. (C.A. 1, 1957) 244 

F. 2d 513, cert. den. 355 U.S. 833. 

Also on June 27, 1960, the Supreme Court decided two consolidated cases 

in favor of the Government, Massey Motors, Inc. v. United States, 80 

S. Ct. 1424, on writ of certiorari from the Court of Appeals for the 

Fifth Circuit, and Commissioner v. Robley H. Evans et ux., on writ of 

certiorari from the Court of Appeals for the Ninth Circuit. The respective Circuit Court decisions, United States v. Massey Motors, Inc. 

(1959), 264 F. 2d 552, and Robley H. Evans et us. v. Commissioner 

(1969), 264 F. 2d 602, were in conflict and furnished the basis for 

Supreme Court consideration. Each case involved the depreciation allowance under the provisions of section 23 (1) of the 1939 Code for 

automobiles used in rental and allied services In these eases the Supreme Court made two specific determinations, one relative to the useful life of the assets and the other relative to salvage value. The Court 

noted that automobiles held for rental purposes must be late-model cars 

and that they were customarily disposed of after new models came out 

or shortly thereafter ; thus the useful life of such automobiles for rental 

purposes was considerably shorter than the inherent useful life of such 

automobiles for all purposes. The Court determined that the useful 

life, for purposes of depreciation, of automobiles used in a trade or 

business was the useful life of such automobiles in the trade or business, not their full economic life. The Court carried this premise to its 

logical conclusion and further determined that the salvage value, for 

purposes of depreciation, of rental automobiles was their value at the 

end of their useful life in the trade or business, not their junk value at 

the end of their full economic life; this was held to be their resale or 

secondhand value. Justices Harlan, Whittaker, Stewart, and Douglas 

dissented. Although this decision is concerned with rental automobiles, 

it will undoubtedly find wide application in situations involving any 

assets having a useful life in a given trade or business shorter than their 

full economic life. 

The Court decided another case on June 27, 1960, Hertz Corporation v. 

United States, 80 S. Ct. 1420, involving, like Massey Motors, Inc., et al. 

v. United States, the depreciation allowance on rental automobiles; 

however, this latter case concerned such allowance under the provisions of the Internal Revenue Code of 1964. The Court applied the 

same reasoning employed in the Massey Motors case, and determined 

that useful life for purposes of section 167 of the 1954 Code, as defined 

in Income Tax Regulations, section 1.167(a)-1 (b), was the useful life 

of the rental vehicle in the trade or business. In view of this conclusion, the Court determined that as the taxpayer's rental automobiles 

had a useful life in the trade or business of less than 3 years, they did 

not qualify for the use of the double declining balance method of computing the allowance for depreciation as claimed on taxpayer's returns. 

Report on Operations 49 

In the case of rental trucks, it was noted that they had a useful life 

in the trade or business of more than 3 years and did qualify for use 

of the double declining balance method. However, the Court determined 

that the double declining balance method did not have a "built-in" provision for salvage value, specifically, the amount remaining after the 

application of the depreciation equation as argued by taxpayer. The 

Court concluded that a reasonable salvage value must be considered in 

limiting the ultimate amount of depreciation allowable under the double 

declining balance method and that such value reasonably appears to be 

the price that will be received when the asset is retired. This decision, 

particularly insofar as it relates to the double declining balance method 

of computing the depreciation allowance, is not limited to automobiles 

but has application to all assets and must be regarded as a very significant decision. 

In another decision on June 27, 1960, in Commissioner of Internal Revenue 

v. Gillette Motor Transport, Inc., 80 S. Ct. 1497, the Court held that 

an award received from the Motor Carrier Claims Commission as a 

result of the Government having taken over control and operation of 

the taxpayer's transportation business during the last 10 months of 

World War II was rental income taxable as ordinary income, as was 

also the interest received on that sum. The nature of the property 

taken over was the right to use the taxpayer's transportation facilities. 

This right to use is not a capital asset but is simply an incident of the 

underlying physical property, the recompense for which is commonly 

regarded as rent, and the fact that the transaction was involuntary on 

the taxpayer's part does not change the nature of the case. 

Statement on adverse Tax Court decisions.—There were published in the Internal Revenue Bulletin acquiescences of the 

Commissioner in 103 adverse decisions of the Tax Court and 

nonacquiescences in 17 adverse decisions for the fiscal year ending 

June 30, 1960. 

Delinquency Investigations and 

Delinquent Returns 

As backlogs of past-due accounts were reduced to manageable 

proportions (see p. 63), many district offices were able to devote 

more attention to the enforcement of returns filing requirements. 

The number of investigations conducted in 1960 as a result of preliminary evidence of failure to file returns totaled 1,040,000, against 

972,000 during the prior year. At the end of the year there were 

438,000 such investigations pending compared to 440,000 a year 

ago. 

Substantial increases occurred this year in the securing of delinquent returns, as a result of the broadened program. The number of delinquent returns secured by district collection divisions 

totaled 897,495, which was 18 percent more than the 1959 figure. 

The amount of tax, penalties, and interest on these returns was 
1959 

18, 206 

14,237 

12, 360 

1, 499 

242 

136 

3, 969 

1,640 

I, 026 

514 

66 

34 

I, 399 

1,251 

89 

41 

18 

1,034 

996 889 

25 31 

13 I0 

50 Annual Report 

$115,655,000, up 27 percent from 1959. Most of the delinquencies 

involved quarterly returns of employment and excise taxes. 

District audit divisions also reported an increase in the volume 

of delinquent returns secured in connection with tax audits. Approximately 100,000 delinquent returns involving $37,856,000 were 

secured through this activity in 1960, representing a gain over 1959 

of 26 percent in number and 50 percent in amount. 

Fraud Investigations 

The initiation of substantially fewer preliminary investigations 

and a slight decrease in the special agent staff resulted in a decrease 

in the overall volume of tax fraud investigations completed during 

the year. Preliminary investigations decreased 19 percent, from 

14,237 in 1959 to 11,480 in 1960, while full-scale investigations 

dropped 10 percent from 3,969 to 3,561. 

The decrease in preliminary investigations continued the trend, 

in keeping with program objectives, toward more discernible selectivity in the screening of allegations and in the initiation of investigations, thereby permitting greater emphasis to be placed 

upon the development and investigation of cases of substance with 

prosecution potential. Progress in this respect is reflected by a 

10 percent increase in the number of fraud cases closed with a 

prosecution recommendation and an 11 percent increase in additional taxes and penalties involved in these cases. 

The policy for the independent initiation and investigation of 

wagering and coin-operated gaming device cases against important 

violators and in situations involving widespread noncompliance was 

broadened to include the conduct of several nationwide coordinated 

raids per year. An operation of this type late in the fiscal year involved the nearly simultaneous raiding of 81 wagering establishments in 57 cities. As a result 123 arrests were effected, and 12 

late model automobiles, more than $50,000 in currency, and numerous items of gambling equipment, such as business machines, 

radios, firearms, and numbers books, were seized. In addition to 

the stamp tax violations involved, several excise tax cases with indicated total deficiencies. of more than $1,000,000 were initiated. 

Operations of this character are demanding of manpower and to 

maintain an effective balanced enforcement in this area has required the use of 13.7 percent more manpower than was used 

in fiscal 1959. 

Responsibility for investigation of applicants for admission to 

practice before the Treasury Department was transferred at midyear to Inspection, to permit the Intelligence Division to concenReport on Operations 51 

trate upon the investigation of allegations of criminal tax violations. 

To achieve uniformity of organization nationally, a decentralization of the Intelligence function in New York City from the regional 

level to the district level was effected. The National Office Intelligence Division was also reorganized into four branches, instead of 

two, with a visitation staff established as a part of the Division Director's immediate office, in order that a more manageable division 

of work could be made and problem areas could be earlier identified 

and corrected. 

A summary of investigations by special agents follows : 

Tax fraud investigations 

Type 

Grand total 

Unnumbered (preliminary) investigations, total 

Fraud 

Wagering 

Coin-operated gaming devices 

Miscellaneous 

Numbered (full-scale) investigations, total 

Prosecution recommended, total 

Fraud 

Wagering 

Coin-operated gaming devices 

Miscellaneous 

Prosecution not recommended, total 

Fraud 

Wagering 

Coin-operated gaming devices 

Miscellaneous 

Investigations discontinued, total 

Fraud 

Wagering 

Coin-operated gaming devices 

Note.—The responsibility for investigation of applicants for admission to practice before the Treasury Department was 

transferred from the Intelligence Division to Inspection, effective Jan. I, 1960. For number of such investigations, see 

lb 99. 

Alcohol and Tobacco Tax Enforcement 

Three enforcement programs inaugurated in 1957, as a part of an 

all-out drive against illicit distillers, continued to be highly successful. These include : 

(1) A Major Violator Program and East Coast Plan ; 

(2) A Known Defendant Seizure Program; and 

(3) A Preventive Raw Materials Program 

The Major Violator program and the East Coast Plan are similar 

in that their basic concept is to concentrate on the perfection of 

564655 0 60 5 
53 

Seizure of syndicated illicit distillery nets 

20-foot column still and battery of 5000-

gallon mash tanks 

52 Annual Report 

criminal cases against major violators in the various critical enforcement areas. The Major Violator Program is applied against 

the principals involved in moonshine whisky operations in the 

Southeastern States and the East Coast Plan is directed at syndicates operating column alcohol stills in the New York-Philadelphia 

area. 

The Known Defendant Seizure Program places emphasis on the 

extension of investigations and the planning of raids so as to arrest 

groups of violators together and thus increase arrests per seizure. 

The Preventive Raw Materials Program is aimed at drying up 

the sources of the moonshiner's raw materials. This has forced 

violators and their suppliers to pay premium prices for materials 

and to travel thousands of miles to seek new sources. Indicative 

of the difficulty experienced by illicit distillers in securing an adequate supply of sugar is the recent seizure of a column still in New 

Jersey where hundreds of 2-pound boxes of sugar were found instead of the usual 100-pound bags. 

The effectiveness of these programs is indicated by the fact that 

no less than 95 percent of the principals in the syndicated operations, typical of the New York and Philadelphia Regions, are either 

presently serving time, awaiting appellate court action on their 

district court convictions, or are under indictment. All three programs have received the enthusiastic approval of many United 

States District Court judges who have given tangible evidence of 

their support by the imposition of severe sentences for liquor law 

violations. 

The Preventive Raw Materials Program has also been supported 

by several recent decisions in the Courts of Appeal. In Chapman v. U.S. (C.A. 5, Nov. 10, 1959) 271 F. 2d 593, the Court of Appeals 

affirmed the conviction of a baker for possessing sugar and flour 

with knowledge that they were destined for use by others to produce 

liquor in violation of Federal law. On April 22, 1960, the same 

Court of Appeals affirmed the conspiracy conviction of a prominent 

supplier of sugar in the Atlanta Region (Ellijay Feed & Supply Co. v. U.S., 277 F. 2d 791). The Court of Appeals for the 6th Circuit 

in Huard & Steinheiser v. Henry (June 17, 1960, 28 L.W. 2631), 

280 F. 2d 79, affirmed the Service's right to demand that a particular 

wholesaler report his sales of raw materials, against the claim that 

such a demand unlawfully discriminated against the wholesaler in 

favor of his competitors. 

The success of the East Coast Plan against the activities of the 

syndicated operations was such that, in the fall of 1959, a so-called 

Junior East Coast Program was instituted in the New York Region. 

This plan, designed to be used against violators who do not come 
54 Annual Report 

within the category covered by the parent program, is a most effective weapon against independent illicit distillers and distributors. 

Tests made by the United States Army and Revenue Service 

laboratories show that moonshine whisky frequently contains dangerous amounts of lead salts. The conclusive character of these 

tests is such that an intensive publicity campaign is contemplated. 

During the year, an effort was made by several alcoholic beverage industry groups to promote the sale of alcoholic beverages by 

means of claims of, or allusions to, therapeutic benefits from the 

consumption of such products. As the result of positive actions 

taken by the Service, under provisions of the Federal Alcohol Administration Act, all such efforts were promptly discontinued. 

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

decreased generally. As compared with the preceding year, the 

seizure of stills decreased 10 percent; seizures of mash decreased 8 

percent; seizures of nontaxpaid distilled spirits decreased 13 percent; and the appraised value of property seized decreased 7 percent. The number of vehicles seized decreased nominally, from 

3,193 to 3,103. Seizures of nontaxpaid wine decreased from 4,301 

gallons to 2,557 gallons. The number of arrests also decreased 

from 10,912 to 10,376, or 5 percent. 

The decrease in the number of seizures as well as in the number 

of arrests is due principally to a more intensive concentration of 

the enforcement effort on the detection of large-scale operations 

and the apprehension of the principals in such operations. 

A comparison of the seizures and arrests follows : 

Seizures and arrests for alcohol, tobacco, and firearms violations 

Item 1960 1959 

Seizures: 

Stills number__ 8,290 9,225 Nontaxpaid distilled spirits gallons__ 196,581 225,232 

Nontaxpaid wines do 2,557 4,301 Mash do.. 4,274, 365 4, 655, 572 Vehicles number.. 3, 103 3, 193 

Property (appraised value) dollars.. 2, 783, 779 • 2,993,043 Arrests I number__ 10,376 10, 912 

Note—Includes seizures and arrests in cases adopted, as well as originated, by the I ternal Revenue Service. 

• Revised. 

Includes 1 arrest for tobacco tax violations and 578 arrests for firearms violations in 1960, and 42 arrests for tobacco 

tax violations and 597 arrests for firearms violations in 1959. 

In the field of forfeitures, the dismissal of forfeiture proceedings 

against an automobile used to transport untaxpaid liquor because 

of the Government's refusal, in establishing grounds for the search 

and seizure of the car, to identify an informer, was reversed by 

the Court of Appeals for the 5th Circuit, which held that possible 

illegality of the search would not affect the property rights in the 

Report on Operations 55 

vehicle ( U.S. v. Carey, 272, F. 2d 492. See also U.S. v. One 1955 

Oldsmobile (D.C. Pa. March 15, 1960), 181 F. Supp. 903). Such 

decisions are particularly important in view of the frequent contention, supported by some authority, that the constitutional protection against unreasonable searches and seizures and Rule 41 (e) 

of the Federal Rules of Criminal Procedure (providing for the 

return of illegally seized property and for the suppression of its 

use as evidence) are applicable in these forfeiture proceedings and 

may require the return of the vehicle or other property to the law 

violator. 

During this fiscal year, the regulations with respect to the disposition of seized property have been completely overhauled in line 

with the Department's interest in obtaining uniformity of treatment insofar as is reasonably possible with respect to the various 

types of forfeiture subject to its jurisdiction. The importance of 

this endeavor is indicated by the fact that 574 petitions for the remission or mitigation of forfeiture, filed by parties holding an 

interest in property subject to forfeiture, were processed during 

the past fiscal year. 

Firearms Program 

There were only 3,654 firearms registered during the fiscal year 

1960, as compared with 52,156 firearms registered during 1959, 

due primarily to a substantial reduction in the number of firearms imported. As a result of investigational work under the National and Federal Firearms Acts, and the Act of August 9, 1939 

(49 U.S.C. 781), 590 persons were arrested, 157 vehicles seized, 

1,115 firearms seized, and 587 criminal prosecution cases completed. 

A signal example of the effectiveness of the program in limiting 

the availability of firearms to undesirables occurred during this 

fiscal year. On the basis of information that the prospective purchaser of some 17,000 scrapped surplus Thompson submachineguns 

intended to reassemble them, the Service interceded with the Department of Defense, which then determined that the interests of 

the general public required the complete destruction of the weapons 

and amended its regulations accordingly. The prospective purchaser failed in its attempt to prevent destruction of the weapons 

through an injunction suit, carried twice to the Circuit Court of 

Appeals. 
56 Annual Report 

Cases Involving Criminal Prosecution 

Total additional taxes and penalties of $93,068,140 were involved 

in eases received in the Chief Counsel's office with recommendations of criminal prosecution. This reflected an increase of about 

$5,445,000 over the amount involved in the prior year. 

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

from the Assistant Regional Commissioner, Intelligence, through 

the office of the Chief Counsel and the Department of Justice 

follows : 

Receipt and disposal of cases in Chief Counsel's office 

Status 1960 1959 

Pending July 1 

Received during year, tota l 

With recommendation for prosecution 

With requests for opinion 

Disposed of during year, total 

Prosecution not warranted 

Department of Justice declined 

Prosecutions 

Opinions delivered 

All other closings 

Pending June 30 1 ... _ 

2,131 

1,698 

2, 132 

1,640 

I, 590 

108 

1, 552 

88 

I,559 1,641 

205 

51 

980 

96 

227 

325 

69 

985 

91 

171 

2, 270 2, 13 I 

1 Includes cases awaiting action in Department of Justice exclusive of wagering tax c ses referred by Intelligence 

Division. 

A total of 1,009 income and miscellaneous criminal cases, with 

prosecution recommendations involving 1,079 prospective defendants, was forwarded to the Department of Justice. Compared with 

the prior year this was an increase of 23 percent in the volume of 

referrals. Also in the year ended June 30, 1960, indictments of 

such cases were up 20 percent and the total disposal of cases in , 

these categories in the district courts was increased 12 percent. 

In income, excise, and wagering tax cases reaching the courtroom, 950 defendants pleaded guilty or nolo contendere, 136 were 

convicted after trial, 69 were acquitted, and 204 were dismissed. 

A comparison of indictments and courtroom actions for the last 

2 years follows : 

Report on Operations 57 

Results of criminal action 

Action 

Number of defendants 

1960 1959 

Total 

Indictments and informations 7, 909 8, 770 

Disposals, total 7,918 8,725 

Plea—guilty or nolo contendere 5,700 6, 490 

Convicted after trial 963 902 

Acquitted 391 432 

Nol-prossed or dismissed 1 864 901 

Income tax and miscellaneous cases 2 

Indictments and informations 839 702 

Disposals, total 932 743 

Plea—guilty or nolo contendere 630 543 

Convicted after trial 71 88 

Acquitted 47 48 

Nol-prossed or dismissed 1 84 64 

Wagering tax cases 

Indictments and informations 421 483 

Disposals, total 527 415 

Plea—guilty or nob contendere 320 253 

Convicted after trial 65 25 

Acquitted 22 24 

Nol-prossed or dismissed 120 113 

Alcohol, tobacco, and firearms taxes 

Indictments and informations 6,649 7,585 

Disposals, total 6,559 7,567 

Plea—guilty or nob contendere 4,750 5, 694 

Convicted after trial 827 789 

Acquitted 322 360 

Nol-prossed or dismissed 660 724 

Includes cases dismissed for the following reasons: 10 because of death of principal def ndant, 1 because of serious 

Illness, and 62 because principal defendant had pleaded guilty or had been convicted in a re ated case. 

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

Supreme Court decisions and other significant court actions.—

Certiorari was denied in the cases of Bernard Goldfine and Mildred 

Paperman who were convicted and sentenced on criminal contempt charges as a result of their failure to produce corporate 

books and records during an income tax investigation of Goldfine 

business enterprises. Indictments have been returned in the District of Massachusetts charging Bernard Goldfine with wilful attempted evasion of $450,960.57 of his personal income taxes for the 

years 1953 through 1957; Mildred Paperman with evasion of 

$25,591.39 of her personal income-taxes for the same years; and 

Bernard Goldfine and Mildred Paperman with evasion of $340,-

784.06 of corporate income taxes due from Strathmore Woolen 

Co., a Goldfine corporation, for the years 1952 through 1957. 

In Forman v. United States (361 U.S. 416), the Supreme Court 

held that the Court of Appeals, which had ordered the entry of a 
58 Annual Report 

judgment of acquittal in a tax fraud conspiracy prosecution on the 

ground that the trial court gave an erroneous instruction, could, 

on rehearing, direct a new trial on an alternative theory ascertainable from the indictment. 

Certiorari was granted in the case of Eugene James, a union 

official convicted and sentenced for attempted evasion of approxi-

- mately $563,000 in income taxes on unreported moneys received 

by him during the years 1951 to 1954, inclusive. The legal issue 

involves whether union funds improperly diverted to his personal 

use by the union official are taxable or exempt from taxation under 

the Court's decision in the Wilcox case (327 U.S. 404) . 

Certiorari was granted in the case of Charles F. Leahy for Supreme Court review of the decision of the Ninth Circuit Court of 

Appeals that an internal revenue agent armed with a valid arrest 

warrant had not violated the defendant's right against illegal 

search of his residence in gaining admittance to the premises to 

be searched by stating that he was an agent from the County 

Assessor's office. 

Certiorari was granted in the Thomas Clancy case in which the 

Seventh Circuit Court of Appeals held that books and records of 

taxable wagering activities which Treasury Regulations require a 

taxpayer to keep are not such private papers as to be immune 

under Fourth and Fifth Amendments from seizure and use against 

taxpayer indicted for evading wagering taxes. 

Federal-State Cooperation 

During the past year, an exchange agreement was entered into 

with the State of Kansas and the original agreement with Montana was revised. Discussions were completed for updating the 

agreement with North Carolina and progress was made in developing the essential aspects of a formal agreement with the several 

State tax authorities administering taxes in California. A growing interest in cooperative agreements is being shown by the 

States. 

The survey of informal cooperative exchanges, which was initiated last year, clearly showed that cooperation is an expanding 

enterprise, yielding increased benefits to both the States and the 

Federal Government. The flow of information from the States 

under formal and informal arrangements is yielding the Internal 

Revenue Service more than $10 million in additional revenue annually. Although comprehensive figures on benefits to State revenues from Federal audit reports and other information are not 

available, the States appear to be gaining even larger additional 

Report on Operations 59 

revenues from the exchange. Emphasis on increasing the scope 

of information exchanged and on more economical methods of 

exchange is producing gratifying results. To an increasing extent, 

State tax administrators have been taking the initiative in suggesting ways in which they might be more helpful to the Revenue 

Service. 

In the alcohol tax area, cooperation between Federal and State 

officials is particularly close. Federal and State law enforcement 

officials frequently work together in the investigation of liquor 

violations and there is a continual interchange of information 

relative to law violations in this field. Frequently, cases investigated by State or local officers which are considered sound from a 

Federal viewpoint are adopted for Federal prosecution. The adoption of such State cases for Federal prosecution may be adversely 

affected by the Supreme Court's rejection of the so-called "Silver 

Platter" doctrine, which permitted the introduction in Federal 

cases of evidence procured by State officers, even though it had 

been illegally obtained under Federal standards. In Elkins V. 

U.S., 364 U.S. 206 (June 27, 1960) , after reviewing the development of this doctrine, the court commented favorably on the advantages of free and open cooperation between State and Federal 

law enforcement officers, but held evidence obtained by State 

officers during a search, which was unlawful under Federal standards, to be inadmissible in the Federal courts. 

International Operations 

Responsibility for administering the internal revenue laws in 

areas of the world outside the United States and for administering 

U.S. tax treaties is centralized in the International Operations Division. Through this Division, the Revenue Service devotes attention to the special tax problems in the international area and 

endeavors to raise the level of voluntary compliance among U.S. 

taxpayers residing abroad. In addition to performing usual district functions, the Division prepares guides on international tax 

issues, provides taxpayer assistance overseas, and generally is a 

source of leadership for the international aspects of the enforcement program of the Service. 

To accomplish, in part, the functions mentioned above, the Division has permanent foreign posts at Paris, France ; Ottawa, 

Canada ; Manila, Philippines ; London, England ; and Sao Paulo, 

Brazil, with one or two technical employees assigned to each post. 

A field office in Puerto Rico collects social security taxes and performs other Internal Revenue functions to the extent applicable 
60 Annual Report 

in Puerto Rico, the Virgin Islands, and the Caribbean and South 

American areas. In addition to the matters handled through 

these offices, work is conducted by correspondence from Washington, or where necessary by visits to foreign countries by agents 

assigned to Washington. The Division also secures a substantial 

amount of information from foreign countries for other offices of 

the Internal Revenue Service, and assists such offices in the resolution of international tax issues. 

Informants' Rewards 

Under the provisions of section 7623 of the Internal Revenue 

Code of 1954, district directors are authorized to approve rewards 

for information leading to the detection and punishment of persons 

guilty of violating internal revenue laws. 

Claims for reward filed by informants during fiscal year 1960 

totaled 4,055. Of the claims received and those remaining on hand 

at the end of the prior year, 4,281 were closed. About 82 percent 

of the claims closed were disallowed because they could not be 

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

In 758 claims allowed during 1960, the recommended payments 

to informants totaled $522,607, an increase of about 25 percent 

over the prior year's recommended amounts. Through the disclosures of informants, the Service recovered over $12 million in 

taxes, penalties, and interest. 

During recent years, increased emphasis has been placed on the 

early disposition of informants' claims for reward. The following table shows a comparison of this activity during the last 2 

years : 

Receipt and disposal of claims for informants' rewards 

Status 1960 1959 

Pending July I number__ 4,744 5,689 Received during year do___ 4,055 4,157 

Disposed of during year, total 4, 281 5,102 

Rejected do 3,523 4,394 Allowed do_ 758 708 

Pending June 30 do 4. 518 4,744 Amount allowed on claims disposed of during year dollars__ 522, 607 416,704 

Report on Operations 61 

Summary of Additional Tax From Enforcement 

The aggregate amount of additional tax, penalties, and interest 

assessed in 1960 as the result of enforcement activities totaled 

$2,052,493,000. This represents a 13-percent increase over 1959 

and marks the highest annual total in the history of the Service. 

This total comprises the amounts obtained from audit (see p. 36), 

from mathematical verification (p. 33), and from delinquent 

returns secured (p. 49) . 

The amount saved through the audit and disallowance of improper refund claims totaled $634,758,000 in 1960 as compared 

with $259,002,000 in the preceding year. The increase was due 

principally to the disallowance of a few unusually large corporation 

income tax claims and a number of large excise tax claims (see 

p. 37) . 

Tax, penalties, and interest resulting from enforcement efforts 

(In thousands of dollars] 

Item 1960 1959 

Additional tax, penalties, and interest assessed, total 

From audit, total 

Income and profits taxes, total 

2, 052, 493 • 1, 820, 728 

1, 786, 915 1, 619, 148 

I, 576, 657 1, 422,657 

Corporation income and profits 910, 597 747, 426 

Individual and fiduciary: 

Prerefund audit 102, 517 97, 775 

Regular audit 563, 543 577, 455 

Estate and gift taxes 175,719 164,528 

Employment taxes 2, 888 6, 338 

Excise taxes 31,651 25,624 

From mathematical verification of income tax returns, total 112,066 85, 233 

Individual (Forms 1040 and 1040A) 112, 066 84, 688 

Fiduciary (Form 1041) 

Corporation 470 

From delinquent returns secured, total 153,511 • 116, 347 

By district collection divisions 115, 655 •91, 133 

By district audit divisions 37, 856 25, 214 

Claims disallowed 634,758 259,002 

By district audit divisions 515,625 204,711 

By regional appellate divisions 119,133 54,290 

• Revised. 

I Includes withheld income tax. 

a Not available for periods subsequent to Dec. 31, 1958. 
112 

116 

From delinquent 

returns secured 

Additional Tax from 

Enforcement Efforts 

Including interest and penalties 

(millions of dollars) 

From audit 

1,781 

From 

mathematical 

verification 

85 

154 

Report on Operations 63 

Collection of Delinquent Accounts 

On June 30, 1960, there were 941,913 delinquent accounts on 

hand representing an aggregate amount of $998,209,000. This is 

22 percent lower than last year in number of accounts and 17 percent in amount. The inventory, both number and dollar amount, 

has been reduced by almost 40 percent in the 5 years since June 

30, 1955, when it was at the highest year-end point on record. 

Emphasis on the older accounts showed impressive results with 

a reduction of 37 percent during the year. The proportion of 

accounts with balances 2 years old and over was reduced to 14 

percent of the total inventory where a year earlier it was 18 

percent. 

In 1960 there were 2,397,000 delinquent account assemblies 

issued (each assembly consists of a notice to the taxpayer and 

related office records), which is 10 percent less than the number 

issued in 1959. These issuances represented $1,202,053,000, in 

past-due taxes which is slightly higher than the 1959 amount. 

The number of delinquent accounts disposed of totaled 2,656,000 

and the dollar amount of disposals was $1,409,848,000. Amounts 

collected aggregated $941,416,000, a decrease of 4 percent from 

1959. Disposals of delinquent accounts were less than last year, 

due primarily to the fall off in issuances and the continued decline 

in inventories. 

For several years increasing attention has been given to the 

collection of delinquent accounts by office collection techniques, in 

place of the more costly personal contact with taxpayers. During 

1960, 62 percent of total disposals were by such methods. The 

extension of the sphere of the Office Collection Force has enabled 

revenue officers to devote more attention to older and more difficult 

collection cases and to the securing of delinquent returns. 

The table below shows the comparative results of the delinquent 

account activity for the last 2 years. 

Totals 

1959-1,821 

1960-2,052 
Issued 

Closed 

1,202 

64 Annual Report 

Taxpayer delinquent accounts 

Status 

Number (thousands) Amount (thousand dollars) 

1960 1959 1960 1959 

Assemblies issued 2, 397 2, 656 I, 202, 053 I, 195, 919 

Closed, total 2, 656 2, 960 1.409, 848 1, 456, 137 

By type of action: 

Collected 2, 152 2, 396 941,416 978,283 

Other disposals 2 504 565 468,432 477, 854 

By method of handling: 

Revenue officers 913 1,288 623,143 79!,278 

Office collection force 1,657 1,533 589,942 469,533 

Other 3 86 139 1%, 763 195,326 

Pending June 30, total 942 1,202 998,209 1, 206, 005 

Active. 841 1,079 618, 766 762. 024 

Inactive 101 122 379,444 443, 981 

The assembly comprises several parts. all for office use except one which is a notice to the taxpayer indicating legal 

action unless immediate payment is made. 

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

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

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

n compromise, etc. 

A study to improve organization and management in the delinquent accounts and returns branches of the district collection 

divisions was completed in the latter part of the year. On the 

basis of this study, organizational guidelines were issued to field 

offices which provide for improved definition and alignment of 

delinquent accounts and returns functions and for better integration of these functions within a geographical area. In addition, 

those positions in the collection function not yet identified within 

the framework of the "Blue Ribbon" program were placed in 

career ladders comparable to those already established in other 

areas. 

Taxpayer 

delinquent accounts 

(millions of dollars) 

1,588 1,561 1,466 1,206 

Inventory 

as of 

June 30 998 

1956 1951 1958 1959 1960 
66 Annual Report 

Offers in Compromise 

The major development in the compromise area was the expansion of the authority of district directors to act with finality on 

substantially all tax and penalty offers involving liabilities under 

$25,000 and those relating to specific penalties. This change was 

made effective July 1, 1960, thus completing the third phase of a 

long-range decentralization program. Concurrently, the regional 

counsels were assigned responsibility for furnishing the legal 

opinion for cases closed at the district level. 

District offices were geared to absorb the more complex workloads through (1) improved correlation of national, regional, and 

district activities ; (2) realignment and specialized training of 

technical personnel to meet the delegated responsibilities ; and (3) 

development of improved compromise techniques on evaluation 

and management concepts. Special study was also given to the 

problems of minimizing oversights at the field level, defining future 

goals and facilitating operational planning. 

District directors succeeded in maintaining compromise workloads in a current condition. During the year district offices received for consideration 5,483 tax offers, 4,434 delinquent penalty 

offers, and 2,346 specific penalty offers, and disposed of 13,273 

offers, leaving 3,787 on hand as of June 30, 1960. 

Tax offers in which court proceedings are involved, or criminal 

prosecution is pending, are considered by the Chief Counsel or 

by the appropriate regional counsel. These offices received 226 

offers, disposed of 270, and had 148 offers on hand as of June 30, 

1960. 

In the alcohol, tobacco and firearms categories, the National 

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

received 422 offers and disposed of 415, leaving a total of 92 cases 

on hand as of June 30, 1960. 

The overall compromise workload as of June 30, 1960 consisted 

of 4,027 cases awaiting consideration at all Revenue Service levels. 

A comparative summary of compromise cases closed in the last 

2 years follows : 

Report on Operations 67 

Offers in compromise disposed of 

Type of tax or penalty 

Number 

Amount (thousand dollars) 

Liabilities Otters 

1960 1959 1960 1959 1960 1959 

Offers accepted, total 8, 510 11,192 52, 088 48, 718 11,862 10, 570 

Income, profits, estate, and gift taxes 1,143 1,297 39,613 37,447 8,676 7,727 

Employment and withholding taxes 1,060 1,275 6,456 6,060 1,844 1,761 

Alcohol taxes 138 158 410 588 83 120 

Other excise taxes 280 274 3, 774 2, 459 846 483 

Delinquency penalties on all taxes 3,545 1,569 1,835 2,164 342 413 

Specific penalties 2,344 3,619 71 66 

Offers rejected or withdrawn, total 5,448 5,591 72,865 81,647 12,563 14,719 

Income, profits, estate, and gift taxes I, 966 2,225 55, 566 65, 283 9,392 II, 738 

Employment and withholding taxes 1,419 1,518 9,852 9,102 1,892 1,804 

Alcohol taxes 136 150 513 811 61 78 

Other excise taxes 512 468 5,881 5,565 968 940 

Delinouency penalties on all taxes 1, 367 1,1% I, 053 886 237 150 

Specific penalties 48 34 13 9 

Civil Advisory Legal Services 

The legal work connected with the functions of district directors' 

offices has undergone significant change since the commencement 

of the reorganization program under which much of this work 

was decentralized to the regional counsels. After 5 years of a 

continued increase in both cases received and disposed of, the current fiscal year has seen a leveling off in respect to this formal legal 

assistance to the district directors' offices. The number of cases 

received in the current fiscal year totaled 10,798 as compared with 

10,849 for fiscal year 1959. The number of cases disposed of 

totaled 11,190 and 10,500 for these same periods, respectively. As 

a result the inventory of pending cases declined slightly from 4,847 

in fiscal 1959 to 4,455 in fiscal 1960. (For a statistical report of 

the cases received and disposed of during the current fiscal year, 

see tables 22, 23, and 24 on p. 153.) 

Just as this formal legal assistance remained fairly constant, 

the less formal assistance to district directors' offices continued 

unabated. The daily contact, both by telephone and in person, the 

visitation program under which the lawyers in the regional 

counsels' offices who handle civil advisory cases make periodic 

visits to the district directors' offices within their respective regions, and the participation by civil advisory lawyers in the inservice training program for revenue officers, all contributed to a 

closer and more effective working relationship between the personnel of the regional counsels' and the district directors' offices. 

564655 0-60 6 
68 Annual Report 

During the current fiscal year six cases pertaining to problems 

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

see United States v. Price, page 43, New Hampshire Fire Insurance 

Co. v. Scanlon, page 44, United States v. Brosnan and Bank of 

America National Trust and Savings Ass'n. v. United States, page 

45, Aquilino v. United States, page 46, and United States v. Durham 

Lumber Co., page 47. 

SUPERVISION OF THE ALCOHOL 

AND TOBACCO INDUSTRIES 

General 

Regulatory changes were made effective which give proprietors 

of distilled spirits plants greater responsibility and more flexibility in their operations. This has permitted further reduction 

in the number of Government officers assigned to plants. 

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

year 1960 'are presented in a separate Internal Revenue Service 

publication entitled "Statistics Relating to the Alcohol and Tobacco 

Industries," which may be obtained from the Superintendent of 

Documents, Washington 25, D.C. 

Authorization of Industry Operations 

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

sections 3 and 4 of the Federal Alcohol Administration Act totaled 

3,323, of which 3,242 covered operations relating to alcohol and 

liquors and 81 involved tobacco. Permits terminated during the 

year numbered 3,640, consisting of 3,481 relating to alcohol and 

liquors and 159 in the tobacco area. The first-mentioned figure 

includes the automatic termination of the 414 permits of carriers 

of tax-free and specially denatured alcohol, the requirement for 

such permits having been eliminated pursuant to the enactment of 

Public Law 85-859 (H.R. 7125). Details as to permit actions 

during the year are shown in tables 9 through 11, on pages 136 

through 138. 

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

totaled 444,787 as of June 30, 1960, as compared with 469,122 

reported at the close of fiscal 1959. Corresponding figures for 

manufacturers of tobacco products and tobacco export warehouses 

show 3,052 qualified establishments on June 30, 1960, as compared 

with 3,209 a year earlier. A breakdown of these figures by classes 

69 
70 Annual Report 

Report on Operations 71 

of establishments is shown in tables 7 and 8 on page 135 of 

this report. The first-mentioned table reflects the advent of the 

single distilled spirits plant which replaces the former nine different establishments. 

Technical review of the qualifying documents incidental to the 

establishment of 366 distilled spirits plants under the Excise Tax 

Technical Changes Act was completed, and the regions were advised 

respecting clarification of requirements as to particular areas of 

plant qualification. 

A total of 38,349 applications for approvals of labels, or exemption from the requirement, were received and processed during 

1960, as compared with 38,129 received during the preceding year. 

Forty-three applications for approval of interlocking directorates were favorably acted upon during the year. 

Representatives of the Service visited Germany, France, Denmark, and Scotland to view methods of alcoholic beverage production and systems of government control. The primary purpose 

of the trip was to participate in discussions with officials of the 

Federal Republic of Germany preparatory to that Government's 

decision to adopt a system for the certification of origin with respect to wines exported to the United States. This system of 

control became effective as to all wines exported to the United 

States from Germany on and after May 1, 1960. It is expected 

that in the coming fiscal year arrangements will be made with 

other wine producing countries to adopt the certification system. 

On-Premises Supervision 

Several years ago the Service initiated a program to eliminate 

or curtail Government supervision of many industry operations 

relating to the production, warehousing, denaturing, processing, 

and bottling of spirits. This program has proved to be beneficial 

to both the industry (through greater latitude and freedom in 

operations) and the Government (through reduced costs). Regulations prepared under Public Law 85-859 during this fiscal year, 

effective July 1, 1960, further curtailed on-premises supervision. 

As a result additional savings to the Government may be expected. 

Inspector (on-premises) supervision was provided at distilled 

spirits plants which accounted for the production of 803,750,978 

tax gallons of distilled spirits, including ethyl alcohol, the denaturation of 520,512,100 tax gallons of ethyl alcohol, the warehousing of 33,259,154 tax gallons of distilled spirits, including alcohol, 

the taxpayment of 177,952,395 tax gallons of distilled spirits, including alcohol, the rectification of 81,483,000 proof gallons of 
72 Annual Report 

distilled spirits and wines, and the bottling of 203,969,199 wine 

gallons of distilled spirits. 

A successful pilot operation was conducted at certain distilled 

spirits plants in which the responsibility for determining rectification tax liability was shifted from the Government officer to the 

proprietor. 

The Service has successfully completed the collection of substantial excise taxes on distilled spirits which it had feared would prove 

to be uncollectible, due to the fact that the liquor market was 

flooded,with aged whiskies which could not be sold by the producers 

at a profit. For example, in excess of $1,500,000 has been collected 

from two affiliated distillers, representing the excise tax, penalties, 

and interest on approximately 100,000 gallons of whisky which 

were not taxpaid at the expiration of the former 8-year limit on 

the period of storage in bond. Distraint on this whisky appeared 

inadvisable, since it was doubtful whether the amount of the tax 

could be realized from its sale. Suits were, however, filed against 

the distillers and the surety on their bonds. By agreement between 

the distillers, their surety, the Department of Justice, and the 

Service, the distillers were allowed to dispose of the whisky and 

apply the purchase price to the assessments with the surety paying 

the balance due. All of the whisky has now been disposed of under 

this arrangement, the assessments have been paid in full, and, 

accordingly, the suits have been dismissed. 

Inspection of Establishments 

Inspections of establishments for the fiscal year aggregated 

38,560, of which 28,066 related to plants and permittees other than 

dealers. These figures for the previous fiscal year were 40,855 

and 29,703, respectively. The reduction in the number of inspections was caused primarily by eliminating certain requirements 

for inspections of applicants for permits, allowing more claims for 

refund and credit of tax without field inspection, and increasing 

the use of inspecting officers for supervision of plants in areas 

which had a critical shortage of officers needed for required supervision during peak operating periods. 

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

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

follows: 94,547,867 barrels (of 31 gallons each) of beer, 170,132,499 

gallons of still wines, 4,112,666 gallons of effervescent wines, 

3,930,424 gallons of vermouth, and 11,777,978 gallons of special 

natural wines other than vermouth. Tobacco products factories, 

Report on Operations 73 

also subject to inspection, produced during the fiscal year 6,786,-

061,070 large cigars, 151,059,329 small cigars, 178,870 large 

cigarettes, 506,126,632,292 small cigarettes, and 176,059,433 

pounds of manufactured tobacco (including smoking and chewing 

tobacco, and snuff ). 

Chemical Analyses and Research 

The national and regional laboratories jointly carried out a 

number of research studies and investigations. Five papers reporting the results were published in periodicals and five investigations were reported in internal revenue documents. Highlighting this work was the revision and modernization of "Methods of 

Analysis for Alkaloids, Opiates, Marihuana, Barbiturates and 

Miscellaneous Drugs." 

In collaboration with industry, a number of studies were conducted which have benefited both industry and the Government. 

Among the more important accomplishments, guidelines were 

established for stabilization treatments of distilled spirits and a 

method was developed and put into use for determining the age of 

imported distilled spirits. 

Approximately 39,500 samples were received and examined in 

the national and regional laboratories of which approximately 9,200 

were illicit spirits and 5,500 narcotics. In the categories of food, 

flavors, and medicines using taxpaid spirits, 2,354 new formulas 

were approved while 3,176 formulas and 3,476 samples were examined and approved for products and processes using specially 

denatured. alcohol. Labels were approved for 4,898 products 

produced with specially denatured alcohol. 

The total volume of samples shows little change from the previous 

year; however, there was a decrease of approximately 5 percent 

in illicit spirits and a similar increase in legitimate products. The 

number of narcotic samples was nearly identical with that of the 

previous year. 
LEGISLATIVE DEVELOPMENTS 

Legislative Preparations 

This fiscal year was marked by considerable congressional activity in the field of tax legislation. The Committee on Ways and 

Means held public hearings with respect to social security amendments, general revenue revision, the tax treatment of cooperatives, 

the treatment of the gain on the sale or exchange of tangible personal property used in the trade or business, and the computation 

of the foreign tax credit allowable with respect to the amount 

includible in gross income by domestic corporations. The Committee on Finance held public hearings with respect to the Trust 

and Partnership Income Tax Revision Act of 1960, the selfemployed pension plan bill and the Treasury alternate to that bill, 

and the social security amendments. 

Revenue Service representatives attended public hearings and 

executive sessions held by the committees in connection with this 

pending legislation as well as the legislation enacted as set forth 

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

During the year, 98 reports on bills were prepared and forwarded 

to the Office of the Secretary of the Treasury. These reports dealt 

with proposals to amend the Internal Revenue Code, the Federal 

Firearms Act, the Federal Alcohol Administration Act, and the 

Federal Tort Claims Act, as well as private relief bills in the 

alcohol and tobacco tax area. Information was also furnished to 

the Secretary's office informally in instances where time did not 

permit the preparation of a formal report. In addition, the 

Revenue Service carried out its own research and study projects 

to develop information about tax administrative problems, tax 

loopholes, and tax inequities. It considered and evaluated suggestions submitted by taxpayers, including Members of Congress. 

At the close of the year, two important bills were awaiting consideration by the Senate : H.R. 10, a bill to encourage the establishment of voluntary pension plans by self-employed individuals, 

74 

Report on Operations 75 

reported by the Committee on Finance on June 17, 1960, and H.R. 

9662, the Trust and Partnership Income Tax Revision Act of 1960, 

reported by the Committee on Finance on June 18, 1960. 

Three bills were awaiting approval of the President. These were 

H.R. 4251, to remove the limitation on deductions for exploration 

expense; H.R. 7726, to provide for transmittal to district directors 

of notices of creditors' meetings ; and H.R. 11602, amendments required by the admission of Hawaii as a State. 

Two bills were awaiting conference action. These were H.R. 

8229, to provide an exemption from income tax for supplemental 

unemployment benefit trusts, and H.R. 10087, to elect an overall 

limitation on the foreign tax credit. 

Thirteen bills, including H.R. 5, the Foreign Investment Incentive Tax Act of 1960, and H.R. 12580, Social Security Amendments 

of 1960, had been passed by the House and were awaiting action 

by the Committee on Finance. Two bills had been reported by 

the Committee on Ways and Means on which no action had been 

taken by the House. 

Legislation Enacted 

On September 21, 1959, H.R. 8678 (86th Congress), the FederalAid Highway Act of 1959, was enacted. This law imposes an 

additional 1-cent tax on gasoline, diesel fuel, and special motor 

fuels for the 21-month period beginning October 1, 1959 and ending June 30, 1961 (P.L. 86-342). 

H.R. 8725 (86th Congress) was also enacted on September 21, 

1959. This enactment amends the excise tax provisions with respect to coral, nonprofit educational organizations, certain payments for capital improvements, general telephone service, sales 

or transfers of stock rights, etc., and coin-operated devices commonly known as claw, crane, and digger machines (P.L. 86-344). 

H.R. 8684 (86th Congress), the Dealer Reserve Income Adjustment Act of 1960, was enacted on May 13, 1960. This law provides 

transitional provisions for the income tax treatment of dealer reserve income (P.L. 86-459). 

On May 14, 1960, H.R. 9660 (86th Congress) was also enacted. 

This law amends section 6659(b) of the Internal Revenue Code 

of 1954 with respect to the procedure for assessing certain additions 

to tax and removes the 3-percent limit on the deduction of medical 

expenses incurred by a taxpayer for the care of his dependent 

mother or father or the dependent mother or father of his spouse 

if the dependent has reached the age of 65 before the close of the 

taxable year (P.L. 86-470). 
76 Annual Report 

On June 1, 1960, H.R. 4029 (86th Congress) was enacted to 

eliminate the proration of the occupational tax on persons dealing 

in machine guns and certain other firearms, to reduce occupational 

and transfer taxes on certain weapons, to make the transferor 

and transferee jointly liable for the transfer tax on firearms, and 

to make certain changes in the definition of a firearm (P.L. 86-478) . 

H.R. 12381 (86th Congress), the Public Debt and Tax Rate 

Extension Act of 1960, was enacted on June 30, 1960. This act 

postpones until July 1, 1961, the reduction in the normal-tax rate 

on corporate income, the termination of the excise tax on general 

telephone service, and the reductions in certain excise-tax rates 

which otherwise would have become effective on July 1, 1960. It 

also amends section 613 of the Internal Revenue Code of 1954, 

with respect to the depletion rate for certain clays and the treatment processes which are to be considered as mining (P.L. 86-564). 

Twenty-one other bills which have some effect on the Federal 

tax statutes were enacted, the following being of particular 

interest: 

Public Law 86-141 adds a provision to the Internal Revenue Code regarding estate tax treatment in case of failure to relinquish certain 

powers on account of mental disability. 

Public Law 86-175 allows a deduction, for Federal estate tax purposes, 

in the case of certain transfers to charities which are subjected to 

foreign death taxes. 

Public Law 86-319 amends the Internal Revenue Code to provide that 

the exemptions from the admissions tax for athletic games benefiting 

crippled or retarded children shall apply where the participants have 

recently attended designated schools or colleges as well as where they 

are currently students. 

Public Law 86-376 provides a personal exemption for children placed for 

adoption and clarifies certain provisions relating to the election of small 

business corporations as to taxable status. 

Public Law 86-418 exempts bicycle tires and tubes used in the manufacture or production of new bicycles from the manufacturers' excise 

tax on tires and tubes. 

Public Law 86-422 reduces the cabaret tax from 20 percent to 10 percent 

effective May 1, 1960. 

Public Law 86-435 amends the Internal Revenue Code with respect to 

the treatment of copyright royalties for purposes of the personal holding company tax. 

Public Law 86-440 fixes a tax of 1 cent per pound on certain laminated 

tires produced from used tires. 

The Revenue Service formulated and carried out plans for the 

implementation of the legislation that was enacted. These plans 

included the issuance of statements to the public, circulars, and 

regulations, and the revision of tax forms. 

Report on Operations 77 

Tax Conventions 

Belgium. —The supplemental convention with Belgium whereby 

the income tax convention with that country was extended to the 

Congo and the Trust Territory of Ruanda-Urundi came into force 

effective January 1, 1959, as a result of the exchange of the instruments of ratification on July 10, 1959. 

Norway. —The supplemental convention with Norway came into 

force effective January 1, 1959, as a result of the exchange of the 

instruments of ratification on October 21, 1959. 

India.—A proposed income tax convention with India was transmitted to the Senate in May 1960 and was pending before that body 

at the close of the fiscal year. 

Japan.—A proposed supplementary protocol modifying the 

amended income tax convention of April 16, 1954, with Japan 

was signed at Tokyo on May 7, 1960. 

Genera/.---Extended discussions took place at Washington with 

a number of countries directed to original and supplemental conventions resulting in the finalization of several texts now moving 

toward signature. 
MANAGEMENT ACTIVITIES 

Major Administrative Improvements 

and Policy Changes 

General.—Improvement in the Service's management and operations forged ahead during fiscal 1960 through new and concentrated emphasis in three major management areas—program 

planning, closely coordinated with budgetary operations ; vigorous 

national and regional programs for management review and 

evaluation ; and work planning and control. In the program 

planning area, all levels of the Service participated in a searching 

review of operations, program plans, manpower utilization and 

needs in developing the budget request and financial plan. Management review and evaluation gained momentum through regularly scheduled cyclic visits to the field by teams of National Office 

staff officers reviewing the efficiency of regional management, and 

through regional office evaluation teams reviewing district management and program execution. Work planning and control was 

expanded into the delinquent accounts and returns activities of 

Collection and is currently being extended to Audit and Intelligence functions. 

Savings from improvements.—Concrete evidence of the dynamic 

quality of the Management Improvement Program is shown by 

tangible recurring annual benefits and gains totaling 738 manyears, representing salary values of $3,820,963, plus $348,544 of 

recurring annual direct savings in materials, facilities, etc. The 

Incentive Awards Program produced savings of $555,734, raising 

the grand total to $4,725,241. In addition, functional and records 

management specialists working together freed for reuse space 

and equipment valued in excess of $900,000. Many improvements 

were also made which, though intangible or impracticable to 

measure in dollars and cents, nevertheless contributed materially 

toward increased effectiveness, greater productivity and increased 

revenue collections, better service to and relations with the public, 

and improvement in employee efficiency and morale. 

78 

Report on Operations 79 

Consolidation of district offices.—On January 1, 1960, the Upper 

Manhattan and Lower Manhattan Districts in New York City were 

combined to form the Manhattan District. The Service had found 

that the existence of two district offices in this area not only multiplied its operational problems, but also confused taxpayers, many 

of whom, for example, filed in one district and paid their taxes in 

another. Also on January 1, the four Ohio districts were merged 

into two—Toledo into the Cleveland District, and Columbus into 

the Cincinnati District. All of these moves are expected to 

bring about operating economies and other improvements in 

administration. 

Merger of the two Manhattan districts provided an opportunity 

to achieve, at the same time, uniformity of organization nationally, through a decentralization of the Intelligence functions in 

New York City from the regional level to the district level. 

Organizational changes in the National Office.—A new plan of 

organization went into effect for the Audit Division at the beginning of the year. The new functional alignment consists of six 

branches instead of three, in order to divide the work into more 

manageable segments. The new branches include Procedures, 

Training, Uniform Audit, Operations, Analysis, and Management, 

with functions as indicated generally by the titles. The Management Branch took over the functions of the former Audit Planning 

Section, including the recently expanded visitation program. 

Offers in compromise are now handled in the Operations Branch. 

Assignment to the Collection Division of responsibility for implementing and operating the automatic data processing system of 

the Service made necessary organizational modifications in order 

to give recognition and emphasis to this new function. The 

changes which took place in January 1960 divided the work of the 

Division into two parts, each under an Assistant Director and consisting of four branches in one part and three branches and the 

Computer Center in the other part. One Assistant Director was 

given responsibility for all collection enforcement activities and 

certain other existing functions of the Division. The other Assistant Director was given responsibility for the development of programs, systems, methods, and procedures for implementation and 

operation of the Service's automatic data processing plan, the 

accounting for internal revenue, and the receipt and integrated 

processing of tax returns and payments to develop compatible 

systems, whether manual, mechanical, or electronic. 

On January 1, 1960, the Intelligence Division was reorganized 

into four branches instead of two. The objective is to improve 

operating efficiency by strengthening managerial controls in an 
80 Annual Report 

area which is an important cog in the Service's enforcement effort. 

The four branches are : Planning and Procedures, Investigative 

Techniques, Operations Coordination, and Analysis and Evaluation. 

Under a reorganization of the engineering structure in the Office 

of the Assistant Commissioner (Technical) which took effect on 

February 26, 1960, the former Engineering and Valuation Branch, 

Special Technical Services Division, was abolished. In its place 

three engineering branches—Natural Resources, Appraisal, and 

Court Defense—were established in that Division. Objectives of 

the reorganization were to expedite closing of National Office engineering cases at the branch level, to achieve a better grouping of 

engineering functions, and to develop grade standards commensurate with the new responsibilities assumed by the branches, which 

would enable the Service to attract and retain qualified engineers. 

In May 1960 a Reports Division was established and given 

responsibility to develop and coordinate the policies, procedures, 

and standards for a Servicewide reports program. The overall 

objective of the reports program is a continuing aim to improve 

the quality and to reduce the cost of operational reports. 

Program letters.—Procedures were adopted for the issuance 

well in advance of the beginning of each fiscal year of a program 

letter to assist regions in their planning and to require them to correlate their proposals with overall programs and objectives developed by the National Office. This annual directive provides a 

vehicle for insuring that full recognition is given to specific programs that are to be developed, expanded, or reduced and for giving 

effect to all related costs of manpower, material, and services. The 

end result is a consolidated financial plan (and budget estimate) 

that will permit the Service to carry out its commitments to the 

Congress, the Bureau of the Budget, and the Treasury Department. 

Program to curb expense account abuses.—A program was inaugurated to curb tax abuses in the field of entertainment and 

employee expense accounts. The Service has observed a growing 

tendency among corporations, partnerships, and sole proprietorships to assume the cost of personal expenses of officers, employees, 

partners, proprietors, and others, and to deduct such cost on their 

income tax returns as ordinary and necessary business expenses. 

Among the items treated in this manner are such benefits as the 

use of pleasure boats, fishing camps, or resort facilities, and payments of club dues, travel expenses of a personal nature, etc. 

Although these allowances may be additional compensation to 

the employee, or distributions of corporate profits if the recipient is 

a stockholder, they frequently are not reported in the recipients' 

income tax returns. 

Report on Operations 81 

Rules adopted by the Service to deal with these abuses will require expansion of the 1960 income tax forms for employers 

(corporations, partnerships, and sole proprietors) to include sections dealing with expense account allowances claimed as deductions and to provide additional information with regard to 

deductions claimed for entertainment expenses. Details are 

contained in Technical Information Release No. 221, April 4, 1960. 

Increased emphasis is to be placed upon the examination of 

returns involving entertainment, travel, and expenses of a similar 

nature. Particular attention is to be given returns in which the 

deductions claimed for these expenses appear to be disproportionate 

in relationship to the income and business activities of the taxpayer. 

In such examinations, large or unusual expenditures for entertainment expenses will be closely examined to determine whether they 

are ordinary and necessary business expenses. Where examination 

of an employer's return discloses inadequate accounting required 

of employees for business expenses incurred, the Service will decide 

the extent to which the returns of the individual employees will be 

examined. 

Interest and dividend reporting.—An extensive program was 

undertaken during the past year to close what has been termed the 

"interest and dividend gap." Recent studies made independently 

by both the Treasury Department and private research groups disclosed a substantial difference in the amounts of interest and dividends received by taxpayers and the amount reported as income. 

The estimates show that approximately $4 billion in interest and 

$1 billion in dividends are not reported on tax returns. This represents a tax loss of at least $500 million annually. 

The primary action taken to insure better compliance in this area 

was a nationwide educational program to acquaint taxpayers with 

the legal requirements for reporting income from these sources. 

A coordinated information campaign was undertaken with the 

cooperation of the principal associations of interest and dividend 

payers and thousands of corporations, banks, and individuals who 

made such payments. They were requested to notify interest and 

dividend recipients of the amounts paid or credited them, the taxable nature of these amounts, and the legal necessity for full and 

complete reporting. Pursuant to this request, these firms mailed 

more than 75 million special notices to recipients of interest and 

dividends. The reporting requirements also were emphasized 

through a number of changes made in the tax forms and instructions and through wide publicity given the program by newspapers, 

radio, and other news media. 
82 Annual Report 

The second phase of the program provides for increased audit 

attention to the reporting of interest and dividend items on tax 

returns. These audits will generally disclose only the inadvertent 

omissions of these items. However, where intentional evasion is 

discovered, the full penalties under the law will be imposed. 

Personnel 

Emphasis during the year was on (1) planning and initiating 

the personnel aspects of the long-range programs for automation 

of data processing and development of a balanced enforcement 

staff ; (2) continued systematic evaluation of existing personnel 

programs ; and (3) extensions and modifications of the "Blue 

Ribbon" career service program, designed to improve the quality 

and effectiveness of performance of all categories of personnel. 

The expansion of the enforcement staff planned for 1961 (see 

p. 94) placed urgent demands on the Service to hire a substantial 

number of technical employees during the latter part of 1960. 

Through recruiting campaigns conducted in 4-year colleges, hiring 

goals were met for more than 800 internal revenue agents, 500 

revenue officers, and 22 internal auditors. Of 75 special agents to 

be added, 54 were secured by the end of the year. Recruiting campaigns in 2-year business and junior colleges provided an important 

source for requirements in semitechnical positions. A hiring goal 

for more than 300 office auditors was met and, despite a late start, 

158 tax examiners had been hired by June 30 against a goal of 251. 

By the end of the fiscal year, about 1,900 people had been appointed 

or committed for these enforcement-type positions. Concurrent 

with this year's recruiting campaigns, plans were made for an even 

more comprehensive recruiting campaign in 1961. 

The number of internal revenue employees on the rolls at the 

close of 1960 totaled 50,199, as compared with 50,200 at the close 

of 1959. A comparison by principal categories is shown in the 

following summary : 

Report on Operations 83 

Personnel summary 

Location and type 

Man-years realized Number on rolls at close 

of year 

1960 1959 1960 1959 

Service, total 51, 047 51, 226 50, 199 50, 200 

Permanent 48,408 49, 284 48,440 47, 972 

Temporary 2,639 1,942 1, 759 2,228 

National Office I 2, 910 • I 2, 922 2, 702 2, 633 

Field service, total s 48, 137 r 48, 304 47, 497 47, 567 

Collection, total 23, 050 '23, 373 22, 038 23, Ill 

Revenue officers 5, 336 5, 344 5, 476 5, 172 

Tax examiners 5 4, 038 1,604 4, 123 2, 062 

Other '13,676 'r 16,425 12,439 15, 877 

Audit, total 15, 596 15, 479 15, 965 15, 099 

Revenue agents 10, 366 10,429 10, 583 10,171 

Office auditors 2, 187 2, 101 2, 343 2, 003 

Other I 3,043 2,949 3,039 2,925 

Intelligence, total 1,899 1,939 1,902 1,914 

Special agents 1,418 1,445 1,418 1,423 

Other 481 494 484 491 

Alcohol and tobacco tax, total 2, 906 2, 944 2, 914 2, 897 

Investigators 889 901 901 884 

Inspectors 398 421 392 411 

Storekeeper-gaugers 723 749 719 730 

Other 896 873 902 872 

Appellate, total 1, 384 1, 294 1, 396 1, 354 

Technical advisors 629 587 640 625 

Auditors 141 (r) 145 (5) 

Other 614 707 611 729 

Administration 2,218 2,192 2,172 2,125 

Regional Counsel 660 656 671 641 

Inspection 424 427 439 426 

Enforcement personnel included above . 25,355 22,994 25,955 22, 856 

• Revised. 

Includes terminal leave man-years for entire Service. 

2 Includes International Operations Division. 

New position, beginning 1960, replaces returns examiners shown for 1959. Also replaces certain positions formerly 

included in "Collection-Other." 

4 Includes overseas employees hired locally (4 for 1960, 3 for 1959). 

In previous reports, Appellate auditors were included in "Appellate -Other." 

Includes revenue officers, tax examiners, revenue agents, office auditors, special agents, and alcohol and tobacco tax 

investigators, inspectors, and storekeeper-gaugers. 

r Includes man-years devoted to Administration. Audit, and Statistics in the Service Centers by employees regularly 

assigned to processing and revenue accounting functions. 

Career opportunities for Service employees were further expanded through the development of revised qualification standards 

and training agreements negotiated with the Civil Service Commission. Clerical employees with appropriate Service experience and 

potential may now qualify for semitechnical positions through 

successful completion of the basic inservice training program, and 

564055 0-60 7 
84 Annual Report 

means have been provided through which employees in certain semitechnical positions may enter technical positions. These career 

ladders now make it possible for clerical employees with the necessary ability and potential to advance through successive job categories to top level revenue agent positions. 

Promotion agreements also were negotiated with the Civil 

Service Commission which will facilitate the selection and appointment of computer system analysts, programmers, and other 

personnel vital to the installation of the automatic data processing 

system. 

Expansion of career opportunities within the Service has played 

an important part in reducing personnel turnover. As shown in 

the following summary for selected classes of personnel, separation 

rates in 1959 and 1960 were generally lower than in the period 1955 

through 1958. 

Separations as a percent of permanent employees on rolls at close of year 

Type of personnel 1960 1959 1958 1957 1956 1955 

Internal revenue agents 

II 4 uuri oi oi 

6.3 8.6 7.4 6.2 

Office auditors 6. 2 7. 1 7. 3 10. 5 

Revenue officers 7.8 7.0 8.0 11.1 

Special agents 3.6 4. 3 3. 5 3. S 

All permanent employees 11.0 13.4 12. 5 12.2 

Another major advance was the authority granted by the Civil 

Service Commission for noncompetitive appointments of former 

temporary employees originally appointed through Civil Service 

register procedures. This facilitates filling temporary employment needs, and contributes to the efficiency of the Service, especially during the tax filing period, by enabling the Revenue Service 

to utilize the training and experience employees gained during 

previous employment. 

Position classification guides, designed for implementing approved organizational changes, and as aids in meeting the objectives of the "Blue Ribbon" program, were issued for office auditors, 

alcohol tax investigators, secretaries, shorthand reporters, appellate auditors, and for positions in the office collection force and 

special procedures function of district collection divisions. 

As an essential part of the policy to decentralize authority, the 

Director, Personnel Division, was delegated authority to make 

decisions and take final action for the Revenue Service in grievances, appeals, suitability, and disciplinary cases involving employees in positions for which the Director, Personnel Division, 

Report on Operations 85 

has personnel action authority. Also, the Director, Personnel 

Division, and the Chief, Employee Relations Branch, Personnel 

Division, were delegated authority to take final action under the 

Incentive Awards Program on all contributions including awards 

(except awards approved by Regional Commissioners) approved 

in the National Office. 

The Revenue Service continued to take advantage of outstanding 

performance ratings to recognize and reward the outstanding work 

of employees. During the year, 666 employees were recommended 

for outstanding performance ratings, of which 485 or 73 percent 

were approved. This means that on a nationwide average, approximately 1 percent of the total working force currently possess outstanding ratings. During 1959, 674 employees were recommended, 

of which 399 were approved. Although the recommendations for 

both 1959 and 1960 were about the same, the rate of approval rose 

from 59 percent in 1959 to 73 percent in 1960, exceeding the 71 

percent approval rate of 1958. 

A voluntary Servicewide Health Maintenance Program was inaugurated during the year. The purpose of this program is to 

protect the health and well-being of employees, improve employee 

morale, and increase work accomplishments through a high degree 

of employee physical fitness. The program has been adopted in 

the Washington and New York areas, and it is anticipated that 

other Revenue Service offices will adopt the program at the earliest 

practicable date. 

A most significant accomplishment during the year was the 

publication of a policy statement indicating the position of the 

Revenue Service in regard to quality and production of work. In 

the past, complaints were made that the Service was operating 

under a quota system which subordinated the quality of work. The 

policy statement establishes the objectives of the Service for quality 

and production of work, and delineates criteria for the measurement of work production by individuals. Elimination of references 

to quotas and emphasis upon quality standards will help measurably 

in counteracting allegations of quota systems in the Service. 

The employee suggestion program showed the greatest participation in 1960 since the enactment of the Incentive Awards Act in 

1954. Approximately 1,500 more suggestions were received than 

in the preceding year, and there was an increase of more than 300 

in the number of special performance awards. In all, this represents a participation increase of 31 percent over 1959, including 

the suggestion and special awards areas. 
86 Annual Report 

The following table shows the extent of program participation 

during the last 2 years : 

Incentive awards program 

Item 1960 

Suggestions received 5, 989 

Suggestions adopted I, 363 

Superior work performance awards 1,318 

Special acts end services awards 108 

At the recommendation of the Secretary of the Treasury, 

emphasis was placed upon the further recognition of employees 

in the lower grades and the stimulation of employees to participate 

more extensively in the suggestion program. 

Training 

Planning for the future in an era in which automation is revolutionizing office practices in both Government and industry presents 

a great training challenge to the Service. As a result of plans for 

the installation of a large-scale automatic data processing system 

(see p. 31), steps are being taken to develop and implement a broad 

training program to prepare personnel for conversion to the new 

system. The first increment of digital computer systems analysts 

have already been trained under the new program. 

An increasing number of installations of automatic data processing equipment in private industry requires a wholly new approach to the techniques of auditing the returns involved. A 

course is being developed to train enforcement personnel who examine returns of corporations using automatic data processing 

equipment in their accounting work. 

To provide more systematic training for management, a new 

Career Development Program for IRS supervisors, managers, and 

executives was announced. This program standardizes management training Servicewide and focuses on training at three levels of 

the management ladder. Phase I covers employees at the group 

supervisor or equivalent level. Phase II covers employees at the 

middle management level and is required for employees entering 

phase III of the program. Phase III is for employees selected to 

fill executive positions such as assistant district director and assistant regional commissioner. Seventy-five employees completed 

phase II of the program, and twenty employees began phase III. 

Phase I is being developed and will be activated in 1961. 

Report on Operation": 87 

Management institutes, conducted during July and August 1959 

and in June 1960 at selected sites across the country, provided 

training for approximately 835 participants, including 60 employees of other Treasury bureaus. With the inauguration of the 

Career Development Program it is probable that management institutes in the future will be limited to middle managers and senior 

personnel with concentration on one or two specific areas of management, instead of on a broad overview of the basic principles. 

New technical courses announced include an offer-in-compromise course, a valuation course, a technical advisor course, and a 

fraud course. Basic and refresher courses were activated for 

Intelligence enforcement personnel. Field instructors were trained 

and classes will begin early next year in the first course to be 

offered for excise tax agents. A program to assist group supervisors in the application of management principles and techniques 

to their day-to-day work was developed in the delinquent accounts 

and returns activity and the development of a similar program was 

begun for group supervisors in the audit function. A program of 

intensive classroom and on-the-job training was initiated for 

alcohol and tobacco tax inspector recruits designed to develop their 

potential and equip them for progressively more responsible 

assignments. 

Two new programs were initiated for the training of technical 

personnel in tax research methods and in the administration of 

tax laws dealing with exempt organizations. The tax research 

course provides comprehensive instructions in the use of various 

research tools available in resolving substantive questions of tax 

law, including the use of the major commercial tax services and 

various secondary sources of research. The exempt organization 

material, prepared as a loose-leaf handbook, is to be used both as a 

training text and as a reference guide in the examination of applications for exemption, in the review of exemptions previously 

granted, and in the examination of returns filed by exempt 

organizations. 

To keep revenue agents and other technical personnel currently 

abreast of new developments in law, regulations, revenue rulings, 

and court decisions, a periodic newsletter, "Tax Briefs for Revenue 

Agents and Office Auditors," was issued throughout the year. A 

new edition of the Annual Technical Review Institute lecture 

material also was prepared and distributed, containing comprehensive discussions of important developments in each of the principal tax areas, for use in tax review seminars. 

Because clarity of expression is so important in communicating 

on tax matters, two effective writing courses, offered by correspond4,453 

I, 118 

1, 075 

78 
Volume of records (cubic 

feet) 

1959 

811,966 

662,181 

208,130 

71,287 

134,143 

669,883 

757,558 

88 Annual Report 

ence were announced. Effective Revenue Writing 1, covering basic 

writing principles, grammar, and punctuation, was released for 

general enrollment. Effective Revenue Writing 2, an advanced 

course designed to improve the experienced writer, was released on 

a pilot-run basis. 

Approximately 310 man-years were spent by new employees in 

the classroom phases of enforcement recruit training programs. 

Incumbent personnel spent approximately 352 man-years in advanced and specialized technical classroom training. 

Special committees appointed to determine training needs in the 

alcohol and tobacco tax enforcement and permissive activities completed their surveys. Work was begun on courses for all levels of 

investigative personnel. In addition to covering enforcement 

procedures, these courses will include supervisory development 

material, in order to create a reservoir of trained supervisors. 

Two of the Service's training programs, the Advanced Revenue 

Agent Training Program and the GS-9-11 Revenue Officer Refresher Training Program, were evaluated by means of questionnaires. The questionnaires, executed by program participants 

and their immediate supervisors 6 months after completion of the 

training, provided substantial evidence that increased production 

resulting from training offset the cost of the training many times 

over. 

Operating Facilities 

Records and correspondence.—Through the continuing application of management principles and techniques to official documents, work papers, and related paperwork processes, the records 

administration program produced significant management improvements. These improvements resulted in more effective use 

of Service manpower, reduced operating costs, and improved taxpayer relations. 

This year, particular emphasis was placed on developing guidelines and systems for more economical and effective paperwork 

handling; acquainting staff and operating personnel with these 

techniques ; and encouraging their use to solve operating problems. 

Because of this emphasis on the "all-hands" application of records 

management techniques to work problems, management analysis 

assistance furnished by records personnel was augmented by 

studies of paperwork processes made by operating officials, with 

125 such studies made by district personnel. 

Significant guidelines developed during the year include a records disposition handbook, a new correspondence handbook section 

Report on Operations 89 

on editorial and composition practices, a list and subject matter 

index of Revenue Service forms most frequently used by taxpayers, 

a comprehensive forms cross reference to the records control schedules covering administrative-type records, and improved methods 

for maintaining and servicing records. 

Much of the progress in improving and standardizing paperwork 

operations is directly attributable to concentrated efforts to eliminate locally developed forms and form letters. The noteworthy 

result of this year's intensified forms standardization work was a 

53-percent reduction in district forms, whereas the resulting increases at national and regional office levels were only 11 percent 

and 7 percent, respectively. The accomplishments in this area 

are shown by the following figures : 

Forme prescribed by— 

Inventory 

July 1, 

New forma 

added dn.- 

ing year 

Forme 

eliminated 

Inventory 

June SO, 

1060 

National office 3,298 482 129 3,651 Regional offices 7,653 1,793 1,267 8,179 

District offices '15,259 1,345 9,316 7,288 

Service centers n.a. n.a. n.a. 505 

n.a.—Not available. 

r Revised. 

Although the volume of papers received or produced increased 

during the year, the Service's records holdings were reduced by 

32,000 cubic feet by the controlled creation of only necessary documents and the systematic disposition of inactive records. Servicewide records retirement and disposal activities during the year 

resulted in the removal of 247,000 cubic feet of records and the release for reuse of space and equipment valued at more than 

$900,000. Comparative figures on records holdings for 1959 and 

1960 are shown in the following table: 

Records holdings and disposition activities 

Status 

In IRS custody, beginning of year 

Disposed of during year, total 

Destroyed 

Federal Records Centers 

In IRS custody, end of year 

In Federal Records Centers, end of year 
90 

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Annual Report 

Nomajor 

Improvements 

needed 

1,395,000 sq.ft. 

Upgraded 1954- 960 

2,55 ,000 sq t. 

Improvemen 

u nder 

negotiation 

June 30,1 96 

1,341,000 sq. I 

65,000 sq.ft. 

k 163,000 sq.ft. 

•••••••••• ■ •••••••••4 ••• ••••••• 4 

, 

• 826 000 sq.ft. 40 • t•• •• •••••••

•4 •••••••••• •••■•■•■•■•■•■•• .4 PA 

DistrictOffices 

Augusta 

CheyenneHelena 

BostonFargo Honolulu 

Portsmouth KansasCityLosAngeles ProvidenceOmaha Portland Dallas St. Paul Reno 

Buffa loScrantonSalt Lake 

City 

AberdeenBoise Seattle 

BirminghamIndianapolis Des Moines NashvilleManha ttanPittsburgh Chicago Syracuse Wilmingto n Cleveland Denver 

Jackson Richmond 

Philadelphia 

Hartford LittleRock Phoenix Springfield Brooklyn SanFrancisco Parkersburg Atlanta Burlington Albany ColumbiaAlbuquerque Wichita Greensboro Austin Baltimore 

Jacksonville I 

Detroit LouisvilleSt.Louis 

Milwaukee NewOrleans Ca

mden 

Cincinna ti Oklahoma 

CityNe

wark 

Regional Offices 

Cincinnati Dallas NewYork SanFrancisco 

Boston Chicago 

mivw0 

Atlanta Philadelphia 

Satisfactory 

Unsatisfactory 

Newconstructionplanned 

orinprocess 

Consolidated in 

newbui ding l s 

Consolidated inrenovated 

Federal buildingsor 

modernized leased buildings 

Report on Operations 91 

Safety.—The Secretary's Safety Award was presented to 23 

district offices in recognition of their employees working without 

a lost-time injury for at least 1 year or 1 million hours. Two of 

these district offices, Boise and Cheyenne, qualified for 5-year 

awards and two others, Fargo and Helena, for 4-year awards. 

The Omaha Region won the Annual Regional Safety Award for 

1959 for the third time, with a frequency rate of 1.7 lost-time 

injuries per million hours of exposure, and gained permanent 

possession of the trophy. A safety award program was established to encourage accident prevention competition between the 

major functional areas in the National Office and to stimulate 

efforts to reduce on-the-job injuries and man-days of lost production due to such injuries. A pilot safe-driving award program 

was established in the Atlanta Region to keep to a minimum automobile accidents resulting from enforcement activities of Alcohol 

and Tobacco Tax personnel. 

Publications.—A program for the annual shipping of internal 

use forms to field offices was inaugurated. This program provides for delivery of seasonally used items just prior to their period 

of use, and will reduce the number of requisitions prepared by 

field offices as well as the volume of inquiries and replies which are 

a normal part of followup. This year, for the first time, all major 

tax forms were made available in district and subordinate offices by 

December 1 (see p. 17). 

Space.—Upgra4ing and consolidation of office space was successfully continued during the year. The district directors' offices in 

Baltimore, Maryland ; Albuquerque, New Mexico ; and Burlington, 

Vermont, were moved into new buildings. Other smaller offices 

which were moved to new buildings include Lake Charles, Lafayette, and Victoria, Louisiana. Still other space improvements 

included relocating 29 internal revenue offices and providing alterations or additional space for 21 other locations. 

Property management.—Purchases of new furniture and equipment aggregated $1,700,000 during the year and this was augmented by acquiring excess items valued at $800,000 from other 

government agencies. However, there still remains about 

£12 million worth of such property and equipment which needs 

replacink. 

Total space,excluding local and branch offices: 
Annual Report 

111 MI 

IIa S OE al 

55_ 

■ 11111 IN 

■ OM a area 

■ ■ MI MI 

■ 

MI MI IS MI 

MI al wino s 

■ minima 

EN s um um 

'a 

Report on Operations 93 

Fiscal Management 

The cost of operating the Revenue Service during the year was 

$363,735,359, including $348,009 financed from reimbursements. 

This represents a cost of 39.6 cents for every $100 collected. Compared with the preceding year, operating costs increased by 

approximately $8 million, of which $6 million represented increased 

salary costs attributable to planned position reallocations, withingrade salary advancements, and an additional day's pay in 1960. 

A comparison of obligations for 1959 and 1960, by activities, is 

shown below. More detailed information, with respect to 1960 

obligations by offices and by classes of expenditures, is shown in 

table 25, p. 154. 

Obligations incurred by the Internal Revenue Service 

In thousands of dollars] 

Activity 

Total Salaries Other 

1960 1959 1960 1959 1960 1959 

Total 

Rulings, technical planning, and special technical services 

Collection of revenue 

Audit of tax returns 

Tax fraud and special investigations 

Alcohol and tobacco tax regulatory work 

Taxpayer conferences and appeals 

Legal services 

Inspection 

Statistical reporting 

Executive direction 

363. 735 355,469 307, 099 301.425 56, 636 54.044 

5.834 

149,413 

128, 174 

18,509 

26. 921 

13,774 

9.256 

4,867 

2. 595 

4, 392 

5,636 

148, 512 

123,915 

18,337 

25,790 

IL 762 

8,975 

4, 821 

2,586 

4, 135 

5.092 

122. 712 

112. 568 

15,765 

21. 401 

12.375 

8,017 

3,918 

2.043 

3. 208 

4,890 

121. 669 

109,665 

15, 640 

21.296 

11,460 

7,818 

3,902 

2,055 

3, 030 

742 

26. 701 

15.606 

2.744 

5,520 

1,399 

1,239 

949 

552 

1,184 

746 

26,843 

14, 250 

2,697 

4,494 

1,302 

1.157 

919 

531 

1,105 

During 1960 a number of improvements in the financial management of the Service were effected. Emphasis on the execution of 

the budget in terms of the programs presented to and approved 

by the Congress resulted in better budget programming, closer 

coordination between the fiscal managers and the program managers, and a better understanding of the financial management 

phases of the Service's operations. 

A budget committee, appointed early in the year, reviewed the 

financial management system of the Service and made several 

recommendations, which have since been adopted. Controls have 

been improved and tightened, to assure that budget programs, as 

updated by the financial plan, are executed as planned, and that the 

impact on the next year's budget of program changes proposed 

during the year is fully considered. Financial management 

policies and procedures were formalized. Periodic briefing sessions 

were instituted for top management officials ( including Regional 
94 Annual Report 

Commissioners) on the current financial situation, status of execution of the financial plan, and problems which may develop, in terms 

of both program and financial data. On-the-spot reviews, in regional offices, of the proposed regional operating financial plans 

for the coming year were conducted by teams from the National 

Office, as another step in the program for developing a realistic 

financial plan which can be executed without significant deviation. 

Payroll and related operations in the Western Service Center 

were converted to speedier ADP equipment having greater capacity. In addition, a good deal of advance planning was done in 

anticipation of the installation of still more advanced equipment 

in the Northeast Service Center. Individual retirement accounts 

were converted to punchcards ; a procedure was developed for 

maintaining a cumulative earnings and deductions record for each 

employee, in lieu of the quarterly individual earnings record ; and 

a program was developed to provide regional offices with cumulative data measuring actual employment in man-years. 

Long-Range Planning 

Long-range planning in the Service has developed from a onetime Five-year Plan to an integral part of the management 

program It has been incorporated into the annual financial planning cycle, with provision for field office participation in developing 

the plan and keeping it current. The Long-Range Plan has also 

become the primary source for program changes to be reflected in 

the annual budget. 

The plan provides for improvement of Federal tax administration over the next several years through a substantial strengthening of all enforcement and related activities and through the 

installation of an automatic data processing system to handle the 

Service's accounting, clerical, and statistical operations (see 

"Plans for Automatic Data Processing", p. 31). 

The Long-Range Plan was updated during 1960 in the light of 

new research results and later information, with revisions giving 

effect to growth in workloads resulting from rising numbers of 

returns, and to expected increases in efficiency and productivity of 

Service personnel. 

The 1961 budget request and subsequent appropriation for the 

Revenue Service provide for the first steps in strengthening enforcement activities and installing the automatic data processing 

system. Funds are included for recruiting and training the first 

Report on Operations 95 

contingent of additional examining and other enforcement officers 

needed to cope with growth in workload and also to broaden the 

scope of enforcement programs, such as audit of tax returns filed 

and detection of delinquent taxpayers who have failed to file 

returns. 

Current Research Program 

The broadening scope of research studies has been reflected during the past year in completion of a number of projects, covering 

such varied subjects as revisions in return filing requirements and 

withholding on wages and salaries, taxpayer deduction problems, 

and changes in accounting periods. The objective of greater convenience in taxpayer compliance has bulked large in most of this 

work. For example, consideration was given to raising the limitation on other income from $200 to $300 in the use of Form 1040A. 

Simpler requirements were developed for guidance in the necessity 

for filing declarations of estimated tax. Also, in connection with 

the relative decline in the use of the standard deduction, analyses 

of certain possible changes to expand use of the deduction were 

provided to the Treasury. 

Survey support of research has continued to grow. Particular 

stress was placed on studies to throw light on the extent and pattern of underreporting of income. Special sampling projects were 

designed to investigate taxpayer failure to include in returns dividends shown on information documents filed with the Service. 

Failure to report bank interest was also covered in another project. 

On the broad question of return compliance a survey is to be carried 

out to determine the relative frequency with which business concerns fail to file returns for one or more of the major classes of 

taxes for which they may be liable. 

Coordinated Evaluation Program 

The program of coordinated evaluation visits to the regions by 

all National Office divisions having counterparts in the regional 

commissioners' offices was continued in 1960. All nine regional 

offices have been covered under the program and three of the 

offices have been visited for the second time. The findings of the 

second visits indicate that positive and effective action has been 

taken on the recommendations made during the preceding visits. 

The improvements realized clearly demonstrate that the program 

is an effective means for achieving improved regional management. 
96 Annual Report 

Advisory Group 

The Advisory Group established in June 1959 has assisted materially in bringing about a better understanding between the 

public, tax practitioners, the taxpayers, and the Service. The 12-

member group of top-ranking lawyers, accountants, educators, 

and business representatives meets regularly with Revenue Service 

officials to provide constructive criticism of Service policies and 

procedures, and to suggest ways in which tax administration can 

be improved. 

Topics for discussion at meetings of the Group are for the most 

part agreed to in advance, and primarily include agenda items 

suggested by individual members. However, tax practitioners 

throughout the United States may also present their views on 

Revenue Service operations by writing directly to a member of the 

Group or to the Commissioner, and a number of topics have come 

from this source. 

Discussions with the Group thus far have ranged over the entire 

gamut of the Service's activities : from the techniques and standards used to evaluate the performance of internal revenue agents 

to the content and design of tax forms. The Group has manifested 

considerable interest in the Service's rulings program, for example, 

and the members' comments and suggestions in this area have led 

to a number of improvements, such as the issuance of a list of 

items on which the Service will not rule and a new internal appeals 

procedure for certain types of rulings. The Group also has made 

many valuable suggestions dealing with the administration of the 

Service's expense account program and with its procedures for 

holding informal conferences. 

The members of the Group, all of whom were reappointed in 

June 1960, come from various parts of the United States and donate 

their services to the Treasury Department. They are : 

Thomas C. Atkeson, Professor of Taxation, The College of 

William and Mary, Williamsburg, Va. ; 

Eugene F. Bogan, Attorney at Law, Sharp and Bogan, Washington, D.C.; 

Report on Operations 97 

Donald T. Burns, Certified Public Accountant, Arthur Young 

and Company, Los Angeles, Calif. ; 

John J. Curran, Attorney at Law and Certified Public Accountant, Tax Manager, Norton Company, Worcester, 

Mass.; 

Allan A. Drummond, Public Accountant, San Francisco, Calif. ; 

T. J. Graves, Certified Public Accountant, Haskins and Sells, 

New York, N.Y.; 

H. Cecil Kilpatrick, Attorney at Law, Kilpatrick, Ballard and 

Beasley, Washington, D.C.; 

Leonard E. Kust, Attorney at Law, General Tax Counsel, 

Westinghouse Electric Corporation, Pittsburgh, Pa. ; 

Thomas N. Tarleau, Attorney at Law, Wilkie, Farr, Gallagher, 

Walton and Fitzgibbon, New York; 

Charles L. Thomas, Attorney at Law and Certified Public Accountant, Carnahan, Gordon and Goodwin, Tacoma, Wash.; 

Troy G. Thurston, Certified Public Accountant, George S. 

Olive and Company, Indianapolis, Ind. ; and 

T. Dwight Williams, Certified Public Accountant, Williams, 

Hurst and Groth, Oklahoma City, Okla. 

The Service has found that the candidly expressed viewpoints 

of the members give it a perspective on its operations not otherwise 

attainable. Judged in terms of results to date, the Group's contributions have been of great value in the solution of the Service's 

manifold problems. 

Internal Controls 

Internal audit.—The internal audit program is designed to promote efficient administration through an independent review and 

appraisal of accounting, financial, and other operating activities. 

All phases of Revenue Service work are subject to audit and internal audit coverage of all major field activities is required at least 

once each year. Utilizing recognized sampling techniques, the 

program gives greatest attention to those organizational segments 

which are most closely connected with the collection of tax revenues 

and the enforcement of tax laws. 
98 Annual Report 

The following summary covers the regular internal audit activity 

for the fiscal year 1960: 

Internal audit activity 

Offices or divisions audited Subject to 

audit I 

In proc. 

ess, 

July 1, 

1959 

Started Completed 

In process, 

June 30, 

1960 

Grand total 250 30 252 255 27 

Regional offices, total 63 6 62 64 4 

Regional counsels' offices 

- - 

Cr. Ch Cs 0301.0s 

Regional commissioners' offices: 

Collection 

Audit 

Intelligence 

POI 

CI 

Alcohol and tobacco tax 2 

Appellate 

Administrative 2 

District directors' divisions, total 183 23 187 187 23 

Collection 61 10 61 62 9 Audit 61 9 63 63 9 Intelligence 61 4 63 62 5 

Service centers 3 3 3 International Operations Division 1 1 _ 1 

I The number of offices subject to audit was reduced duri g the year as the result of the mergers of internal revenue 

districts in Ohio and in New York City (see page 79). 

Internal security.—Investigative case production under the internal security program was substantially increased during 1960 

in order to keep pace with increased recruiting activity. Personnel investigations of applicants for, or incumbents of, positions 

in the Treasury Department numbered 4,973, representing a 

20-percent increase. The bulk of these investigations pertained 

to Internal Revenue Service applicants and employees. The number of police checks conducted with respect to temporary employees 

was 5,210, up 26 percent from the preceding year. 

Investigations of enrollment applications were reduced to 5,198, 

a 27-percent decrease from 1959, as a result of procedural changes 

made to expedite the processing of these applications. 

Disciplinary actions taken as a result of personnel investigations 

totaled 556 in 1960, representing a 6-percent rise compared with 

1959. 

A comparison of investigations completed and disciplinary 

actions taken in 1960 and 1959 follows : 

Report on Operations 99 

Personnel investigations, other investigations, and disciplinary actions 

Type of investigation and action 1960 1959 

Personnel investigations 

Number of cases closed, total 

Character and security investigations 

Conduct investigations 

Special inquiries 

Actions taken as a result of personnel investigations 

4, 973 4,136 

3,182 

514 

1,277 

2,462 

607 

1, 067 

Disciplinary actions, total 556 523 

Separations, total 225 189 

Bribery, extortion, or collusion 3 5 

Embezzlement or theft of Government funds or property 19 21 

Failure of employee to pay proper tax 15 13 

Falsification or distortion of Government reports, records, etc 79 50 

Unauthorized outside activity 10 5 

Failure to discharge duties properly 11 18 

Refusal to cooperate 1 

Divulgence of confidential information 2 5 

Acceptance of fees or gratuities 17 3 

Personal and other misconduct 69 fiti 

Suspensions from duty and pay 26 31 

Reprimands, warnings, reassignments, transfers, or demotions 305 303 

Nondisciplinary actions 4, 417 3,613 

Other investigations 

Number of cases closed, total 5, 376 7, 337 

Applications for admission to practice before the Internal Revenue Service 2 5,198 7,160 

Charges against enrollees a 50 51 

Federal tart claims 128 126 

I Includes resignations, retirements, or other separations while employees were under investig tion or before administrative decision was made on disciplinary action where investigation disclosed derogatory information. 

a Effective January 1, 1960, the investigative functions of the enrollment program were transferred from Intelligence to 

Inspection. The figures shown for 1959 consist exclusively of investigations made by Intelligence while the 1960 figures 

include investigations by both branches of the Service. 

Persons having no connection with the Federal Government 

occasionally attempt to extort or otherwise illegally obtain money 

from taxpayers by professing to have influence within the Internal 

Revenue Service concerning Federal tax matters. Fortunately, 

many astute taxpayers are not misled by these self-styled "influence 

peddlers" and wisely report their activities to the Service. As a 

result of the cooperation of taxpayers and the assistance of local 

police, evidence was developed which resulted in the prosecution 

in State courts of three such extortionists during the year. Such 

cases were prosecuted in State courts as there were no violations 

of Federal statutes involved. 

An investigation by Inspection disclosed that an Internal Revenue 

employee had on numerous occasions absented himself from official 

584855 0-50-8 
100 Annual Report 

duties for portions of the day to engage in personal activities. He 

was removed from the Service and indicted on several counts of 

violation of Section 231, Title 31, U.S. Code (false claims statute) 

in connection with the filing of false daily reports for the periods 

of absence without leave. He was convicted and the court awarded 

the Government over 5,000 dollars to cover restitution of unearned 

wages and fines. The award to the Government is regarded as a 

precedent case, and was described by a prominent newspaper reporter as "a potent weapon to recover wages paid to Federal employees who loaf on the job." 

Statistical Reporting 

In response to a widespread demand for comparable data covering each of the three principal forms of business organization, the 

Service introduced during the year a new Statistics of Income 

volume entitled "United States Business Tax Returns." The new 

report shows data for more than 9,000,000 unincorporated businesses and nearly 1,000,000 corporations, by size of business and 

by industry. This report, covering the tax year 1957-58, was 

issued in March 1960 and is available from the Superintendent of 

Documents, United States Government Printing Office, Washington 25, D.C., at a price of 35 cents. 

New techniques made possible by the use of automatic data processing have enabled the Service to prepare selected ratios computed separately from each return used in the statistical sample. 

In "Statistics of Income, 1957-58, Corporation Income Tax Returns," issued in April 1960, there are presented for the first time 

(in table 24) two such ratios, namely, "net income on business 

receipts" and "business receipts to total assets." These ratios 

show by frequencies the spread in the rate of profit and in the 

assets turnover of groups of businesses by industry and by the size 

of business. In future years additional financial ratios will be 

presented for incorporated businesses. 

The principal function of the Statistics of Income program is to 

measure the response of the taxpayers to the administration of the 

Federal tax system. The following summary tables illustrate some 

of the information revealed with respect to individual and corporate 

taxpayers, comparing the changing characteristics of these taxpayers over a period of 5 years. 

Report on Operations 101 

Individual income tax returns: Number of returns and sources of income, 

1954-1958 

Item 

Income year 

1958 1957 

1956 

1955 1954 

(Thousands) 

A. Number of returns 

All individual returns, total 59.085 59, 825 59,197 58,250 56,747 

Taxable 45,652 46,865 46,259 44,689 42,633 

Nontaxable 13,433 12,960 12,938 13,561 14,114 

Returns with itemized deduction, total 20,811 20,155 18,459 16,891 15,702 

Taxable 19, 054 18,569 16,973 15, 435 13, 712 

Nontaxable I, 758 1,586 1,486 1,456 1, 990 

Returns with standard deduction, total 38, 274 39, 670 40, 738 41, 359 41, 045 

Taxable 26,598 28,2% 29,286 29,254 28,921 

Nontaxable 11,675 11,374 11, 453 12,105 12,124 

B. Sources of income Million dollars) 

All individual returns: 

Adjusted gross income, total 281, 154 280, 321 267, 724 248,530 229,221 

Salaries and wages 227, 551 228, 077 215,618 200,712 185,953 

Business or profession 20, 674 20, 339 21, 285 18,430 16,926 

Dividends received 8, 741 9,124 8,606 7, 851 7, 048 

Interest received 3, 659 3,319 2,872 2,584 2,370 

Rents and royalties 3,227 3,259 3,344 3,086 3,107 

Other income 17,304 16, 202 16, 000 15,868 13, 818 

Taxable returns: 

Adjusted gross income, total 262, 188 262, 16 249, 551 229,595 209,669 

Salaries and wages 213, 043 214,187 201,837 186,154 170,501 

Business or profession 18,900 18, 596 19,176 16, 349 14,987 

Dividends received 8, 257 8, 627 8, 201 7,454 6, 720 

Interest received 3,116 2,841 2,468 2,187 2,003 

Rents and royalties 2, 608 2, 582 2,731 2, 526 2,485 

Other income 16,265 15, 336 15,139 14,926 12,972 

Note.-The classification of taxable and nontaxable returns for 1954-58 was based only on the income ta after credits. 

For 1955 and subsequent years, returns with adjusted gross deficit and return with breakeven in adjusted gross income 

were classified as returns with standard deduction, whereas for 1954, 440,304 such returns were classified as returns 

with itemized deductions. 
102 Annual Report 

Corporation income tax returns: Number of returns and sources of receipts, 

1951 'S -195849 

tern 

Income year 

1958-59 

preliminary ' 

1957-58 1956-57 1955-56 1954-55 

A. Number of returns 

All corporation returns, total I, 033, 191 984, 894 925, 184 842,354 754,019 

Active corporations, tota l 990,381 940,147 885,747 807,303 722, 805 

With net Income 611,131 572,936 559,710 513,270 441,177 

Without net Income 379, 250 367, 211 326, 037 294,033 281,628 

Inactive corporations 42,251 44,369 39,214 34,822 31,214 

Unincorporated businesses filing under section 1361 559 378 223 229 n.a. 

B. Sources of receipts Million dollar ) 

Active corporations: 

Receipts, total 735, 339 720, 414 679,868 642, 248 554,822 

Business receipts 696, 594 684, 883 646, 673 612, 683 528, 906 

Dividends received 3,755 3,453 3,446 3,344 2,945 

Interest received 17, 938 16, 893 15,058 13, 207 11,618 

Rents and royaltie s 7,471 7,068 6,830 5,875 5,343 

Other receipts 9,580 8,116 7,861 7,140 6,010 

Returns with net income: 

Receipts, total 632, 343 625, 621 614, 857 584, 975 484, 727 

Business receipts 599, 576 595, 602 586, 109 558, 996 462, 064 

Dividends received 3,638 3,286 3,352 3,303 2,860 

Interest received 14,994 14,298 12,855 11,415 10,155 

Rents and royalties 5, 922 5, 549 5, 613 4,862 4, 405 

Other receipts 8,213 6,887 6,928 6,399 5, 244 

Note.-The income year 1958-59 covers accounting periods ended July 1958 through June 1959. Other income years 

cover corresponding periods. 

n.a.-Not available. 

Following is a complete list of Statistics of Income publications 

released during the fiscal year 1960 : 

Individual Income Tax Returns, 1957, Preliminary (15 pp., 

150) 

Individual Income Tax Returns, 1957 (113 pp., 750) 

Individual Income Tax Returns, 1958, Preliminary (18 pp., 

200 

Corporation Income Tax Returns with accounting periods 

ended July 1957-June 1958, Preliminary (36 pp., 250 

Corporation Income Tax Returns with accounting periods 

ended July 1957-June 1958 (212 pp., $1.50) 

Fiduciary Income Tax Returns for 1956 (48 pp., 400 

U.S. Business Tax Returns with accounting periods ended 

July 1957-June 1958, Sole Proprietorships, Partnerships, 

and Corporations (32 pp., 350) 

Statistics of Income publications are for sale by the Superintendent of Documents, U.S. Government Printing Office, 

Washington 25, D.C. 

Report on Operations 103 

Enrollment of Practitioners 

This was the first full year of operations under the revised rules 

governing the practice of attorneys, agents and other persons before the Internal Revenue Service. The revisions which became 

effective March 15, 1959, permit unenrolled persons to represent 

taxpayers in district directors' offices with respect to returns 

prepared by them for the taxpayer, and also permit special enrollment, through a simplified examination procedure, of qualified and 

experienced persons who are not eligible under general enrollment 

rules. Thus, provisions were made for two new classes of practitioners through which taxpayers may obtain assistance in their 

tax problems. This has proven beneficial to taxpayers and the 

Government alike. 

In order to maintain a high standard of ethical practice among 

the practitioners in these new classes, the office of the Director 

of Practice, with the cooperation of district directors, is exercising 

strict surveillance on their conduct of tax matters. 

During the year just ended, 1,288 public accountants and tax 

consultants who do not qualify as certified public accountants were 

enrolled under the new simplified examination procedure mentioned above. Approximately 1,700 applications had been filed as 

of June 30, 1960, for the next special examination under this 

program to be held September 8 and 9, 1960. For the convenience 

of the applicants, these examinations are conducted in internal 

revenue district offices throughout the United States. 

In March 1959 a task force was appointed to review procedures 

pertaining to enrollment of practitioners. The mission of the task 

force was to achieve the following principal objectives : (a) decentralization of enrollment functions to the fullest extent; (b) 

reduction of costs by elimination of unnecessary investigative steps 

and by streamlining administrative work ; and (c) transfer of 

responsibility for investigations in enrollment cases from Intelligence Divisions to Inspection to free Intelligence personnel for 

additional tax fraud work. The task force, comprising representatives from the Audit, Collection, and Intelligence Divisions and 

Inspection worked closely with the Director of Practice in formulating revised procedures to achieve these objectives and the new 

procedures were placed into effect January 1, 1960. 

As a result of these improvements, enrollment procedures have 

been expedited to the extent that it now takes approximately 6 

weeks to process an application on the part of an attorney or 

certified public accountant where, under the old procedure, it took 

from 2 to 3 months. This has made it possible to discontinue the 
104 Annual Report 

issuance of temporary enrollment cards, except where the applicant 

shows necessity for one. 

Applications approved in 1960 included 4,964 applications for 

general enrollment, 1,400 applications for special enrollment and 

2,694 renewals. Comparative figures as to the disposition of 

enrollment and disbarment cases during the past 2 years are shown 

below : 

Disposition of enrollment and disbarment cases 

Type of case 1960 1959 

General enrollment—attorneys and agents: 

Applications for enrollment approved 4,964 7,280 

Applications for enrollment disapproved 15 14 

Applications withdrawn on advice of the Director 29 110 

Applications for enrollment withdrawn with prejudice 1 

Applications abandoned 14 5 

Special enrollment to practice: 

Applications approved by reason of examination 1,288 

Applications approved pursuant to standards and procedures based upon former service 

with the Treasury Department (Sec. 10.3(f) Department Circular No. 230, revised) 112 125 

Applications of former employees denied 

Applications withdrawn 3 4 

Applications abandoned 1 

Renewal of enrollment cases: 

Applications approved 2,694 3,616 

Applications disapproved 5 

Applications withdrawn 10 23 

Applications abandoned 

Disbarment cases: 

Disbarments 

Resignations accepted 

Resignations accepted with prejudice 

3 8 

Reprimands issued 8 

Suspensions 2 

Closed without action 2 

Formal complaints pending against enrolled persons 2 3 

Note.—When the time limit specified in 31 CFR 10.6(d), as amended, is not met, a former enrollee is required to submit 

the original application which is processed by this office. The item, "Applications for enrollment approved" includes 

1,180 of this type in 1960 and 1,742 in 1959. 

Assistance to Foreign Tax Officials 

There is continuing worldwide interest in the study of the tax 

laws and tax administration of the United States. The Service 

was host during the fiscal year 1960, for varying periods of time, to 

approximately 130 officials representing 35 countries. 

Statistical Tables 
NOTES 

All yearly data are on a fiscal 

year basis, unless otherwise specified. 

For example, data headed "1960" pertain to the fiscal year ended June 30, 

1960, and "July 1" inventory items 

under this heading reflect inventories as of July 1, 1959. 

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 recapitulated at the bottom of tables 

1, 5, and 13. A map of the districts 

appears on page xii. 

STATISTICAL TABLES 

Internal Revenue Collections 

Table Page 

1. Internal revenue collections by sources and by internal revenue regions, 

districts, States, and other areas 108 

2. Internal revenue collections by sources and by quarters 124 

3. Internal revenue collections by sources 126 

4. Internal revenue collections by principal sources, fiscal years 1940-60_ 129 

5. Number of returns filed by internal revenue regions, districts, States, 

and other areas 132 

6. Internal revenue tax on manufactured products from Puerto Rico_ _ _ _ 134 

Alcohol and Tobacco Taxes 

7. Establishments qualified to engage in the production, distribution, 

storage, or use of alcohol and alcoholic liquors 135 

8. Establishments qualified to engage in the production or distribution of 

tobacco products 135 

9. Permits relating to distilled spirits under chapter 51, IRC 136 

10. Permits for operations relating to alcoholic beverages under the 

Federal Alcohol Administration Act 137 

11. Permits relating to tobacco under chapter 52, IRC 138 

12. Label activity under Federal Alcohol Administration Act 139 

Stamp Taxes 

13. Number of occupational tax stamps issued, by class of tax and by 

internal revenue regions, districts, and States_ 140 

Cases Receiving Appellate Consideration or in Litigation 

14. Appellate Division processing of protested income, profits, estate, and 

gift tax cases prior to issuance of statutory notice.. 148 

15. Appellate Division processing of protested income, profits, estate, and 

gift tax cases in which statutory notices were outstanding 149 

16. Appellate Division processing of income, profits, estate, and gift tax 

cases petitioned to the Tax Court (docketed cases) 150 

17. Office of Chief Counsel—Processing of income, profits, estate, and gift 

tax cases in the Tax Court 150 

18. Office of Chief Counsel—Results obtained in income, profits, estate, 

and gift tax cases disposed of in the Tax Court 151 

19. Office of Chief Counsel—Processing of Tax Court cases in courts of 

appeals or in Supreme Court 151 

20. Receipt and disposal of suits filed by taxpayers in Federal courts_ 152 

21. Civil tax cases decided by courts of appeals and Supreme Court _ _ _ _ 152 

22. Receipt and disposal by the Office of the Chief Counsel of collection, 

erroneous refund, subpena, summons, and injunction cases 153 

23. Receipt and disposal by the Office of the Chief Counsel of insolvency 

and debtor proceedings 153 

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

and noncourt civil advisory cases 153 

Cost of Administration 

25. Obligations incurred by the Internal Revenue Service 154 

26. Quantities of tax forms prepared and cost of printing 156 

107 
108 Annual Report Individua l incomeand employment taxes 

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United States,total_ 

Manta:mien 

Atlan ta (Georgia) Birmi ngham (Ala bama ) Co lumbia (South Caro lina) Greens boro (No rth Carolina) Jac kson (Mississippi) Jac ksonville (Florida) Nashvi lle (Tennessee) 'stenregion 

Augusta (Ma ine) Boston Massachusetts) Burlington (Vermont) Hartford (Connecticut) Portsmouth (NewHampshire) Providence (RhodeIslan d) blend°region 

Chicago (See(c)below) Detroit (Michigan ) Milwau kee Wisconsin) Springfie l d (See(c)below) ineinnati region 

Cinci nnati I (See(g)be low) Clevelan d 7 (See(g) be low) Indianapo lis (Indiana) Lou isville (Kentuc ky) Parkersburg (West Virgin ia) Ric hmon d (Virgin ia) aliasreg ion 

Albuq uerque (NewMex ico) Austin (See(i) be low) Da llas (See(i)below) LittleRoc k (Ar kansas) NewOrleans Lou isiana) OklahomaCity Oklahoma) mv York City region Albany (See(f)below) Broo klyn (See(I) below) Buffa lo e e if) be low) Manhattan I (Seef)below) Syracuse gee0 be low) 

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Statistical Tables 125 

Dec. 31, 1959 

(2) 

17, 756, 832 

Mar. 31, 1960 

(3) 

25,603,635 

7,239,732 

15, 154, 498 

Source of revenue 

Grand total, all sources 

Corporation income and profits taxes 

Individual income and employment taxes, total_ .... 

Income tax not withheld 3 

Income tax withheld and old-age and disability 

insurances e 

Railroad retirement 

Unemployment insurance 

Estate tax 

Gift tax 

Excise taxes, total 

Alcohol taxes, total 

Distilled spirits $ 

Wines, cordials, etc 

Beer 

Tobacco taxes, total 

Cigarettes 

Cigars I " 

Other $ 

Stamp taxes on documents, other instruments, 

and playing cards, total 

Issues and transfers of bonds of indebted. 

ness or capital stock, foreign insurance 

policies, and deeds of conveyance: 

Sales by postmasters 

Sales by directors 

Playing cards, silver bullion transfers 

Manufacturers' excise taxes, total 

Gasoline 

Lubricating oil, etc 

Tires (wholly or in part of rubber), inner 

tubes, and tread rubber 

Motor vehicles, chassis, bodies, parts, and accessories 

Radio and television sets, phonographs, 

components, etc 

Refrigerators, freezers, air-conditioners, 

etc.; electric, gas, and oil appliances 

Other la 

Footnotes on p. 130. 

Sept. 30, 1959 

1, 188, 251 

12, 406, 002 

19,994, 377 

451, 990 

22, 461 

84,427 

509, 015 

31, 108 

29, 586 

59, 664 

4,247,413 

474, 627 

11,675 

4, 755 

491,057 

573,305 

21, 180 

235,427 

829,912 

10, 043 

21, 828 

I, 660 

33,531 

(I) 

1, 057, 839 

10, 414, 912 

483, 133 

19, 758 

74, 086 

339, 752 

45, 761 

31, 082 

64, 268 

1, 075, 320 

474,684 

14,268 

4, 124 

493, 075 

666,102 

27,273 

179,572 

872, 946 

9, 422 

24, 676 

2, 076 

36, 173 

I, 180, 675 

10, 790, 445 

150, 551 

330, 419 

561,954 

17,402 

66,978 

387,283 

52, 196 

26,376 

68,467 

3, 883, 084 

425,808 

10, 969 

4,143 

440, 919 

464, 828 

27,0% 

165, 725 

657,649 

1,308,364 

518, 787 

22, 058 

78, 975 

556, 656 

40, 386 

32, 266 

59, 237 

8,981 

22,650 

2, 180 

33,811 

124 Annual Report 

Table 2.-Intemal revenue collections by sources and by quarters 

/In thousands of dollars] 

Quarter endedTable 2.-Internal revenue collections by sources and by quarters-Continued 

Iln thousands of dollars] 

Source of revenue 

Quarter endedSept 30, 1959 

(1) 

Dec. 31, 1959 

(2) 

Mar. 31, 1960 

(3) 

June 30, 1960 

(4) 

Excise taxes-Continued 

Retailers' excise taxes, total 83, 000 78, 840 139, 294 77, 555 

Luggage, etc 14,782 13,433 23,205 11,153 

Jewelry, etc 36,484 32,831 63,801 32,583 

Furs 3,910 5,766 13,588 6,944 

Toilet preparations 27, 824 26,811 38, 700 26, 875 

Miscellaneous excise taxes, total 355,615 371, 840 333, 749 325,625 

Admissions: 

Theaters, concerts, athletic contests, 

etc. " 8,871 10, 122 7,619 7,883 

Roof gardens, cabarets, etc 11,777 12,901 12,542 12,385 

Club dues and initiation fees 19, 438 14, 548 13, 664 19, 536 

Long-distance telephone, telegraph, cable, 

radio, etc.; wire mileage service, wire and 

equipment service 72, 923 88,535 78, 330 72,268 

Local telephone service 94,118 123,237 109,182 99, 705 

Transportation of persons 62, 515 69,657 63,941 59, 347 

Use of safe deposit boxes 1, 506 1,527 1,406 1, 940 

Coconut and other vegetable oils processed '1 260 52 30 46 

Sugar 23,615 26, 975 19,117 20, 149 

Diesel and special motor fuels 16,180 15,649 21,023 19,017 

Narcotics and marihuana, including occupational taxes 262 222 164 427 

Coin-operated amusement and gaming 

devices 11,695 1,766 1,437 5,438 

Bowling alleys, pool tables, etc 1,914 372 207 1,178 

Wagering taxes: 

Occupational 254 92 69 145 

Wagers 1,575 1,475 1,426 1,607 

Use tax on certain vehicles 27, 786 3,747 2,845 3,954 

Other " 924 965 745 601 

Unclassified excise taxes: 

Unapplied collections 30 787 979 (-159) 

Undistributed depositary receipts 4 23, 233 32, 176 2,7% 39,801 

Taxes not otherwise classified 5,1 550 (-I, 531) 3, 363 (-2, 382) 

Footnotes on p. 130. 

331,297 

4,485 

3, 004, 630 

2, 323, 734 

9, 922, 819 

157,429 

2, 019 

320, 078 

4, 376 

2, 943, 677 

720, 517 

9, 540, 901 

149, 925 

3, 569 

35, 716 

11, 358 

22, 175 

2,182 

389,394 

24,871 

2,791,778 

June 30, 1960 

(4) 

28,419,959 

6, 616, 950 

18, 128, 887 

7, 044, 918 

10, 929, 844 

149, 025 

5,101 

398,489 

153,358 

3,124,656 

833, 206 

588, 190 

24,820 

220, 196 

506, 453 

488,443 

13,206 

4,804 
Source of revenue 1%0 1959 

Grand total, all sources 

Corporation income and profits axes, total 

- Regulars' 

Exempt organization business income tax rl 

Individual income and employment taxes, total 

Income tax not withheld' 31 

Income tax withheld and old-age and disability insurance, total I n 

Received with returns 5 

Undistributed depositary receipts 

Railroad retirement, total 

Railroad employment compensation tax; employer? tax 654 percent to May 

31, 1959, 644 percent thereafter ; employees' tax 6W percent to May 31,1959, 

6% percent thereafter ; both imposed on taxable portion of wane: 

Received with returns 

Undistributed depositary receipts 

Railroad employees' representative tax, 1214 percent of taxable section of 

wages to May 31, 1959; 1355 percent thereafter 

Unemployment insurance, employers of 4 or more persons taxed 3 percent on taxable portion of wages; credit allowed up to 90 percent of tax for contributions to 

State unemployment funds 

Estate tax, graduated rates from 3 percent on first $5,000 of net estate in excess of 

$60,000 exemption to 77 percent on portion over $10,000,000; credit allowed for State 

death taxes 

Gift tax, graduated rates from 2)4 percent on first $5,000 of net gifts in excess of $30,000 

exemption to 579( percent on portion over $10,000,000; $3,000 annual exclusion for 

each donee 

Excise taxes, total 

Alcohol taxes, total 

Distilled spirits taxes, total 

Imported (collected by Customs), $10.50 per gallon 

Domestic, $10.50 per gallon I 

Rectification, 30 cents per proof gallon 

Occupational taxes: 

Nonbeverage manufacturers of spirits, $25, $50, $100 per year 

Rectifiers: 

Less than 20,000 gallons $110 per year 

20,000 gallons or more, $220 per year 

Retail dealers in liquor or medicinal spirits, $50 per year to June 30, 

1959; $51 per year thereafter 15 

Wholesale liquor dealers, $200 per year to June 30, 1959; $255 per 

year thereafter if 

Manufacturers of stills, $55 per year 

Seizures, penalties, etc 

Stills or worms manufactured, $22 each 

Wines, cordials, etc., taxes, total 

Imported (collected by Customs, rates same as domestic) 

Domestic 

(Still wines 17 cents, 67 cents, $2.25 per gallon; sparkling wines, 

112sartificially carbonated wines, $2.40; liqueurs, cordials, 

Occupational taxes: 

Retail dealers in wines or in wines and beer, $50 per year to June 30, 

1959; $54 per year thereafter 30 

Wholesale dealers in wines or in wines and beer, $200 per year to 

June 30, 1959; $255 per year thereafter If 

91, 774, 803 79, 797,973 

22, 179,414 18, 091,509 

22, 177, 310 18, 088, 669 

2,104 2, 840 

56,104, 300 49,588,488 

13,972, 253 12.348, 714 

41, 184,008 36,390, 385 

40,468, 529 35,644,493 

715,479 745,892 

606,931 525,369 

594,100 

12,801 

30 

341,108 324, 020 

1,139, 259 I, 235, 823 

187,089 117,160 

11, 864, 741 10, 759, 549 

3,193, 714 3, 002, 096 

2, 292,425 2,137,149 

378,673 339,692 

1, 875, 704 1,757,307 

22,111 22, 037 

84 105 

5 5 

20 23 

13,607 15,224 

822 1,250 

5 5 

1, 384 1, 497 

6 4 

100,369 92,442 

6.708 6,111 

92,142 84, 808 

1, 366 1, 360 

152 165 

522,002 

3,341 

25 

126 Annual Report 

Table 3.-Intemal revenue collections by sources 

/In thousands of dollars] 

Footnotes on p. 130. 

1960 1959 

127 

Source of revenue 

Excise taxes-Continued 

Alcohol taxes-Continued 

Beer taxes, total 

Imported (collected by Customs), $9 per barrel of 31 gallons 

Domestic, $9 per barrel of 31 gallons I 

Occupational taxes: 

Brewers: 

Less than 500 barrels, $55 per year 

500 barrels or more, $110 per year 

Retail dealers in beer, $22 per year to June 30, 1959; $24 per year 

thereafter 10 

Wholesale dealers in beer, $100 per year to June 30, 1959; $123 per 

year thereafter 0 

Tobacco taxes, total 

Cigarettes, total 

Class A (small), 10 per thousand 

Class 1 (large), $8.10 per thousand f 

Prepayments 

Cigars, total 

Large cigars, classified by intended retail prices, total 3 

Class A (Retailing at not over 255 cents each), $2.50 per thousand 

Class B (Over 255 cents, not over 4 cents each), $3 per thousand 

Class C (Over 4 cents, not over 6 cents each), $4 per thousand 

Class DOver 6 cents, not over 8 cents each), $7 per thousand I 

Class E Over 8 cents, not over 15 cents each), $10 per thousand 

Class F Over 15 cents, not aver 20 cents each), $15 per thousand 

Class 0 Over 20 cents each), $20 per thousand 

Small cigars, 75 cents per thousand 

Prepayments 

Manufactured tobacco (chewing, smoking, and snuff), 10 cents per pound 8 

Cigarette papers and tubes, papers 55 cent per 50; tubes 1 cent per 50 

Court fines, penalties, and taxes on leaf tobacco sold or removed in violation of 

sec. 5731, Internal Revenue Code of 1954 

Stamp taxes on documents, other instruments, and playing cards, total 

Issues and transfers of bonds of indebtedness or capital stock, foreign insurance policies, and deeds of conveyance: 14 

Sales by postmasters 

Sales by directors 

Playing cards, 13 cents per pack 

Silver bullion transfers, 50 percent of profit 

Manufacturers' excise taxes, total 

Gasoline: 

Gasoline, 3 cents per gallon to Sept. 30,1959;4 cents per gallon thereafter 

Floor stocks tax, 1 cent per gallon on tax-paid stocks on hand as of Oct. 1, 

1959 

Lubricating oil, etc., 6 cents per gallon; cutting oil, 3 cents 

Tires (wholly or in part of rubber), inner tubes, and tread rubber: 

Tires, highway type, 8 cents per pound; other, 5 cents 

Inner tubes, 9 cents per pound 

Tread rubber, 3 cents per pound 

Motor vehicles, chassis, bodies, parts, and accessories: 

Passenger automobiles, chassis, bodies, etc., 10 percent 

Trucks and buses, chassis, bodies, etc., 10 percent 

Parts and accessories for automobiles, trucks, etc., 8 percent 

Radio and television sets, phonographs, components, etc., 10 percent 

Refrigerators, freezers, air-conditioners, etc.; electric, gas, and oil appliances: 

Refrigerators, freezers, air-conditioners, etc., 5 percent except self-contained air-conditioning units which are taxed at 10 percent 

Electric, gas, and oil appliances, 5 percent 

Pistols and revolvers, 10 percent 

Phonograph records, 10 percent 

Musical instruments, 10 percent 

Sporting goods (other than fishing rods, creels, etc.), 10 percent 

Fishing rods, creels, etc., 10 percent 

Footnotes on p.130. 

Statistical Tables 

Table 3.-Internal revenue collections by sources-Continued 

n thousands of dollars] 

3,687 

977 

1,931, 504 

1, 863, 562 

1, 863, 557 

MG 921 

3, 599 

792,634 

24 

3 

1 

1,806,816 

I, 738, 050 

1, 738,045 

(0) 

(*) 

33 

4,032 

I, 235 

763,983 

772,505 

3,222 

4 

50,117 51, 101 

49,850 50, 696 

50 

900 

10,355 

8,303 

23,229 

3,424 

3,589 

77 

806 

9, 633 

8, 095 

24,758 

3,409 

3,918 

172 

95 404 

1 

17,128 

691 

16,916 

749 

6 

139, 231 133,817 

39,805 

91, 329 

1,075 

36, 478 

89, 746 

7,558 

34 

4, 735, 129 3,958, 789 

2,014,403 1, 700,253 

1,460 

81, 679 73,685 

272, 116 

17,448 

14, 902 

248, 041 

16, 563 

10,307 

1,331,292 

271, 938 

189,476 

169,151 

1,039,272 

215,279 

166, 234 

152,566 

50, 034 

69, 276 

40, 593 

62,373 

1,986 

21,324 

18,023 

13,611 

5,836 

2, 038 

20, 540 

14,590 

11,675 

5, 589 
128 Anna/ Report 

Table 3.--Internal revenue collections by sourees--Continued 

fin thousands of dollars' 

Source of revenue 

Excise taxes-Continued 

Manufacturers' excise taxes-Continued 

Business and store machines, 10 percent 

Cameras, lenses, film, and projectors, 10 percent except projectors which are 99, 370 taxed at 5 percent 93, 894 

Electric light bulbs and tubes, 10 percent 26, 234 24, 288 Firearms (other than pistols and revolvers)percent 

Mechanical pens, pens, and lihters, 10 shells, and cartridges, 11 percent. _ 31, 762 

29, 909 

401 

Matches, 2 cents 1

per thousand; f g

ancy wooden or colored stems, 555 cents 

15, 590 13, 

5, 262 

9, 632 8, 444 

Retailers' excise taxes, total 5, 287 

Luggage, etc., 10 percent 378, 690 355, 728 

Jewelry, etc., 10 percent 62, 573 Furs, 10 percent 61, 468 165, 699 Toilet preparations, 10 percent 156, 382 

30,207 29, 909 

Miscellaneous excise taxes, total 120.211 107, 968 

1 Admissions taxes, total 1, 386, 829 1, 435, 953 

1960 1959 

Footnote, on p. 130. 

5,444 

84, 100 95, 094 

Taxes not otherwise classified 20 

Theaters, concerts, athletic contests, etc.: 

Admissions, thru Dec. 31, 1958: 1 cent for each 10 cents or major 

fraction thereof of the entire amount paid; no tax where amount is 

90 cents or less. BeginningJan. 1, 1959: 1 cent for each 10 cents 

or major fraction thereof of the amount paid in excess of $1 2, 33,457 Ticket brokers' sales, 10 percent of amounts in excess of box office price w 49, 023 

Leases of boxes or seats, 10 percent of the amount for which similar 618 572 accommodations are sold " 

Admissions sold by proprietors in excess of establised price, 50 per- cent of such excess h 350 316 

Roof gardens, cabarets, etc., 20 percent of total paid for admissions, sent- ices, etc 69 66 

49, 605 45,117 

Narcotics 

Marihuana 1, 026 929 

Coin-operated amusement and gaming devices, $10 and $250 per device 

50 40 

Bowling alleys, pool tables, etc., $20 per alley or table 20, 336 Wagering taxes: 16, 894 

3, 670 Occupational tax, $50 per year 3,403 

Wagers, 10 percent of amount wagered Use 560 566 tax on highway motor vehicles weighing over 26,000 pounds, $1.50 per 1,000 pound- 6, 084 6, 221 

Adulterated and process or renovated butter, filled cheese, and imported oleomargarine n 

38, 333 32, 532 

Firearms transfer and occupational taxes 

no 2 2 44 29 

Club dues and initiation fees, 20 percent 

Long-distance telephone, telegraph, cable, radio, etc., 10 percent 67, 187 64, 813 Wire mileage service, 10 percent; wireand equipment service, 8 percent 291, 102 Local telephone service, 10 percent 269, 192 20, 953 Transportation of- 23, 221 426,242 Oil by pipeline, 398,023 41/2 percent; repealed, effective Aug. I, 1958 Persons, 10 percent 50 7,962 

Property, 3 percent of amount paid, except coal which is 4 cents per ton; 255, 459 227, 044 repaled, e ec fftive Aug . I, 1958 Use of safe

e 

 deposit boxes, 10 percent 3, 140 143,250 Coconut and other vegetable oils processed in Sugar 6, 378 6, 142 Diesel approximately 55 cent per pound 389 I, 689 

l and special motor fuels, 3 cents per gallon to Sept 30, 1959; 4 cents thereafter 89, 856 86,378

- Narcotics and marihuana, total an 

71, 869 52, 528 

I. 076 969 

Unclassified excise taxes: 

Unapplied collections 

Undistributed depositary receipts 4 1,637 580 98, 007 65, 771 

Statistical Tables 129 

A HERE EREPA HUE EIRAR 

g Mg IggRf: Vzig r4r15W 

n REM _TARN MAE RANI ,1 lifal 1046 Ergrig ggAW 

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E <CAERE FIERAE EUE 4ERRO 

dggat4 MO Wda WO .., .4.4.4.,..., ..., ........ .-1..t...7.4 

-2 

ay 

.. 

- 

1 Income,profits,and employmenttaxes 

Individua l 

incomeand 

employment 

Co rporation incomeand 

p rofitstaxes 2 

18101 

78, 283,714 

67,679, 997 

67,

746, 260 

8,

140,946 

63,931, 948 56,134,490 

59,467,637 58,849, 134 55,205,280 

41,012,357 30, 652,234 

081,604 553,533 

31,044, 121 32, 958,966 36,840,704 34,766, 174 

17,797,593 

9, 192,245 

4,396, 980 2, 963,130 

t,. 

F` _ 

e 

Fisca l yearended lune 30- 
Footnotes for tables 1-4 

NOTE.—Calendar year figures, by regions, districts, States, and other areas, 

for selected types of taxes, may be obtained from the Public Information Division, Internal Revenue Service, Washington 25, D.C. Floor stocks taxes are 

reported separately only during the periods in which the collections are of significant amounts. Relatively small amounts collected in subsequent periods are 

merged with the amounts shown for the related class of tax. 

* Less than $500. 

I The receipts in various States do not indicate the Federal tax burden of the 

respective States, since taxes collected in one State are, in many instances, 

borne by residents of other States. For example, withholding taxes reported 

by employers situated in metropolitan areas near State boundaries include 

substantial amounts withheld from salaries of employees who reside in neighboring 

States. 

2 Includes tax on business income of exempt organizations. 

3 Collections of individual income tax not withheld include old-age and disability insurance taxes on self-employment income. Similarly, the collections of 

income tax withheld are reported in combined amount with old-age and disability insurance taxes on salaries and wages. Estimated separate national totals 

for individual income tax and for old-age and disability insurance taxes are shown 

in the text table on p. 3 of this report. Amounts of old-age and disability 

insurance tax collections, classified by States, are compiled by the Social Security 

Administration as a byproduct of its wage and income record-keeping operations 

and are published periodically in the Social Security Bulletin. 

4 Tax payments made to banks, under the depositary receipts system, are included in internal revenue collections for the period in which the depositary receipts are issued. However, such payments are not classified by internal revenue 

districts (nor by tax subclasses to which excise tax payments relate) until the 

depositary receipts are received in internal revenue offices with tax returns. Accordingly, the items shown as "Undistributed depositary receipts" represent the 

amount of depositary receipts issued, less the amount of depositary receipts 

received with returns and distributed by district and tax class. 

3 Beginning with fiscal year 1957, the United States total for individual income 

tax withheld is adjusted to exclude withheld individual income taxes transferred 

to the Government of Guam in accordance with the provisions of Public Law 

630, approved Aug. 1, 1950 (64 Stat. 392). This adjustment amounted to 

$4,370,000 for 1960. 

6 Includes railroad employment compensation tax and tax on railroad employee 

representatives. 

7 Effective January 1, 1960, the Columbus district was merged into the Cincinnati district, the Toledo district was merged into the Cleveland district, and 

the Upper Manhattan and Lower Manhattan districts were combined to form 

the Manhattan district. Table 1 reflects the collections in these districts combined in like manner for the entire fiscal year. 

Amounts of taxes collected in Puerto Rico on tobacco and liquor manufactures coming into the United States are covered into the Treasury of Puerto 

Rico under the provisions of sec. 7652 (a) (3) of the Internal Revenue Code of 

1954. Such amounts are included in overall collections results (tables 1 through 

4), beginning with 1955, and are shown separately in table 6. 

° Includes occupational tax on manufacturers of stills, rectifiers, wholesale 

liquor dealers, retail dealers in liquor or medicinal spirits, and nonbeverage 

manufacturers of spirits. 

ID Public Law 85-859 revised the definitions of wholesale dealers and retail 

dealers, effective July 1, 1959, to conform in general to the trade understanding 

of these terms. As a result of these changes in definitions, a number of dealers 

who were formerly required to pay both classes of occupational taxes are now 

required to pay tax only as a retailer or as a wholesaler. 

II Includes seizures, penalties, etc., and tax on stills or worms manufactured. 

12 Includes occupational taxes on wholesale and retail dealers in wines or in 

wines and beer. 

13 Includes occupational taxes on brewers and wholesale and retail beer dealers. 

14 Includes taxes on large cigars, classes A through G, and on small cigars. 

130 

Footnotes for tables 1-4—Continued 

" Includes taxes on cigarette papers and tubes, court fines, penalties, and taxes 

on leaf tobacco sold or removed In violation of sec. 5731, Internal Revenue Code. 

16 Includes taxes on pistols and revolvers; phonograph records; musical instruments; sporting goods; fishing rods, creels, etc.; business and store machines; 

cameras, lenses, film, and film projectors; electric light bulbs and tubes .

' 

 firearms, 

shells, and cartridges; mechanical pencils, pens, and lighters; and matches. 

17 Includes taxes on ticket brokers' sales, on leases of boxes or seats, and onadmissions sold by proprietors in excess of established prices, as well as general 

admissions tax. 

18 Includes taxes on coconut oil from the Philippines, the Trust Territory, and 

United States possessions, as well as other coconut and vegetable oils processed. 

Under Public Law 86-432, the 3 cents per pound tax imposed. by Code Sec. 4511(a) 

on the first domestic processing of coconut oil, fatty acids, or salts derived therefrom, or any mixtures or combinations containing such oil, acids, or salts, is 

suspended from Oct. 1, 1957, through June 30, 1963. 

12 Includes taxes on transportation of property and oil by pipeline (repealed, 

effective Aug. 1 1958); adulterated and process or renovated butter, filled cheese, 

and imported oleomargarine; and firearms transfer and occupational taxes. 

22 Includes amounts of unidentified and excess collections. 

21 Corporation income tax rates: First $25,000 of net income, normal tax of 30 

percent; net income in excess of $25,000, combined normal tax and surtax of 52 

percent. Normal tax and surtax rates also apply to net income derived by certain 

exempt organizations from unrelated trade or business. 

22 Rates of tax are as follows: 

Individual income tax: Graduated rates from 20 percent on first $2,000 of 

net income in excess of exemption to 91 percent on amount over $200,000. 

Old-age and disability insurance taxes on self-employment income: 3% percent 

of self-employment income; increased to 3% percent for taxable years 

beginning in 1959 and 4%-percent for taxable years beginning in 1960. 

" Rates of tax are as follows: 

Income tax withheld: Wages in excess of exemptions taxed at 18 percent. 

Old-age and disability insurance taxes on salaries and wages: Employers' 

tax 2% percent, employees' tax 2% percent, each imposed on taxable 

portion of wages; each increased to 2% percent effective Jan. 1, 1959, and 

to 3 percent effective Jan. 1, 1960. 

" Issues of stock, 11 cents per $100 face value through Dec. 31, 1958, 10 cents 

per $100 actual value thereafter; issues of bonds, 11 cents per $100 face value. 

Transfers of stock, 5 cents or 6 cents per $100 face value through Dec. 31, 1958, 

4 cents per $100 actual value thereafter; transfers of bonds, 5 cents per $100 face 

value. Foreign insurance policies, 1 cent or 4 cents per $1 of premium. Deeds of 

conveyance, 55 cents per $500. 

26 In the case of certain racetracks the following rates apply: 

Admissions-1 cent for each 5 cents of amount paid; ticket brokers' sales20 percent; leases of boxes or seats-20 percent. 

" Narcotics, 1 cent per ounce; narcotics order blanks, $1 per hundred. Marihuana, $1 per ounce; marihuana order blanks, 2 cents each. Amounts shown also 

include occupational taxes levied on manufacturers, dealers, and practitioners. 

For classes and rates of occupational taxes see table 13. 

27 Adulterated butter, 10 cents per pound; process or renovated butter, Y4 cent; 

domestic filled cheese, 1 cent; imported filled cheese, 8 cents; imported oleomargarine, 15 cents. Occupational taxes are levied on manufacturers or dealers in 

these products and are included in the amounts shown. 

26 Transfers of machineguns, short-barreled firearms, silencers, etc., $200 each; 

certain double-barreled guns, $1 each. Occupational taxes are levied on manufacturers, importers, or dealers in firearms and are included in the amounts shown. 

" Since January 1, 1951, withheld income taxes and old-age and disability 

insurance taxes on employees and employers have been paid into the Treasury in 

combined amounts without separation as to type of tax. The figures for prior 

periods have been combined accordingly in this table for purposes of comparison, 

but are shown separately in the annual reports for those periods. 

564655 0 - 60 - 10 131 
Statistic

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132 Annual Report 
Plants (net number) 

Facilities: 

Production 

Warehousing 

Bottling in bond 

Denaturing 

Taxpaid bottling. 

. Rectifyin g 

Denatured and tax-free products (dealers, users, etc.): 

Dealers in specially denatured alcohol 

Users of specially denatured alcohol and denatured rum 

Reprocessors, rebottlers, etc., of specially denatured alcohol articles 

Users of tax-fre e 

Beer: Breweries 

Distilled spirits plants: 366 

199 

248 

52 

40 

47 

123 

I 1,129 

39 41 

3,755 3,854 

1,101 1,143 

7,395 7,405 

225 231 

495 510 

tin thousands of dollars] 

Objects of taxation 1960 1959 

_ Total 

Distilled spirits 

Distilled spirits, rectification tax 

Wine 

Beer 

Cigars,ass A large: 

Cl 

Class B 

Class C 

Class D 

Class E 

Class F 

Class G 

Cigars, small 

Cigarettes, large 

Cigarettes, small 

Manufactured tobacco (chewing, smoking, and snuff) 

22,698 21,004 

20,646 

544 

41 

(1 

38 

1,421 

1 

1 

( ) 

3 

19,069 

544 

(•) 

 3 

1,384 

1 

1 

2 

Note.—Amounts of taxes collected in Puerto Rico on tobacco and liquor manufactures coming into the United States 

are covered into the Treasury of Puerto Rico under the provisions of sec. 7652(aX3) of the In ernal Revenu Code of 1954. 

Such amounts are included in overall collections results (tables 1 through 4), beginning with 1955. 

'Less then $500. 

117 119 

6 

1,562 1,466 

3,902 7,210 

7,488 10,773 

267,247 279,271 

149,264 154,843 

986 996 

34 30 

96 95 

As of lune 30— 

Class of establishment 

Manufacturers of tobacco 

Manufacturers of cigars and cigarettes 

Manufacturers of cigarette papers and tubes 

Dealers in tobacco materials 

Tobacco export warehouses 

1960 1959 

161 183 

524 597 

4 4 

2,257 2,336 

106 89 

134 Annual Report Statistical Tables 135 

Table 6.—Internal r tax collected in Puerto Rico on manufactured products coming Table 7.—Establishments qualified to engage in the production, distribution, storage, or 

into the United States, by objects of taxation use of alcohol and alcoholic liquors 

As of lune 30— 

Class of establishment 

1960 1959 

Wines: 

Bonded wine cellars 

Taxpaid wine bottling houses 

Vinegar: Vinegar factories using vaporizing process 

Beverage dealers: 

Importers 

Wholesale dealers in liquors 

Wholesale dealers in beer 

Retail dealers in liquors 

• Retail dealers in beer 

Other: 

Manufacturers of nonheverage products (drawback) 

Fruit-flavor concentrate plants 

Bottle manufacturers 

t Consists of the former industrial alcoholplant, registered distillery, fruit distillery, ind steal alcohol bonded warehouse, internal revenue bonded warehouse, distillery denaturing bonded warehouse, bent ring plant, rectifying plant, 

of this 

and tax

change in the method o classi

paid bottling house, replaced b fyin y th

g 

 e distilled sp

en t

irits

ts phelan numbers

t and its fshown f acilities 

for 1960 and 

in 1960 ( 1959 ar Pu lic Lawe not co

m parable 

85-8 59). B rson 

Table 8.—Establishments qualified to engage in the production or distribution of tobacco 

products 
136 Annual Report Statistwal 

o 

6 

A 

O 

2 

0 

A 

A 

C 

V 

-e 

Yl 

r 

C0 

C 

0 

a 

Dea lerand userpermitsand withdrawa l permits(sec.5271, I. R. Code) 

4

gi.s>.11 

tk.1.41 4g7t, 

rgE's 

L,9-1-4 

ZZ9 

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Distilled spiritsplant permits(sec. 51 71, I. R. 

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-SE et 

T 

9t 

61 61 

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Of 

62 

61 0

C, 

1 

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1, 340 

4, 259 

n lo sa

• 

Ineffect Ju ly1,1959 Issued duringyear Terminated duringyear,tota l 

Revo ked Otherw iseterminated 

Ineffect June 30, 1960 Renewa lsapprov ed duringyear Wended duringyear 

C 

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6 

0 

0 

a 

0 

0 cr 

0 

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2 

O 

0 

0 

2 

0, 

C 

S 
Status 

Total 

(I) 

Manufacturers of— 

Export warehouse 

proprietors 

(4) 

Cigars and 

cigarettes 

(2) 

Tobacco 

(3) 

In effect July 1, 1959 

Issued during year 

Terminated during year, total 

Revoked 

Otherwise terminated 

In effect June 30, 1960 

Amended during year 

869 

81 

597 

35 

183 

19 

89 

27 

159 108 41 10 

159 108 41 10 

791 

85 

524 

58 

1 

161 15

10 8 

12 

139 

Type of label 

Applications received Application acted upo 

Application 

returned 

without 

action 

(8) 

Total 

(I) 

For 

approval 

(2) 

For 

enemalion 

(3) 

Total 

(4) 

Certifies es issued 

Disapproved 

(7) 

Approvals 

(5) 

Exemptions 

(6) 

Grand total 

Distilled spirits, total 

Domestic 

Imported 

Wines, total 

Domestic 

Imported 

Malt beverages, total 

Domestic 

Imported 

38,349 38,058 291 37,576 36,983 261 332 773 

16, 347 16, 305 42 16, 067 15, 847 61 159 28$ 

14,072 

2,275 

14,030 

2,275 

42 14, 105 

1,962 

13,921 

1,926 

61 123 

36 

201 

67 

20, 590 20, 341 249 20, 184 19,845 200 139 292 

5, 799 

14, 791 

5, 550 

14, 791 

249 5, 529 

14,655 

5, 291 

14, 554 

200 38 

101 

99 

193 

1, 412 1,412 1, 325 I, 291 34 213 

1,155 

257 

1,155 

257 

1, 013 

312 

1,002 

289 

II 

23 

180 

33 

138 Annual Report Statistical Tables 

Table 11.—Permits relating to tobacco under Chapter 52, Internal R Code, 1954 Table 12.—Label activity under Federal Alcohol Administration Act 
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Atlanta (Geo rgia) Birmingham (Alabama) Columbia (South Caro lina) Greensboro (North Caro lina) Jac kson Mississippi) Jacksonville Flori da) Nashv ille (Tennessee) 

oaten nylon 

Augusta (Ma ine) Boston (Massachuse tts) Burlington (Vermont 

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Chicago (See(c)be low) Detro it (Mic higan) Milwau kee (Wisconsin) Springfie l d (See(c)below) litelnnatl region 

Cincinnati 2 (See(g)below) Cleve lan d a (See(g)below) In dianapo lis (Indiana) Lou isville (Ken tuc ky) Par kersburg (West Virginia) Ric hmond (Virgin ia) alasregion 

Albuquerq ue NewMex ico) Austin ee (1)below) Da llas se(i)be low) LittleRock {Arkansas) Now Orleans Louisiana) OklahomaCity Oklahoma) 
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Statistical Tables 149 

148 Annual Report 

Table 14.-Appellate Division processing of protested income, profits, estate, and gift 

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

A. Progress of work 

Amount stated in revenue agent's report 

(thousand dollars) 

Status 

Deficiency in 

tax 

(I) (2) 

Pending in pre-90-day status July I, 1959 13,298 561,391 Net receipts from district directors during year 16, 001 533,423 

Processed during year, total 18,368 497, 865 

Agreed 13, 021 320,460 Unagreed overassessments and claim rejections 942 243 Statutory notices issued-transferred to 90-day status 4,105 177, 161 

Pending in pre-90-day status June 30, 1960 10, 931 596,950 

B. Results obtained in cases processed 

Appellate det rmination (th usand dollars) 

Method 

Deficiency in 

tax 

Processed during year, total 

Agreed 

Unagreed overassessments and claim rejections 

Statutory notices issued-transferred to 90-day satus...

- 

Less than $500. 

Table 15.-Appellate Division processing of protested Income, profits, estate, and gift 

tax cases in which statutory notices of deficiency were outstanding (90-da y 

A. Progress of work 

Amount stated in statu try notice 

Number of 

(thousand della s) 

Status Cases 

Deficiency in 

tax 

Penalty Overuse'smeet 

(I) (2) (3) (4) 

Priding in 90-day status July 1, 1959 1,330 59, 018 4, 525 83 

Net receipts during year, total 4,661 211,255 10.912 374 

Statutory notices issued by Appellate Division I 4,324 189, 988 10,355 359 Cases resulting from district directors' statutory notices... 337 21, 266 587 15 

Preened during year, total 1, 723 205, 719 9,821 108 

Agreed 711 29,928 288 25 Defaulted 

Petitioned to the Tax Court-transferred to docketed 

1,159 22, 511 1,860 31 

status 2, 853 153,280 7,676 353 

Pending in 90-day status June 30, 1960 1,268 64,553 5,613 49 

Difference from table lhtransferred to 90-day status-is caused by cases being combined or split for the purpose of 

Issuing the statutory notice, cases in transit, etc. 

B. Results obtained in cases processed 

Method 

Number of 

cases 

Appellate det rmination (thousand dollars) 

Deficiency in 

tax 

Penalty Overassessment 

Processed during year, total 

Agreed 

Defaulted 

Petitioned to the Tax Court-transferred a docketed 

status 

1, 723 188,658 9,729 112 

711 

1,159 

2,853 

12, 867 

22, 511 

153,280 

193 

1,860 

7,676 

29 

31 

353 

Number of 

cases 

26,037 177, 477 

Number of 

cases 

18, 368 

13,021 

912 

4, 405 

348,497 

162,811 

Penalty 

4, 894 

10,561 

15,458 

Overassessment 

170, 773 

168, 91)9 

1,479 

385 

Penalty Overassessment 

(3) (4) 

33, 519 208,489 

27, 875 126, 698 

14, 329 173, 493 

22 2, 044 

11,686 1, 941 

35,357 157,710 
Statistical Tables 151 

Table It-Office of Chief Counsel-Results obtained in Income, profits, estate, and gift 

tax cases disposed of in the Tax Court 

150 Annual Report 

Table 16.-Appellate Division processing of Income, profits, estate, and gift tax cases 

petitioned to the Tax Court (docketed cases) 

A. Progress of work 

Amount in dispute Arnount approved Saved or recovered 

Amount petitioned (thousand dollars) 

Status 

Penalty 

(1) 

Pending in docketed status July 1, 1959 

Net receipts during year, total 

Petitions filed in response toDistrict directors' statutory notice 

Appellate Division's statutory notice I 

Cases reconsidered after trial 

Processed during year, total 

Agreed-stipulated 

Dismissed or defaulted 

Tried before the Tax Court on merits 

Pending in docketed status June 30, 1960 

I Difference from table 15-transferred to docketed status-is caused by e eluding district directors' st tutory notices 

considered by Appellate in 90-day status, cases in transit, etc. 

B. Results obtained In cases processed 

Number of 

cases 

Deficiency in 

tax 

Processed during year, total 6, 821 146, 653 

Agreed-stipulated 

Dismissed or defaulted 5, 511 76, 896 

384 1, 945 Tried before the Tax Court on merits I 926 67, 812 

18. Represents amounts petitioned. Results as to decisions ran ered by the T x Court during the year are hown in table 

Table 17.-Office of Chief Counsel-Processing of income, profits, estate, and gift tax 

cases in the Tax Court 

Amount in dispute (thousand dollars) 

Overpayment 

(1) 

Pending July 1, 1959 

Filed or reopened during year 

Disposed of during year I 

Pending June 30, 1960 

Deficiency 

and 

penalty 

(2) 

(Thousand doll rs) 

6, 642 

384 

747 

5, 511 

Table 19.-Office of Chief Counse -Receipt and d sposal o Tax Court cases in courts 

of appeals or in Supreme Court 

Status 

In courts f appeals In Supreme Court 

Number of 

cases 

(1) 

Amount 

(thousand 

dollars) 

(2) 

Number of 

cases 

(3) 

Amount 

(thousand 

dollars) 

(4) 

Pending July 1, 1959, total 

Appealed by Commissioner 

Appealed by taxpayers 

Appealed by both 

Appealed during year, total 

By Commissioner 

By taxpayers 

By both 

Deposed of during year, total 

Favorable to Commissioner 

Favorable to taxpayers 

Modified 

Settled 

Dismissed 

380 44, 816 5 59 

56 

314 

10 

9, 929 

31, 120 

3, 766 

3 

2 

12 

47 

303 24, 026 4 98 

240 

24 

453 

13, 042 

9,530 

4 98 

301 24,105 6 65 

138 

69 

40 

2 

52 

7, 824 

11, 048 

1,866 

65 

3, 301 

C."" 

17 

44 

bonding June 30, 1960, total 382 44, 737 3 92 

Appealed by Commissioner 

Appealed by taxpayers 

Appealed by both 

40 

316 

26 

1,996 

29, 895 

12,845 

3 92 

Number of 

Cans 

11,748 

(2) 

720, 024 

379, 283 

108, 515 

(3) 

28, 164 

Overassess. 

meat 

(4) 

2,037 

5,236 

334, 220 36, 146 

11,489 765,086 100, 534 1,632 

Method 

Appellate determination (thousand dollars) 

Penalty 

11,893 

413 

3,214 

15, 519 

Overassessment 

23, 349 

20, 596 

1 

2, 751 

Status 

Number of 

cases 

12,704 

6,529 

6,642 

12,591 

Deficiency in 

tax 

(2) 

810, 057 

366, 979 

334, 884 

842, 152 

Penalty 

108,515 

24, 951 

32, 932 

100,534 

(3) (4) 

640, 664 

24, 233 

372, 585 

292, 312 

Total 

Dismissed 

Decision on merits 

Agreed settlement 

Basis of closing Number 

(1) 

2, 379 

68,475 

296, 961 

367,816 

Overpay. 

ment 

80 

14, 921 

357,583 

372, 585 

(3) 

Deficiency 

and 

penalty 

(4) 

118, 012 

2, 358 

26, 866 

88, 789 

460 

54 

Overpay. 

ment 

(5) 

514 

2, 438 

41, 327 

446, 318 

Amount 

(6) 

490, 083 

°ercent of 

amount in 

dispute 

(7) 

99.1 

49.6 

68.2 

66.2 

I For analysis of disposals see table 18. 
152 Annual Report 

Table 20.-Receipt and disposal of suits Bled by taxpayers in Fed 

Status Total 

(I) 

Refund s its (other 

than alcohol, tobacco, and firearms 

taxes) 

Perpetuation of testimony and damage 

actions 

Court of 

Claims 

(2) 

District 

courts 

(3) 

District 

courts 

(4) 

Not in 

suit 

(5) 

Pending July I, 1959: I 

Cases number.. Amount in dispute thousand dollars_ Received during year: 

Cases number. Amount in dispute thousand dollars.. Disposed of during year: a Cases number.. Amount in dispute thousand dollars.. Refunded during year: 

Amount thousand dollars.. Percent of amount disposed of 

'ending June 30, 1960: 

Cases number.. Amount in dispute thousand dollars._ 

. - __._ 

2,807 

500,647 

1,223 

122, 138 

1,080 

146, 890 

46, 517 

31. 67 

2,950 

475, 895 

467 

281,369 

147 

48,772 

149 

88,860 

23,735 

26.71 

465 

241,281 

2,294 

1,067 

921 

39.26 

2,440 

234, 614 

219,278 

73,366 

58, 030 

22,782 

40 

7 

6 

41 

6 

2 

4 

4 

Statistical Tables 153 

Table YR.-Office of Chief Counsel-Receipt and disposal of collection, erroneous

refund, subpena, summons, and injunction cases 

Status Number of cases 

Pending July 1, 1959 

Received 

Total 

Disposed of 

Pending June 30, 1960 

1,249 

954 

2, 203 

909 

1,294 

Note.-This table includes cases handled at national and regional levels which are under considerati n for suit or are in 

suit in Federal and State courts. It does not include cases relating to alcohol, tobacco, and firearms to es, neither does it pertain to insolvency and debtor proceedings or lien cases which are included in tables 23 and 24. 

Table 23.-Office of Chief Counsel-Receipt and disposal of insolvency and debtor 

proceedings 

g year included 2 processing acases Moo ving $71,00 .88. These cases were disposed of during the year, with no part of the tax refunded. 

a These cases were formerly shown in a separate table (see table 12 In 1959 Report). 

a The number of cases disposed of does not agree with the number of ases in whi h decisions were rendered by these 

courts during the year, due to settlement by stipulation, dismissals, an time requi ed for retrial, recomputation of tax, 

etc. In the Court of Claims the number of decisions was 70, of which 43 were for the Government, 21 against the Governwe

e 

mre

n and 6 partl

ove

y

nment, 170 ag 

for and partly 

against the Go ver

nst the Govern

nment

men

, and 4 Ipartly f 3 p

e dist

or

ri crts 381 ct de

in

ci

st the Governm

d

ent. 

sions were rener For d of wheic

cihio6ns 

t, for theGr 1 n a d ou partly ag s

8 

by the courts of appeals and Supreme Court, see table 21. 

Table 21.-Cfrice of Chief Counsel-Civil tax cases decided by the courts of appeals 

and Supreme Court 

Status Total 

(1) 

Reorganization 

proceedings I 

(2) 

Bankruptcy and 

receiverrhip 

proceedings a 

(3) 

Miscellaneous 

insolvency 

proceedings I 

(4) 

Pending July I, 1959 

Received 

Total 

)isposed of 

'ending June 30, 1960 

..... . 

1,901 

2,487 

860 

948 

453 

832 

688 

707 

4,388 1,808 1,285 1,295 

2 

1,

,636 

752 

I, 005 

803 

879 

406 

752 

543 

- es cases handled at national and egional levels. 

Court Total 

(1) 

For the 

Government 

(2) 

Against the 

Government 

(3) 

Part 

p

ly for 

and artly 

against the 

Government 

(4) 

Total 

By courts of appeals, total 

Originally tried inTax Court 

District courts 

3y Supreme Court, total 

Originally tried inTax Court 

District courts 

Court of Claims 

State courts 

367 237 98 32 

348 225 91 32 

252 

96 

163 

62 

64 

27 

2 5 

7 

19 12 7 

4 

14 

1 -- I 

- - I 

Proceedings instituted under the following sections or chapte s of the Bankruptcy Act: Secs. 75 (ag icultural compositions and extensions) and 77 (railroad reorganizations) and ch X (corporate reorganizations), XI ( rrangements as to 

unsecured indebtedness), XII (real property arrangements), and XIII (wage earners plans), which inv lye tax claims and 

other rights and interests of the United States, and also require ction by lawyers. 

2 Bankruptcy liquidation proceedings and Federal or State receivership proceedings which involve tax claims of the United States, and also require action by lawyers. 

a Proceedings relating to corporate dissolutions, insolvent banks, assignments for the benefit of creditors or administration of estates of decedents, which involve tax claims of the United States, and also require action y lawyers. 

Table 24.-Office of Chief Counsel-Receipt and disposal of lien cases and noncourt 

civil advisory cases 

preme Court cases, the cases covered y tables 23 a 24 are not i eluded. 

Status Total 

(I) 

Lien cases 

Noncourt 

civil advisorY calm I 

(4) 

In court I 

(2) 

Not in 

court a 

(3) 

Pending July 1, 1959 

Received 

Total 

)isposed of 

'ending June 30, 1960 

1,697 

7,357 

817 

1,840 

208 

2, 371 

672 

2,146 

9,054 3,657 2,579 2,918 

7,645 

I, 409 

3, 067 

590 

2,414 

165 

2,164 

654 

.-Includes cases handled at national and regional level . 

I Primarily suits for foreclosure by mortgagees or other secured creditors and suits to quiet title to which the United States is made a party. 

2 Primarily applications for discharge of property from tax lie s. 

Primarily memorandums on civil advisory matters from reg onal counsel to district directors which are not related to court proceedings or lien cases. 
154 Annual Report 

Table 25.-Obligations incurred by the Internal Revenue Service 

tin thousands of dollars/ 

Internal revenue office, district, 

or region 

Total 

(1) 

Salaries 

(2) 

Travel 

(3) 

Communicetion 

services 

(4) 

Rent and 

utility 

services 

(5) 

Supplies 

and 

equipment 

(6) 

Other 

(7) 

A. National Office and regional totals 

(including district directors' offices 

and service centers) 

Total, Internal Revenue Service I 363, 735 307, 099 9,193 7,293 2,475 5,419 32,256 

National Office 34, 641 19, 116 1,016 4,597 72 Atlanta region 30,714 26,356 1, 192 216 39 Boston region 23,651 20, 431 413 191 614 Chicago region 37, 125 33, 023 681 350 55 Cincinnati region 41, 813 36, 041 1, 032 295 759 Dallas region 24, 381 21, 173 971 161 32 New York City region 43,200 38, 799 136 451 61 

2 

Omaha region 28, 558 25, 012 1, 021 180 15 Philadelphia region 43,405 38, 778 671 351 80 San Francisco region 44, 507 38, 496 I, 040 370 726 Regional counsel 5,613 4,870 109 89 1 Regional inspection 3,978 3, 172 520 38 

International Operations Division 2,119 1,832 91 4 21 

B. Regional commissioners' offices (ex. 

eluding district directors' offices 

and service centers) 

Atlanta region 5,998 4,771 303 52 246 623 Boston region 2, 688 2, 290 108 27 60 202 Chicago region 4, 828 4, 199 82 54 101 383 Cincinnati region 7, 703 6,524 344 51 172 600 Dallas region 3, 350 2, 851 126 28 85 254 New York City region 6, 054 5,301 82 69 124 476 Omaha region 3, 872 3, 139 263 34 144 289 Philadelphia region 6,620 5,690 188 59 117 563 San Francisco region 5,427 4,637 183 48 96 417 

C. District directors' offices and service 

centers 

Atlanta: 

Atlanta 4,045 3, 515 153 24 54 295 

Birmingham 3,017 2,662 94 19 35 205 Columbia 2,042 1, 785 74 16 23 142 Greensboro 1,416 3, 797 161 26 63 364 

Jackson 1,716 1,486 85 11 18 113 

Jacksonville 5,854 5,108 213 12 63 410 Nashville 3, 656 3, 233 110 24 32 256 

Boston: 

Augusta I, 374 1,201 46 13 22 91 

Boston 7, 875 7, 107 106 79 66 499 Burlington 720 615 30 8 21 43 

Hartford 4, 477 4,026 65 30 52 296 

Portsmouth 997 870 35 8 16 65 

Providence I, 643 1,486 16 16 18 106 

Northeast Service Center 3,877 2, 836 6 10 157 287 

Chica_go: 

Chicago 12,527 11,264 110 128 127 889 

Detroit 10,547 9,411 214 91 93 707 

Milwaukee 4,987 4,431 127 45 52 329 

Springfield 4,236 3,718 147 34 46 289 

Footnotes on p. 155. 

Statistical Tables 155 

Table 25.-Obligations Incurred by the Internal Revenue Service--Continued 

tin thousands of dollars/ 

Internal revenue office, district, 

or region 

Total 

(I) 

Salaries 

(2) 

Travel 

(3) 

Com mnication

u 

services 

(4) 

Rent t and 

utility 

services 

(5) 

Supplies 

and 

equipment 

(6) 

Other 

(7) 

C. District directors' offices and service 

centers-Continued 

Cincinnati: 

Cincinnati 3 

Cleveland a 

Indianapolis 

Louisville 

Parkersburg 

Richmond 

MidwestService Center 

Dallas: 

Albuquerque 

Austin 

Dellas 

Little Rock 

New Orleans 

Oklahoma City 

New York City: 

Albany 

Brooklyn 

Buffalo 

Manhattan 0 

Syracuse 

Omaha: 

Aberdeen 

Cheyenne 

Denver 

Des Moines 

Fargo 

Kansas City 

Omaha 

St. Louis 

St. Paul 

Wichita 

Philadelphia: 

Baltimore 

Camden 

Newark 

Philadelphia 

Pittsburgh 

Scranton 

Wilmington 

San Francisco: 

Boise 

Helena 

Honolulu 

Los Angeles 

Phoenix 

Portland 

Reno 

Salt Lake City 

San Francisco 

Seattle 

Western Service Center 

5,404 

8,634 

5, 475 

3, 399 

2,220 

4, 160 

 4, 818 

1, 163 

5,892 

5, 798 

I, 797 

3,482 

2, 899 

2, 503 

9, 843 

3, 564 

18, 770 

2, 466 

981 654 

2,704 

3, , 

908

458 

2, 689 

2,202 

3, 758 

4,319 

3,013 

7, 389 

3, 199 

8,090 

8,920 

6,017 

2,094 

1,076 

1,023 

1,119 

1,266 

12,824 

1,159 

2, 703 

879 

1, 209 

8, 768 

4, 387 

3, 413 

4, 856 

7.712 

4, 893 

3,011 

1, 927 

3, 656 

3,463 

981 

5, 151 

5, 056 

1, 517 

3, 070 

2, 548 

2,225 

8, 912 

3, 185 

16,993 

2,181 

839 

559 

2, 412 

01 5 

3 781 

2,117 

1,942 

3, 376 

3,848 

2,651 

6, 671 

2, 845 

7,245 

8,047 

5,424 

I, 881 

977 

889 

959 

1,141 

11,393 

1,279 

2,87 

771 

1,077 

7, 799 

3, 835 

2, 330 

87 

147 

120 

98 

87 

141 

8 

58 

220 

234 

113 

121

98 

58 

81 

72 

71 

69 

62 

35 

59 

129 

51 

57 

73 

63 

114 

116 

87 

61 

68 

124 

88 

10 

16 

44 

58 

28 

189 

48 

94 

29 

30 

175 

157 

5 

37 

85 

27 

31 

19 

41 

4 

10 

38 

35 

12 

19 

18 

27 

106 

26 

204 

19 

4 

4 

18 

23 

5 

13 

II 

17 

31 

21 

54 

21 

95 

61 

44 

13 

4 

10 

II 

8 

127 

13 

17 

9 

8 

71 

42 

6 

56 

94 

49 

36 

38 

44 

297 

28 

74 

72 

31 

35 

43 

24 

79 

39 

100 

26 

10 

12 

13 

25 

28 44 

36 

28 

82 

25 

61 

71 

53 

21 

7 

12 

II 

11 

130 

16 

24 

9 

13 

120 

45 

199 

31 

33 

363 

584 

356 

226 

148 

273 

348 

82 

403 

393 

122 

227 

195 

168 

655 

237 

I, 359 

167 

66 

44 

182 

226 

58 

176 

147 

257 

287 

197 

490 

243 

565 

617 

403 

138 

71 

68 

80 

77 

890 

101 

180 

61 

81 

597 

305 

330 

Includes $348,009 financed from reimbursements 

2 Effective January 1, 1960, the Columbus district was merged i to the Cincinnati distr ct, the Toledo district w s merged 

into the Cleveland district, and the Uppe Manhattan nd Lower Manhattan istricts war combined o form the Manhattan 

district. The figures shown reflect obligations in these districts, combined in like ma ner for the entire fiscal year. 
INDEX 

A Page 

Acts: 

Act of August 9,1939 . . . 55 

Dealer Reserve Income Adjustment, 1960 75 

Excise Tax Technical 

Changes, 1958 10 71 

Federal-Aid Highway, 1959_ 75 

Federal Alcohol Administration 54 69,74.139 

Federal Tort Claims. . . 74 

Federal Unemployment 

Tax 17 

Foreign Investment Incentive Tax, 1960 75 

Incentive Awards, 1954 . 85 

Life Insurance Company Income Tax 

National and Federal Firearms 55 74 

Public Debt and Tax Rate 

Extension, 1960 76 

Trust and Partnership Income Tax Revision, 1960 . 74.75 

Advisory Group 96-97 

Aids for taxpayers: 

Individual 23-24 

Self-help 23-24 

Telephone, statistics on 23-24 

Alcohol and tobacco tax: 

Arrests 54 

Authorization of operations 69 

Beer . . 69.112.124.127 129 142 

Chemical analyses and research 73 

Collections . . 3,108,124,126.129 

Enforcement activity . . 51 

Establishments: 

Inspection of 72 

Qualified to produce, 

distribute, etc . 69.135 

Federal Alcohol Administration Act 54 69 

Federal-State cooperation 58 

Page 

Alcohol and tobacco tax-Continued 

Foreign countries visited by 

Service officials 71 

General information . . . 69 

Inspection of establishments 72 

Label activity 71 139 

Permits .... 69,136,137.138 

Permittees 72 

Promotions for sale of, discontinued 54 

Rectification tax. . 72.110.126 

Refunds of 6 

Results of criminal action 57 

Returns filed 27 

Revenue Rulings and Procedures published . . 13 

Seizures 54 

Supervision: 

Of industries 69 

On-premises 71 

Statistics on 71-72 

Tax rulings on 11 

Tobacco . . 72.114.124.127,129 

Wine . . 69,72.110.124.126.142 

Aliens: 

Taxation of, pamphlets on 19 

U.S. Tax Guide for . . 19 

Appeals: 

Appellate Division . . . 38-41, 

148-150 

Closing agreement cases, 

processing of 41 

Disposals, increase in . . 38 

Processing of 39-41,148 

Protested cases, decrease in . 38 

Statistics on 39-40,148 

Appellate Division . . 38-41.148-150 

Aquilino v. U.S 46 68 

Assessments, additional. (See 

Taxes.) 

Atlanta Region, Pilot Service 

Center 32 

156 Annual Report 

Table M.-Quantities of tax forms prepared and cost of printing 

- Class of work 

1960 1959 

Quantity (thousands) Cost 

(thousand 

dollars) 

(3) 

Quantity (thousands) Cost 

(thousand 

dollars) 

(3) 

Items or sets 

(I) 

Packages 

(2) 

Items or sets 

(I) 

Packages 

(2) 

Total 1,649, 473 6,394 I, 469, 441 7,131 

Packages of tax returns and Instructions 

for major mailings to taxpayers, total...... 319, 810 69, 276 993 297, 960 63, 679 902 

Package 1 (Form 1040W) I 47, 337 15, 779 109 

Package 1 (Form 1040 nonbusiness) 107, 000 21, 400 341 

Package 2 (Form 1040 nonbusiness 

with estimated tax) 63, 144 10,523 224 48, 270 8, 045 145 

Package 3 (Form 1040 business) 52, 280 6,660 254 50, 040 6, 255 175 

Package 4 (Form 1040 farm) 29, 754 3, 306 124 27, 400 3, 425 91 

Package 5 (Form 1065 partnership 

return) 5,350 1,070 16 

Package 6 (Form 1120 corporation 

return) .. 5,215 I. 043 20 

Form 1040A 53,930 26, 960 157 46,802 23, 401 125 

Employment tax package 62, 800 3, 935 89 18, 448 _1,153 25 

Other tax returns, instructions. public-use 

forms, and pamphlets 841, 603 2,822 715, 691 2,314 

Administrative forms and pamphlets 422, 938 1,356 396, 664 1,337 

Field printing 65, 122 217 59, 126 191 

Excise tax stamps ($) I, 006 0 2, 38( 

I The simplified return, Form 1040W, was made available for the fir t time for t e filing of tax year 1959 r turns, 

$ Excise tax stamps were reduced in num er from 23,869.651,000 in 1959 to 1,7 4,902,000 in 1960, as the esult of the 

adoption of a return system, beginning June 24,1959, for t e payment f Federal taxes on alcohol and tobac o products. 

These figures are not included in the total. 

157 
Audit: Page 

Additional assessments 

from 36 37,58,61-62 

Operational improvements 34 

Program 36 

Results of 36 

Training for 86 

Audit Division, organizational 

_ changes 79 

Automatic data processing (see 

also Electronic data processing): 

Collection Division, role in 79 

Computer Center 32 

Development of . . . . 31,94,100 

Master file concept . . . 31 

Objectives of 31 

Personnel for 82,83,86 

Plans for 31-32 

Selection of equipment. 32 

B 

Bank of America National Trust 

and Savings Association v. 

U.S. 45 

Belgium, supplemental convention with 77 

Blue Ribbon program . 64,82,84 

Bonsai, W. R. Co. 15 

Bressner Radio, Inc. 15 

Bulletin, Internal Revenue . 12 

C 

California, exchange agreement 

with 58 

Career development program . 87 

Carryback allowances: 

Adjustments in 30 

Comparison of 31 

Decrease in 30 

Receipt and disposal of . 31 

Chapman v U S 52 

Chart of IRS organization . . xiii 

Cheatham v. U. S. 43 

Chemical analyses and research 73 

Chief Counsel, Office of: 

Analysis of cases flowing 

through 56 

Cases involving criminal 

prosecution 56-57 

Disposal of cases by . 66,151-163 

Cincinnati District enlarged . . 79 

Civil advisory legal services: 

General 67-68 

Statistical report on . 152-163 

Supreme Court decisions affecting ... 68 

Page 

Civil litigation 42-49 

Civil Service Commission . . 84 

Claims. (See specific item.) 

Clancy, Thomas 58 

Cleveland District enlarged . 79 

Closing agreement cases . . . 12,41 

Collection Division, organizational changes 79 

Collections: 

Alcohol taxes. 3,110,124,126,129 

Comparison of 3 

Corporation income and 

profits taxes . . 3, 4, 108, 124, 

126,129,132 

Delinquent accounts . . . 63 

Disability insurance . . . . 3,108, 

124,126 

Employment taxes . . . . 3,4, 

108,124,126,129,132 

Estate and gift taxes . . 3,110, 

124,126,129,132 

Excise taxes ...... 3,110, 

124,126,129,132 

General 3,108,129,153 

Individual income taxes . . 3,4, 

108,124,126,129 

Old-age insurance . . . 3,108, 

124,126,129 

Other 4,129 

Railroad retirement . . 4,108, 

124,126,129 

Stamp taxes . . . . 114,124,127 

Tobacco taxes 3,114, 

124,127,129 

Unclassified 3,128,129 

Unemployment insurance . 3, 

108,124,126 

Withholding taxes . . . 3, 

108,124,126 

Columbus District merged with 

Cincinnati 79 

Commissioner: 

Acquiescences in Adverse 

Tax Court decisions . 49 

Contest of suits 43-44 

Federal-State cooperation 68 

Nonacquiescences in adverse 

Tax Court decisions . 49 

Summary and Transmittal 

Letter iii 

Commissioners of Internal Revenue, 1862-1960 ix 

Computer Center 32,79 

Consolidated tax account . . 81 

Page 

Conventions, Tax. (See Tax 

conventions.) 

Coordinated evaluation program 95 

Corporation income taxes: 

Additional assessments . . 37,61 

Collections 3-4,108-129 

Refunds of, and claims for. 6,37-38 

Returns examined . . . . 36 

Statistics on . . . 3-4,6,108-129 

Cory Corporation, et al. v. Sauber 46 

Cost of operations 93 

Court(s): 

Circuit Courts of Appeals . 42- 

44,46-47,48,52,54,55 

Of Claims 42,152 

Supreme, of the U S 42- 

49,57-58 

The Tax, of the U S 

38,41,43,44,151-152 

U.S. District 42,45,152 

Credits resulting from excessive 

prepayments 30 

Criminal prosecution: 

Analysis of cases in 

Cases, disposal of 

Of tax cases 

D 

Delinquency investigations and 

delinquent returns: 

Additional tax from . . 36-37,61 

Increase in returns secured 49 

Statistics on 49 

Delinquent accounts: 

Collection of: 

Improvement in 64 

Techniques of . 63 

Disposals 63 

Statistics on 63-64 

Denmark 71 

Department of Justice, referrals 

of criminal cases to 56 

Depositary receipt method: 

Of paying taxes 4 

Purchases 4 

Determination letters: 

Appeal of 12 

General 11 

On employee benefit plans 11-12 

On exempt organizations . 11-12 

Statistics on 11-12 

Page 

Disability insurance taxes: 

Collections, increase in . 3,4 

Paid by depositary receipt 

purchases 4 

Refunds 6 

District offices, consolidation of 79 

Dividends and interest: 

Forms for reporting . . 16,17,26 

Program to improve reporting on tax returns . . . 81-82 

Publicity given reporting requirements . . . 23,81,95 

Durham Lumber Co 47 

E 

East Coast Plan 51-52 

Educational expenses, deduction 

for 37 

Electronic data processing (see 

also Automatic data processing): 

Computer Center 32 

Electronic system . . . 29,31 

Elkins v. U S 59 

Ellijay Feed & Supply Co. v. 

U.S. 52 

Employee benefit plans, Determination letters on 11-12 

Employee withholdings . . . 3,4 

Employment taxes: 

Additional assessments resulting from audit . . . 37,61 

Appellate Division processing of 41 

Collections . . . 3,4,108-129 

Decrease in audit assessments 6 36 

Increase in 3 

Refunds, claims for . . . ' 38 

Refunds of 6 

Returns: 

Delinquencies in 50 

Examined 86 

Filed 26 27 

Revenue Rulings and Procedures published . . . 13 

Tax rulings on 11 

Enforcement activities: 

Additional tax from . . . . 61 

Alcohol and tobacco tax enforcement 61-55 

Appeals 38-41 

Audit of returns 34-38 

Automatic data processing 

in 31 

56-57 

56-57 

56 

Supreme Court decisions in . 57-58 

Current research program . . . 95 

ico 
Page 

Evans, Robley H., et ux. v. Commissioner 48 

Excess profits tax: 

Appellate Division processing of 38-39, 148-150 

Council 41 

Relief claims, reduction in 41 

Statistics on 41 

Excise taxes: 

Additional assessments . 36-37, 61 

Appellate Division processing of 41 

Bicycle tires and tubes . 7 

Collected on distilled spirits 72 

Collections: 

General 3, 108-129 

Increase in . . . 3, 4, 72 

Paid by depositary receipt purchases . . . 4 

Refunds of: 

Claims for, released from 

suspense status . . . 37-38 

Manufacturers' and retailers' 6 

Returns filed: 

Decline in 

Delinquencies in . . 

Examined 

26-27 

50 

36 

Exempt organizations, Determination letters on 11-12 

Expense accounts: 

Abuses of 80-81 

Forms for 16 

Program to curb abuses . 80-81 

Reporting of 23 

T.I.R. 198, 204, 221 . . . 15, 81 

F 

Farmer's Tax Guide 19 

Federal-State cooperation: 

Alcohol tax area 59 

General 58-59 

Fiduciary income tax: 

Additional assessments from 

audit 36, 37, 61 

Returns filed 27 

Firearms: 

Act of August 9, 1939 . 55 

Arrests 54 

Department of Defense 55 

H.R. 4029 76 

Enforcement activities-Con. 

Page 

Cases involving criminal 

Civil advisory legal servprosecution 56-58 

ices 67-68 

Civil litigation 42-49 

Collection of delinquent ac 

counts 63-65 

Delinquency investigations 

and delinquent returns . . 49-50 

Federal-State cooperation . 58-59 

Firearms program . . • 55 

Fraud investigations . . 60-51 

General 33 

Informants' rewards . • 60 

International operations . 59-60 

Mathematical verification . 33-34 

Offers in compromise . . . 66-67 

Overassessments reported to 

Joint Committee . . . . 42 

Personnel training for . . 86-88 

Engineering issues: 

Revenue Rulings and Procedures published . . 13 

Tax rulings on 11 

Enrollment of practitioners . 103 

Errors disclosed by mathematical 

verification 33-34 

Estate tax: 

Additional assessments . 36-37, 61 

Appellate Division processing of 38-39, 148-150 

Claims for refunds . 

. . 38 

Collections 3, 108-129 

Refunds of 6 

Returns: 

Classification of . . 35 

Examined 36 

Filed 27 

Revenue Rulings and Procedures published . . 13 

Tax rulings on 11 

Estimated tax, declarations of: 

Corporation 27 

Individual 26, 27 

Processed by Service Centers 29 

Supreme Court decision relating to 42-43 

Evaluation program, coordinated 95 

160 

Page 

Firearms-Continued 

Investigational work . . . 55 

National and Federal Firearms Act 55 

Program 55 

Registration of 55 

Results of criminal action 57 

Revenue Rulings and Procedures published . . . 13 

Seizures 64 

Fiscal management: 

Cost of operations . 93, 154-155 

Mechanization of operations 94 

Obligations, comparison of 93 

Flora, Walter W. v. U.S . . . 43-44 

Foreign tax officials, assistance 

to 104 

Forms: 

Cost of printing 156 

Distribution of 17-18 

Eliminated 10 

New: 

Form 940 17 

Form 941 17 

Form 1040W . 16-17, 23 

Form 2687 17 

Form 2688 17 

Form 2758 17 

Document 5219 17 

Document 5219A . • 17 

Document 5242 . 17 

Document 5244 . 17 

Document 6247 . 17 

Printing costs 156 

Quantities prepared . . . 156 

Revision of . . . 10, 16, 23, 76 

Statistics on 10 89 

Tax return program . . . 15-18 

France 10, 59, 71 

Fraud investigations 50-61 

G 

Gasoline taxes: 

Collections 108-128 

Refunds 6 

Germany: 

Export of wines to United 

States 71 

Federal Republic of . . . 10, 71 

Gift taxes: 

Additional assessments . 36-37, 61 

Page 

Gift taxes-Continued 

Appellate Division processing of 38-39, 148-150 

Claims for refunds of . . . 6, 38 

Collections 108-128 

Returns: 

Classification of 35 

Examined 35-36 

Filed 27 

Revenue Rulings and Procedures published . . . . 13 

Statistics on 3, 108-129 

Tax rulings on 11 

Goldfine, Bernard, and Paperman, Mildred 57 

H 

Hertz Corporation v. U S 48-49 

H R 5 75 

10 74 

4029 76 

4261 76 

7125 69 

7726 75 

8229 75 

8678 75 

8684 76 

8725 75 

9660 75 

9662 75 

10087 75 

11602 75 

12381 76 

12580 75 

Huard & Steinheiser v Henry . 52 

Hungary 10 

I 

Incentive Awards program . 78, 85, 86 

Income tax(es): 

Additional, from enforcement efforts 61 

All returns 3, 108-129 

Corporation . 3, 4, 108-129 

Individual 3, 4, 108-129 

Processing of protested 

cases 148-149 

Results of criminal action . 57 

India, proposed tax convention 

with 77 

Indictments 5667 

161 
Page 

Individual income taxes: 

Additional assessments . . 36,6] 

Appellate Division processing of 38-41,148-150 

Check on failure to file . . 31 

Collections 3,4,108-129 

Decrease in audit assessments 36 

Increase in collections of . 3,4 

Mathematical verification 

of 33,34 

Refunds: 

Claims for 37 

General 6,29-30 

Reduction in claims for . 6,37 

Results of criminal action . 57 

Returns: 

Classification of . . . 35 

Examined 35 

Filed 27 

Processed in Service 

Centers 29 

Revenue Rulings and 

Procedures published 13 

Informants: 

Claims, disposal 60 

Rewards to 60 

Information returns, number received 29 

Inspection: 

Internal audit 97-98 

Internal security . . . . 98-100 

Investigation of applicants 

for admission to practice . 99 

Institutes, Taxpayer Assistance 23 

Intelligence Division: 

Functions 50-51 

Reorganization of . . . 51,79-80 

Interest (see also Dividends and 

Interest): 

Allowed on refunds . . . 6,30 

Internal audit controls, statistics 

on 97-98 

Internal security (see effsoinvestigations) 98-100 

International Operations Division: 

Activities of 59 

General 15 

London 59 

Manila 59 

International Operations Division—Continued 

Ottawa 59 

Paris 59 

Puerto Rico 59 

Sao Paulo 59 

Interpretation and communication of tax law to taxpayers 7-25 

Investigations: 

Delinquency 36-37 

Disciplinary actions . . . 99 

Discontinued 51 

Fraud 50-51 

Miscellaneous 50-51 

Of applicants for enrollment 

to practice 50 98 

Personnel 98-100 

Police check 98-99 

---...., Preliminary 50 

Prosecutions not recomProsecutions recommended 50,51 

Summary of 51 

mended 50,51 

Wagering and coin-operated 

gaming devices 60 51 

J 

James, Eugene 58 

Japan 77 

Joint Committee on Internal 

Revenue Taxation 42 

Jordan Marsh Co. 15 

Junior East Coast Plan 52 

K 

Kansas, exchange agreement 

with 58 

Known Defendant Seizure program 52 

Page 

Letters: 

Determination 11 

Program 80 

Litigation, appeals and civil, results of 42-49 

London 59 

Long-range planning 94 

M 

Major administrative improvements and policy changes . . 78-82 

Major Violator program . . . . 51-52 

Management activities 78-104 

Management Improvement program 78 

Management Institute program 87 

Manhattan District established 79 

Manila 59 

Manufacturers National Bank of 

Detroit v. U.S. 45 

Map of Internal Revenue Regions and Districts xiii 

Martinsburg, W. Va., Computer 

Center 32 

Massachusetts: 

Goldfine, B., and Paperman, 

M 57 

Massey Motors, Inc., v. U.S. . 48 

Mathematical verification: 

Additional tax from . 34,61 

Error cases, increase in 33 

Through automatic data 

processing 31 

Montana, revised agreement . 58 

Motor Carrier Claims Commission 49 

Motor Fuel Tax pamphlets 20 

N 

National Office, organizational 

changes in 79-82 

New Hampshire Fire Insurance 

Co. v. Scanlon 44 

New York City . . . 17-18,44,51 

New York Lien Law 47 

New York Region 52 

North Carolina: 

Exchange agreement with 58 

General statutes 47 

Northeast Service Center 29 

Page 

Norway, supplemental convention with 77 

0 

Obligations incurred, Internal 

Revenue Service 93,156 

Occupational taxes: 

Collections 108-128 

Number of stamps issued by 

class of tax 140-147 

Returns filed 27 

Offers in compromise: 

Action completed on . 66 

Audit Division 79 

Decrease in 67 

Disposed of 66-67 

Office auditors 34-36 

Office Collection Force 63 

Officers, principal, Internal Revenue Service ix 

Ohio Districts, consolidation of 79 

Old-age insurance taxes: 

Collections 3,108-129 

Increase in 3,4 

Paid by depositary receipt 

purchases 4 

Refunds of 6 

Omaha Region 90 

Operating facilities: 

Property management . . 90 

Publications 90 

Records and correspondence 88 

Safety 90 

Space improvements . . 90 

Organizational changes, National 

Office 79-80 

Other collections . . . 4,108-128,129 

Ottawa 59 

Overassessments reported to 

Joint Committee 42 

P 

Paperman, Mildred 57 

Paris 59 

Pennsylvania 46 

Personnel: 

Career opportunities for . 83,86 

Disciplinary cases 84 

General 82-86 

Health Maintenance program 85 

Recruiting of technical . . 82 

L 

Label activity 71,139 

Label approval 73 

Laboratories: 

Investigations 73 

Research 73 

Whisky testing 54,73 

Laws, tax, interpretation and 

communication of 7-26 

Leahy, Charles F. 58 

Legislation enacted 75-76 

Legislative developments 74-77 

162 

564655 0 - 60 - 12 163 
Receipt and processing of returns 

Records management 88, Recruitment 82, 

Rectification tax, pilot operation 

for 71 

Refunds: 

Claims for . . . . 6 ,35,37,38,61 

Covering excessive prepayment 29,30 

Duplicate, elimination of • 32 Increase in 6 

Individual income tax . • 29 

Statistics on 6,38 

Regulations: 

Alcohol and tobacco taxes . 8,9 

Employment taxes . . . 7 

Manufacturers' and retailers' excise taxes 8 

Miscellaneous excise taxes 7 

Nos. 1,48,99,107,114,120, 

128 superseded 7 

Nos. 4,5 10 Program 7 

Re: Extension of time for 

filing returns . . . 8 

Lobbying expenditures. 8 

Natural resources 8 

Publishing of: 

Employment tax . 8 

Income tax . . 8 

Procedure and administration 8 

Small business corportions 8 

Under IR Code, 1939, 26 

CFR, Part 140 10 

Under IR Code, 1954: 

26 CFR, Part 201 9 

26 CFR, Part 285 10 

26 CFR, Part 290 10 

27 CFR, Part 4 . 10 

27 CFR, Part 5 . 10 

Regulations, amended: 

Under IR Code, 1954: 

26 CFR, Part 175 9 

26 CFR, Part 186 9 

26 CFR, Part 212 9 

26 CFR, Part 240 9 

26 CFR, Part 245 9 

26 CFR, Part 250 9 

Page 

Page 

Regulations, amended—Con. 

26 Under IR Code, 1954—Con. 

89 26 CFR, Part 251 . . 9 88 Regulations, new: 

Under IR Code, 1954: 

26 CFR, Part 211 9 

26 CFR, Part 213 9 Regulations program 7 Regulations, reissued: 

Under IR Code, 1954: 

26 CFR, Part 194 . . 9 

26 CFR, Part 201 . . 9 

26 CFR, Part 252 . 9 

Reports Division established . 80 Research program 95 Returns (see also Income taxes; 

taxes): 

Audit of 34-37 

Classification of 31 35 

Comparison of 26-27 

Corporation 27 

Declarations of estimated 

tax 26,27 

Delinquent 36 

Employment tax 26 27 

Excise tax, decline in . . 26 Increase in 26 Individual 26,27,29 

Information 29 

Matching of data on . . 31 

Number examined . . . 35 

Number filed 26 27 Other 27 Partnership 27 

Processed in Service Centers 29 Selection of 35 

Special occupational tax . 26 Verification of 31 

Revenue Procedure 60-6. 14 Revenue Rulings: 

59-234 13 59-243 13 59-247 13 

59-294 13 59-309 13 59-357 13 59-371 13 59-380 13-14 

59-400 14 60-7 14 

60-31 14 

Page Personnel—Continued 

Separations 

Summary 

Training program for . 

Philadelphia Region 

Practitioners: 

Applications 103,10 Disbarment of 10 Enrollment of 103,10 Prepayments, excessive: 

Individual income tax . . . 

Interest allowed on . . 

Refunds of 6,29,3 Preventive Raw Materials program 52 Principal officers, Internal Revenue Service ix Printing of tax forms, cost of . 156 Program(s): 

Alcohol tax enforcement: 

East Coast Plan . . . 51,52 

Junior East Coast Plan. 52 

Known Defendant Seizure 52 

Major Violator . . . 51,52 

Preventive Raw Materials 52 Audit 35 Blue Ribbon 64 Career Development . . 86 

Coordinated Evaluation . 95 Firearms 55 Health Maintenance . 85 

Incentive Awards . • . 78,84,86 

Letters 80 Management improvement 78 Management Institute . . 87 

Publications, objectives of . 18,90 

Public information . . . • 21 

Regulations 

Research 

Safety Award 

Taxpayer Assistance . . 23,24 

Tax Return Forms . . . 9,10,15 

Teaching Taxes 20,23 

To close interest and dividend "gap" 81 

To curb expense account 

abuses 80,81 Training 86-88 

Protested cases, statistics on . 148,149 

164 

84 

83 

86 

62 

R 

21 

21 

 21,81 

21 

81 

21 

21 

21 

23 

28 

21 

26 

9,10,69,71 

7 

76 

76 

76 

17,75 

75 

76 

7,76 

76 

76 

76 

75 

76 

76 

76 

59,134 

19 

20 

19 

18 

18 

Page 

Publications, Taxpayer Assistance: 

Farmer's Tax Guide . . 19 Miscellaneous 20,21 Motor Fuels Tax . . 20 Objectives of 18 4 Tax Guide for Small Bust4 ness 

4 Tax Guide for U.S. Citizens 

Abroad 

6 Teaching Taxes 

6 U.S. Tax Guide for Aliens 

0 Your Federal Income Tax 

Public information program: 

Documentary color film . 

Information kit 

Newspapers 

Press releases 

Radio 

Scripts 

Spot announcements 

Statistical releases . . 

Student handbooks . . 

Teachers' guides 

Television 

Public Laws: 

85-389 

85-859 

86-69 

86-141 

86-175 

86-319 

86-342 

86-344 

86-376 

86-418 

86-422 

86-435 

86-440 

86-459 

7 86-470 

95 86-478 

90 86-564 

Puerto Rico 

Railroad retirement taxes: 

Collections . . 3,4,108,124,126 

Paid by depositary receipt 

purchases 4 Refunds of 6 Returns filed 27 

165 
Page 

Revenue Rulings--Continued 

60-58 14 

60-97 14 

60-189 14 

60-191 14 

60-194 14 

Revenue Rulings and Procedures: 

Administrative and miscel - 

laneous 13 

Analysis of 13 

Publication of 12-13 

S 

Safety awards 90 

Sailing permits 15 

Sao Paulo, Brazil 59 

Scotland 71 

Self-employment taxes, tax rulings on 11 

Service Centers: 

Functions of 29 

Midwest 29 

Northeast 29 94 

Pilot 32 

Western 29 94 

Space, office 90 

Spain 10 

Stamp taxes 114.124,140 

Stamps, liquor 26 

Stanton, et ux. v. U.S. 44-45 

Statistical reporting 100-102 

Publications released, Statistics of Income 102 

Strathmore Woolen Co 57 

Supervision of the alcohol and 

tobacco industries 67-73 

Supreme Court (see also Courts; 

Appellate Division; Chief 

Counsel, Office of): 

Decisions: 

Goldfine, B., and Paper 

man, M. 57 

In civil cases 42-49 

In criminal cases . 57-58 

"Silver platter" doctrine 

rejected 59 

Supreme Court cases: 

Aquilino v. U.S 46-47 

Bank of America National 

Trust and Savings Association v. U.S45 46 

Chapman v. U.S. 52 

166 

Page 

Supreme Court cases—Continued 

Cheatham v. U.S. . . . 43 

Clancy, Thomas 58 

Commissioner v. Fred N 

Acker 42-43 

Commissioner v. Mose Duberstein, et al 44 

Commissioner v. Robley H 

Evans, et ux. 48 

Commissioner v. Gillette 

Motor Transport, Inc. . 49 

Durham Lumber Co. . . . 47 

Elkins v. U.S 59 

Ellijay Feed & Supply Co. v. 

U.S. 52 

Evans, Robley H., et ux. v 

Commissioner 48 

Flora, Walter W. v. U.S.. 43 

Forman v. U.S. 57-58 

Goldfine and Paperman . 57 

Hertz Corporation v. U.S. 48-49 

Huard & Steinheiser v 

Henry 52 

James, Eugene 58 

Leahy, Charles F. 58 

Manufacturers National 

Bank of Detroit v. U.S. . . 45 

Massey Motors, Inc., et al. 

v. U.S.. 48 

New Hampshire Fire Insurance Co. v. Scanlon . . 44-46 

Stanton, et ux. v. U.S.. . 44-45 

U.S. v. Brosnan 45-46 

U.S. v. Cannelton Sewer 

Pipe Co. 47-48 

U.S. v. Carey 56 

U.S. v. Dragon Cement 

Company, Inc. 48 

U.S. v. Durham Lumber 

Co 47 

U.S. v. Allen Kaiser . . 45 

U.S. v. Massey Motors, 

Inc. 48 

U.S. v. Merry Brothers 

Brick and Tile Co. . . . 48 

U.S. v. One 1955 Oldsmobile 

U.S. v. Price 

T 

77 

Page 

Tax Conventions—Continued 

General 77 

India 77 

Japan 77 

Norway 77 

Tax Court, The (see also Appeals): 

Adverse decisions 49 

Disposal of cases . . . 150-151 

Tax (es): 

Additional: 

From audit . . . . 36-37,61 

From delinquent returns secured . . 49-50,61 

From mathematical 

verification . . 33-34,61 

Increase in 36-37 

Alcohol . 4,110,124,126,129 

Corporation income and 

profits. 4,108,124,126,129 

Deficiency assessments . 43-44 

Disability insurance . 4, 

124,126,129 

Employment 3, 

4,124,126,129 

Estate 3, 

4,124,126,129,148 

Excise . . . 3,4,110-111, 

116-122,124-126,129 

Fiduciary income . 37 

Gasoline and motor 

fuels . 75,116,120,124-126 

Gift. . 3,4,124,126,129,148 

Individual income . . 4, 

37,57,108,124,126,129 

Old-age insurance . . . 4, 

108,124,126,129 

Other . . . . 4,124,126,129 

Railroad retirement . . 3, 

4,108,124,126,129 

Rectification tax liability 71 

Stamp. 114,124,126,129,140 

Tobacco . 3,114,124,127,129 

Unclassified 3, 

122,125,128,129 

Unemployment . . . 3, 

108,124,126,129 

Withholding 3, 

108,124,126 

Tax forms, cost of printing . . . 156 

Page 

Tax Guide for Small Business . 18 

Tax Guide for U.S. Citizens 

Abroad 19 

Tax laws, interpretation and 

communication of 7-25 

Taxpayer assistance: 

Cost of program 24 

Description of program . 23 

Publications on 18-21 

Statistics on 23-24 

Taxpayer Assistance Institutes 23 

Tax return forms program (see 

also Forms) 9-10,15 

Tax Rulings: 

Analysis of 11 

On engineering questions . 11 

Published 11 

Requests for 11 

Teaching Taxes program . . . 20 

Technical Information Releases: 

170 14 

174 14-15 

180 15 

183 15 

194 15 

198 15 

205 15 

221 81 

55 

43 

Tax Conventions: 

Belgium 

Tobacco tax(es): 

Arrests 54 

Collections . . 3,114,124,127,129 

Enforcement 51 

Refunds of 6 

Results of criminal action . 57 

Returns filed 27 

Revenue Rulings and Procedures published . . 13 

Seizures 54 

Statistics on . . 73,124,127,129 

Tax rulings on 11 

Toledo District merged with 

Cleveland 79 

Training: 

Automatic data processing . 86 

Digital computer system analysts 86 

For taxpayer assistance 23 

General 86-88 

Treasury Decisions: 

6190 7 

6199 7 

167 
Page 

Treasury Decisions—Continued 

6200 7 

6259 7 

6319 10 

6354 7 

6409 10 

6410 10 

6411 10 

6423 8 

6424 10 

6432 8 

6436 8 

6436 8 

6446 8 

6457 10 

6461 7 

6467 9 

6471 9 

6472 7 

6473 9 

6474 9 

6475 9 

6477 9 

6478 9 

U 

Unclassified taxes: 

Refunds of 6 

Statistics on 3, 

122, 125, 128, 129 

Unemployment insurance taxes: 

Collections 3, 

4, 108, 124, 126, 129 

Refunds of 6 

Returns filed 27 

U.S. Tax Guide for Aliens 19 

U.S. v. Brosnan 45-46 

U.S. v. Cannelton Sewer Pipe 

Co 47-48 

Page 

U.S. v. Carey 55 

U.S. v.. Dragon Cement Co , 

Inc. 48 

U.S. v. Durham Lumber Co. . 47 

U.S. v. Allen Kaiser 45 

U.S. v. Massey Motors, Inc. . 48 

U.S. v. Merry Bros. Brick and 

Tile Co 48 

U.S. v. One 1955 Oldsmobile . 55 

U.S. v. Price 43 

V 

Verification, mathematical: 

Error cases, increase in . . 33-34 

Results of 34 

Through automatic data 

processing 31 

Virgin Islands 60 

Visitors, foreign 104 

w 

Wagering tax cases, results of 

criminal action 57 

Western Service Center . . . 94 

West Virginia, Martinsburg, 

Computer Center 32 

Wilcox case 58 

Wines: 

Control of 71 

Exported to U.S. from Germany 71 

Taxes collected 112, 

124, 126, 142 

Withholding taxes: 

By employers 3 

Paid by depositary receipt 

purchases 3 

X Y Z 

Your Federal Income Tax . . 18 

168 

U. S. GOVERNMENT PRINTING OFFICE 1960 0 - 564655