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NOMINATION OF

LOUIS FALKLPBERDORFER

GOVERNMENT

Storage

HEARING

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IITTEE ON THE JUDICIARY

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NITED STATES SENATE

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_0 EIGHTY-SEVENTH CONGRESS

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FIRST SESSION

ON

9 NATION OF LOUIS FALK OBERDORFER TO BE

— AN ASSISTANT ATTORNEY GENERAL

FEBRUARY 6, 1961

Printed for the use of the Committee on the Judiciary

11.S. GOVERNMENT PRINTING OFFIC11

WASHINGTON : 1961
COMMITTEE ON THE JUDICIARY

JAMES 0. EASTLAND, Mississippi, ChairmanESTES KEFAUVER, Tennessee ALEXANDER WILEY, Wisconsin

OLIN D. JOHNSTON, South Carolina

JOHN L. McCLELLAN, Arkansas

SAM J.,ERVIN, JR., North Carolina

JOHN A. CARROLL, Colorado

THOMAS J. DODD, Connecticut

PHILIP A. HART, Michigan

EDWARD V. LONG, Missouri

WM. A. BLAKLEY, Texas

II

EVERETT McKINLEY DIRKSEN, Illinois

ROMAN L. HRUSKA, Nebraska

KENNETH B. KEATING, New York,

NORRIS COTTON, New flainp,bire
NOMINATION OF LOUIS FALK OBERDORFER TO BE AN

ASSISTANT ATTORNEY GENERAL

MONDAY, FEBRUARY 6, 1961

U.S. SENATE,

COMMITTEE ON THE JUDICIARY,

Washington, D .0 .

The committee met, pursuant to call, at 10:45 a.m., in room 2228, New Senate Office Building, Senator James 0. Eastland (chairman) ,

presiding.

Present: Senators Eastland, Johnston, McClellan, Carroll, Flruska, and Keating.

The CHAIRMAN. The hearing this morning has been scheduled for the purpose of considering the nomination of Louis Falk Oberdorfer

to be Assistant Attorney General.

Senator Sparkffian.?

STATEMENT OF HON. JOHN SPARKMAN, A U.S. SENATOR FROM THE

STATE OF ALABAMA

Senator SPARKMAN. Thank you, Mr. Chairman, and gentlemen of the committee.

I am glad to appear here to urge the approval by this committee of the confirmation of Mr. Oberdorfer to be Assistant Attorney General.

I have had the pleasure of knowing him and his family for many

years. I shall not rehash the biographical sketch that the committee members have available to them already, but Mr. Oberdorfer was born and reared in Birmingham, Ala., where his father has been one of the most distinguished members of the bar since 1901.

I believe he is still practicing; is he not?

Mr. OBERDORFER. That is correct, Senator.

Senator SPARKMAN. So he has had a very fine career there and one of its leading members.

Louis, who is before you, has had excellent training, excellent ex- perience, and I think will do an excellent job as Assistant Attorney General.

By the way, may I say that my colleague, Senator Hill, is supposed to be here, and I suppose will come in. He went to another committee meeting.

The CHAIRMAN. Senator Sparkman, I want the record to show that Senator Hill has a committee meeting, but he favors the nomination and wants the record to so show.

(At this point in the proceedings, Senator Carroll entered the hear- ing room.)

1
2 NOMINATION OF LOUIS FALK OBERDORFER

Senator SPARKMAN. Thank you very much, Mr. Chairman, and

gentlemen of the Committee.

(At this point in the proceedings, Senator Keating entered the

hearing room.)

The CHAIRMAN. Mr. Oberdorfer, do you solemnly swear the testimony you are about to give is the truth, the whole truth, and nothing

but the truth, so help you God?

Mr. OBERDORFER. I do.

(The biography referred to is, as follows:)

LOUIS FALK OBERDOEFER

Born: February 21, 1919, Birmingham, Ala.

Education: 1939, Dartmouth College, Hanover, N.H., A.B. degree; 1946, Yale

University Law School, New Haven, Conn., LL.B. degree.

Bar: 1946, Alabama; 1949, District of Columbia; 1950, Supreme Court.

Experience: 1941-46, U.S. Army, captain; 1946-47, Associate Justice Hugo

L. Black, law clerk; 1947-51, Paul, Weiss, Wharton & Garrison, Washington,

D.C., attorney; March 1951 to present, Cox, Langford, Stoddard & Cutler,

Washington, D.C., law partner.

Married: Four children.

Office: 1625 I Street NW., Washington, D.C.

Rome: 4828 W Street NW., Washington, D.C.

To be an Assistant Attorney General.

TESTIMONY OF LOUIS FALK OBERDORFER, NOMINEE TO BE AN

ASSISTANT ATTORNEY GENERAL

The CHAIRMAN. How old are you, sir?

Mr. OBERDORFER. I am 41, Senator.

The CHAIRMAN. Where were you born?

Mr. OBERDORFER. Birmingham, Ala.

The CHAIRMAN. Where were you educated?

Mr. OBERDORFER. I was educated in the public schools of Birmingham and graduated from Dartmouth College and the Yale Law

School.

The CHAIRMAN. When did you begin the practice of law?

Mr. OBERDORFER. In 1947, active practice.

The CHAIRMAN. Where?

Mr. OBERDORFER. In the District of Columbia.

The CHAIRMAN. What firm were you with?

Mr. OBERDORFER. I was with the firm of Paul, Weiss, Wharton &

Garrison, here in the city.

The CHAIRMAN. Are you still with that firm?

Mr. OBERDORFER. No,sir.

In 1951, I moved to the Washington firm of Cox, Langford, Stoddard 86 Cutler, where I became the tax partner.

The CHAIRMAN. What are the duties of the Division which you will

head?

Mr. OBERDORFER. As I understand it, the Assistant Attorney General in Charge of the Tax Division is, shall I say, the chief executive

officer of a division of 150 lawyers with clerical help.

They are responsible for representing the United States in Federal

tax matters.
NOMINATION OF LOUIS FALB OBERDORFER

They also have, as I understand it, some responsibility The CHAIRMAN. You recommend criminal prosecutions; do you not?

The 

Mr. OBERDORFER. 

CHAIRMAN. Tax 

The 

fraud?

Division alsoMr. OBERDORFER (continuing). Receives recommendations from the Internal Revenue Service for prosecution of people who are suspected of criminal violations of the tax laws and reviews those files and transmits them usually to the U.S. attorneys in the field for presenta- tion to grand juries.

Sometimes men in the office handle the cases themselves. The CHAIRMAN. Do you mean to say that it is your responsibility,

or do you just review what the Bureau of Internal Revenue does and send it on?

Mr. OBERDORFER. It is our responsibility to make a judgment on the recommendations to the Bureau of Internal Revenue. The CHAIRMAN. That is right.

Mr. OBERDORFER. That is correct.

The CHAIRMAN. It is your responsibility to decide whether or not

a man should be prosecuted and if you decide he should, then it is sent to the U.S. attorney.

Now, you are there in an independent capacity; is that right? Mr. OBERDORFER. That is right, subject, I am sure, to the authority and direction of the Attorney General.

The CHAIRMAN. Yes, sir.

Now, what experience have you had as a tax lawyer?

Mr. OBERDORFER. I have had experience in tax law, I suppose al- most every phase of Federal taxation, Senator.

The CHAIRMAN. Have you specialized?

Mr. OBERDORFER. Yes, sir.

The CHAIRMAN. In that line of work?

Mr. OBERDORFER. Yes, sir; I have.

My first job was with a firm that did nothing but tax work, and since 1951, I have had responsibility in the firm I am in for the tax matters in that firm. Yes? sir; I am a tax specialist.

The CHAIRMAN. Yes, sir.

Have you been in courts much?

Mr. OBERDORFER. A fair amount, Senator, yes.

The CHAIRMAN. Of course, you know the conflict-of-interest statute?

Mr. OBERDORFER. Yes, sir; I am familiar with that. The CHAIRMAN. Do you own a considerable amount of stocks in different companies?

Mr. OBERDORFER. I have a small investor's interest in some publicly held corporations; yes, sir.

The CHAIRMAN. What would be your action if a case involving one of those companies should come to your Department?

Mr. OBERDORFER. It is my intention, if I am confirmed

The CHAIRMAN. I do not want your intention. I want t

what you will do. 

ER-

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C()
NOMINATION OF LOUIS FALK OBERDORFER

Mr. OBERDORFER. When the occasion arises, I will instruct and, as

a matter of fact, intend to instruct the executive assistant in that Division to the effect that I do not want to participate in cases involving

a named list of taxpayers, and that list would be the list of companies

in which I own these small stock interests, and I would expect that

responsibility—

The CHAIRMAN. Suppose the assistant has some stock in the same

company. Then what would you do? Would you place it in im,

partial hands, in the hands of people who had no financial interest

in the company?

Mr. OBERDORFER. Oh, yes, in one way or another, we certainly

would, Senator.

The CHAIRMAN. Senator Carroll?

Senator CARROLL. Have you ever prosecuted or defended a tax

case a criminal case?

OBERDORFER. I have represented in the Department of Justice,

people with respect to whom there was a prosecution pending—that

is, a case had been referred from the Internal Revenue Service to the

Department of Justice—and I have made appearances in the Department in those connections; yes, sir.

Senator CARROLL. How about active trial work in Federal courts.

Have you done any of that?

Mr. OBERDORFER. I have had some trial experience in Federal courts

in Birmingham, Washington, and a case in New Orleans.

And I have also participated in trials of tax cases in the Tax Court

of the United States.

I have had some arguments in the courts of appeals.

The CHAIRMAN. One Birmingham case?

MT. OBERDORFER. Yes, sir.

The CHAIRMAN. That was one of the big cases?

Mr. OBERDORFER. Yes, sir; I think the Senator refers to a case in

Louisiana.

The CHAIRMAN. That is right; I meant New Orleans, excuse me.

Mr. OBERDORFER. Yes, sir.

Senator HRITSKA. Are we to assume from that, Mr. Oberdorfer,

that you had only one case in New Orleans?

Mr. OBERDORFER. I had, but it was a very important case, Senator,

and it had some note and I have just been talking to Senator Eastlanal

about it.

Senator CARROLL. You will pardon my ignorance. What side of the

fence were you on?

Mr. OBERDORFER. Well, heretofore, I have always been representing private litigants. I have never represented the Government

before.

Senator CARROLL. Do you think the transition will be difficult?

Mr. OBERDORFER. I do not think so, Senator. A lawyer learns to

represent his client with zeal, and I certainly intend to represent the

United States effectively.

Senator CARROLL. With the same zeal that you have represented

your private clients?

Mr. OBERDORFER. Yes, sir.

Senator CARROLL. That is very important.

Mr. OBERDORFER. Yes, sir.
NOMINATION OF LOVIS FALK OBERDORFER 5

Senator CARROLL. Because we need men of your experience repre- senting the Government.

Tell me a little bit more about your stock interests. How large

are they?

Mr. OBERDORFER. Very small, Senator. The whole portfolio is small, and I have just bits and pieces of companies like American Telephone. I have the list right here.

Senator CARROLL. Would you say that, generally speaking, in your portfolio your investments are of an average nature?

Mr. OBERDORFER. Yes, sir.

Senator CARROLL. Not large?

Mr. OBERDORFER. No, sir and all of them are publicly held companies.

I am not on any board of directors. They are just infinitesimal investment interests that I have either acquired by gift or by pur- chase for the income and appreciation, and I do not trade back and forth in stocks. I have got these things and I keep them.

Senator CARROLL. Is it your intention, if you are approved for this important position, to stay with it? You are not in just for a year

or so?

Mr. OBERDORFER. That is correct, Senator. I intend to stay with it.

Senator CARROLL. And the fact that you came from a very prom- inent law firm, I assume this law firm is in Washington—Cox, Langford, Stoddard & Cutler 

Mr. OBERDORFER. Yes, sir.

Senator CARROLL ( continuing) . That would have no bearing in

any way?

Mr. OBERDORFER. None at all. I would expect not to participate

in any matter in which they are appearing.

(At this point in the proceedings, Senator McClellan entered the hearing room.)

Senator CARROLL. You know, sometimes the Internal Revenue—

I do not say this past administration, but I am speaking generally of

most Government enforcement bodies who think that they have to pick out some particular individual to spot check and prosecute him

for psychological purposes.

What do you think about that general concept?

Mr. OBERDORFER. I do not have any reason to believe that it would

be—I do not think it would be appropriate to pick out a group ma person and recommend prosecution of them, when you do not recommend prosecution of other people for similar—

Senator CARROLL. My point is this, perhaps to help you out, to help your thinking on this and help me understand your thinking.

Mr. OBERDORFER. Yes, sir.

Senator CARROLL. Very often they will get some prominent indi- vidual in a community, a name that is known, and the violation may be small in nature, but to emphasize how tough they are on violation, they will attempt to prosecute that individual because of his prominence in a community m a small case.

My own opinion is that this is not good policy.

Mr. OBERDORFER. I certainly would not recommend prosecution of somebody just because they are prominent. It would certainly be

my objective to recommend cases on the basis of their merits without
6 NOMINATION OF LOUIS FALK OBERDORFER

regard to the person involved or his background, or his other

qualifications.

Senator CARROLL. In other words, where there is deliberate, willful

fraud, then the law must take its normal course.

Mr. OBERDORFER. That is correct.

Senator CARROLL. Can you think of any reason, whether we have

asked the question or not, why you could not serve fairly and impartially in this?

Mr. OBERDORFER. No; I really do not.

Senator CARROLL. You know the experience of other men who have

occupied this difficult post.

Mr. OBERDORFER. I understand it is a very trying thing and requires a great deal of soul searching, and I am prepared to do the

best I can to be fair and effective in the job.

Senator CARROLL. And in this field we have got to have men who

are fair and who, from their years of experience, will be fair and

impartial, and, at the same time, when the case warrants it, they have

got to withstand pressure.

Mr. OBERDORFER. I understand that.

Senator CARROLL. And when I say "withstand pressure," by the

same token there are many cases, many times, where in good conscience,

fairness, and impartiality with small people, it may not be advisable

just to make a case, make some psychological case, for somebody and

prosecute this.

How many years of experience have you had all together?

Mr. OBERDORFER. I guess a total of 15 or 16 years.

Senator CARROLL. And most of it in the tax field?

Mr. OBERDORFER. Yes, sir.

Senator CARROLL. Mr. Chairman, I must leave for another appointment. Do you need me for a quorum here?

The CHAIRMAN. I doubt if we can get a quorum.

Senator CARROLL. I want to say, then, Mr. Chairman, I am impressed

with the background of this gentleman. I have never had the pleasure

of meeting him before, but we need men of this experience in Government. I am happy we are getting people of your caliber to serve.

Mr. OBERDORFER. Thank you, Senator.

Senator CARROLL. And I want to cast my vote in favor of him unless

some of you gentlemen bring up evidence which is unknown to me at

this time.

If you will excuse me, Mr. Chairman, I have another meeting.

The CHAIRMAN. Yes, sir.

(At this point in the proceedings, Senator Carroll left the hearing

room.)

The CHAIRMAN. Senator McClellan?

Senator MCCLELLAN. Mr. Chairman, I do not think I have any questions, except I would make this observation, and I am pretty sure you

will agree with it:

I think more attention and more vigorous efforts, more aggressive

actions, should be taken against these crooks and racketeers who are

not accounting for the moneys they receive in pursuit of their nefarious

trades.

I do hope that you will establish some division under your authority

to give special, continuous, and diligent attention to that category of
NOMINATION OF LOUIS FALK OBERDORFER 7

our citizens who are enriching themselves by criminal practices and

who are not being held accountable as effectively and as rigidly as

they should be for their ill-gotten gains by way of paying taxes on

them.

I think that is needed.

The committee of which I am chairman have uncovered some of

those instances that I am sure need attention, and where those things

are uncovered and where they are operating outside of the law in that

fashion, I think they ought to be given special attention.

I do not think those persons should be permitted to get by with it.

I think you will agree with me.

Mr. OBERDORFER. I do.

Senator MCCLELLAN. I said I made this as an observation.

Mr. OBERDORFER. Surely.

The Attorney General, I think, shares your experience, Senator,

and I imagine that there will be something that--

Senator MCCLELLAN. I think he would agree with me in what I

have just said.

Mr. OBERDORFER. Yes.

Senator MCCLELLAN. If in any way we can cooperate down here to

the end that, working together, we may discover areas in which additional legislation is needed to enable you to better cover those activities that should be criminal, if they are not already so, by statute

please let us know.

We may need strengthening provisions in our present statutes, and

working with you to that end we can cooperatively ascertain that and

bring the matter to the attention of the Congress with the view that it

will meet its responsibiliy and enact additional laws where needed.

Mr. Chairman, thank you.

I probably will leave before you conclude, and if I do, may I say

I know of no reason why I should not cast my vote for his

confirmation.

The CHAIRMAN. Senator Hruska

Senator HRUSKA. Mr. Oberdorfer, you discussed briefly this morning the idea of conflict of interest and any ownership of equities which

you might have in various corporations that might bear on that issue.

First of all, I want to say that that is one of the grounds upon which

the Senate always interests itself in possible refusal to confirm a

nominee, and rightly so.

Mr. OBERDORFER. Yes, sir.

(At this point in the proceedings, Senator McClellan left the hearing room.)

Senator HRUSKA. However, I have never subscribed to the idea that

the requirements in this regard should be so extreme or so rigid that

it will discourage otherwise qualified men to accept responsible posts

in the Government. With that thought in mind—and I had that

idea 8 years ago and 4 years ago, and I propose to continue it under

this administration—now, then, with the thought in mind of not imposing any hardship, Mr. Chairman, upon this nominee, reference has

been made to a list of stocks, a portfolio which he owns.
8 NOMINATION . OF • • LOUIS FALK .0BERD0RFER

Rather than to put any hardship or any undue stress or emphasis

on this point, I am wondering if it would be in order to request the

witness to submit to the committee for its consideration that portfolio

with the privilege given to the several members of the subcommittee,

or of the committee, to predicate further questioning of this witness,

if they see fit to do so, after they have scanned and perused such a list.

Would there be any objection to that on the part of the witness?

Mr. OBERDORFER. Certainly not on my part, Senator. I have the

list here, and I am perfectly willing to submit it on or off the record.

The CHAIRMAN. I do not think it should be put into the record.

It is a private matter. It would be all right if he desires to make it

available to the committee. He may turn it over to the clerk.

Senator HRUSKA. Mr. Chairman, I make that suggestion because

there are members of both parties on the committee, I do believe that

all of us are interested in getting qualified men.

We also want to escape the criticism of having people in the respective offices who might have a conflict of interest and yet be

confirmed, and I say that from that point of view.

Mr. Oberdorfer, there are about 150 attorneys in the Tax Division.

It is the policy, is it not, of the Department of Justice to send many

of these attorneys out into the field to actually try cases of a civil

nature?

Mr. OBERDORFER. That is my understanding, Senator.

(At this point in the proceedings, Senator Johnston entered the

hearing room.)

Senator HRUSKA. The district attorney of any district, of course,

is nominally in charge, but there is an actual trial of the case by one

of these attorneys because of his expertness in the field, because he

has studied the file and that is considered the way to do it.

Now, what about the criminal cases which are tried after reference

to your Division and then decision is made to try a case criminally?

Who takes care of that trial?

Mr. OBERDORFER. It has been my understanding that those cases,

wherever possible, are referred to the U.S. attorney, for trial by him

or members of his staff, and that it is the exception, rather than the

rule, to have those cases actually conducted by a man sent from

Washington.

Senator HRUSKA. Does your Division retain for the purposes of

considering pleas and so on, jurisdiction of such cases, or does that

go to the Criminal Division of the Department of Justice?

Mr. OBERDORFER. The jurisdiction within the Department of Justice remains with the Tax Division, as I understand it.

Senator HRUSKA. Senator Carroll made inquiry about cases

where a prominent taxpayer, who may be guilty of some nominal

violation of the tax law, is made the subject of prosecution for

psychological effect, and so forth.

Let me ask about this situation, Mr. Oberdorfer, on which I have

received several letters within the past year or year and a half, where

a taxpayer will have assessed against him a huge deficiency, which

in some cases is beyond all practicability, and yet the deficiency, being

assessed, and the burden of proof shifting to him, he must then come

in upon the basis of enrichment over a certain period of time and

make a complete defense, which sometimes goes over the course of

many years.
NOMINATION OR LOUIS FALK OBERDORFER 9

It not only is expensive in terms of the men in his corporation or

in his own personal staff to produce all of this material, it is expensive

in terms of attorney fees and in time to him.

And in two or three instances I have information in my files where

there has been very little, if any, evidence to predicate the large

deficiency being assessed.

Now, the practice has been in the Tax Division to deny that that

is a practice or to deny that those cases are encouraged and that they

are in fact, discouraged. And yet they continue to crop up.

Now, what is your thinking on that?

• You are an experienced man in the law, in tax law. I am sure you

must have had some such cases. Have you any thoughts to venture on

that general subject?

Mr. OBERDORFER. First of all, Senator, not by way of avoiding your

question, but by stating the limits of our jurisdiction, ordinarily,

assessments of the kind that the Senator describes are made by the

Internal Revenue Service.

Senator HRUSKA. I understand that.

Mr. OBERFORFER. And the case would come to the Tax Division of

the Department of Justice only, in the first instance, after a, taxpayer

had had such an assessment imposed on him and had elected to pay the

tax and file a claim for refund and sue in Federal district court.

Many of the cases that the Senator describes would be disposed of in

the Tax Court of the United States where the taxpayer has a remedy

without ever having to pay the tax in the first instance.

He can defer the assessment by filing a petition in the Tax Court,

and there he would get a court review of the assessment threatened by

the Internal Revenue Service, and in grievous cases, of course, the

practice that the Senator describes is exposed, and all I can say is that

I have heard of cases like this where a revenue agent, caught by the

statute of limitations or claiming that he finds the taxpayer -uncooperative and he cannot get at the records, sets up, as they say, a large

deficiency and then hopes that in the course of it, it will boil down to

what is reasonable. I certainly do not subscribe to that practice.

I hope that the Commissioner of Internal Revenue will aviod that

and prevent it and discipline agents who are guilty of it, where it is

established. I deplore it.

Senator HRUSKA. I am glad to hear you say that. I understand, of

course, that your jurisdiction is somewhat limited.

Mr. OBERDORFER. Yes.

Senator HRUSKA. But just the same, in some of the aggravated cases

that may come before you, perhaps from time to time, when we hear

about such cases, or from time to time even if we do not, we should

like to ask you for a review of that type of case for the purpose of

finding out just exactly what the situation is.

I hope you will, on such occasions, cooperate with us.

Mr. OBERDORFER. I certainly will cooperate.

I do not want to offer to go outside my bailiwick to tell the Commissioner of Internal Revenue how to run his office, but I think the

Senator's point is well taken.

Senator HRUSKA. I am in full sympathy with the viewpoint expressed by the Senator from Arkansas, Mr. McClellan. I think we

should go after the real violators, and any deficiency assessed against
10 NOMINATION OF LOUIS FALK OBERDORFER

them upon which there is good evidence, I am for it, because, obviously,

that is the only approach to take.

On the other hand, when we see instances of this kind that I have

described, it is also a', very harmful thing in the enforcement of tax

laws.

Mr. OBERDORFER. Yes.

Senator HRUSKA. And, certainly, it brings injustice and inequity

upon the taxpayer himself.

Now, one final question, Mr. Oberdorfer, and that is: During the

course of your practice, have you been retained by any large corporations or taxpayers on an annual basis, or otherwise, to represent them

in tax matters who might be coming before your Division from time

to time for one purpose or another?

Mr. OBERDORFER. Yes; there are some clients of our firm who were

on a retainer basis.

I cannot say that they retained us primarily for tax matters, but

whose tax affairs we have advised about, and I might hasten to add

I would not expect to participate in cases involving those companies,

at least until the matters on which I have advised and with which I am

familiar are disposed of.

Senator HRUSKA. You have anticipated my second question, which

would be the direct question with reference to a possible conflict of

interest. And I would assume—I did assume that your answer would

be just what it was.

Mr. OBERDORFER. Yes.

Senator HRUSKA. Being an honorable lawyer and a very experienced

one.

Thank you very much.

Mr. OBERDORFER. Thank you, Senator.

The CHAIRMAN. Senator Keating?

Senator KEATING. Mr. Oberdorfer, pursuing for a moment the

inquiry made of you by Senator McClellan, are you familiar with the

Supreme Court ,decision which held that a person engaged in illegal

activities could deduct expenses of running his business as a proper

income tax deduction despite the illegality of his operation?

Mr. OBERDORFER. I remember some lines of authority to that effect

yes, sir.

Senator KEATING. I am not sure whether it was called the Sullivaert.

case.

MT. OBERDORFER. The prohibition case; is that it?

Senator KEATING. It was a gambling case, I think.

Mr. OBERDORFER. I am familiar with that line of authority; yes, sir.

Senator KEATING. Now, regardless of the soundness or otherwise of

the situation, I would not ask you to express a view on that, do you

think that the result achieved by that decision is a salutary one?

Mr. OBERDORFER. This is a very, very deep, philosophical problem

for me, Senator, and I cannot give you a categorical answer.

There is a school of thought which believes that the income tax is

imposed, should be imposed on net income, and that the only tax that

a person should pay is on what he actually earns.

On the other hand, there is a strong line of authority for the

proposition that a payment made by an individual which violates—

and I think the words are—"a sharply defined public policy" is not
NOMINATION OF LOUIS FALK OBERDORFER 11

to be allowed as a deduction from gross income for calculating net

income.

I would go on to say that I think that this is a correct rule—that is,

that payments, the making or a payment which, a bribe or any other

kind of illegal payment or a payment which is itself improper, I

think that the law should be developed to deny deductions of those

payments.

Senator KEATING. What about rental paid by a gambler for operating a gambling establishment. Do you think he should be allowed to

deduct that as a business expense?

Mr. OBERDORFER. I had never focused on that question. I was

thinking more of the bribery and—

Senator KEATING. I am speaking of a legal payment. Let us assume

that the landlord had no knowledge of the operation a legal payment made as a business expense in an illegal operation.

Mr. OBERDORFER. I think that under existing law that is probably

deductible, but I certainly would like to give some more thought to

it. But it sounds to me like an area in which legislation might be very,

very helpful.

Senator KEATING. I think it is deductible under present law, and I

think that is, in effect, what was held in this Supreme Court decision.

Mr. OBERDORFER. Yes.

Senator KEATING. Ever since that time, I have had legislation in

to correct what I believe to be an unsalutary result.

I would expect that you might be called upon for your views on legislation of that kind preliminary to an opinion being given by the Attorney General.

I would hope that you would conclude, as I have concluded, that it is not in the national interest to permit a person engaged in illegal activities to deduct so-called business expenses for his nefarious operations.

Mr. OBERDORFER. One of the things I have learned in the tax prac- tice is that: I should not give an opinion without study, but I cer- tainly will study this question with great interest.

Senator KEATING. I would not, of course, ask you for any definite opinion, but I wanted to canvass your thinking in that so far as it has gone.

Mr. OBERDORFER. Yes.

Senator KEATING. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Johnston?

Senator JOHNSTON. Mr. Oberdorfer, one thing that worries me somewhat in the tax field is this: Some cases that have come to my observation is where a man is probably physically, say, suffering from

a heart ailment, a very severe heart ailment, and he is forced into court.

What is your attitude toward cases of that kind—because, of

course, I know you will have to pass on each individual case—where it is brought to your attention by your doctors and by the doctors of the taxpayer that is being tried; what is your attitude toward

cases of that kind?

Mr. OBERDORFER. Senator, I have looked forward toward this job with the realization that this was going to be one of the really hard

areas and one of the difficult things to deal with. I am not a sadist,
12 NOMINATION OF LOUIS FALK OBERDORFER

and I do not think that you will ever find me being motivated that

way.

On the other hand, I do recall, I was reading in the newspapers

that there were some problems in this connection where people have

avoided trial by dilatory tactics. I think there is a judicial standard

for determining within an area of judgment whether a defendant is

competent to stand trial.

All I can say is that this is something that I am going to look into

and approach with great sympathy and at the same time trying to

detect the malingering situation and to avoid it. I just could not

give you a specific answer except to say that I will be very sensitive

about this.

Senator JOHNSTON. What, also, is your attitude in regard to a

man and his wife who file their return together? As you know, a

great many do that, although the wife has very little income.

Then, in case the husband dies before the final settlement is made,

what is your attitude, then, in regard to the payment of, you might

say., not only penalties, but prosecuting her?

Mr. OBERDORFER. I would think, ordinarily, you would not prosecute a wife criminally where she was just a passive, nonparticipating

sign'er of a tax return, and had no guilty knowledge.

As far as the penalties are concerned, I would think that if there

is a liability, again, there are procedures for compromising in a situation where a person is unable to pay, although the Federal tax lien

gets a very high priority. I would probably say, offhand, that the

tax ought to be collected.

Senator JOHNSTON. I think the taxes ought to be collected and there

is no question about the interest being collected, but if they pay part

of it and the widow then has to pay part of the penalty, and that is

where the question comes in.

Mr. OBERDORFER. I have never thought about that problem before,

but if the penalty has been assessed and there is a liability for it, I do

not know why that should not be collected, just like any other debt

of the deceased. There may be more to it than jumps right up at me.

Senator JOHNSTON. It is true that each case of that nature, you

would have to study the facts in each individual case.

Mr. OBERDORFER. Yes.

Senator JOHNSTON. There might be some exceptions to the rule.

Mr. OBERDORFER. I am sure there may be.

This may be a highly developed area where there are rules and

circumstances for exceptions, too.

Senator JOHNSTON. I do not believe I have other questions.

The CHAIRMAN. Any further questions?

Mr. Oberdorfer, I think you have the ability to do an outstanding

job. I am going to vote to approve your nomination. We cannot get

a quorum of the committee today, but we will try to meet later this

week.

The meeting will stand adjourned.

Mr. OBERDORFER. Thank you, Senator.

(Whereupon, at 11:25 a.m., the meeting was adjourned.)

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