Evening star. [volume] (Washington, D.C.) 1854-1972, 1926-03-10
BEATING THE INCOME TAX
Uncle Sam Says 1t Can't Be Done
BY WALTER Fl. ATKINS

AS a result 70 comparatively minor
deyelnpment in Police Court hear
Ing. involving an employe OF the cor
poration. The employe had had
disc greement with one of the con
Germs officials That case reached
the court. where II was revealed the
corporation owed the empioye--bonk-
keeper for the concerns. 600 extra
paw. and wouldn't settle. The en-
ploye insisted. and in the trouble that
enSiIed it developed the bOokkeeper
had labored upon new set of books.
used nv the corporation 10 compute
Federal income taxes. In the new set
Of books large sums in gross sales
were eliminated. This was done by
direction OF the officials of the con-
Germ. Intelligence Unit men had no
trouble in locating the true set OF
hooks, and large penalties accordingly
were assessed and collected by the
Government. Besides, one of the Of
ficials Of the corporation is a guest
of one Of the Federal penitentiary
wardens for a lengthy period.
One OF the largest and most COM
plicated income tax fraud cases was
developed by the Internal Revenue
Bureau as result of brief an
nouncement in newspaper In
large Western city that one OF Its
citizens believed TO have possessed
great wealth. had died penniless. This
case involved Federal income tax liza
bjliiv upon the estates of decedents.
The decedent in this case was one
of the most prominent figures in tho
West He was q large manufacture
and his product was used in house
holds throughout the country. he
was 40 years old at his death. he
was rated in the multi-millionalre
class.
Suspicious Aroused.
4 Government agent was an in
terested spectator at a court hearing
on the petition of one of the heirs
asking for an administration OF the
decedent's estate The Government
investigator. making a search. was
convinced the dead millionaires cor
Doration. through its existing ofiicers.
his two sons. was evading tax lis-
bilitv I'm very large sum. The
sons were caught making and filing
fraudulent income tax returns.
This was their system: Although
the stock Of the millionaire was
owned by his entire family. the two
sons formed partnership as an en- :
tity separate and distinct from the
the COMBINATIONS income to them
selves individually by shipments OF
merchandise to the partnership which
were not charged upon the corpora =
tion records. The proceeds of the
sales were not shown either in the
income tax returns or the corpora :
lions books. The sons also manipu =
lated the opening and closing inVen =
tories to show less than true income.
They omitted profits derived from an
| independent venture by the employ =
ment of corporation capital. Large
amounts of insurance paid to the
corporation for alleged loss OF mer-
cbandise were kept out Of the COM
nany's records and diverted into the
pockets of the two sons. The ag-
rregate sum which the Government
| forced the two sons To pay w hack
taxes and penalties covering n
lengthy period ran we'll into Ave fig
ures.
In checking up on the tax returns
OF all corpora tons the Internal Rev
! Anue Bureau has at its command the
services of some of the best experts
| in the country. Corporation returns
are subjected TO the closest analysis
by technical experts of the bureau
| In the checking process. comparing a
! corpora tons return WIFI tHoSc VI
1 preceding years. and in making other
| minute inspections. revenue examin-
ers can readily detect items which
| appear to have been grossly misrepre-
scented. Competent engineers fire.
Quently are specially commissioned
| by the revenue commissioner to ~
vestigate the plants owned and or.
Grated by taxpayer suspecteG OF
understanding income tax habiiity
Personal Inspections.
Personal inspections Of this nature
are going on daily throughout the
! country. There are 350.o00 corpora
lions that make annual tax returns
TO the Internal Revenue Bureau. A
large force Of engineering experts is
on the staff of the revenue commits
sioner. and kept constantly busy
looking for tax frauds. large in
dustrial corporations plant. which
may be singled out ccf inspection be-
cause of suspected income tax
leaks" may be made the basis of
close study and inspection for a pc
riod of weeks by a technical squad
before the commissioner can decide
whether taxes have been evaded. 1t
requires expert knowledge to be able
to separate the legitimate from the
illegitimate I'm claims for deductions
from income. Many of these claims
are fraudulent. Wedding them out
and exactjug full tax In the Govern