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(11) Statistical Division.—The Head of the Statistical Division selects, compiles, and analyzes data, and prepares statistical tabulations, schedules, and other statements thereof, with appropriate textual discussions, and supervises and is responsible for the operation of the following sections:
(a) The Edit and Code Section secures returns of net income from another division, edits and codes these returns for statistical purposes and for the records of the Records Division, and verifies the correctness of the punched cards.
(b) The Card Punch Section transcribes data from the returns of net income by means of card punch machines.
(c) The Special Tables Section transcribes and assembles special income and tax data from the returns of net income, for tabulation of special compilations.
(d) The Research Section selects returns of representative taxpayers for use in the administration of section 210 of the Revenue Act of 1917 and sections 327 and 328 of the Revenue Act of 1918, and prepares such special statistical information as may be required for administrative and other purposes.
(e) The Tabulation and Sort Section sorts and tabulates punched cards according to prescribed classifications, by means of tabulating and sorting machines.
(f) The Comptometer Section performs all mechanical computations necessary in connection with the preparation of all statistical tabulations, schedules, and other statements compiled by the Statistical Division.
Lines of organizational control and responsibility are graphically shown on the chart.
MISCELLANEOUS TAX UNIT 1. Mission
The Miscellaneous Tax Unit is the branch of the Internal Revenue Bureau charged with the administration of all taxes other than income tax and certain taxes under the jurisdiction of the Prohibition Commissioner
The policy of the bureau of affording every taxpayer, upon protest of its findings, an opportunity to place before it, by correspondence or in person, additional information or evidence that may support the protest or claim, requires much of the time of the Deputy Commissioner and staff and the review committees of the respective divisions in conferences accorded taxpayers.
I. Review Section
The committee heretofore known as the "Committee on Review and Appeals” has been designated “Review Section.” This section is directly attached to the office of the Deputy Commissioner in charge of the Miscellaneous Tax Unit.
The establishment of a Board of Tax Appeals to hear and determine appeals filed under sections 308 and 312 of the Revenue Act of 1924, necessitated a change in procedure as to the method of conducting hearings. The Review Section grants hearings on all formal claims for abatement filed in connection with jeopardy assessments, on claims for refund, and on all protests filed by taxpayers against the tentative determinations of the Estate Tax Division.
II. Capital Stock Tax Division
The Capital Stock Tax Division of the Bureau of Internal Revenue concerns itself with the administration of the special excise tax known as the capital stock tax on corporations, associations, and joint-stock companies, imposed for the privilege of doing business in a corporate or organized capacity.
As the tax is imposed on only those organizations which are engaged in business within the meaning of the law, and as the amount of the tax is measured by the fair average value of the outstanding capital stock, the question arises whether a corporation is engaged in business, and, if so, the valuation of its capital stock.
(a) When is a Corporation Engaged in Business? The legal question of what activities or combination of activities constitute engaging in business has been before the courts on many occasions and for many purposes, and the perplexing problems involved are apparent, in that the courts have not attempted to lay down any broad principles or fixed rules, but have confined themselves to a consideration of the facts in a particular case, and have established the status of that case only. However, the bureau has during the past seven years formu
1 Revenue Act June 2, 1924, title 7, $ 700 (43 Stat. 325)
lated a policy, and has acquainted the public with the reasoning involved therein, so that little difficulty is now encountered in satisfactorily handling this question. The bureau and the xpayer seldom fail to reach a common conclusion.
(b) Valuation of Capital Stock.-More difficulty is experienced in attempting to reach a “meeting of the minds” in evaluating the capital stock.
The value desired for capital stock tax purposes is that of the entire outstanding capital stock to the corporation considered as a going concern. This necessarily takes into consideration many factors, among which may be enumerated earning capacity, past and prospective, dividends disbursed, market value of the shares, nature and location of the business, hazards involved, efficient or inefficient management, whether assets are carried at sound, inflated, or understated values, and if the company possesses intangible assets not set up on the books.
The bureau's view is that the proper test is "an amount which a willing seller would take for the entire property, or the entire outstanding capital stock," and "an amount which a willing buyer, thoroughly conversant with all the facts, could reasonably be expected to give." "Such a value, if reported on the return, will be seldom questioned.” The law intends that an estimated value shall be used, not one that can be computed and proven with mathematical precision.
The principle is accepted that the officers of a corporation, or its management, are more thoroughly familiar with its financial condition and fair value than the representatives of the bureau can hope to become. However, the auditor within the bureau has the advantage of a greater familiarity with the law, regulations, and interpretations; also a more important advantage, in that he may examine returns of all corporations in a particular industry, and ascertain the composite viewpoint of the management of an entire industry upon a particular subject.
"It should be appreciated that the auditor within the bureau is dependent almost entirely upon information submitted on the return and supplemental evidence submitted. If a taxpayer is confronted with abnormal conditions, unprofitable branches, or unfair competition, he may not desire that the public or his competitor shall be informed of these conditions. On the other hand, he cannot expect that equitable values will be established, unless he submits such information for the consideration of the auditor in reviewing his case. This information is always considered strictly confidential, and with the number of cases handled the auditor considers such data as a mere incident in the day's work, to be forgotten as soon as the case is closed. Furthermore, he is under heavy penalty, should he violate this confidence."
In a large majority of cases the audit is made and the case closed before the end of the taxable period for which the tax is paid.
III. Estate Tax Division
On September 8, 1916, there became effective a tax by the federal government on the transfer of estates of persons dying subsequent to that date. This tax is imposed upon the transfer of the net estate, and is not laid upon any particular legacy, devise, or distributive share, but upon the transfer of the entire net estate from the decedent to others.
2 39 Stat. 777 (Comp. St. 8 633642a et seq.).
The first law of this kind passed by Congress was approved July 6, 1797,5 and imposed a stamp duty on every receipt or other discharge given for a legacy or any share of personal estate divided under a statute of distribution. It was repealed April 6, 1802.4 During the Civil War, the Act of July 1, 1862,5 levied a tax in two forms, one on the probate of wills and the granting of letters of administration, according to the value of the estate, and the other on legacies or distributive shares of personal property transferred to any person. Another act was passed in 1864 which retained the probate and inheritance taxes in the same form, but in addition enacted a succession duty tax on real estate. This latter act was amended in 1865, exempting a succession from the operation of the act where the wife of the decedent was his successor. The act was again amended in 1866, exempting from the tax legacies and distributive shares of personal property not exceeding $1,000 passing to a minor child of the decedent, and estates whose value did not exceed $1,000. The legacies and succession taxes were repealed by an act approved July 14, 1870,6 and the tax on probate and letters of administration June 6, 1872.
The Revenue Act of 1898, passed at the time of the Spanish-American War, was the next Federal statute imposing an inheritance tax, Section 29 placed a tax upon legacies and distributive shares arising from personal property exceeding $10,000. The amendment of 1901 exempted bequests for charitable, religious, or public purposes. The inheritance tax provisions as amended were subsequently repealed by the Act of April 12, 1902. The total receipts under this act amounted to only $22,569,717.12.
It will be noted that the taxes imposed by the prior acts were based upon the legacy or distributive share passing to the beneficiary and not upon the estáte as a whole. They were of a temporary character and were designed to produce only a comparatively small revenue.
Before September 8, 1916, with the exceptions noted, this source of revenue had been left to the several states, and it is argued with much force that the federal levy is such an encroachment on revenue properly levied by and belonging to the states as to be justified only in emergencies. However, the Sixty-Eighth Congress, in the Revenue Act effective June 2, 1924, not only materially increased the rates of tax on transfers of property by death, but also enacted a gift tax, in order to prevent avoidance or defeat of federal estate and income taxes. The increase in the rates, particularly in the higher brackets, has met with vigorous opposition, on the ground that such rates are confiscatory in effect. In this connection, the suggestion has been made that the federal government might well levy and collect one tax to cover all the so-called inheritance taxes now levied and collected at considerable expense by the federal government and by
31 Stat. 527. 42 Stat. 148. 512 Stat. 473. 6 16 Stat. 256. 7 Section 300 (43 Stat. 303). 8 Section 319 (43 Stat. 313).