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CHAPTER 12

PUBLIC DEBT SERVICE 1. Mission

The mission of the public debt service of the Treasury Department is to supervise all transactions in the public debt and the miscellaneous work incident thereto. The Commissioner of the Public Debt is directly responsible to the Assistant Secretary in Charge of Fiscal Affairs, who, in turn, acts under the Undersecretary of the Treasury. 2. Division of Loans and Currency

The Division of Loans and Currency is the issuing branch of the Public Debt Service. It is charged with the original issue of public debt securities, and thereafter conducts transactions therein, including exchanges, transfers, conversions and replacements, the maintenance of accounts with the holders of registered bonds, and the preparation of checks for the payment of interest thereon. This division also handles the public debt issues of the Philippine government, the government of Porto Rico, and the District of Columbia, and audits all currency notes of United States paper currency issues received for redemption.

3. Register of the Treasury

This is the retirement branch of the Public Debt Service. It is charged with the receipt, examination and custody of all public debt securities retired for any account, including paid securities and securities canceled against reissue or otherwise. Paid securities, including interest coupons, are forwarded by the Treasurer direct to the Register, and the Register's certificate of audit is accepted by the Comptroller General as verification of payment by the Treasurer. The Register's certificate is also accepted by the Secretary as evidencing credit to be given fiscal agents in the matter of returned securities, and the same procedure exists with respect to canceled securities delivered by the Division of Loans and Currency and by the Postal Service to the Register for credit. 4. Division of Accounts and Audit

The Division of Accounts and Audit maintains accounts of, and exercises control over, all transactions in the public debt from the time securities are printed until they are retired. It maintains the general accounts of the public debt with the Division of Loans and Currency with respect to issues, with the Register of the Treasury as to retirements, with the fiscal agents for all transactions conducted by them, with the Postal Service in connection with Treasury (war) savings securities, and with the Treasurer of the United States. Through administrative audits conducted from time to time, this division verifies the accuracy of public debt transactions. 5. Division of Paper Custody

The Division of Paper Custody receives from various contractors the distinctive paper used in printing the public debt obligations and the paper currency of the United States, internal revenue stamps and other securities. It issues such paper to the Bureau of Engraving and Printing, and requires that Bureau to account for every sheet issued, either through delivery of perfect work to the several Treasury offices or through the return of imperfect or mutilated stock to the Division of Paper Custody. The manufacture of the distinctive paper used in the printing of public debt obligations and paper currency issues is supervised by a representative of this division detailed to the paper mills of the contractor for that purpose.

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CHAPTER 13,

BUREAU OF INTERNAL REVENUE

1. Origin and Mission

The Office of Commissioner of Internal Revenue is the branch of the Treasury Department charged in the main with the collection of federal taxes other than those levied on imports. But it has 'also certain other duties of little relation to revenue, such as enforcement of the national prohibition laws in reference to alcoholic beverages, narcotic drug regulatory laws, the manufacture of white phosphorus matches, etc. 2. History

The Office of Commissioner of Internal Revenue was created by the Act of July 1, 1862,1 by which it was called the “Office of Commissioner of Internal Revenue" and that is the designation shown on the bureau's letterheads and publications, though several acts incidentally refer to the service as “Bureau of Internal Revenue.”

The importance of this fiscal agency has steadily increased, especially since the adoption of federal income tax laws. The proportion of ordinary receipts raised by means of internal taxes increased from 41 per cent. in 1909 to 83 per cent. in 1919. In 1922 that proportion, however, fell to 78 per cent. when the amount collected was $3,208,158,308. The annual receipts from internal revenue, customs, and total ordinary receipts from 1792 to 1923 are readily available, and show that the internal revenue receipts of 1922 were 15,423 times greater than in 1792.3

When internal taxes were first used for the support of the government, 1791, they were levied on distilled spirits, carriages, retail dealers in distilled spirits, refined sugar and snuff, property, sold at auction,8 snuff mills, legal instruments, bonds, etc.,10 and direct tax on real property. The tax on real property included fifty cents on every slave. 11 A general stamp office was created in reference to the tax on legal instruments, etc. The tax on distilled spirits led to the “Whisky Rebellion.” Internal taxes were abolished in 1802. The war of 1812 emergency necessitated the revival of such method of taxation by the Acts of July 22,

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112 Stat. 432. 2 Institute for Government Research, Service Monograph No. 25, 1923, p. 1. 3 Institute for Government Research, Service Monograph No. 25, 1923, pp. 244–246. 4 Act March 3, 1791 (1 Stat. 202). 5 Act June 5, 1794 (1 Stat. 373). 6 Act June 5, 1794 (1 Stat. 376). 7 Act June 5, 1791 (1 Stat. 38-1). 8 Act June 9, 1794 (1 Stat. 397). 9 Act March 2, 1795 (1 Stat. 426). 10 Act July 6, 1797 (1 Stat. 527). 11 Acts of July 9, 14, and 16, 1798 (1 Stat. 580, 597). 12 Act April 23, 1800 (2 Stat. 40).

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1813, July 24, 1813,13 August 2, 1813, January 9, 1815, and March 5, 1816. They were finally discontinued by Act Dec. 23, 1817.14 At the outbreak of the Civil War there was no machinery for the collection of revenues needed therefor, and a direct tax of $20,000,000 was provided for, as well as an income tax.15 A board of tax commissioners was created to collect the tax in seceded states. 16 The Act of July 1, 1862, making the basis of the present system, was comprehensive in reaching for taxable objects. The office of Deputy Commissioner of Internal Revenue was created March 3, 1863.17 By the Act of June 30, 1864,18 rates were changed as well as methods of paying collectors. Further changes in rates were made in 1865.19 By the reorganization bill of 1866, rates were reduced and a definite revenue service personnel provided for. The office of "Special Commissioner of Revenue" was created, whose duty, it was provided, was: “To inquire into all the sources of national revenue, and the best methods of collecting the revenue; the relations of foreign trade to domestic industry; the mutual adjustment of the systems of taxation by customs and excise, with the view of insuring the requisite revenue with the least disturbance or inconvenience to the progress of industry and the development of the resources of the country; and to inquire, from time to time, under the direction of the Secretary of the Treasury, into the manner in which officers charged with the administration and collection of the revenues perform their duties. And the said Special Commissioner of the Revenue shall from time to time report, through the Secretary of the Treasury, to Congress, either in the form of a bill or otherwise, such modifications of the rates of taxation or of the methods of collecting the revenues, and such other facts pertaining to the trade, industry, commerce, or taxation of the country, as he may find, by actual observation of the operation of the law, to be conducive to the public interest; and, in order to enable the Special Commissioner of the Revenue to properly conduct his investigations, he is hereby empowered to examine the books, papers and accounts of any officer of the revenue, to administer oaths, examine and summon witnesses, and take testimony; and each and every such person falsely swearing or affirming shall be subject to the penalties and disabilities prescribed by law for the punishment of corrupt and wilful perjury; and all officers of the government are hereby required to extend to the said Commissioner all reasonable facilities for the collection of information pertinent to the duties of his office." 20

The Act of March 2, 1867, reduced rates.21 That of July 20, 1868, was devoted to distilled spirits and tobacco and developed the present system of stamp taxes on those articles. 22 The office of assessor was abolished in 1872 and his

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133 Stat. 22, 39, 53, 164, 255.
14 3 Stat. 254, 255, 264, 401.
18 Act Aug. 5, 1861 (12 Stat. 292).
16 Act June 7, 1862 (12 Stat. 422).
17 Act March 3, 1863 (12 Stat. 725).
18 13 Stat. 223.
19 Act March 3, 1865 (13 Stat. 469).

20 Act July 13, 1866 (14 Stat. 98). See, also, Institute for Government Research, Serv. ice Monograph No. 25, 1923, pp, 22, 23.

21 14 Stat. 471. 22 15 Stat. 125.

duties were transferred to the collector, whose duties then became practically what they are to-day.23 All internal taxes were repealed in 1883, except those on distilled spirits, fermented liquors, tobacco products, and dealers in those commodities.24

(b) Fraud and Evasion. From the first, revenue service has been heavily burdened with the problem of detecting and punishing fraud and in preventing evasion.25 Frauds and evasions increased as the rates on tobacco and spirits became excessive. The so-called “whisky frauds” during the period from 1864 to 1875 were said to have been due largely to the free system of paying inspectors and to the high rate of tax. The statistics of the times tend to discredit the principle of excessive taxation, for when the tax was $2 per gallon whisky was widely sold in open market at $1.50 per gallon.26 The so-called “whisky conspiracy” was initiated by revenue officers themselves, through such schemes as undermarking the proof of spirits removed from government warehouses and by the repeated use of revenue stamps, which conspiracies yielded large illicit revenues to government agents.27 The alarming extent of such frauds induced a congressional investigation and resulted in a reduction of the whisky tax.28 Another scandal was caused by a legislative provision empowering the Secretary of the Treasury to contract with persons to collect delinquent taxes, the contractor to be paid for his services out of the amounts collected. 29 After a congressional investigation, this provision was repealed.

(c) Tax Primarily to Regulate, Instead of for Revenue.-The oleomargarine tax of 188630 was passed to exclude oleomargarine from competition with butter. The oleomargarine industry thrived nevertheless.

(d) Chemical Division.-In order to determine whether certain substances were oleomargarine, the Secretary of the Treasury was authorized by the oleomargarine tax law to appoint an analytical chemist and a microscopist.31 Their activities, first directed to analyses for evidences of violation of the oleomargarine law, were extended for the protection of the public health. Their reports to the Commissioner of Internal Revenue enabled him to exercise the power conferred by such law. It was further provided that appeal from his decision might be had to a board composed of the Surgeon Generals of the Army and Navy and the Secretary of Agriculture, the decision of such board being final. The enactment of the Pure Food and Drugs Act of 190632 so increased the demand for analytical services that the activities of the Chemical Division were transferred to the Bureau of Chemistry of the Department of Agriculture.

23 Act Dec. 24, 1872 (17 Stat. 401). 24 Act March 3, 1883 (22 Stat. 488). 25 Act March 3, 1863 (12 Stat. 737).

26 Institute for Government Research, Service Monograph No. 25, 1923, pp. 28, 29; House Misc. Doc. 186, 44th Cong., 1st. Sess., testimony before select committee concerning whisky frauds, hearings March 22 to August 12, 1876.

27 U. S. v. McKee, 22 Internal Rev. Rec. p. 59.
28 Act July 20, 1868 (15 Stat. 125).
29 17 Stat. 69.
30 Act Aug. 2, 1886 (24 Stat. 209).
31 Section 14, Act Aug. 2, 1886 (Comp. St. § 6226).
32 34 Stat. 768 (Comp. St. 88 8717-8728).

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