We badly need, as we have pointed out earlier, basic simplification of the tax laws. And we badly need, and urgently request, the support of this committee in trying to keep things off the tax return that do not relate to administration and enforcement of the tax laws.

Mr. ROSENTHAL. Commissioner, let me ask a few specific questions. On page 11 of your prepared statement, you said that in 1973, for example, that 221,000 taxpayers responded affirmatively to the foreign accounts question.

I assume that by the nature of the numbers you deal with, that is a small or insignificant number of people responding.

Was there any projection made as to the amount of money that they had in such accounts or what the potential for tax recovery was from that 221,000?

Mr. ALEXANDER. I do not know if any were made.

Mr. Glynn or Ms. Alpern, do you know?

Mr. GLYNN. No; I don't believe so.

MS. ALPERN. No.

Mr. ROSENTHAL. It seems to me that one can only make a judgment as to the relevance of that figure if one can postulate how much money was involved.

Mr. ALEXANDER. That is the very reason why we included an intensive examination of the foreign bank account question and the answer to that question; and whether the answer was valid, and the extent of the bank account and its impact on tax liability, in our 1973 TCMP program, which is described on page 11 of my statement.

And, Mr. Chairman, I did want to point out that in 1972, when the form 1040-A was reinstituted, a form which was used this year by more than 27 million people, the foreign bank account question was not asked. It was not put on the 1040-A.

Instead, there were some instructions saying that you could not use the 1040-A if you have a foreign bank account. So instead of relying on questions, the Service decided to rely upon the instructions. Now in 1975 when the question was removed, there was still a direction in the instructions on the 1040-A, and a direction on page 4 of the instructions of form 1040 to file this form.

Mr. ROSENTHAL. That is worthless in getting any information, isn't it?

Mr. ALEXANDER. Not necessarily, Mr. Chairman.

Mr. ROSENTHAL. From the point of view of an uneducated taxpayer, it is totally worthless.

Mr. ALEXANDER. The point I would make, Mr. Chairman, is that in 1972 we decided that reliance on the instructions was sufficient.

Mr. ROSENTHAL. But you just said that it did not prove anything and that you did not get any information from reliance on instructions. Mr. ALEXANDER. I am sorry if I may have said that. If I said that, I do not believe I meant to say it. I am at a disadvantage, Mr. Chairman, because both my ears are stopped up. So I am having a little trouble responding.

Perhaps Mr. Glynn can respond to that.

Mr. GLYNN. As I understand it, the question is: Do you get any information from the instructions? Is that the question?

Mr. ROSENTHAL. That is more or less the question.

Mr. GLYNN. You get information from the people who read the instructions and respond on the return. The instructions direct the taxpayer for file form 4683.

Mr. ROSENTHAL. The point is that I think we all understand that having the question on the first page of the form brings a reasonably high percentage of response. Having no question, but just having it in the instructions, makes it a hit and miss operation.

Mr. ALEXANDER. The second question, of course, is: Of what value is this response to the tax system? And there, how does it stand in competition with other needs of the tax system?

Mr. ROSENTHAL. That is what we would like to know.

Mr. ALEXANDER. It is our view that the benefit of having the question is rather limited. And it could not compete successfully with what we would have to do in 1975, given the demands for these 11 lines. Something would have to go. We cannot find more than 176 square inches on two pages of our 8 by 11 tax forms.

Mr. ROSENTHAL. Putting it into simple terms, you would like to have this information, but there is other information that in your judgment takes a higher priority. And since there is a certain amount of give and take, as far as the tax form is concerned, you made a value judgment.

Mr. ALEXANDER. That is quite correct.

Let me bring one other matter into this. I think this is quite important. Again, I am really asking for the support of this committee. Section 1013 of H.R. 10612, the Tax Reform Act, which the House has passed and which is now under consideration in the Senate, calls for taxing currently in the United States the income of a foreign trust having one or more U.S. beneficiaries, whether or not any of these beneficiaries happen to be the grantor of the trust, and whether or not there is the kind of current interest that is described in the instructions to the foreign bank account form.

Now we think this is long overdue. We think this will help us materially in coping with the problem of the foreign trust. Now if this is enacted, as we hope it will be, and if we find that there is room to ask a question, and that the question, given this additional statutory impetus, competes successfully with other demands on this limited space, then we would surely consider restoring the question. We would revise the question, however, and I have previously said it was inartful. Mr. ROSENTHAL. In the interest of time, let me see if I can narrow the issue.

Is there a dispute between you and the Treasury on this issue of whether or not this question should be included?

Mr. ALEXANDER. I do not think there is any dispute with the Secretary of the Treasury and the Deputy Secretary of the Treasury.

Mr. ROSENTHAL. How about the Assistant Secretary of the Treasury?

Mr. ALEXANDER. I read with some surprise the statement that the Assistant Secretary of the Treasury filed with this committee. I am sure that if there is a divergence of view, as there apparently is, we can resolve it in a sound and sensible fashion.

Mr. ROSENTHAL. In what area is there a divergence? What is your position? And why do you say your position has more validity than his position?

Mr. ALEXANDER. I think there may be a divergence of view because we look at it from different standpoints. The Internal Revenue Service has the authority, subject to the direction of the Secretary and the Deputy Secretary, to administer the tax laws and enforce them. It also has the responsibility to do so.

It is rather easy, when one does not have the responsibility and does not have accountability, to look at what another agency is doing. For example, I could look at Customs and I could find some things that I might suggest be changed. Or I could look at the Bureau of Alcohol, Tobacco, and Firearms, and I could surely find some things that I think should be changed. But that is not my business.

Mr. ROSENTHAL. I still want to narrow the issue. We have a sense of responsibility here.

The Assistant Secretary of the Treasury testified that the IRS violated Treasury regulations when it removed the question.

Did they, or did they not?

Mr. ALEXANDER. I think the Secretary of the Treasury has written a letter, on June 2, 1976, to this committee in which I believe the Assistant Secretary of the Treasury says, "ratified the 'violation' if there was any."

As to whether there was a violation, I would like to ask the Chief Counsel, Mr. Whitaker, to respond.

Mr. WHITAKER. My office looked at this question in 1973 and again fairly recently in response to Assistant Secretary MacDonald's statement, and in our opinion, there was no violation of the regulation. Mr. ROSENTHAL. MacDonald's opinion was that there was a violation. And it has to be resolved by the Secretary of the Treasury, doesn't it?

Mr. WHITAKER. That may be Mr. Chairman, although the question of whether or not the Commissioner acted correctly is a legal question. And as his counsel I think I have the responsibility and the authority to advise the Commissioner on that point.

The General Counsel of the Treasury, as far as I know has not focused on that matter.

Mr. ROSENTHAL. But there is a dispute between a high-ranking official of the Treasury and yourself as to whether the regulations were violated and whether the requirement mandating that question be on the income tax return is still valid. You say it doesn't have to be; they say it does.

That is the issue, isn't it?

Mr. WHITAKER. That is at issue, but I do not believe the Assistant Secretary is really expressing a legal opinion. He may have his own personal view as to whether or not the question ought to be on the form.

Mr. ROSENTHAL. But he expressed it before this committee, and we assumed it was an official administration position of the Department of Treasury.

Mr. GLYNN. His statement was somewhat inconsistent with that. He indicates in his statement that he believes the Secretary has ratified the actions that we took informally.

I do not think what you have just said is a fair reading of the statement.

Mr. WHITAKER. There is no question about the fact that the Secretary can direct whatever action the Secretary thinks appropriate. But as far as the action taken by the Service with respect to the 1975 return, it is my opinion as a lawyer that there was no violation of any regulation, any delegation order, or anything else.

Mr. ALEXANDER. And I think I am entitled to rely upon the opinion of my counsel.

Mr. ROSENTHAL. He is an extraordinarily competent counsel and I think you do have a right to rely on him.

But I think what escalates the issue is that some people have alleged, wrongly or rightly, that the IRS has been soft on those people taking advantage of foreign bank accounts, to the detriment of the average taxpayer.

Now if that is incorrect, you may so state. But if it is correct, that is why they are worried about your showing a lack of a sense of vigor in pursuing these people. And that was expressed by the removal of the question.

Mr. ALEXANDER. I think that is totally incorrect, Mr. Chairman. Some of these allegations have been made by some people who do not have the responsibility of administering and enforcing the tax system. And of course it is very easy for all of us to be armchair quarterbacks. And we are all very good and our judgment is infallible.

On the other hand, when one has an almost limitless job to do and quite limited resources with which to do it, we cannot put everything first. Then nothing would get done.

Mr. Chairman, I have only two additional points. I realize the demands on this committee, but if I may, I would like to make them. Mr. GLYNN. I think it is significant, Mr. Chairman, on the point that you just raised, to recognize that from the first moment that the idea of having a question and answer on the tax return was raised in 1970, Internal Revenue Service personnel have recognized and have raised the problems that result from imposing that burden on 75 or 85 million taxpayers involved.

Mr. ROSENTHAL. Just to pick up 220,000-that is your point, isn't it?

Mr. ALEXANDER. That is one of the points; yes.

Mr. GLYNN. And the other point is that there is not enough space on the return to get all of the things we would like to get on it.

Mr. ROSENTHAL. I understand that. But let's hypothecate for a moment. Suppose the 220,000 were crime syndicate kingpins, all having $10 million each invested overseas, and which would be a lucrative source for tax collection. Then the numbers come out the other way. Mr. ALEXANDER. It may be a little naive, Mr. Chairman, to assume that people of the kind you have just described, as sophisticated as they are and as dedicated to tax evasion as they are, would be bollixed by a yes-no question on a tax return.

They would have no hesitation to file, for example, a 1040-A, claiming only the standard deduction, reporting a little income, and believing that they would be falling in that group in which our population is the largest and our investigative coverage the smallest.

These people would not hesitate to falsify or to fail to answer a particular question on a tax return, given the characteristics you have described.

So it is a little naive to suggest, as perhaps has been suggested before this committee by other witnesses, that this question would solve the problem of criminal tax evasion. It surely has not; it surely will

not.

Mr. Chairman, I have only two additional points that I would like to make. On page 16 I have pointed out that both those in organized crime and executives of major corporations that would engage in slush fund operations would hardly be reluctant, when confronted by a yes-no question on 1040, to not answer at all or give an incorrect

answer.

So what we are trying to do is to meet this problem on a case-by-case basis and devise a sound system for the use of forms 4789 and 4790. And this is described on pages 17 and 18 of my prepared statement.

This system was initiated on July 1, 1975, and we are developing it and we will further cooperate with customs to make certain that we have as effective an information-sharing mechanism as we can to utilize these forms. And these forms are indeed helpful to us.

Finally, Mr. Chairman, I would like to mention one additional point. This comes up on pages 25, 26, and 27 of my statement.

We discuss on page 26 a recent case, X v. the Federal Tax Administration, where we had a temporary victory in Switzerland. It was followed by defeat.

It was followed by defeat because we were unable, under the then Swiss Treaty, to obtain data which was admissible as evidence in the United States.

Here is where we need some help from this committee. We would hope that the Government Operations Committee and your subcommittee would propose legislation to the effect that any factual data received in a report from a foreign competent authority under a tax treaty will be deemed presumptively correct and admissible as evidence in any court of the United States. Otherwise, we have to try to revise all of the treaties. And that takes a long time.

I describe, in some of the remaining pages of my statement, the new Swiss Treaty and what our expectations are. But I cannot with any certainty predict that our expectations will be fulfilled. And this treaty took 7 years of intense negotiations to achieve.

We need some help. And we will try to do this job. We recognize the importance of it and the concern of your committee, Mr. Chairman. Mr. ROSENTHAL. Congressman Drinan.

Mr. DRINAN. Thank you, Mr. Chairman.

Mr. Commissioner, in connection with the last point which you made on pages 26 and 27, are you recommending that this information acquired through a tax treaty be admissible in a criminal case as evidence in any court in the United States?

Mr. ALEXANDER. That is right.

Mr. DRINAN. Could that not be done by a court ruling?

Mr. ALEXANDER. I will ask my chief counsel to respond to that.

Mr. WHITAKER. It is my understanding, Father Drinan, that it would take legislation to change the Federal rules of evidence, and the information we are talking about ought to be admissible for both civil and criminal purposes.

Mr. DRINAN. I take it that if this came from a domestic bank that it would be deemed to be presumptively correct and admissible?