data to code provisions in an effort to reach a settlement which is fair to his client and to the Government. We recognize that the House Committee on Ways and Means has done much to improve many of the specific sections to which we refer below; however, we remain convinced that the adoption of our recommendations, as set forth below, would result in even greater improvement. (a) We recommend that section 53 (a) of the Internal Revenue Code be amended so as to provide that tax returns, individual, partnership, and corporation, for the calendar year, be filed on or before April 15 of each calendar year instead of March 15, and that a tax return made on a basis of a fiscal year, be made on or before the 15th day of the 4th month following the close of the fiscal period. (b) That sections 58 (a), 58 (d), 60 (a), and 60 (c) of the Internal Revenue Code be amended to provide that individuals who are employed during a calendar year and file form W-2, shall not be required to file an estimated tax return on or before March 15 of each calendar year, but must file a final income tax return, form 1040, on or before February 15 of each calendar year, and further recommended that this provision be applied to those individuals engaged in agriculture. (c) That sections 294d (1) and 295d (2) of the Internal Revenue Code be amended to provide that the penalty for failure to file an estimated tax return or a gross underestimation of tax, or for failure to pay the tax, be limited to an offer in compromise with interest not to exceed 3 percent of the tax involved, prorated over a period of 1 year. (d) That section 58 (d) of the Internal Revenue Code be amended to provide that an estimated tax return for individuals, except those exempted under section 58 (d), must be filed on or before June 15 of each year, with payments of estimated tax being made quarterly, with final date of payment being March 15 of the following year. (e) That sections 292 (a) and 377 (a) of the Internal Revenue Code be amended to provide that interest on tax deficiencies be reduced from 6 percent to 3 percent, and that on claims for refund, the interest rate be reduced to 3 percent of the amount refunded. (f) That section 25 (b) (3) of the Internal Revenue Code be clarified, so that the test of dependency will not discriminate against individuals who support their aged parents or other relatives residing in the household of the taxpayer. (g) That section 12 (c) of the Internal Revenue Code be amended to provide that an individual who is single and supports his or her family, be granted an additional exemption of $600 if necessary to employ some person to care for his or her dependents, and that all handicapped individuals be granted the same exemption as now provided for the blind. (h) That in all cases in which fraud is involved, the Commissioner of Internal Revenue or his agents be required to notify the taxpayer by letter that he is under investigation for fraud, and that the Commissioner be further required to advise the taxpayer as to his constitutional rights to be represented by counsel. (i) That section 272 (a) (1) of the Internal Revenue Code be amended so as to provide that in cases where a deficiency has been determined, the letter of transmittal to the taxpayer be in such form as to show a detailed statement of all proposed changes. (j) That sections 3693 (c) and 3701 (c) of the Internal Revenue Code be amended so as to provide that in the case of a jeopardy assessment by the Commissioner or the Director of Internal Revenue, said Commissioner or Director of Internal Revenue be prohibited from disposing of the property of the taxpayer seized under said warrant of distraint until a final determination of the tax liability by the Tax Court of the United States. (k) That section 276 (b) of the Internal Revenue Code be amended to provide that where the Commissioner requests a waiver of the statute of limitations from the taxpayer, at the time of the executing of said waiver all interest on the deficiency be stopped until said deficiency shall have been finally determined by the Commissioner. (1) That section 1100 of the Internal Revenue Code be amended to provide that the Tax Court of the United States be made a court of record, and that the Commissioner of Internal Revenue be required to publish their decisions and so instruct his field force. However, if the Commissioner does not agree with the decision of the Tax Court of the United States, he be required to appeal said decision to the United States Court of Appeals. STATEMENT OF THE NATIONAL SOCIETY OF PUBLIC ACCOUNTANTS CONTAINING THE SOCIETY'S RECOMMENDATIONS RELATIVE TO H. R. 8300, INTERNAL REVENUE CODE OF 1954, SUBMITTED FOR THE CONSIDERATION OF THE UNITED STATES SENATE COMMITTEE ON FINANCE PART II Since filing our earlier statement on this bill, another inequity in the existing tax laws has been brought to our attention by members in the West. Section 23 (c) (1) (E) and Treasury Income Tax Regulations 118, paragraph 39.23 (c)-3, treat assessments by an irrigation district—even though these assessments are of a general nature against all the land within the district-as local benefits. Hence, only that portion of the assessment which can be attributed to maintenance and repair or interest charges can be claimed as a deduction for Federal income tax purposes. If, however, the taxpayer resides in a district for which the county collects funds along with county taxes, even though the funds are payments toward similar permanent capital assets, they are fully deductible. In other words, the distinction is based on the agency which collects the funds rather than the use to which they are put. Taxwise, this appears to be a distinction without a difference. The laws of California are very specific on this question, allowing as a deduction from gross income "any irrigation or other water district taxes or assessments which are levied for the payment of the principal of any improvement or other bonds for which a general assessment on all lands within the district is levied as distinguished from a special assessment levied on part of the area within the district." Moreover, the Water Code of California declares assessments of such districts to be charges for services furnished and not a capital investment of the landowners. H. R. 6007 (exhibit I) introduced by Congressman Phillips was drafted to correct the tax inequities outlined above. We urge your committee to adopt this amendment as a part of H. R. 8300. EXHIBIT I JAMES A. GORMAN, President. [H. R. 6007, 83d Cong., 1st sess.] A BILL To amend the Internal Revenue Code to permit certain water district taxes to be deducted from gross income Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 23 (c) (1) (E) of the Internal Revenue Code (relating to deduction for taxes) is hereby amended by inserting before the semicolon at the end thereof the following: ", nor shall this paragraph exclude the allowance as a deduction of any irrigation or other water district taxes or assessments which are levied for the payment of the principal of any improvement or other bonds for which a general assessment on all lands within the district is levied as distinguished from a special assessment levied on part of the area within the district". SEC. 2. The amendment made by the first section of this Act shall apply only with respect to taxable years ending after the date of the enactment of this Act. (Whereupon, at 12:43 p. m., the committee recessed, to reconvene at 10 a. m., Monday, April 19, 1954.) 45994-54-pt. 3- -7 THE INTERNAL REVENUE CODE OF 1954 MONDAY, APRIL 19, 1954 UNITED STATES SENATE, The committee met, pursuant to recess, in room 312, Senate Office Building, at 10:05 a. m., Senator Eugene D. Millikin (chairman) presiding. Present: Senators Millikin, Butler, Flanders, Malone, Carlson, George, Frear. The CHAIRMAN. The meeting will come to order. Mr. Fernald. We are glad to see you, Mr. Fernald. Sit down and be comfortable. Identify yourself to the reporter. STATEMENT OF HENRY B. FERNALD, CHAIRMAN, TAX COMMITTEE, AMERICAN MINING CONGRESS Mr. FERNALD. I am Henry B. Fernald, of Montclair, N. J., chairman of the tax committee of the American Mining Congress. I am appearing on behalf of the mining industry with respect to the pending bill H. R. 8300, Internal Revenue Code of 1954. Speaking briefly, I can mention only a few points, noting others in statements I shall file with you. First, as to the bill in general: We appreciate the immense amount of work in its preparation, with a result far better than many of us felt would be possible. Some revision we believe should be made before its passage, which will not change the purpose of the bill, will better express its intent, enable it better to carry out the thought expressed in the committee report, and will aid in its administration. Undoubtedly some changes will prove necessary after its passage, and as these become manifest, there should be a willingness to make needed amendments. We accordingly urge the passage of this bill, with such revisions as we believe can and should be made prior to enactment. We particularly urge the following points for revision: 1. DEPLETION, SECTIONS 611-614, PERCENTAGE DEPLETION We are in accord with the plan of the bill to include a blanket provision extending percentage depletion to minerals in general, and to omit the discovery depletion provision. Some do not like to see their minerals, previously specified, no longer mentioned by name, fearful that adverse inference may be drawn therefrom. A major reason, however, for their disturbance, and for disturbance of others who would be newly included in the blanket clause, is because of the limitations or qualifications written into section 613 (b) (6). The first qualification is that a 5 percent, rather than a 15 percent, rate shall apply to such "other minerals" when "used or sold for use as riprap, ballast, road material, rubble, concrete aggregates, dimension stone, ornamental stone, or for similar purposes." As written, the taxpayer might be put to a negative proof of ultimate use of all or some part of the mineral. If, for example, rock containing a valuable mineral were sold for its mineral content, the taxpayer certainly should not be prejudiced if some remainder, after extraction of the valuable mineral, should be used for road fill or similar purpose. The Jaw should make this clear by amending the section to read "when used, or sold for use, by the mine owner or operator as ***"9 Further qualifications are set forth in subparagraph (B). Exclusion from percentage depletion of "minerals from sea water or the air” does not seem objectionable, since it is merely the expression of an existing rule that the taxpayer has no depletable interest in minerals in place in the air or in sea water. The difficulty comes with the further wording which would make the exclusion applicable to minerals "from sources which, by commonly accepted economic standards, are regarded as inexhaustible." This is new wording, never heretofore used, and is subject to much uncertainty as to its meaning and the burden of proof it might impose on the taxpayer. One reason for adopting percentage depletion was the difficulty of establishing what mineral there might be below the surface in any property, its extent, its character, and its recoverability. No such test should now be reimposed. We believe the full intent would be met by making the specification read simply "minerals from sea water, the air, or similar inexhaustible sources." We understand there is no intention to allow depletion on ordinary water, although water itself may be classed as mineral. This purpose could be clearly evidenced by including "water" specifically under subparagraph (A) in addition to the specification of "soil, sod, dirt, turf, or mosses" which are excluded from the percentage depletion allowance. This, of course, will not affect the depletion allowance on minerals extracted from brines or mixtures of brines. The Supreme Court has laid down the basic rule that depletion— percentage or otherwise is allowable only to the taxpayer having an economic interest in the mineral in place. If deemed necessary, this test might be specifically written into the law and would certainly be better than introducing new and uncertain wording as a new limitation. Those are simply details of expression in the law and there is no intent to change the purpose of the provisions. (b) Waste or residues: Provision is made in sections 611 (a) and 613 (c) (3) for depletion on the extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. This is very desirable, from the standpoint of equity and to avoid present uncertainty and conflict of decisions. Such right is denied to a purchaser of such waste or residue or rights thereto. There should not, however, be such denial in case of acquisition of the mine, together with waste or tailings of prior |