otherwise provided. No other provision seems to be applicable to the income tax law. The 1916 Law provides in part that "all administrative, special and general provisions of law, including the laws in relation to assessment, remission, collection and refund of internalrevenue taxes not heretofore specifically repealed and not inconsistent with the provisions of this title, are hereby extended and made applicable to all the provisions of this title and to the tax herein imposed." 69 Under the Income Tax Law it is the duty of the Commissioner of Internal Revenue to send to each collector a list of the taxpayers liable for the tax in his district, showing the amounts for which they are liable, within such time that the collector may give the required notice of assessment on or before the first day of June, and upon such lists the collections are made. The lien is fixed upon the assets of the taxpayer when this list comes into the collector's hands. In the case of a corporation which has distributed its assets prior to the time when a lien would attach thereto, the Government may proceed to collect the tax as a general creditor.70

Taxes Collectible by Distraint. If any person liable to pay any taxes neglects or refuses to pay the same within ten days after notice and demand, it shall be lawful for the collector or his deputy collector to collect the taxes, with the 5% penalty, and interest at the rate of 1% per month, by distraint and sale of the goods, chattels or effects, including stocks, securities, and evidences of debt, of the person delinquent.71 This section of the statute exempts certain property from

69 Act of September 8, 1916, § 22. 70 See Chapter 12 on corporations. 71 R. S., § 3187.

distraint in the case of the head of a family. Extensive provision is made in the statute for the mode of levying distraint and proceedings on distraint.72

72 See R. S., §§ 3188, et seq.

CHAPTER 37

PENALTIES AND COMPROMISES

Several penalties are contained in the law for failure to comply with its provisions and for making false or fraudulent statements in the returns. The penalties take two forms: (a) specific penalties in the nature of fines between minimum and maximum limits, and (b) penalties of either 50% or 100% of the amount of tax due.

Suit to Enjoin Collection of Penalties. While Section 3224 of the Revised Statutes, which prohibits suits to enjoin the collection of internal revenue taxes, does not specifically include "penalties" as such, yet where penalties are authorized by the statute to be added to the tax and collected as a part of the tax, the courts will hold that the penalty is a part of the tax, and its collection cannot be enjoined.1

Failure to File Return of Annual Net Income. If an individual fails to file a return the specific penalty is not less than $20 nor more than $1,000.2 In the case of a corporation the specific penalty is any amount not exceeding $10,000.3 In any case of failure to file a

1 Kohlhamer v. Smietanka, 239 Fed. 408.

2 Act of September 8, 1916, § 18.

3 Id. § 14 (c).

return or list within the time prescribed by law or by the collector, the Commissioner of Internal Revenue also adds to the tax 50% of its amount.

EXCEPTION. When a return is voluntarily, and without notice from the collector, filed after the time prescribed by law, and it is shown that the failure to file was due to a reasonable cause and not to wilful neglect, the addition of 50% of the tax is not made.5 The notice referred to in this provision of the law is the formal notice contemplated by Section 3173 of the Revised Statutes. Where revenue agents or examining officers receive a return after the due date, or examine the books covering a delinquent return for the year 1916, or any subsequent year, the assessment of 50% additional will be recommended only if such formal notice had been given prior to the filing of the return, or the discovery of unreported income. If the formal notice has not been given prior to such discovery or to the making of the return, a return will be considered voluntarily filed, although informal notice may have been given by the collector or agent. This provision waiving the penalty in case of voluntary filing is contained in a section of the general revenue laws amended by and contained in the 1916 Law and has been held, by the Treasury Department, to apply only to returns filed under the 1916 Law, since Section 24 of the 1916 Law continues in force all the provisions of the 1913 Law for the assessment and collection of taxes which have accrued thereunder, and for the imposition

4 R. S. § 3176; T. D. 1950.

5 R. S. § 3176, as amended by Act of September 8, 1916.

6 This notice is known as Form 1045.

7 Mimeograph letter to Collectors, C. T. No. 54,

and collection of all penalties and forfeitures. In the case of delinquent returns filed under the 1909 and the 1913 Laws, the respective provisions of those laws will be enforced and the additional tax assessed, together with the specific penalty. The 50% additional tax will be assessed, or reported for assessment, only in those cases under the 1913 and 1909 Laws where the delinquency was discovered within three years from the date the returns were due to be filed, and the specific penalty will be assessed only in those cases in which the delinquency was discovered within five years from the date the returns were due. The ruling of the Treasury Department holding that the provision which waives the penalty applies only to returns filed under the 1916 Law, does not seem to take into consideration the fact that although the provision is contained in the 1916 Law, yet it is an amendment to a section of the revenue laws applying generally and, it seems, operates to supersede the penalty provisions of the 1913 Law and the 1909 Law with respect to all returns filed under those laws on and after September 9, 1916, as well as to returns under the 1916 Law.

Failure to make

Returns of Withholding Agents. and file withholding returns on or before March 1st renders a withholding agent liable to the specific penalty or not less than $20 nor more than $1,000, but the 50% addition to the tax for failure to make a return, and the 100% addition for intentional false or fraudulent return, is not assessed against withholding agents.9

8 Mimeograph letter to Collectors, C. T. No. 56. Mimeograph letter to Collectors, No. 1265.