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FIFTY PER CENT. INCREASE OF TAX. The penalty of 50% increase in tax for failure to file returns is found in practically all revenue laws relating to special taxes, and the uniform construction has been that no administrative officer is clothed with authority to compromise such increase in tax.29 The income tax law is explicit and mandatory in its provisions relative to the additional assessment of 50% of the tax otherwise due, in case of failure to file a return of income within the prescribed time, and does not give discretionary authority for remission of these additional taxes to any officer of the Government.80 Since the 50% penalty was not subject to compromise under the general revenue laws, Congress passed an act providing particularly for the refund of such additional taxes, assessed under the 1909 Law, for neglect to file returns, 31 but no such statute has been passed with respect to penalties incurred under the 1913 Law or the 1916 Law.
Offers in Compromise. It is the practice of the Treasury Department to accept, as a minimum offer, $5 from individuals and withholding agents, and $10 from corporations, in compromise of the specific penalty incurred for failure to file returns, in cases where the neglect was not intentional.32 Offers in compromise do not receive favorable consideration in cases where returns for the year in question have not been filed, but such offers are accepted “subject to the filing of the return." 33 No particular form is prescribed for use in making offers in compromise of the specific penalties, and such offer may be made in the form of a letter addressed to the local collector. Each offer in compromise should be accompanied by an affidavit in which the proponent should state briefly the facts which caused the delinquency. Where affidavits allege facts that no delinquency was incurred or recite circumstances which warrant relief from the specific penalty, the offer is returned, unless there are facts in the possession of the collector at variance with the contentions made by the proponents. All delinquents who do not compromise their liabilities to the specific penalty, after ample opportunity, are reported to the United States District Attorney for proceedings.34 It is the duty of every District Attorney to prosecute every case for the collection of a fine, penalty or forfeiture reported to him by any collector, unless, upon inquiry and examination, he decides that such proceedings cannot properly be sustained, or that the needs of public justice do not require that such proceedings be instituted; in which case he reports the facts to the Commissioner of Internal Revenue for his direction. 35 CHAPTER 38
29 T. D. 1701. 30 T. D. 2135. 31 Act of March 3, 1913. 32 T. D. 2311; T. D. 2349. 33 T. D. 2311.
EXAMINATION OF TAXPAYERS' BOOKS
For the purpose of verifying returns the Commissioner of Internal Revenue may, by any duly authorized revenue agent or deputy collector, cause the books of a taxpayer to be examined, and if such examination discloses that the taxpayer is liable to tax in addition to that previously assessed, the same is assessed and becomes payable within ten days from the time of sending the taxpayer a notice and demand. For the purpose of such examination the books of the taxpayer shall be opened to the examining officer, or shall be produced upon a summons issued by any properly authorized officer. 1 The authority for making such examination of the taxpayer's books is contained in Sections 3172, 3173 and 3176 of the Revised Statutes, as amended by, and contained in, the 1916 Law. Under these general provisions applying to all revenue taxes, a collector may send out his deputies to make inquiries. If any person refuses to allow any regularly authorized Government officer to examine his books or the books of the person, firm, or corporation for whom he is agent, it is lawful for the collector to summon such person, or any other person having possession, custody or care of the books of account containing entries relating to the business of such taxpayer, or any other person
1 Reg. 33, Art. 186.
he may deem proper, to appear before him and produce the books at a time and place named in the summons, to give testimony or answer interrogatories under oath, respecting any objects or income liable to tax, or the returns thereof. The collector may summon any person residing or found within the state or territory in which his district lies; and when the person intended to be summoned does not reside and cannot be found within such state or territory, he may enter any collection district where such person may be found and there make the examination authorized by the law. If the taxpayer fails to make a return or makes, wilfully or otherwise, a false or fraudulent return, the collector or. deputy collector is authorized to make the return from his own knowledge and from such information as he can obtain through testimony or otherwise. Section 3173 of the Revised Statutes clothes collectors of internal revenue with supervisory powers over and authorizes them to investigate all accounts, lists, or returns made or required to be made to them by any and all classes of persons liable to pay taxes upon any property, trade or business. It has also been held that the examination of books under this section is not an infringement of the Constitution. In all suits and proceedings, other than criminal, arising under any of the revenue laws of the United States, the attorney representing the Government may, whenever in his belief any business-book, invoice, or paper, belonging to or under the control of the defendant or claimant, will tend to prove any allegation made by the United States, make a written motion particularly describing such book, invoice, or paper, and setting forth the allegation which he expects to prove; and thereupon the court may, at its discretion, issue a notice to the defendant or claimant to produce the same. Upon failure to do so the allegation stated in the motion is taken as confessed, unless the failure or refusal is explained to the satisfaction of the court.5 This provision applies to proceedings under the Internal Revenue laws as well as the customs revenue laws.
2 R. S., $$ 3173 and 3176, as amended by Act of September 8, 1916.
3 U. S. v. Hodson, 14 Int. Rev. Rec. 100. 4 In re Strouse, 1 Sawyer 605.
Instructions to Revenue Agents. The following instructions have been given by the Treasury Department to revenue agents and examiners: “In conducting their examination the agents will, except in clear cases of misrepresentation, proceed on the assumption that all errors in the returns rendered are unintentional; and they will, so far as possible, make their examination in such manner as not to interfere with the company's business, either as to the use of its books or in the general conduct of its affairs. Contentions with officers, employees or representatives of corporations are to be carefully avoided, and no action that may cause friction, that is not necessary in the proper performance of their duties, must be indulged in by officers making these examinations. Ordinarily no very extended examination of the company's books will be necessary, as the verification of the particular items to which attention has been called will be sufficient. Where, however, a thorough examination is found to be necessary, and the accounts are so kept as to involve much labor in their examination, the agent may assign two assistants
5 Act of June 22, 1874, 18 Stat. 187. 6 U. 8. v. Distillery, 21 Int. Rev. Rec. 366.