has been increasing, and I doubt very much if this $816,000 will be adequate for that purpose. Maintenance costs are going up all over the country and the cost of space per square foot is constantly increasing.

Mr. LUDLOW. As of what date was this estimate prepared?
Mr. EVANS. This estimate was prepared around December last.

OTHER CONTRACTUAL SERVICES

Mr. LUDLOW. Under other contractual services there is an allocation of $11,381, as against an appropriation of $677,380 in the fiscal year 1946. You might give us a word about that.

Mr. EVANS. That amount covers mostly towel service, photostat service, storage, care, and repairs to Government-owned cars, and so forth.

SUPPLIES AND MATERIALS

Mr. LUDLOW. Under supplies and materials there is an allocation of $143,300 as against an appropriation of $1,951,197 for the fiscal year 1946. What is the explanation of that increase?

Mr. EVANS. That amount is mostly for tax services and law books and books of reference, used by the deputy collectors, revenue agents, and other technical employees.

Mr. LUDLOW. What proportion of that amount is for the purchase of books?

Mr. EVANS. The vast proportion would be for Federal tax services, such as Prentice-Hall and Commerce Clearing House.

Mr. LUDLOW. What is your method of distribution of them?

Mr. EVANS. We prorate them. We do not supply every agent with a service. We supply about one tax service for every three or four agents in the field as the needs require.

EQUIPMENT

Mr. LUDLOW. You have an allocation of $855,956 for equipment, which is almost as much as your original 1946 appropriation which was $944,460.

Mr. EVANS. Yes, sir.

Mr. LUDLOW. Give us an explanation of this equipment item.

Mr. EVANS. In the original appropriation for 1946, Mr. Chairman, we did not ask for any money for the purchase of additional furniture. It was only for replacement purposes, and this $855,000 is to purchase equipment necessary for the 7,416 additional people. The prices are based on surplus prices exclusively; we do not estimate on the basis of new prices.

Mr. LUDLOW. You mean that you will get a good deal of equipment from the Army and Navy surpluses?

Mr. EVANS. Yes, sir; and from all other known surplus sources. Mr. LUDLOW. If this bill becomes law by the middle of April what would you say would be the average length of employment of the persons who would fill the positions requested?

Mr. EVANS. Well, it extends from 9 months down to 2 months. Some of them have been on all year and some longer than 9 months. It would average about 61⁄2 to 7 months of annual cost.

Mr. LUDLOW. Now, there are two substantive purposes of this appropriation. One is to carry on your work in uncovering tax evasions,

and the other is for the expedition of income tax work. About how would the appropriation be divided between the two purposes? Mr. SHERWOOD. This whole estimate is for tax-evasion work.

Mr. LUDLOW. It is all predicated on tax evasion?

Mr. SHERWOOD. Yes, it is all predicated on tax evasion with the exception of $215,000 for the Post Office Department.

Mr. LUDLOW. What is that for?

Mr. EVANS. That is for the expenses of the Post Office Department during this fiscal year for the sale of automobile use tax stamps. The regular appropriation carried $525,000. They have estimated the revised expenses, due to increase in salaries, at $740,000.

SUCCESS OF TAX EVASION CAMPAIGN

Mr. LUDLOW. Now, I think it would be well, Mr. Evans, or Mr. Sherwood, to give us some testimony about the success of this taxevasion campaign and maybe some specific instances of recoveries.

Mr. SHERWOOD. I will be glad to have Mr. Woolf cite certain cases for the record if you would like to have him do so.

Mr. LUDLOW. I think we really ought to have it because it is the fundamental basis of this estimate.

Mr. SHERWOOD. Yes, sir.

Mr. LUDLOW. Mr. Woolf, I was directing an inquiry as to the success of this tax-evasion program, and what is being accomplished by it and we thought perhaps you could give us some specific instances of recoveries that would be illuminating on the subject.

This estimate is predicated entirely on the tax-evasion program, and I thought we ought to have some information as to what is being done and as to the ultimate purposes of the program and the success that is being attained, and maybe some specific instances of recoveries or something of that kind.

Mr. WOOLF. On April 1, 1945, the Bureau of Internal Revenue initiated a special enforcement drive against black-market operators and others who had sought to grow rich through war-swollen profits and who, apparently, were evading their income taxes.

The best over-all measure is the additional taxes that have been obtained. For the first 7 months of this fiscal year, that is, to January 31, 1946, the additional assessments aggregated $688,727,000, or $172,587,000 more than during the corresponding period for the fiscal year prior to this drive. These figures do not include original tax voluntarily disclosed and paid by individuals as a result of the publicity given the drive. While these disclosures would run into many millions of dollars, it is not possible to clearly distinguish between those resulting directly from the drive and those delinquent for other

reasons.

This drive is still in progress, and since April 1 there were 1,401 cases investigated by special agents in cooperation with revenue agents and deputy collectors resulting in recommendations for prosecution of 578 individuals end taxpayers in 304 cases.

We recommended for prosecution 304 cases. Some of these cases have already been successfully prosecuted, while others are pending in the chief counsel's office and with the Department of Justice.

TAXES RECOMMENDED FOR ASSESSMENT

During that time the taxes recommended for assessment as a result of the drive, particularly taxes recommended in connection with the cases investigated by the Intelligence Unit, during that period amounted to $110,273,951. That only applies to the cases investigated by the Intelligence Unit. It does not include work which was done by the revenue agents and by the deputy collectors, independently.

Of course, this drive now covers the entire Internal Revenue Service. The deputy collectors and revenue agents make their reports direct to the Bureau and not through our office. We have only a record of those cases in which actual prosecution has been recommended.

Mr. SHERWOOD. That relates to cases which have cleared, and there are other cases in process.

Mr. WOOLF. Yes, sir. We have, in addition to that, 40,000 leads which we have not touched; that is, leads on information which we have received, alleging evasion of taxes. We have not had the opportunity yet to go into all those cases which we expect to do in the near future.

Mr. LUDLOW. If you have any figures on recoveries as a result of the tax-evasion program just put them in the record.

Mr. WOOLF. Yes, sir.

(The matter referred to is as follows:)

Period and additional tax

July 1, 1945, to Jan. 31, 1946

$628, 727, 000

July 1, 1944, to Jan. 31, 1945.

516, 140, 000

Increase of first 7 months of fiscal year 1946 over 1945____

172, 587, 000

Percentage increase..

33. 4

EXTENT OF EVASIONS

Mr. LUDLOW. Can you give us some idea about the extent of the evasions as you understand them?

Mr. WOOLF. Some of the particular cases?

Mr. LUDLOW. Yes; if you have any notable cases, especially, some typical cases or the types of evasion.

Mr. WOOLF. An important case which has progressed to the point of indictment is the case of the Crucible Steel Casting Co. of Milwaukee, and the former officers thereof who were W. W. Lange and A. C. Lange, Jr., and A. C. Lange. The case included a flagrant attempt to evade taxes through the understatement of sales, padding of purchases and pay rolls, and charging personal expenses to operation costs, and so forth.

The proceeds from these fraudulent acts were diverted to the individual officers who omitted the diversions from their individual tax returns.

More than $4,800,000 in additional taxes and penalties are involved. The Lange brothers and their chief bookkeeper were indicted on

August 1, for attempted evasion of income and profits taxes due from the corporation for the years 1941, 1942, and 1943. The trial of this. case opened at Milwaukee on February 19.

On September 7, 1945, an indictment was returned in the case of Murray Greenberg and Leo Greenburg, the officers of the Fresh Grown Preserve Corp. of Lyndhurst. N. J., for attempted evasion of income and profits taxes of that corporation for the fiscal years ended May 31, 1943 and 1944.

This firm acquired approximately 30 million pounds of sugar by representing that it was making products for the armed forces, whereas it made a sugar sirup which it sold to a sirup concern and certain beverage companies. Sales in excess of $1,000,000 were omitted from the corporation's books of account and tax returns and diverted by the individuals named. Additional taxes and penalties of approximately $3,500,000 have been determined as due from the corporation and individuals.

On February 18, Bert K. Naster, of Chicago, was sentenced to 5 years on each of four counts in an indictment returned on July 16, charging him with evasion of income taxes for the years 1940 to 1943, inclusive, to which he pleaded guilty on November 13. No fines were imposed and the court directed that the sentences run concurrently. This individual was a black-market operator in electrical appliances, whose operations extended into the major cities of the United States, and he resorted to innumerable schemes in an attempt to conceal his sales. The additional taxes and penalties for the 4-year period total $370,210.09.

There is another case, that of Louis Berkoff, of Milwaukee, a manufacturer and distributor of moth crystals, who maintained 288 accounts in banks, postal savings, and with brokerage firms in 23 cities in the United States and Canada. He never filed any return until in 1940, and in that year he filed fraudulent returns, understating his tax liability by approximately $144,000.

Indictments were also returned in this case; the defendant entered a plea of guilty, and was sentenced to serve a term of 4 years in the Federal penitentiary.

MOST COMMON TYPES OF TAX EVASION

Mr. LUDLOW. What are the most common types of tax evasion? Mr. WOOLF. For the present probably the cases in which we are getting the most taxes are those in connection with black-market operators and those who realized substantial profits in connection with war activities.

Mr. LUDLOW. Tax evasion you think is widespread?

Mr. WOOLF. Yes; very widespread at the present time, and we have not even touched the surface.

Mr. LUDLOW. Is the fact that the Government obviously means business in this drive on tax evaders, as that information spreads throughout the country, being reflected in any reduction in offenses of this kind?

Mr. WOOLF. You mean news of the prosecutions?

Mr. LUDLOW. Yes.

Mr. WOOLF. The prosecution of taxpayers who have willfully filed false income-tax returns will have a deterrent effect on those who

may be inclined to evade taxes and it is believed proper publicity of such cases will have a wholesome effect. The records show that the number of delinquent returns materially increases following such publicity. In other words, it has spurred people up in the payment of taxes.

Mr. LUDLOW. They have more respect for the law?
Mr. WOOLF. That is right.

Mr. SHERWOOD. Voluntary disclosures have produced in this short period nearly $200,000,000 in taxes, and in two instances last week representatives of taxpayers came to see me and made voluntary disclosures which will result in the payment of more than $1,000,000. Mr. LUDLOW. I read somewhere that it is the thought of the Bureau that it would be possible to collect ultimately in the aggregate as much as a billion dollars.

Mr. SHERWOOD. I personally consider that a conservative estimate of the results that we should have from the operations of this force within a year.

Mr. LUDLOW. Within a year?

Mr. SHERWOOD. Yes, sir, and as I stated in the early part of the hearing we have collected $173,000,000 more than we did in a like period in the prior year, and that is just 10 times the amount of the supplemental estimate that we are asking for here, and we have not yet secured the full effect of this new force.

Mr. LUDLOW. Since you have come up here wholly justifying this. on the basis of tax evasion I thought we ought to know what you are doing, and what you plan to do and what you think the results will be. Mr. WOOLF. Following the line of Mr. Sherwood's thoughts the additional assessments in the first 6 months of the fiscal year 1946 aggregate $617,924,000, or 42.9 percent more than the additional assessments during the corresponding period of the preceding year. Mr. SHERWOOD. That is in connection with cases in which the special agents participated.

Mr. WOOLF. This represents the additional tax assessed as a direct result of the tax drive for the period stated.

CASES IN COURT AT PRESENT TIME

Mr. LUDLOW. How many of these cases are in court now? Mr. WOOLF. The chief counsel's office has the figures on that. Mr. SHERWOOD. We will be glad to furnish those figures for the record.

(The matter referred to is as follows:)

The records of the chief counsel's office show that a total of 829 cases have been, or are being, considered in the Penal Division, in the Tax Division of the Department of Justice, and in the offices of the various United States attorneys throughout the country. Of the above number 388 have been transmitted to the Department of Justice, of which 214 have been referred to the respective United States attorneys. In connection with the cases referred to the United States attorneys, 156 indictments have been returned. Of the cases in which indictments have. been returned, 91 await trial, 44 convictions have been procured, there are 8 fugitives, 11 cases have been nolle prossed or dismissed, and there have been 2 acquittals.

Mr. TABER. By special agents, do you mean your representatives? Mr. SHERWOOD. That is right.

Mr. TABER. Just Mr. Woolf's group?