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of the New York Bar


Copyright 1917




· It is fortunate that we passed an Income Tax law in 1913. It would be better for us now if we had done so ten years earlier. Without an Income Tax we could not raise the tremendous sums of revenue now required; and with a new law, the Internal Revenue employees would be like an army of raw recruits. They have had a period of training under the 1913 and 1916 Income Tax Laws which is now of inestimable value.

Our system of Income Tax Laws is still defective. Years of slow development are needed to make it work smoothly and effectively. This can take place only by the discovery and application of correct principles to the multitude of single cases which will arise for settlement either by the Treasury Department or by the Courts. This book attempts to show what the law is in its present state of development and to present the matter in a form readily accessible to the reader. It is not a discussion of the principles of taxation but a practical handbook for present use, and it is the author's hope that it may be found of some value for that purpose. Criticisms of its shortcomings and suggestions for its improvement will be thankfully received.

Much criticism has been directed against the Treasury Department for its narrow construction of many provisions of the law. No doubt its rulings work hardship on occasion, but no other course can be adopted. The Treasury Department is not a judicial body—the purpose of its existence is to collect revenue. The first rulings and the general rulings must construe the law narrowly, leaving the taxpayer to protest if they operate unfairly in his case. If a broad construction were indulged in generally, no taxpayer would ever call attention to the cases where it resulted in allowing revenue to escape. The door must first be tightly closed and then opened in particular instances where necessary and proper. It is the right and the duty of every taxpayer to protest when he feels the administration of the law operates unfairly as to him. The law makes special provision for him to do so.

Unfortunately there are citizens who do not scruple to evade taxes by every means at their disposal. The rulings must be made with that fact in view, that is, they must be such as will make it difficult for the “taxdodger" to hide behind any statement of the officers charged with the administration of the law. The conscientious taxpayer is sometimes penalized because of this, but unless he sleeps on his rights, he has his remedy at hand.

The personnel of the Treasury Department is actuated by a high sense of public duty. The author has had the pleasure of association with many officials, collectors and inspectors in the past and has found them intelligent, fair-minded and just in their dealings with the taxpayer. Differences of opinion as to taxable income or allowable deductions must necessarily arise, and when they do, the officials of the Treasury Department stand always ready to give the taxpayer full opportunity to express his view and to raise his argument. If they do not agree with him, it is because they are bound by what they understand the law to mean, even though they recognize the justice of his contentions. The ultimate remedy in many cases is to improve the statute, a matter to which the average taxpayer pays no attention.

It is the hope of the author that this book may point out some of the needs for amendment of the statute as well as to give the taxpayer a clearer idea of the system by which the taxes are assessed, collected, abated and refunded. The author's thanks are extended to the many friends who have given him helpful suggestions and criticisms in preparing the work, and particularly to Mr. A. E. Young of the Pittsburgh Bar and to Messrs. Ross W. Lynn and T. A. Clements of the New York Bar for their careful reading of the manuscript.

GEORGE E. HOLMES. New York, December 15, 1917.

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