upon such conditions as said division may in its discretion order, or may decide that the sentence or commitment under review should stand. [, provided that where the death sentence has been reviewed it may change the sentence to life imprisonment, life imprisonment without benefit of release or parole, or let the death sentence stand]. In reviewing any judgment, said division may require the production of presentence or precommitment reports and any other records, documents or exhibits connected with such review proceedings. If the review division orders a different sentence or disposition of the case, the court sitting in any convenient county or circuit shall resentence the defendant or make any other disposition of the case ordered by the review division. Time served on the sentence reviewed shall be deemed to have been served on the sentence substituted. The decision of the review division in each case shall be final and the reasons for such decision shall be stated therein. The secretary of the review division shall act as its clerk or, if there is no such secretary, the clerk of the superior court for the county in which the review division is meeting shall act as the clerk of the division. The acting clerk of the review division shall send the original of each decision to the clerk of the court for the county or circuit where the judgment was rendered and a copy thereof to the chief justice, the judge who imposed the sentence or commitment reviewed, the person sentenced or committed, the principal officer of the correctional institution in which he is confined and the reporter of judicial decisions, who shall select therefrom for publication such decisions as he deems will be useful as precedents or will serve the public interest and shall prepare them for publication in the manner in which decisions of the supreme court are prepared. Decisions thus prepared for publication shall be published in the Connecticut Law Journal and, if the reporter of judicial decisions so directs, in the Connecticut Supplement. (1957, P.A. 436, S. 3; September, 1957, P.A. 14, S. 3; 1959, P.A. 194; 1963, P.A. 584, S. 2.)

Senator MCCLELLAN. The next witness is Prof. Irvin Jay Deutch. You have a prepared statement. I notice it's not too long; would you like to read it, or have it inserted in the record?

Mr. DEUTCH. If you don't mind, Mr. Chairman, I would like to read it and amplify it, although I have no objection to placing it into the record.

Senator MCCLELLAN. All right. You read it, and amplify it as you go along.

Mr. DEUTCH. Thank you.

STATEMENT OF PROF. IRWIN JAY DEUTCH, SCHOOL OF LAW, WAYNE STATE UNIVERSITY, DETROIT, MICH.

Mr. DEUTCH. Mr. Chairman, Senator Hruska.

Chapter 14 purports to incorporate into the proposed criminal code the principal tax offenses now located in title 26. My comments are general in nature since they relate to policy questions raised by the proposed changes and the explanatory material associated therewith. As noted in the comment following sec. 1401, many substantial changes have been incorporated into the proposed code.

However, numerous provisions of title 26 other than those relating to tax evasion, material false statements, aid and assistance, and removal and concealment of property provide rather substantial penalties for certain types of conduct related to filing Federal income tax

returns.

It seems to me that all of these provisions should be consolidated in the same Federal statute. The proposed changes only deal with a portion of the law relating to tax offenses and without more would appear to create uncertainty and ambiguity since there does not appear to have been a detailed analysis of the other provisions which apparently are to be retained in title 26.

The explanatory material associated with the draft of these provisions does not specifically delineate what portions of title 26 will remain and the effect, if any, of the new provisions on the interpretation of the ones remaining in title 26. In any event, I do not intend to imply that the proposed revision is not in order or that meaningful changes have not been suggested but my position is that the draftsmen have not gone far enough in their review and analysis of all the provisions providing penalties in this area.

Furthermore, I suggest that the provisions of existing law which provide penalties for civil fraud and negligence be included in the study, because they are intimately associated with the criminal sections. It might also be appropriate to review administrative procedural practices.

In this connection, consideration could be given to further delineation of the duties of taxpayers and their representatives to disclose information to the Internal Revenue Service. Specifically, the law requires taxpayers to keep and make available to the Internal Revenue Service books and records of their financial activities.

On the other hand, the constitution provides certain safeguards against self-incrimination but these only apply during a criminal investigation. In the tax field, a routine audit usually precedes a criminal investigation.

Accordingly, in many instances, citizens and their representatives are placed on the horns of a dilemma since they are required and usually desire to cooperate during a routine audit but by doing so may subject themselves to criminal sanctions and in effect waive their constitutional safeguards.

I might note here, this usually involves people who are less sophisticated individuals who seemingly get themselves into a real problem because of their desire to cooperate and find out later on that what they thought was a routine audit ends up being a full-scale, criminal-type investigation.

I am not proposing that the criminal penalties for tax offenses be eliminated, but I believe that the existing structure of the law might be improved and a great deal of litigation and uncertainty eliminated by a detailed review and revision of this particular area of the law.

Again, by way of amplification, I think we now have a great volume of cases coming down almost on a daily basis litigating this particular question as to whether books, records and documents, are to be turned over, the question whether you have a criminal investigation or whether you are in a situation involving a routine audit.

As I have noted here in my statement, under the existing law, the resolution of these questions may very well depend on who has the possession of the books and records, and sometimes you get some very meaningless dichotomies developing, particularly in the case of corporations or closely held corporations when the constitutional safeguards do not apply to the corporation, yet the information obtained can be used against its shareholders and employees.

Also, I am suggesting in connection with a review of these criminal sections, that there be a detailed evaluation of certain bodies of law. particularly case law which has developed, regarding methods of proof and standards for applying these methods of proof, such as, for example, the net worth method of establishing tax fraud.

We have a very substantial body of law that has developed, amplifying some very, very short statutory provisions dealing with criminal tax matters, as compared to other sections of the Internal Revenue Code, which I think everyone will agree, is an extremely voluminous body of law. The criminal law is confined to a relatively small number of sections and, as noted above, should be reviewed in detail. There is very little in the way of administrative guidelines; and I feel that in connection with a codification of the law, that it would be very helpful at this time to go in and take a long hard look at the way the law has developed in this area, and possibly incorporate into the statute some even more specific guidelines.

I recognize that in the comments to section 1401 and section 1402, the draftsmen have recognized the fact that there were many inconsistencies and ambiguities in this area and I am certainly not critical of what has been done, but I feel that more should be done in this area, and I feel that this would be a good starting point for additional review and analysis of these provisions.

Now, turning from a more general statement or more general comments. I would like to highlight one specific aspect of 1402 which I think warrants some very specific consideration and then possibly make a few other specific comments regarding other subsections.

The one that I am highlighting here relates to the aspect of the proposed code dealing with employers who do not promptly remit taxes withheld from their employees.

Under existing law, this type of conduct has not generally been treated as a crime but a rather substantial penalty has been assessed. In many instances, this problem arises because creditors of the taxpayer have seized all available liquid assets and the taxpayer cannot immediately obtain the funds necessary to remit the tax due.

I might note as a caveat to this, there is some language in existing law which could conceivably treat this type of conduct as a crime, and I think it is in section 7202 of the Internal Revenue Code, but because of the requirements of that section, it is not generally applied.

Basically, what we have in this area is the so-called 100 percent penalty for failure to remit these withholding taxes. In any event, at one time as a matter of policy and within the scope of its general discretionary authority, the Internal Revenue Service, taxpayers were permitted to discharge these obligations over a period of time and the Service did not demand payment in full immediately.

However, in the last several years, this policy has changed and many small businessmen were put out of business because they were not able to discharge their obligation upon demand by the Internal Revenue Service. There are some rather expeditious and quick proceedings which really do not involve a judicial determination where the Internal Revenue Service can request payment and if it isn't made, it can, by serving notice, put a padlock on the door and this has been very widespread.

As I note here, in many instances, results of this policy were very harsh, and probably would serve no useful purpose, other than possibly setting examples for other taxpayers. The results were harsh because of the substantial penalty and the fact that even if a corporation was involved, the individual became personally liable, and in

many instances, people who are so-called responsible officers such as an attorney, or accountant who may have been on the board of directors, or an officer, were assessed this penalty and the business was closed so they were not in a position to earn the money necessary to pay the tax or liquidate in an orderly fashion.

But in light of the fact that this problem normally is associated with severe financial problems and usually is beyond the taxpayer's control, particularly in periods of tight money, it seems harsh to apply criminal sanctions for it.

I believe my reading of section 1402, the subsection (d), would have that effect. I think although it is a class A misdemeanor, it does indicate that he knowingly does this. I think, just generally, reading 1402, that existing law, even under the failure to file a tax return when due, does have a caveat that there must be an absence of reasonable cause-and I would gather that-there was no intent to change existing law with respect to 1402 A, and as I mentioned I'm particularly concerned about 1402 D. As I mentioned or as you may gather from my comments, it might even be advisable to consider reviewing in detail the general administrative practices in this area. with a view toward providing additional relief to taxpayers who find themselves temporarily unable to remit withholding taxes.

My comments regarding this particular matter are not intended to condone this type of conduct since, as contrasted to income tax, the employer in law and fact is remitting trust funds which he theoretically has collected for the Government. However, as a practical matter, in most instances the only chance the Government has of obtaining these moneys is by giving the taxpayer an opportunity to pay them over a period of time. Also, the Internal Revenue Service's policy in this area has never been formally announced and many persons have been called to task for conduct which previously had caused them no concern since they were permitted to discharge deficiencies over a period of time.

Many people have found themselves in financial straits-and at one time the Internal Revenue Service was very sympathetic to their situation and possibly people got into the habit of relying on lenient treatment in this area. Of course, now this is not the case.

So again I urge study in this area and at the very least, I certainly don't feel that since this problem comes up because of severe financial problems, that criminal penalties should be assessed and as I say, I think that further study on this point would be in order.

That is the substance of my comments, if there are any questions. Senator HRUSKA (presiding). Thank you very much. What about the possibility, Mr. Deutch, in case additional relief is given to taxpayers who find themselves temporarily unable to remit withholding taxes, what about the possibility of that withheld money being considered a convenient, legal, comfortable way of making a loan?

Mr. DEUTCH. That's exactly the way-well, I shouldn't say exactlythis is in effect what it is, and unfortunately I think that the rules should be strictly adhered to by taxpayers.

I don't agree that we should have a blanket policy of allowing very lenient treatment, but I think that if an individual is called on the carpet at least the first time for this type of problem and there is no other way for the Government to collect the money other than allow

ing him to remain in business, I think this is the only pragmatic way to resolve it.

I think these people are not right in what they're doing but I don't think it's really a matter of choice as to what they are doing in these situations.

Senator HRUSKA. Wait a minute.

What do you mean it's not a matter of choice? It is a matter of choice. They have money on their hands which does not belong to them. They have a choice to either remit it or a choice of spending it for themselves. They have a choice.

Mr. DEUTCH. Well, what I mean they don't have a choice, what has happened in the instances that I have become familiar with, and we have had numerous instances of this-not just in my own experience, but many other people in our area, and I've talked with people in Internal Revenue in the Detroit area-is they do not have sufficient liquid assets to pay the tax.

For example, if you have an individual who has 25 or 50 employees on his payroll, and theoretically he's paying the man $100 a weekeach man $100 a week-theoretically he has that $100 to pay him, a portion of which goes to the Internal Revenue Service and a portion goes to the man.

Well, in periods of tight money he may not have those cash dollars, the differential between the actual wage that he is paying and the amount owed to the Internal Revenue Service, and when funds have been cut off to many, many small businesses-we had a period of time a year and a half ago when many businesses were not able to borrow money to finance inventories and accounts receivable. These people just did not have that money. They were caught in a temporary bind and the Internal Revenue Service came in and put padlocks on their doors, and this was a very swift procedure and a very harsh procedure.

Senator HRUSKA. You mean he would have difficulty-the employer would have difficulty raising the money for his share of the withholding taxes?

Mr. DEUTCH. Well, the employees' share. In other words he is theoretically holding back the money, the employees' taxes, that he is paying in to the Government.

In other words, if an individual is making $100 a week he only gets $80 cash or $20 is supposed to be paid to the Government, but that $20-the man may not have that cash $20 on payday, and if he doesn't have it within a short period of time he gets himself into a real financial bind. And I have heard people say, well, he is not economically strong enough to remain in business and should not be in business. But as I say, it can create a very harsh result.

Senator HRUSKA. The purpose of my inquiry was to inquire as to your feeling concerning whether an advance notice of leniency would be abused and if it is, whether it would not be fair to those who obey the law and who do, by some way or another, pay that $20.

Mr. DEUTCH. I agree with you that advance notice of leniency might create a problem, but on the other hand, right now we have almost a silence on what, exactly, the policy is in this area.

In other words, I have kept referring to a policy. At one time we had one policy and now we have another. But there has never, as far