Mr. HARTSON. It was determined for administrative reasons, Mr. Chairman. The difficulty of reopening that case, reopening the amortization report on that case, based on these changed figures, would have involved a tremendous amount of work. On the other hand, there were other things which would have been thrown open and again have become the subject of dispute, if there was any disturbance on that point. There are many other cases-and I say this with knowledge-the amortization point in which had been settled two or three years. If they upset the Steel Co. case and substituted actual figures, as a matter of policy and equity between taxpayers, all cases which had been settled, so far as amortization was concerned, where estimated figures were used, would have to be reopened, and there would have to be a substitution of the actual figures for the estimated ones.

At that time, Mr. Chairman, I mean in January, 1924, as a matter of policy, they determined that this case should remain closed, so far as amortization was concerned, in order not to be inconsistent with the settlement and closing of other cases which had been determined in like manner.

The CHAIRMAN. I am in sympathy with the bureau's desire not to be inconsistent, but I am still confused and somewhat numbed, you might say, on the question of how you could arrive at any production figures in the case of the Aluminum Co. of America, which was before us yesterday, where there was nothing that we can find in the records to guide you, except the statement of the taxpayer himself.

Mr. HARTSON. In that case, if my information is correct, the report of the engineer was made in February, 1922. He had the 1921 production figures, he so informs me.

The CHAIRMAN. Is that in the record, Mr. Manson?
Mr. MANSON. Yes; I stated that yesterday.

Mr: HARTSON. He was trying to settle their amortization claim, at that time, when the actual figures, even up to the beginning of 1922, were not available, to say nothing of 1923. So he had to do in that case what was done in the Steel Co. case, namely, set down an estimate on a rising curve of increased production that would probably be expected by that company in 1922 and 1923. Those figures were not available, because the years had not yet been passed; but now, to-day, the figures can be ascertained, and I might add parenthetically that we are getting the figures in order to compare them with the estimates. The engineer tells us that he made rather liberal allowances for an increase production for those two estimated years. It may be that the estimated figures will not be materially different from the actual figures. I am unable to say, of course. But that was the trouble. They tried to close these cases as they came up, the amortization features of them, and they had to estimate a lot of figures in order to do it.

The CHAIRMAN. I recognize that, and I am not unduly critical of the bureau, as later developments indicate that these assessments were, perhaps, unduly low, and they ought to have been more vigorous, in view of the fact that the cases were not closed, in protecting the Government's interests when changed conditions appeared.

I would like to ask Mr. Briggs just what division he is chief of.

Mr. BRIGGS. The nonmetals section.

The CHAIRMAN. Has this investigation being conducted by the committee been hindering your work at all?

Mr. BRIGGS. Very little.

The CHAIRMAN. Very little. Has it been helpful in helping to fix policies in dealing with these cases?

Mr. BRIGGS. Well, I can not say that we have made any change. since it has been up.

The CHAIRMAN. Has there been any indication of any desire for fewer appeals, or does there appear to be more stability of purpose? Mr. BRIGGS. Of course, the question of appeals comes up when it comes to the question of the taxpayer being dissatisfied.

I might say this, that several men have remarked that they hoped the investigation would result in something, that the main objection our men had was to Mr. Shepherd's work, and I must say that they were demoralized by some of the work that he did, and I have heard them make the remark, "The taxpayer wants so much; he is entitled to so much; what is the matter with giving him a little bit more than he is really entitled to; perhaps we can hold him by that; and if we can not hold him by that and he goes beyond this, he will get a great deal more." I said, "No; don't do that; just give him what he is entitled to, and that is all, and if he is dissatisfied, let him take his appeal and get satisfaction beyond; but don't be influenced by the fact that you think he will be given a great deal more." After awhile they got that point of view; but, as I say, this action of Mr. Shepherd in those few cases has demoralized the work.

Mr. HARTSON. Mr. Briggs, you say there has been no change in administration, so far as you have been able to determine. How about the special conferee system?

Mr. BRIGGS. Oh, yes. That was done away with. We have been notified to that effect. We go ahead and have our conference with the taxpayer, and we make our conference memorandum, and we have been notified, in cases of disagreement, to write up in the corner, "Disagreed," simply to indicate that our section did not agree with the taxpayer, or the taxpayer did not agree with our section. We have had more success recently in getting the taxpayer to see our point of view. We have had one case within the last day or two where there were two brothers who came in. They were a partnership, and they wanted to charge to invested capital some items which had been written off as expense. We explained to them that if those items were restored, it would come out of their income; their income would be increased, and therefore it would increase their tax, but they would get a bigger invested capital.

At first they could not see it, but when my engineer came out he said they were talking to each other. One of them understood it and the other did not; but he said to his brother, "If you say so, that is all right."

The CHAIRMAN. We are going into the matter of the copper tomorrow, Mr. Manson, as I understand it?

Mr. MANSON. Yes.

The CHAIRMAN. For fear that any misunderstanding may arise in regard to what happened early in the morning with respect to con

tractual amortization, the committee-that is, those of us who have heard the testimony-have been impressed with the absolute disposition on the part of the representatives of the bureau to cooperate in every way. I can not think of even one request that we have been denied or in regard to which we have not received at least an earnest expression on the part of the representatives of the bureau that they would endeavor to get us the record.

I am sorry that this disagreement has arisen, and I hope there will be closer cooperation between our counsel and counsel for the bureau from now on.

We will adjourn until 10.30 o'clock to-morrow morning.

(Whereupon, at 12.10 o'clock p. m., the committee adjourned until to-morrow, Friday, January 23, 1925, at 10.30 o'clock a. m.)

INVESTIGATION OF THE BUREAU OF INTERNAL REVENUE

TUESDAY, JANUARY 27, 1925

UNITED STATES SENATE,

SELECT COMMITTEE TO INVESTIGATE THE
BUREAU OF INTERNAL REVENUE,
Washington, D. C.

The committee met at 11 o'clock a. m., pursuant to call of the chairman.

Present: Senators Couzens (presiding), Watson, Ernst and King. Present also: Mr. L. C. Manson of counsel for the committee, and Mr. Edward T. Wright, investigating engineer for the committee.

Present on behalf of the Bureau of Internal Revenue: Mr. C. R. Nash, assistant to the Commissioner of Internal Revenue; Mr. Nelson T. Hartson, Solicitor Bureau of Internal Revenue; Mr. James M. Williamson, attorney, office of Solicitor Bureau of Internal Revenue; Mr. S. M. Greenidge, head engineer division, Bureau of Internal Revenue; and Mr. Emil L. Koenig, appraisal engineer, Bureau of Internal Revenue.

The CHAIRMAN. Have you anything else that you want to present,' Mr. Hartson?

Mr. NASH. I have a rather lengthy statement, Mr. Chairman, on this work that is being done in the War Department and the Navy Department, in checking up on contractural amortization. This statement is longer than I intended. I can submit it, if the chairman wishes.

Senator KING. Or you can abbreviate it.

Mr. NASH. I can cut it down. It is still 13 pages long. It is about twice too long.

The CHAIRMAN. I got a memorandum from Mr. Manson last Saturday, I think it was, after our discussion, in which he reached the conclusion that we were not getting anywhere because the engineers or the employees of the bureau, who were doing this work for the committee, were the men who were charged with the responsibility in the first place of obtaining the contractual amortization, and therefore it was, in substance, a situation where the staff was checking itself.

Mr. MANSON. The man in charge.

The CHAIRMAN. Yes; that is what I mean.

Mr. NASH. There are 10 men out of a total of 18 that are now on this work for the committee, and I have brought Mr. Koenig, who has been in charge of the work, before the committee this morning. Mr. Koenig was put in charge of the work because he was familiar with it.

The CHAIRMAN. Well, but he is the man who was charged with the responsibility for obtaining credit or gathering the information for the bureau during the time the contractual amortization was being considered.

Senator ERNST. You do not think there is any effort on the part of the bureau not to give us everything that is there?

The CHAIRMAN. Oh, no; there is no such inference at all, but the question is, if there had been any omissions in securing credit for contractual amortization, the men who were responsible for it should not be the men appointed to transmit it to us.

Senator ERNST. Were they the men who made the final decisions, or were they simply getting the information?

The CHAIRMAN. He may get the information or he may miss the information; we do not know.

Mr. NASH. If there is any question about Mr. Koenig's integrity in connection with this work, I will be glad to put another man in charge of it to-morrow morning.

The CHAIRMAN. I do not say any such thing, but I am talking about the procedure and the work it has worked out. I do not say it is dishonest, but we may not always be ready to point out errors made by ourselves.

Senator KING. And we may not be conscious that it was an error. The CHAIRMAN. No; we may not be conscious that it was an error. I do think that the point is well raised, that the men who were in charge of finding out for the bureau what the actual amortization was for the other departments, should not be charged with the responsibility of finding out whether he himself made any errors.

Mr. NASH. Mr. Chairman, Mr. Koenig is now in charge of the amortization section. He has been checking up contracts in the other departments. He was in charge of this work for the committee under the general instructions of Mr. Thomas, because he is familiar with the routine in the other departments, and he knows where to go to search the files, etc. He is the one man in the amortization section that has specialized on this work. But, as I said before, I would be glad to substitute somebody else in place of Mr. Koenig, if there is any question as to his integrity.

Senator ERNST. If the representatives of the committee go right along with him in checking it up, what opportunity is there going to be for an error?

Mr. MANSON. That is the very thing I suggested, Senator. I think, in doing this work, there should be a little closer cooperation between the committee's engineers and the engineers of the bureau.

The CHAIRMAN. And you recognize, of course, Mr. Nash, that this criticism was made by Mr. Thomas?

Mr. NASH. Yes, sir.

The CHAIRMAN. Have you any fault to find with Mr. Thomas's criticism?

Mr. NASH. There seems to have been a general misunderstanding ever since the work was started. I understood that Mr. Thomas was to have general supervision of the work for the committee, and that certain engineers were to be assigned to him. It was also my impression that Mr. Thomas would work with those engineers. The reports that have come to me from interviewing each of the engineers