management through the authority and powers conferred by Reorganization Plan No. 26.

I might say that the Budget and Accounting Procedures Act of 1950, which this committee took such an active part in providing for us, will assist us very much as we progress with this plan, through its authorization for improved accounting procedures.

The studies came from the Committee on Ways and Means and the Appropriations Committee of this House; from the Senate Finance Committee, the Joint Committee on Internal Revenue, and the Senate Expenditures Committee. They came from the Hoover Commission on Organization of the Executive Branch of the Government; from studies by outside management-engineering firms authorized by the Congress, and lastly from the facts and analyses in the records of the King subcommittee of the House Ways and Means Committee inquiring into the administration of internalrevenue laws. The plan draws upon the best features, I believe, of those many important studies.

At the outset, I want to give you the main outlines of the plan. Commissioner Dunlap and his staff assistants are prepared to give full supplemental charts and specifications.

The contemplated reorganization of the Bureau involves the exercise of both existing administrative authority and the grant of additional congressional sanction through Reorganization Plan No. 1, as the President made clear in his message. But I propose now to give you the plan in its broad design, without reference at this point to existing administrative authority and necessary congressional sanction. Both areas of authority are needed. The plan as a whole cannot be effectively achieved without action on both sides.

The proposed reorganization of the Bureau has four principal features:

1. To make the Bureau an outstanding career service in which all positions under the Commissioner-including specifically the officers to perform the present functions of collectors and other top supervisory officers will be filled solely in accordance with the civil-service merit system, based upon the highest standards of competence, integrity, and loyalty.

I would like to read a letter I sent several days ago to the Chairman of the Civil Service Commission on this subject.

Hon. ROBERT RAMSPECK,

Chairman, Civil Service Commission,

Washington, D. C.

JANUARY 7, 1952.

MY DEAR MR. CHAIRMAN: Upon my recommendation, the President has announced that he is submitting to the Congress a sweeping plan of reorganization of the Bureau of Internal Revenue. The proposed changes will materially affect the personnel policies and practices of that Bureau. A heavy burden will be placed on Treasury and Bureau officials, since the changes must be accomplished without interfering with current operations. I will appreciate any assistance you might give in order that the reorganization may be accomplished with a minimum of delay.

It is my desire that the personnel of the Bureau of Internal Revenue reflect the highest standards of competence, integrity, and loyalty to the end that it will be a blue-ribbon civil-service career organization in which all of us can place genuine confidence and have justified pride.

I am sure that you will join wholeheartedly with us in this effort.

Sincerely yours,

JOHN W. SNYDER.

Chairman Ramspeck replied to that letter as follows on January 11: UNITED STATES CIVIL SERVICE COMMISSION,

Hon. JOHN W. SNYDER,

The Secretary of the Treasury.

Washington, D. C., January 11, 1952.

DEAR SECRETARY SNYDER: Thank you very much for your letter of January 7 apprising us of the material effect the proposed reorganization of the Bureau of Internal Revenue will have on existing personnel policies and practices, and requesting our assistance so that the reorganization may be accomplished with a minimum of delay.

You may be assured of the Commission's complete cooperation. We will devote every possible resource to your assistance. I am very happy to say that Mr. Fordyce Luikart, Chief of our Examining and Placement Division, and Mr. James Hard, your Director of Personnel, have already started preliminary discussions relative to defining the areas of necessary changes in personnel programing and policy.

The Civil Service Commission greatly appreciates this opportunity to join with you in building and maintaining a civil-service career organization to reflect the highest standards of competence, integrity, and loyalty. I would like to assure you of my deep personal interest and wholehearted support in your effort and of my confidence that our mutual objectives will be attained.

Sincerely yours,

ROBERT RAMSPECK, Chairman.

I understand that the Civil Service Commission is now studying the most effective and practicable means by which this purpose can be accomplished.

2. The second principle feature is to provide a continuing and thorough day-to-day check on the performance and conduct of all Bureau employees by the creation of an Inspection Service which will function under the Commissioner independently of the rest of the Bureau.

The nucleus of that Inspection Service was established sometime ago. Since then it has been greatly extended. Commissioner Dunlap will give you full details as to its structure and operations. But this service cannot be made fully effective except in connection with the other organizational changes involved in the plan.

3. The third principal feature is to move from Washington to the field many supervisory and operational functions of the revenue service. These functions will be performed in geographical districts, to number not more than 25, with a fully deputized district representative of the Commissioner in charge of each district. That official will be known as District Commissioner. He will have charge of all internal-revenue matters in his district, with a clear and direct line of accountability to the Commissioner in Washington.

Let me emphasize that the purpose is to bring to the field many supervisory and operating functions now performed at Washington headquarters, and thus bring them closer to the taxpayer to be served. Another purpose is to bring together in one headquarters under single direction the functions of such groups as revenue agents in charge, Intelligence Division, Alcohol Tax Division, et cetera, now under separate offices and in varying field locations.

4. The fourth principal feature is that existing functions of collectors of internal revenue and some additional functions will be performed at local offices, with at least one such fully authorized local office in each State, and in more populous States more than one. The Presidentialappointed collector will be replaced by a career-service Deputy District

Commissioner, who will be responsible to the District Commissioner of his area.

Those are the main outlines of the plan. It is the opposite, you will observe, of a Washington top-heavy centralized plan. It places fuller responsibility at the grass-roots level to meet the needs of all taxpayers. The purpose is to assure improved service and greater convenience to the taxpayer.

As I said before, details and blueprinting of these basic features of the plan will be supplied by the Commissioner and his staff assistants. I have stated the essentials. Every American citizen has a direct and vital interest in this plan. The Bureau of Internal Revenue carries a great responsibility for the successful functioning of our Government. Increasingly mounting demands on the service since World War II have brought heavy accumulations of problems of administration, of operation, of fidelity and integrity. Earnest efforts have been made to keep pace with these problems. I will outline a little later the principal efforts. But structural handicaps under which the service still operates prevent us from adopting necessary improvements which experience has shown to be needed."

The reorganization plan will permit us to bring the revenue service fully up to the requirements of the day. It will enable us to establish maximum efficiency of operation and maximum service to the public. It will bring the service into accord with the merit system of Government employment. It will help remove temptations to which, unfortunately, some revenue-service employees have succumbed in the past.

A revenue service of top efficiency, of unquestioned integrity, and of maximum economy of operation is something to which the American people are entitled. The maintenance of such a service is the greatest assurance for the continued success of our voluntary system of taxpayer compliance, the very foundation of our fiscal strength and economic health. A new, adequate, up-to-date architecture for the service has been planned with these objectives uppermost in mind.

In order to lay the background of the planning which culminated in the basic reorganization proposal now before you, let me tell you some of the more important problems that we faced at the beginning of my tenure as Secretary of the Treasury, and those that developed as the workload of the Bureau increased so rapidly in volume and complexity. It is against this background that we must project the accomplishments of recent years and the situation we face today.

Let me say at this point that the collectors of internal revenue, as a body, have given great assistance in solving our problems and in making our accomplishments possible. They have shared outstandingly in the assumption of the tremendously increased workloads.

The years elapsed since 1940 witnessed an unprecedented increase in the responsibilities of the revenue service in meeting the exigencies of war and defense financing. Between 1940 and 1950 the volume of tax collections increased tenfold, and the number of taxpayers increased from 5%1⁄2 million to over 55 million. With the broadening of the base of the personal-income tax, wage and salary withholding was introduced, creating many new problems, not the least of which was that of mass refunding operations. Many new taxes have been

imposed, including numerous excises, the excess-profits tax, and the recently enacted wagering tax.

But the increased workload has by no means been limited to the processing of returns and tax-collection and refund procedures. There has been as striking a growth in the other main operational responsibilities of the revenue service-tax enforcement, interpretation of tax statutes, and settlement of disputed cases. On the enforcement front, the investigation and prosecution of fraud cases, beginning with the drive on black marketers in 1945, and extending through the current drive on racketeers, has absorbed more and more time and manpower. The racketeer drive alone, for example, requires the services of 2,300 of our best-trained enforcement officers.

The heavy volume of recent tax legislation, designed to finance defense expenditures, close loopholes, and deal with tax inequities, has severely strained the resources of the revenue service. Four major enactments the Social Security Act of 1950, the Revenue Act of 1950, the Excess-Profits Tax Act of 1950, and the Revenue Act of 1951-confronted the Bureau in a space of little more than a year. Let me tell you some of the things we already have done and are doing to meet these problems.

One step I took early in my tenure of office was to create a committee of highly qualified men to direct management improvement studies within the revenue service. An outside management firm was called in to make an independent survey of the Revenue Bureau's structure and organization.

A vigorous work-simplification program was initiated.

To the extent that the present organization permits, we have decentralized operating functions and strengthened headquarters-management control. We have strengthened front-line enforcement, notably through the creation of more than 100 special racket squads to run down criminal tax evaders. We have installed tabulating machines and other modern equipment. We became the first large-scale business users of electronic computers. We have modernized record keeping by microfilming and other means. We have simplified tax-collection procedures by introducing a depositary receipt system. We have speeded up our refunding operations.

There have been improvements in the performance of various other major tasks. We have reorganized some of the major administrative divisions along functional lines. We have streamlined the field organization by combining the excise-tax agents with the field offices of the Income Tax Division. We have completed an audit-control program aimed at more effective selection of returns for investigation. We have improved and simplified tax forms and instructions.

These improvements give us a strong base for the proposed reorganization. As I have said, we had to do first things first. If we had not moved in this way, it would not be physically possible now to effectuate the reorganization plan on the schedule we have proposed. We have been going ahead steadily with the setting up of a strong independent Inspection Service within the Bureau of Internal Revenue, reporting to the Commissioner.

The Inspection Service is the arm of the Commissioner, by which the operations and the personnel of the revenue service are brought under continuous scrutiny to insure efficiency and integrity of per

formance. The Commissioner is extending the work and expanding the personnel of the Inspection Service so that a closer, more systematic, day-to-day check of the various field and departmental offices of the revenue service can be maintained.

We are also proceeding with management improvements and the combination of functions which will permit greater efficiency within the scope of the present structure. This is being accomplished, for example, by combining the separate Wage and Excise Tax Divisions of the Bureau, so that one division through one operating head can more effectively do the job formerly done by separate units.

We are taking further steps to speed up all our operations. We have already instituted a new procedure for the reference of criminal tax cases directly from the field to the Department of Justice for prosecution. This change is the result of the study of nearly a thousand cases of tax fraud. The new procedure will mean a saving on the average of 4 months or more in each case.

As a part of our reexamination of these procedures, and to eliminate delaying factors, we have recently announced changes in policy.

We announced that we will no longer permit the collateral factor of the taxpayer's health to weigh against our determination that the case is one warranting criminal prosecution. The health of the taxpayer can more appropriately be taken into account by the prosecuting authority or by judicial process.

We have also announced the abandonment of the former voluntary. disclosure policy. We abandoned this policy because of its controversial nature as reflected in court decisions, complexities of administration, and the abuses which arose.

Our announcements in these policy areas are in accordance with the intensified enforcement activities of the Bureau's special tax fraud drive and racket squad work throughout the country, which are ferreting out the willful tax evaders and resulting in the recovery of additional taxes and penalties due the Government.

These new procedures will in nowise reduce the rights of honest taxpayers, but they will bring into a more appropriate balance the interest of our taxpayers in the effective enforcement of the tax laws. Obviously, the Federal revenue system must have the public's confidence and support. This means the system's integrity must be unquestioned. Commissioner Dunlap and I, with full authority from the President, have acted promptly to eliminate from the Bureau of Internal Revenue any personnel who brought dishonor on the service. We have taken strong steps to remove any further opportunities for misconduct. Among the actions taken toward this end have been the following:

(1) All supervisory employees and all other employees dealing with the public or handling Government funds some 31,000 in all-have been required to execute and file with the Bureau a statement which would reflect their income and net worth. This will be a continuing program.

(2) Employees' tax returns have been subjected to special audit. This too will be a continuing program.

(3) All complaints of misconduct have been and will continue to be promptly investigated.

(4) Quick disciplinary action has been taken as soon as the facts of each case were clearly known.