amount of interest which a corporation may allowably deduct from its gross income.

The suggested amendment is in harmony with the construction which the Internal Revenue Bureau has placed upon the provision of the act relating to the interest deduction.

28. In addition to the amendments suggested in the accompanying memoranda, it is respectfully recommended that, for the purpose of harmonizing different features of the law, clarifying certain ambiguities, and to aid in its administration, the act be further amended as hereinafter set out:

Page 12, subsection G (a), line 31. After the word "upon " insert 66 the net income of."

re

In line 39, after "net income" insert the words " arising or. Page 14, in line 4 of subparagraph (b), strike out the word " ceived" and insert in lieu thereof the words "arising or accruing." Page 15, in line 5, after the word "provided" insert "further." In line 24, after the word "country" insert the words "not including taxes or assessments paid for local benefits."

In line 29, strike out the word "accrued" and insert in lieu thereof the words "arising or accruing."

66

Page 16, in line 44, after the word "Columbia" insert the words not including any taxes or assessments paid for local benefits.” Page 17, in line 11, strike out the word "accrued" and insert in lieu thereof the words "arising or accruing."

In line 33, after the word "thereafter," insert the words "render a true and accurate return of annual net income.”

Page 18, in line 10, after the word "other," insert the words "interest-bearing."

In line 11 strike out the word "received" and insert in lieu thereof the words "arising or accruing."

In lines 13 and 14 strike out the word "received" and insert in lieu thereof the words "arising or accruing."

Page 19, in line 34, after the word "between," insert the words "the dates of."

Page 20, in line 32, strike out the word "thirtieth" and insert in lieu thereof the word "fifteenth."

In line 37 strike out the word "twenty" and insert in lieu thereof the word "five."

In line 41, after the word "of," insert the word "erroneous." Page 21, in line 5, strike out the word "thirtieth" and insert in lieu thereof the word "fifteenth."

In line 6 strike out the word "twenty" and insert in lieu thereof the word "five."

Page 22, in line 41, after the word "year," insert the words "on or before the last day of the sixty-day period next following the closing date of the fiscal year established as hereinbefore prescribed." Page 23, in line 42, after the word "is," insert the word "errone

In line 44, after the word "understatement," insert the words "or refuses to allow any regularly authorized Government officer to examine the books of such person, firm, or corporation."

Page 24, in line 6, after the word "objects," insert the words "or income."

At the close of said section 3173 insert the following: "Provided, That 'person,' as used in this section, shall be construed to include any corporation, joint-stock company or association, or insurance company when such construction is necessary to carry out its provisions."

In line 18 strike out the article "a" and insert in lieu thereof the words "an erroneous."

In paragraph designated as 3176, after the word "returned," in line 33, insert the words "within the time prescribed."

In line 43, after the word "tax," insert the words "within ten days after notification of the amount thereof."

EXHIBIT F.

DIVISION OF CUSTOMS.

The honorable the SECRETARY OF THE TREASURY

(Through Assistant Secretary Peters).

SIR: I have the honor to transmit herewith the report of the transactions in the customs service for the fiscal year 1915.

The total entries of merchandise decreased in 1915 approximately 603,000 from the total number reported in 1914, while the aggregate receipts decreased from $298,913,000 to $212,146,000, a loss of $86,766,000. This decrease in operations extended not only to duties on imports but to tonnage-tax collections, which decreased by $34,428, and head tax on immigrants, which decreased more than $3,636,000. All of these decreases are directly attributable to the European war. The amount of drawback paid increased by more than 100 per cent, or from $3,271,000 to $7,403,000. This increase is due to the greatly increased exportations of merchandise on account of the war, drawback having been paid upon imported materials used in the manufacture of exported articles.

At the same time the expense of conducting the Customs Service decreased approximately $511,000 and the average number of officers and employees, exclusive of special agents, decreased from 7.392 to 6,975, while the average compensation per capita increased from $1,285 in 1914 to $1,297 in 1915. While a part of the decrease in operating expenses was due to decreased imports on account of the European war, the greater part of such decrease was due to the adoption of improved and economical measures throughout the service with resultant increased efficiency.

Although the European war has resulted in the lessening of a number of activities of the Customs Service, yet the war has occasioned increased activities on the part of customs officers, such as the supervision of the exportation of merchandise with benefit of drawback and the payment of drawback thereon, the enforcement of neutrality laws, the compilation of statistics of exports, the supervision of the lading of outward cargoes, and the certification of the manifests thereof.

It has not been the policy to dismiss any officer or employee in the Customs Service on account of war conditions, but to refrain from filling the numerous vacancies which have occurred throughout the service during the past fiscal year. While it is probable that except for the European war it might have been necessary to fill some of the vacancies which have been left open, still the greater part of such positions would have been allowed to remain vacant or abolished even if conditions had been normal, because of the putting into effect of improved methods which have permitted of material reductions in force in practically every branch of the service.

In this regard attention is invited to the fact that the aggregate receipts in the districts of Alaska, Arizona, Eagle Pass Laredo, and

Montana and Idaho, during the fiscal year 1915, were less than the expenses of operating the service in those districts, the district most notable in this regard being that of Laredo, in which the aggregate receipts were $39,811, while the expenses were $74,978. In the district of Eagle Pass, immediately north of Laredo, the receipts were $32,890, whereas the expenses were $46,532, or $28,446 less than the district of Laredo.

In the district of Alaska the activities of the Customs Service are largely directed to the enforcement of the navigation laws, and since the principal article of import into that territory is coal, which is now free of duty, it is doubted whether it is advisable to bring the cost of operating this district within its income.

The expenses of the districts of Arizona, Eagle Pass, and Laredo, which are on the Mexican border, are largely taken up in the employment of mounted inspectors, or river guards, who are ostensibly occupied in the prevention of smuggling. The smuggling operations, however, extend largely to cattle, which are free of duty, and the mounted inspectors are in reality largely engaged in cooperating with the State police officers in the maintenance of order along the border. While I doubt the advisability of reducing the expense in these districts to a sum within the moneys collected, I do believe it should be considerably reduced and that, particularly, the organization in the district of Laredo should be decreased to conform to that in the district of Eagle Pass.

The collectors' and appraisers' conferences held during the fiscal year 1915 resulted in considerable activity on the part of customs officers in the adoption of more businesslike methods in their districts with accompanying decreased expenditure and increased efficiency. My belief is that the present corps of collectors and appraisers is the most efficient that has ever held office under the Treasury Department, and while nearly all of them are entitled to commendation for their efficient administration, the appraisers of merchandise at New York and Philadelphia, and the collectors of customs for the districts of southern California, Vermont, Boston, Galveston, and Mobile are entitled to particular mention for the reorganization of forces under their direction with resultant increased efficiency and economy.

The principal achievements in the line of improved methods were: First. The reform in naval-office procedure instituted at New York in October, 1914, which after a six months' trial at that port was instituted at all of the naval-office ports. This resulted in a reduction of the operating expenses of the naval offices by approximately $50,000 per annum, with probabilities of further reductions of such expenses in the future, at the same time enabling the naval officer to more accurately audit the receipts of the collector and check the collector's liquidations of entries.

Second. Reformed procedure in the receipt, delivery, and handling of packages in the appraiser's stores, whereby the system in operation at New York was extended to Philadelphia and Chicago and arrangements made for the adoption of such system in the near future at the port of Boston. Necessary steps are also being taken to install this procedure at New Orleans, and the matter is under consideration at Baltimore and San Francisco. This has already resulted in the

saving of several thousand dollars per annum in operating expenses, and when the system has been fully instituted at all of the appraisers' stores a reduction in operating expenses of approximately $100,000 per annum is estimated. Thus the same volume of business will be handled at a cost of approximately $100,000 less than formerly, and the time in which packages pass through the appraisers' stores will be reduced from three days to one day.

Third. Extensive experiments were made with a new method of compiling statistics of imports and exports with a view to lessening the time required to compile and publish such statistics, increasing their accuracy and reducing the cost of operations, and the system was put into effect on July 1, 1915. While the actual cost of operations under the new system can not be stated, because not yet determined, it is estimated that it will be less than $100,000 per annum, whereas the cost of compiling statistics for the fiscal year 1915 in the Customs Service was $197,390.

The conferences of collectors of customs held in 1913 and 1914 made the following recommendations for changes in the Revised Statutes relating to customs procedure:

1. The amendment of sections 2899 and 2901 to provide for the examination of a less percentage of packages than 1 in 10; to make the giving of a bond for redelivery obligatory, and to provide for the giving of one bond on entry for the redelivery of unexamined packages, the production of consular invoices, etc., instead of the many bonds now required.

2. The repeal of sections 1790 and 2693, which require every person in the Customs Service to take an oath every time he receives his pay that neither he nor any member of his family has received, directly or indirectly, any money or compensation of any description whatever, nor any promises for the same, for services rendered or to be rendered in connection with the customs, and that he has not purchased, for like services or acts, any merchandise at less than the retail market price thereof, and that he has not paid, deposited, or assigned any reward or compensation for his office or employment, or contracted therefor.

3. That section 2777, requiring a vessel with cargo in part for this country and in part for foreign countries to give a bond for unlading its American cargo before proceeding foreign, and likewise section 2782, requiring a similar bond to be given by a vessel proceeding from one district to another, be repealed.

4. The repeal of section 2775, which requires a special report of distilled spirits and wines imported in a vessel.

5. That the naval officer be authorized to settle the accounts of collectors at naval-office ports.

All of the above recommendations have merit. The weakness of section 2899, Revised Statutes, is, that any importer may refuse to give bond and thus compel the customs authorities to store all of his merchandise, pending examination and appraisement of the same, free of cost, which the customs officials have not the facilities to do. The provision that the packages delivered shall not be opened except in the presence of an inspector of customs and with the consent of the collector or surveyor is absurd. It was practicable in 1830, but could not possibly be applied to the present volume of imports. The