by the same people; second, the withholding has nothing in particular to do with the appropriateness of the dependency credits and exemptions that have been claimed

Mr. COUDERT. Are we to conclude from that, then, that the existence of the withholding-tax procedure does not in effect result in some economy to your Bureau in the matter of audits?

Dr. ATKESON. It insures collection.

Mr. COUDERT. But it does not result in your making a smaller percentage of audits than you otherwise would, and thereby effecting an economy in audit?

Dr. ATKESON. Yes, Mr. Congressman. As I said, when we came to the audit-control program, I was going to go into that but I might as well mention it now. They concentrate more actively on the audit in the upper-income brackets, where the withholding is not sufficient to embrace the total tax.

Second, in those returns of a business income where there is no withholding, or in those areas in which there may be some question as to the type of the exemption claimed, there is emphasis placed.

Mr. COUDERT. When you get to that point, will you be able to tell us what proportion of income-tax returns subject to withholding are audited?

Dr. ATKESON. I will be able to give you that in a very rough way; yes, sir.

1 Does not include anticipated deficiency for 1950 to cover cost of authorized pay increases.

Comparison of estimate of appropriation for fiscal year 1951 with appropriation

Mr. GARY. It appears that in your appropriation for the fiscal year 1950 you requested $232,768,000; that Congress appropriated $226,300,000; and you are asking $253,000,000 for 1951. There is an increase of $26,700,000.

Mr. SCHOENEMAN. Mr. Chairman, in making that statement, you did not give effect to that nonrecurring item that results in a net increase of $23,287,000 over 1950.

Mr. GARY. I would be glad for you to make any statement in connection with that. I was covering purely appropriations. Mr. SCHOENEMAN. I see.

ADDITIONAL POSITIONS REQUESTED

Mr. GARY. You are asking for 2,956 additional employees?
Mr. SCHOENEMAN. Yes, sir.

Mr. GARY. And you think that number is needed at the present time and that they can be recruited during the next year?

Mr. SCHOENEMAN. Yes, sir; they certainly are needed and we feel confident from our past experience we will have no difficulty in recruiting them.

Mr. GARY. In 1949 this committee allowed additional employees. We allowed additional employees in 1950.

Will you give us a statement of the number of employees that have been allowed each year since the cut was made in force?

Mr. MCCOLLUM. Mr. Chairman, in 1949 we were authorized to hire 1,925 additional employees. In 1950, 4,022 were authorized.

In 1951 we are requesting 2,956 additional employees.

Mr. GARY. Now, can you give us a statement showing the additional taxes that have been assessed as a result of that increase in force?

ADDITIONAL TAXES ASSESSED AS A RESULT OF INCREASE IN FORCE

Mr. ATKESON. Mr. Chairman, in the fiscal year 1949 you allowed a total of 1,925 people. An average of 306 of those people were on as field deputy collectors for the full year, and they produced $11,732,388. The collector's office auditors averaged 142 man-years, and they produced $4,655,864.

The new revenue agents averaged 353 man-years, and they produced $18,709,000 or a total of $35,097,252.

The cost of those people plus their clerical associates, which were directly related to this production, which you provided in the budget for that year, aggregated $4,192,014, which makes a net return for the first year that these people were employed of 8.4. That is the first

year.

Mr. COUDERT. What do you mean by 8.4?

Mr. ATKESON. Eight dollars and forty cents for each dollar of cost. I cannot give you anything other than an estimate for 1950 in respect to the new people you allowed for 1950, since those people have so recently been taken on, and have been in the training classes for the first part of the year. I can only give you an estimate.

Mr. GARY. Were these figures you have just given us 1950 figures on the people employed in 1950?

Mr. ATKESON. No, sir; these were the 1949 fiscal year production figures of the added 1,925 people that you gave us for 1949. Mr. GARY. That brings it up to June 1949.

Have you the production figures for that work as a whole?

PRODUCTION FIGURES FOR 1949

Mr. ATKESON. Yes, sir; for 1949 the added assessments attributable to this type of employee, which is the enforcement officer, were $1,891,678,000.

In addition, we had $346,509,480 worth of warrants which were collected by these deputy collectors, aggregating $2,238,187,000 for the fiscal year 1949.

The total salary cost applicable to these enforcement officers and their direct clerical assistants aggregated $109,060,748, making a net return of $20.50 per dollar appropriated.

Mr. GARY. How do you account for the fact that the average is $20.50, whereas these new men accounted for only $8.40?

Mr. ATKESON. It is because of the training time that is required of these men, because these men are engaged in the audit of tax returns and there is very intensive training given to every man before he is given cases to investigate on his own.

It is the technical nature of the job itself that requires considerable amount of training.

Furthermore, even after he is trained, he is not given the larger or what you might term the most productive type of case.

Mr. GARY. You give the larger cases to the more experienced men; do you not?

Mr. ATKESON. Yes, sir.

CRITICISM IN REGARD TO INVESTIGATION OF RETURNS

Mr. GARY. Mr. Commissioner, one criticism that I hear a great deal about with reference to investigation of these returns is that the agents are rated more or less according to the amount of money that they bring in. I can see some reason for that, but the facts are that in some cases that makes the agents so zealous to produce the taxes that at times they insist upon taxes which are improper; and even though at times the tax is found to be improper, a compromise is suggested with the taxpayer so that the Government gets a certain amount of money which the taxpayer would rather pay than go through the expense and trouble of fighting the case in court.

I have heard a great deal of criticism from taxpayers in regard to that. As a matter of fact, when I was practicing law I had one or two of those cases myself where I knew that the Department had absolutely no case, and yet the taxpayer was forced to accept a compromise figure or suffer the trouble and expense of litigation.

Mr. SCHOENEMAN. Mr. Chairman, it is a subject that is referred to from time to time. We say that the additional revenue that a revenue agent or a deputy collector brings in does not have any effect on his promotion. We do keep records of their production. I think it would be very unwise for us not to keep records, but the very fact that we keep records makes them revenue conscious.

Mr. GARY. They ought to be revenue conscious to a certain extent. Mr. SCHOENEMAN. It becomes competitive between the deputies and the revenue agents; but when the time comes and a man is up for promotion, it is not a case of going and seeing who produces the most

revenue.

Sometimes you have men who do not produce any revenue, and they are far superior to the ones who are out producing.

I have particular reference to these 600 men I referred to investigating Form 722 claims. They probably represent the best men we have in our service, but they are assigned to that task because we know of their qualifications.

We do not like to have cases come before us like you just mentioned. We do everything that we can to prevent them.

We think our system of review ultimately, if it does happen, gives the right answer to the taxpayer, but it does not prevent the difficulty that you just expressed where you had conferences and it was finally compromised or wiped out.

There is no one more anxious than we are to prevent that kind of thing.

The think I am concerned about, in addition to what you referred to, is the little taxpayer who is approached by a deputy collector and he has the cost of going to some other city for an appeal, and that cost is more than the tax involved.

Mr. GARY. I was talking about the little taxpayer also. I was not talking about the larger taxpayers. They can afford litigation. They have their own attorneys, and they are highly skilled attorneys. It is the little taxpayer that I am talking about. That worries me considerably.