CHAPTER I

LEGISLATIVE HISTORY OF THE CREATION OF

Section

1. Introductory

BOARD OF TAX APPEALS

2. Letter of the Secretary of the Treasury

3. Treasury Draft of the Revenue Act of 1924

4. Ways and Means Committee Draft

5. House Bill 6715 as Sent to Senate

6. Finance Committee Draft

7. Senate Bill

8. Conference Committee Bill

9. As Enacted

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10. Organization of the Board of Tax Appeals

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Section 1. Introductory. It is of considerable interest to trace through the various drafts of the Revenue Act of 1924 the provisions for the creation of the Board of Tax Appeals. That the Board as finally evolved by Congress was a body much removed from that first contemplated in the suggestion of the Secretary of the Treasury is evident from the sharp comments of the President upon signing the bill establishing the Board as finally evolved. The frequent references in the decisions of the Board of Tax Appeals to the purpose of its creation as indicated by Congressional discussions as a reason for its assuming or declining to take jurisdiction over particular issues makes the consideration of its legislative history of

1 See page 23.

immediately practical as well as historical value. In the following paragraphs the important suggestions and changes made in successive drafts have been noted.

Section 2. Letter of Secretary of the TreasuryNov. 10, 1923. Among the amendments to the Revenue Act of 1921 proposed by the Secretary of the Treasury in his letter to the Chairman of the Committee on Ways and Means, on November 10, 1923, was one to "establish a Board of Tax Appeals in the Treasury, but independent of the Bureau of Internal Revenue, to hear and determine cases involving the assessment of Internal Revenue taxes. It was stated that "this will give an independent administrative tribunal equipped to hear both sides of the controversy, which will sit on appeal from the Bureau of Internal Revenue and whose decision will be conclusive on both the Bureau and the taxpayer on the question of assessment. The taxpayer, in the event that decision is against him, will have to pay the tax according to the assessment and have recourse to the courts, while the Government, in case decision will be against it, will likewise have to have recourse to the courts, in order to enforce collection of the tax."

The Secretary again addressed the Chairman of the Committee on December 17, 1923, and further submitted that the proposed Board of Tax Appeals should be created to sit locally in the various judicial circuits throughout the country; that cases both of the Government and the taxpayer could be presented before the Board which would act impartially on all

appeals from the assessment of additional income and estate taxes.

The practice of the Board was to be similar to that before the Interstate Commerce Commission. Upon a decision in favor of the Government the additional tax could be assessed by the Commissioner of Internal Revenue and the taxpayer would be left to his remedy in the courts for the recovery of taxes. If the decision was in favor of the taxpayer the Commissioner would not be permitted to assess the tax, but would be left to his remedy in the courts in a suit to collect the additional tax. In a hearing in the courts the findings of the Board would be prima facie evidence of the facts contained therein.

Section 3. Treasury Draft of the 1924 Act-Introduced February 7, 1924. Title X, Section 1000 of the Treasury Draft accordingly provided for the creation of a Board of Tax Appeals to be "established in the Department of the Treasury," composed of not less than seven nor more than twenty-eight members, as the Secretary from time to time determined necessary. Appointment at a salary of $10,000 was to be by the Secretary without regard to civil service laws, but "solely on the grounds of fitness to perform the duties of the office, " for a term of ten years except in the case of original appointees, to secure rotations in office, and in the case of a vacancy.

The Chairman of the Board was to be designated from time to time by the Secretary. With the latter's approval the Chairman might from time to time divide the Board into divisions, assign members thereto, designate a chief thereof and fill vacancies by

other assignments or direct the subdivision to transact business with less than three members. The principal office of the Board was to be at Washington, but the divisions would be authorized to sit at different places in the United States, as convenient. Upon the expiration of thirty days after a decision by a division the same was to become the final decision of the Board unless within that period the chairman directed that such decision be reviewed by the Board.

The jurisdiction of the Board was "to hear and determine appeals filed under Sections 274, 279, 308 and 312" of the proposed Act. Sections 274 and 279 revised the provisions of Section 250 of the Revenue Act of 1921. Sections 308 and 312 made similar provisions for appeal from the Commissioner's decisions with respect to estate taxes as obtained in the case of his decisions relating to income taxes.

These new sections provided that if the Commissioner determines that there is a deficiency in tax under the Revenue Act of 1924, except where a socalled "jeopardy assessment" is deemed necessary to protect the interests of the Government, the taxpayer should be notified of such deficiency by registered mail. The taxpayer was allowed thirty days after such notice to file an appeal to the Board of Tax Appeals. In this respect the new law was to follow the provisions of the Revenue Act of 1921 on appeal to the then existing Committee on Appeals and Review. If the Board determined that there was a

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2 For practice before the former Committee on Appeals and Review, see address of Kingman Brewster, Proceedings 16th Annual Conference National Tax Association 1923, p. 322. See Art. 1006, Reg. 62, as amended by T. D. 3409, and further amended by T. D.

deficiency the amount so determined was to be assessed and paid upon notice and demand. If the Board disallowed the deficiency as determined by the Commissioner the tax could only be collected by a proceeding in court.

Section 280 superseded Section 250 (d) of the Revenue Act of 1921 and provided that if after the enactment of this Act the Commissioner determines that any assessment should be made in respect of any income or profits taxes imposed by the Revenue Acts of 1916, 1917, 1918 and 1921, or any amendments thereto, the amount which should be assessed would be computed as if the new Act had not been enacted but the amount so computed should be assessed, collected and paid in the same manner and subject to the same provisions and limitations as a tax imposed by the proposed Act. Section 316 made similar provisions for estate taxes proposed by the Revenue Acts of 1917, 1918 and 1921, or amendments thereto. The provisions of Sections 280 and 316, respectively, were finally enacted into law substantially as originally drafted. Accordingly by necessary construction Sections 280 and 316 brought deficiency disputes under the Acts indicated within the jurisdiction of the Board of Tax Appeals. The taxpayer was to be afforded thirty days' notice by registered mail of a deficiency in tax and given the right to appeal to the Board as in the case of taxes arising under the Revenue Act of 1924 in accordance with Sections 274, 279, 308 and 312.

The Treasury Draft also provided that "in any proceeding in court under Sections 274, 279, 308 or