HE COMMISSIONER OF INTERNAL REVENUE .1 Commissioner of Internal Revenue 1965 ANNUAL REPORT for the fiscal year ended June 30, 1965 Publication No. 55 INTERNAL REVENUE SERVICE U.S. TREASURY DEPARTMENT "To Keep Government Service Alert and Proud" -President Johnson President Johnson presenting Incentive a%vards to Internal Revenue Service employees (left to right): Richard N. Fell, Murray H. Handel, Joe L. Finch, Fred Oubitsky, Word E. Holland accepting an oveard; observing of the extreme left Is Douglas Dillon, then Secretary of the Treatsury. TRANSMITTAL Hon. HENRY H. FOWLER, Secretary of the Treasury, Washington, D.C. WASHINGTON, D.C., 20224. DEAR MR. SECRETARY: Achievements reflected in the attached annual report of the Internal Revenue Service for the fiscal year 1965 testify to the unremitting pursuit of excellence by a dedicated work force. Much of the progress occurred under the able leadership of Deputy Commissioner Harding dur- ing his tenure as Acting Commissioner throughout the first 6 months of the year. Operating statistics only partially reveal the Service's accomplishments. Nonetheless they are impressive. A comparison of 1964 and 1965 data reveals that: Gross collections soared to $114.4 billion despite a tax reducLion-more than $2 billion above last year's all-time record; returns filed increased 2.4 million; 100,000 more delinquent returns were secured and the total amount collected from this source was $6 million higher; disposals of taxpayer appeals increased about 2,000 cases; and additional taxes and penalties recommended by examining officers reached $2.7 billion, or $179 million greater than last year's record sum. Vigorous enforcement of the tax laws continued unabated throughout the year with par- ticular emphasis on the Organized Crime Drive and its objective of bringing to justice racketeers and tax evaders. Several of the more notorious racketeers were prosecuted and the additional taxes and penalties assessed against tax law violators far exceeded a-mounts levied in pastyears. The Management Improvement Program was revitalized and set a pattern of increased per- sonal involvement in carrying out its principles, policies, and aim. Savings of $17.1 million realized through improving operations surpassed by 47 percent the record-breaking $11.6 million Notes: All yearly data are on a fiscal year basis, unless otherwise reported in 1963. Of particular significance was the variety of the improvements. These specified. For example, data headed -1965" pertain to the fiscal ranged from systems and procedural changes to those involving better selection and utilization year ended June 30, 1965, and "July I" inventory items undei of personnel, reorganizations, modification of training programs, and improved service to this heading reflect inventories as of July 1, 1964. taxpayers. In many tables and charts, figures have been rounded and may Close attention was not add to the totals which are based on unrounded figures. also given to elevating the performance level of frontline and intermedi- ate supervision-areas that I consider as vital to efficient tax administration as our highly suc- cessful executive development program. Action taken involved establishing specialized super- visory training programs for incumbents, initiating plans to identify and reassign incumbents lacking supervisory talent, and devising procedures to insure selecting and training applicants with known ability or potential for assuming managerial responsibilities. A milestone was reached on January 1, 1965, when the business master file under the Service's automatic data processing system became operational nationwide. The Southeast Service Center, Chamblee, Ga., and the Mid-Atlantic Service Center at Philadelphia are fully For sale by the Superintendent of Documents, U.S. Go,ernmen( Printing Office Washington, D.C., 20402 - Price $1.00 (paper ro,cr) processing individual returns and by 1967 all seven service centers will become part of a complete TRANSMITTAL-Continued and unified nationwide system. The benefits of mass document processing-such as rapid identification of nonfilers, prevention of duplicate refunds, complete verification of estimated tax credits, and identification of taxpayers who underpay their estimated taxes-now being per- formed by a few service centers-will then be fully realized. i OF CONTENTS Finally, may I say that the mainstream of our efforts has been and will continue to b~ TABLE directed towards strengthening and improving our ielf-assessment tax system, so peculiaifly American and so increasingly a model to the rest of the world. Page Letter of Transmittal ............................................................... v Summary of 1965 Annual Report .................................................... xi Commissioners of IRS ............. xvii Principal Officers of the...........Internal Revenue Service ................................................. * ...... * xviii Maps of Internal Revenue Regions and Districts ....................................... xxii SHELDON S. COHEN Charts of Internal Revenue Service Organization ....................................... xxiv Commissioner of Internal Revenue. REPORT ON OPERATIONS Chapter 1 -Interpretation and Communication of Tax Law to Taxpayers ................. 2 Chapter 2-Internal Revenue Collections, Refunds, and Returns Filed .................... 8 Chapter 3-Automatic Data Processing ............................................... 13 Chapter 4-Enforcement Activities ................................................... 20 Chapter 5-Supervision of the Alcohol and Tobacco Industries ........................... 40 Chapter 6-Legislative and Legal Activities ........................................... 43 Chapter 7-International Activities .................................................. 49 Chapter 8-Planning Activities ...................................................... 53 Chapter 9-Management Activities .................................................. 60 APPENDIX .......................................... : ........................... 82 Trend charts ...................................................................... 96 Statistical tables ................................................................... 105 INDEX ......................... ................................................ 133 vi vii Summary Mission of the Service The mission ofthe Service i's to encourage and achieve the highestpossible degree ofvoluntary compliance with the tax laws and regulations and to maintain the highest degree of public confidence the . in integriy and efficiency ofthe Serv- ice. This includes communicating the requirements ofthe law to the public, determining the extent ofcompliance and causes of noncompliance, and doing all things needful to a proper enforcement of the law. - - SUMMARY a ANNUAL REPORT GROSS COLLECTIONS IN 1965 BY MAJOR CATEGORY ALL BUT ONE MAJOR CATEGORY OF TAX All Major Types of Collections Increased Summary CONTRIBUTED TO RECORD COLLECTIONS %I Except Individual Income Tax Withheld 36.1 Collections reached a record high of $114.4 billion, 2 percent above 1964 collections, despite individual and corporation tax rate reductions ef- fective during the year. The increase in corpora- tion tax payments was $1.8 billion-attributable to TOTAL the requirements accelerating the payment of esti- 19641 :112 3 965 4.4 mated tax and higher co.rporate earnings. Allother CHANGE +1.9% major categories of taxes except individual income taxes withheld also showed increases. These were ALL MAJOR TYPES OF RETURNS INCREASED individual EXCEPT PARTNERSHIP AND EXCISE led by income taxes not withheld, which registered a gain of $1.5 billion. Together these Ro increases more than offset the decline of $2.4 billion in individual income taxes withheld occasioned by WM the tax rate reduction. REFUNDS DECLINED IN NUMBER AND AMOUNT TOTALS ~964 100.1 The number of refunds issued dropped from 42 965 102.5 CHANGE +2.4% million to 40 million and the $6 billion refunded was $1 billion less than the 1964 amount. For taxable years beginning in 1964, the Revenue Act of 1964 provided for a greater nate of reduction in the tax Individual Corpontion Employment Individual Alcohol Manufacturer's Estate Gasoline Miscellaneous Tobacco withheld i . income mce.. excls and excMe than in the tax rate. As a result, many 4thh.1d)" (not gaisol(except withheld) me) lift individual taxpayers normally filing overpayment returns found that they were liable for a small bal- ance of tax due in 1965. The second-stage decrease 6.2 41 in tax rates, effective for taxable years beginning 1.4 1.0 CHANGE FROM 1964 after December 31, 1964, 0 Mm will return withholding I ndividua I Employment Declarations Excise and CotPomfion Partnership fWuc,.ryand of estimated .11 the, to its normal pattern. tax 13.3 NUMBER OF RETURNS FILED INCREASED CHANGE FROM 1984 0 A growing economy and an expanding population 3.1 resulted in the filing of 102.5 million tax retums- an all-time high and an increase of 2.4 million over 1964. In addition, the Service received about 340 million related documents, such as wage and tax statements, Forms W-2, and information returns, -0.7 -0.7 Forms 1099. -0.2 xi SUMMARY e ANNUAL REPORT SUMMARY * ANNUAL REPORT AUTOMATIC DATA PROCESSING the primary cause for the overstatements of tax OPERATIONS EXTENDED liability was that taxpayers were not taking advan- tage of their right to use the standard deduction On January 1, 1965, handling of business tax re- providing them the greatest tax advantage.