1949 - Internal Revenue Service

26 REPORT OF COMMISSIONER OF INTERNAL REVENUE
profit-sharing, and annuity plans under section 165(a) of the Internal
Revenue Code as amended; the exempt status of employees' trusts
under that section; the effect of terminations and curtailments of such
plans on their prior qualification; the effect of investments of trust
funds in the stock or securities of the employer on the continued qualification
of the plans of which the trusts are parts; the taxability of beneficiaries
of exempt and nonexempt trusts under section 165 (b) and
(c), respectively; the annuity treatment under section 22 (b)(2)(B);
and related matters.
Rulings are issued and advice is furnished to taxpayers and other
interested parties. Rulings issued through the field offices and findings
with respect to tax liability after examination of the applicable tax
returns are subject to post review in Washington. Data with respect
to applications received and rulings issued are summarized as follows:
Number of applications,' rulings issued, and cases on hand with respect to the qualification
of stock bonus, pensions, profit-sharing, and annuity plans under section
165(a) of the Internal Revenue Code, as amended, the effect of terminations and
curtailments of such plans on their prat qualification, and the effect of investments
of trust funds in the stock or securities of the employer on the continued qualification
of the plans of which the trusts are parts
Original
qualifies-
Won under
section
165(a) of
the Code
Effect on
prior quell-
&anon
because of
termination
Effect on
prior quailnaafi=
because of
curtailment
Effect on
continued
qualifiestion
because
of investments
Applications on hand at June 30, 1948 271 80 47 4
Applications received during the fiscal year ended June
30, 1949
1,060 235 161 54
Total
1, 331 315 208 58
Applications on hand at June 30, 1949 208 88 33 2
Rulings issued during the fiscal year ended June 30,1940. 1,123 227 175 68
Rulings issued to June 30, 1948 11,742 484 226 192
Rulings issued to June 30, 1949 12,865 711 401 248
I Only original applications in each category are counted as cases. Thus, cases do not include amendments
to a plan after the original ruling as to the qualification of the plan i issued. Similarly, only the original
application for a ruling as to the effect of a curtailment of a plan is counted as a case. If the plan is subsequently
further curtailed it isnot tabulated again. Complete terminations occur only once and are counted
Only once. Only the initial application as to the effect of investments in the stock or securities of the employer
is tabulated. Applications for rulings on subsequent investments in the stock or securities of the
same employer are not included.
Salary stabilization.—At the close of the last fiscal year, 14 cases
involving possible contravention of the Act of October 2, 1942, as
amended, were awaiting settlement. One of these was a previously
determined case on which reconsideration had been requested, but
no showing was made which warranted such action. Of the remaining
13 cases, six employers were found to have paid compensation
totaling $299,211.37 in contravention of the Act, resulting in the imposition
of sanctions in the total amount of $68,665.93 by agreement
with these employers. In the remaining seven cases no contravention
was found.
Subsequently 16 additional instances of possible contravention were
considered, of which only 3 were found to have granted salary or
bonus increases without approval. The total unauthorized payments
REPORT OF COMMISSIONER OF INTERNAL REVENUE 27
in these cases amounted to $96,604.49, resulting in the imposition of
sanctions in the amount of $8,204.19.
Only four of the numerous requests for reopening of cases considered
by the National War Labor Board or the National Wage Stabilization
Board had sufficient merit to justify acting on such requests. In
three of these cases the amounts of the sanctions were reduced and
in the fourth case the relatively small sanction was eliminated.
No contravention cases are now pending.
EXCESS PROFITS TAX COUNCIL
Organizaticm, of Council.—The Excess Profits Tax Council was
organized on May 25, 1946, as a field group within the Bureau of
Internal Revenue to exercise supervision of and responsibility for the
settlement of cases pending before the Bureau with respect to applications
for relief under the provisions of section 722 of the Internal
Revenue Code. The Council was established pursuant to the proposal
by the Commissioner to the Joint Committee on Internal Revenue
Taxation in his statement of April 1, 1946, and his testimony on
May 7, 1946, for the creation of a board for the administration of
section 722.
The Council and its staff have offices only in Washington but the
Council has technical supervision of the field personnel of the Bureau
of Internal Revenue engaged in handling section 722 claims.
Between 500 and 600 revenue agents in the 39 field divisions of the
Bureau are working on section 722 claims. Because of part-time
assignments, this number is the equivalent of about 280 persons engaged
full time. The agents so assigned in each of the field divisions
work under the supervision of a small group of specialists known as
the "Section 722 Field Committee." Each claim is investigated under
the supervision of the field committee (approximately two-thirds of
the agents working on section 722 claims are engaged in making field
examinations), and the committee makes the first efforts, through
negotiation with the taxpayer, to reach agreement upon the merits of
the claim.
The Excess Profits Tax Council originally was composed of 15
members, one of whom was designated as chairman. On October 22,
1948, the authorized membership of the Council was increased to 25,
including the chairman and vice chairman, and there was established
within the Council a five-man executive committee consisting of the
chairman, vice chairman, and three other Council members. The
executive committee was vested with final authority within the Bureau
of Internal Revenue in respect to all issues arising under section 722,
including procedure, interpretation, general policy, and determinations
made with respect to individual cases. At June 30, 1949, the
Council had a staff of 91 accountants, economists, and attorneys,
most of whom were drawn from the regular personnel of the Bureau.
The Council has three principal functions:
(1) It issues interpretative rulings with respect to section 722 for
the guidance of the field committees and taxpayers generally.
(2) It reviews determinations made by the field committees with
respect to all claims, irrespective of whether or not agreement with the
taxpayer has been reached.