1949 - Internal Revenue Service

28 REPORT OF COMMISSIONER OF INTERNAL REVENUE
(3) It makes determinations in cases in which agreement was not
reached by the field committees and taxpayers, and in cases where the
Council does not approve the field committees' determinations.
The determinations of the Council are made after oral hearings with
the taxpayer if the taxpayer so desires
Size of job.—As of June 30, 1949, the cumulative total of claims
filed amounted to 53,651, in which the tax reduction claimed amounted
to more than $6 billion. The claims still pending before the Bureau
as of June 30, 1949, amounted to 22,281, in which the tax reduction
claimed amounted to approximately $4.9 billion.
Disposition of these claims must be made under an admittedly
complex statute. In addition, the work involves extensive research
in the fields of economics, statistics, and related subjects in order to
determine the constructive average base period net income. The
results of such studies must be translated into net income figures,
which will require a mass of analytical accounting work.
Review of principles.—During
the first 2 years of operation,
the Council promulgated certain policies by the issuance of memoranda
designated E. P. C. 1-33, inclusive. During the current year, the
Council has continued this practice in the light of current case problems
and experience. As the result, E. P. Cs. 34-43 have been issued
and are summarized below:
E. P. C. 34 restates the organization and general Council procedure
in light of the increase in membership and the establishment within
the Council of the Executive Committee. It supersedes E. P. C. 1,
which was issued in 1946, immediately following the formation of the
Council.
E. P. C. 35 is a complete revision of Part VII of the Bulletin,
dealing with invested capital credit taxpayers seeking relief under
section 722(c).
E. P. Cs. 36-38, inclusive, provide hypothetical case illustrations
of the application of principles enunciated in E. P. C. 35.
E. P. C. 39 is a clarification and supplement to E. P. Cs. 2 and 34.
It deals with procedure in the field and before the Council and is
intended to aid in defining the issues involved in each case as well as
to inform the taxpayers of the procedural means provided for consideration
of their claims.
E. P. Cs. 40 and 41 are additional hypothetical case illustrations of
the principles stated in E. P. C. 35.
E. P. C. 42 deals with the question of decline in the determination
of normal earnings and provides for its recognition where it is determined
to be relatively permanent. This memorandum is a supple.
ment to, or clarification of, both E. P. C. 8 and E. P. C. 13.
E. P. C. 43 is a hypothetical case illustrating the Council's position
in dealing with abnormally high base period net income which is
REPORT OF COMMISSIONER OF INTERNAL REVENUE 29
determined to be attributable either to extraordinary effects of preparation
for the war or to factors resulting from the outbreak of the
war on September 1, 1939.
Consideration of taxpayer cases.—The Council, from the date of its
organization in 1946 to June 30, 1949, has taken final action on
14,389 claims, representing more than 4,900 corporations in which the
excess profits tax reduction claimed amounted to $773,839,483.
Action was taken during the year ended June 30, 1949, on 7,113
claims, in which the tax reduction amounted to $426,464,614.
The action of the Council with respect to 12,094 claims, or 84 percent
of the number involved, was agreed to in writing by the claimant
corporations Agreements on 10,417 claims were obtained by the
field committees and agreements on 1,677 claims were obtained by
the Council Allowances were determined by the Council with
respect to 179 claims, to which there was no agreement in writing by
the claimant corporations.
The Council has received 12,419 agreed claims from the field committees.
It accepted the agreements on 10,417 claims, rejected
agreements on 400 claims, and had under consideration at June 30,
1949, 1,602 claims.
The Council has received 6,540 claims on which the field committees
did not obtain agreements. The Council obtained agreements on
1,401 of these claims, disposed of 2,171 without obtaining an agreement,
and had under consideration at June 30, 1949, 2,968 of these
claims. The Council also obtained modified agreements in 276 of
the 400 claims on which it rejected agreements by the field committees.
The Council, accordingly, obtained agreements on 1,677 claims and
disposed of 2,295 claims on which the claimant corporations did not
agree with the Council determinations.
The aggregate reduction in excess profits tax claimed in the applications
for relief disposed of by the Council from June 30, 1946, to
June 30, 1949, amounted to $834,507,750. The aggregate increase
in the excess profits credit allowed on these claims amounted to
$167,943,000. The aggregate reduction in excess profits taxes resulting
therefrom is estimated to be $142,752,000, or approximately 17
percent of the amount claimed. An increase in the excess profits
credit of a corporation has the effect of increasing its normal tax and
surtax. When this factor is considered, the relief obtained on claims
disposed of by the Council, from June 30, 1946, to June 30, 1949, is
estimated to amount to $71,671,606. A corporation was permitted
to anticipate some of the relief claimed under section 722 by deferring
payment of part of the tax shown as due on its return. This anticipation
was provided for by the deferment provisions of section 710(a)(5)
of the Code. The amount deferred with respect to claims disposed
of by the Council as of June 30, 1949, amounted to $68,009,058.
The following summary shows additional information with respect
to claims received and acted upon and also shows the status of claims
pending at the close of the year: