the Bureau of Internal Revenue which would be helpful to Congress in framing legislation, and while it is not for me to say, I think that information could be secured in another way.

The CHAIRMAN. Would you mind enumerating in what other ways it could be secured, because, so far as the chairman is concerned, he has no pride of conviction as to how this might be proceeded with.

Mr. HARTSON. I think it could be secured, Mr. Chairman, by this committee or any committee calling on the bureau for specific information in the form of such reports as are now being asked for of a statistical nature. That does not involve distributing throughout a very large organization, many agents of this committee who are there to criticise, who are there to talk with the employees of the bureau about their work in a way which causes those employees to be disconcerted and disturbed, many of them unnecessarily so. It is quite possible that the agents of the committee, in going over the work down there, are not purposely attempting to breed that sort of confusion that has resulted beyond a question of doubt.

The CHAIRMAN. I would like to say at this point that, so far as I can speak for the committee and its agents, we would have been perfectly willing to have had this work transferred to the offices here, but at the very beginning of these hearings the bureau took the position, if you will remember, that they could not let the records out of their possession, which necessitated our men going down there. I do not say that the bureau was not justified in that, but I do say that if confusion resulted, it was not because of the committee's desire that it be done that way, but because the bureau itself elected to retain control of the records. As I say, if confusion has resulted, it was not the program of the committee to create that confusion.

There is another matter that I wanted to speak about. In the meeting we had the other day, Mr. Manson, in stating to the committee the progress of the work and the probable length of time it would take to complete it, made this statement:

Mr. Hartson told me that the facts that had been brought out before the committee in connection with amortization had been enlightening to the bureau as they have been to the committee.

Is that a correct statement, Mr. Hartson?

Mr. HARTSON. I do not recollect having made such a statement as that.

The CHAIRMAN. Is it correct?

Mr. HARTSON. It is correct, Senator, so far as an isolated case or so is concerned, I believe. I have had no knowledge that these cases were even in the bureau, much less settled one way or the other, and it is what the committee has heard here that has brought to my attention and to Mr. Nash's attention the adjustments in these cases. Now, if Mr. Manson was referring to a rather extensive conversation that he and I had on the whole subject of the conduct of this investigation in my office some two or three weeks ago, there was a great deal said at that meeting, both by Mr. Manson and me, which, if Mr. Manson thinks it wise to go into, I would be very glad to tell the committee just what occurred at that meeting. Yet, it was a discussion of counsel representing the committee and representing

the bureau-a very frank discussion. Just as counsel will do in discussing issues in law suits frankly, make statements which are not for the record, I quite frankly went over the matters with Mr. Manson at that time, and he with me, which we would not want to go into the record.

Mr. MANSON. I wish to say that I had no reference to that discussion; no.

Mr. HARTSON. If that is true, we can very properly, Mr. Manson, leave our conversation in my office out of this record.

Mr. MANSON. I understood that our conversation was to be strictly informal, between two lawyers interested in an investigation.

Mr. HARTSON. That is my understanding exactly, Mr. Manson, and I am perfectly willing to let it go at that.

Mr. MANSON. While there is nothing about it that I would care to conceal

Mr. HARTSON. I know.

Mr. MANSON (continuing). At the same time, it is absolutely outside of the investigation.

The CHAIRMAN. I just want to say that I did not bring that matter up so as to get into any confidential or unofficial talks that counsel may have had. What I wanted to get at was this, whether the committee was correct in a conclusion that it has had for some little time that, in digging out these individual cases, we were helping to standardize the operations of the bureau. I have had that conviction right along for some time, and I was somewhat disturbed yesterday in receiving these letters, after inviting the members of the bureau to come down here and discuss the matter with us, to have them decline to come, but to send these letters, which was not in accordance with the procedure which we had been following. We had been talking rather frankly.

Mr. HARTSON. Yes.

The CHAIRMAN. And I thought we were getting somewhere. Therefore, the receipt of these letters somewhat disturbed me, and I thought that if there was any misunderstanding between the committee and the bureau, it had better be straightened out.

Mr. HARTSON. Senator, I would like to be put right on this matter. Had it been the understanding of Mr. Nash and myself that we were invited to come, we would have been here, and have very gladly discussed orally the subject matter of those letters, and not have written any letters at all. I do not understand, and did not understand that we were invited to come. We were given the privilege to come if we wanted to, and, very frankly, I did not know whether we were wanted or not. It did seem to me that some members of the committee wanted us to come and others did not, and if the chairman of the committee had, over the telephone or in writing, suggested that he, as chairman of the committee, wanted to hear from Mr. Nash and me, we both would have been down here, and would have been very glad to come.

The CHAIRMAN. That may have been rather indefinite in the minds of the bureau, but the fact is that Senator Watson said in this meeting that he wanted to talk to members of the bureau, and I suggested that we have the members of the bureau come down here and talk to the members of the committee, as I thought that that would simplify

Senator Watson's task, because he said that at no time had he been in touch with the representatives of the bureau, and he wanted to get their reaction on the whole thing. Senator King was in a hurry to get to another meeting, and Senator Ernst was in a hurry to get to another meeting. Each of them went out to attend these other meetings, and left the chairman alone, without any resolution having been adopted or any objection having been raised to your coming down here. I then told the clerk of the committee to call up the representatives of the bureau and tell them that we would be glad to have them come down here if they desired to come. I frankly admit that I said "if they desire to come," because there was no resolution, and I had no authority to say that the committee had invited them. Yet, I knew unofficially that we would be glad to talk to the representatives of the bureau.

Senator KING. Mr. Chairman. Of course I do not know what prompted these letters. I have read them, and I do not agree at all with the conclusions therein stated. I think Mr. Nash's letter draws a very long bow, and at the proper time I want to cross-examine him on his letter.

The CHAIRMAN. So that the record may show what we are talking about, in this connection I wish to place in the record at this point two letters directed to the chairman, one from Mr. C. R. Nash, assistant commissioner, dated February 9, 1925, and another signed by Mr. Nelson T. Hartson, solicitor Bureau of Internal Revenue, dated February 9, addressed to the chairman, in response to the suggestion to them, over the telephone, that they might come before the committee and discuss the future work of the committee. (The letters referred to are as follows:)

Hon. JAMES COUZENS,

TREASURY DEPARTMENT, Washington, February 9, 1925.

Chairman Special Committee to Investigate the

Bureau of Internal Revenue, United States Senate.

MY DEAR MR. CHAIRMAN: At the meeting of the Committee to Investigate the Bureau of Internal Revenue on Saturday, February 7, the question of the continuance of the activities of the committee through the recess of Congress was under discussion. Your invitation to present the views of the Internal Revenue Bureau as to the desirability of proceeding with the investigation after March 4 has been received.

The committee investigating the bureau has been in existence now for practically a year. Up to January 1, 1925, the direct cost to the bureau of this investigation, which cost is attributable principally to relieving employees of the bureau from their regular duties and assigning them to the work of the committee, was approximately $143,000. Since that time more accurate records have been kept which disclose that this direct cost to the bureau for the month of January was approximately $22,000, or at the rate of $260,000 a year. This direct cost, however, is relatively unimportant when the indirect harm to taxpayers and to the bureau of the activities of the committee is considered.

As a result of this investigation the employees of the bureau are badly demoralized and the work of the bureau in some sections is almost at a standstill. It is difficult for an organization to properly function if the agents of an outside critical body are scattered throughout that organization. These agents are interfering with and interrupting the work of the employees, taking from them casts which they are considering, watching for some slip which will justify adverse and hostile criticism. The fear on the part of the employees of the bureau that the exercise of their honest judgment in deciding and closing cases may make them the subject of attack by the committee has so permeated the bureau that the general tendency on the part of many of the technical employees is to protect their own responsibility by failing to

make decisions or if necessary to come to a conclusion the decision is adverse to the taxpayer, leaving the case to again be considered sometime in the future. The slowing up of the work of the bureau as a result of this investigation is postponing indefinitely not only the collection of a tremendous amount of taxes but the settlement of a great number of cases.

Not only the interests of the Bureau of Internal Revenue in the collection of its taxes are being adversely affected by this investigation, but in addition it is having a serious and detrimental effect upon the interests of the taxpayers. The taxpayers are entitled to have their tax liability settled and finally determined as soon as possible. The uncertainty which results from the delay in finally settling these cases upsets in a large measure the business organizations of the country. Reorganizations, refinancings, enlargements, expansions, and capital expenditures which, for the interests of the different business organizations and for the prosperity of the country should be put through, are necessarily postponed until the liability for taxes is finally determined. The activities of the investigating committee which result in the indefinite postponement of the closing of so many of these cases necessarily has an effect most detrimental to taxpayers and the business organizations of the country.

The activities of the committee are familiar to me. I have been able to judge quite definitely the effect of the investigation upon the bureau. It is my opinion that any good results which may have come from the activities of the committee are not to be compared with the injury and harm this investigation has had on the Internal Revenue Bureau.

Respectfully yours,

C. R. NASH, Assistant to the Commissioner.

DEPARTMENT OF JUSTICE,

Hon. JAMES COUZENS,

OFFICE OF THE SOLICITOR OF INTERNAL REVENUE,
Washington, February 9, 1925.

Chairman Special Committee Investigating the

Bureau of Internal Revenue, United States Senate.

MY DEAR SENATOR: On Saturday afternoon Senator Watson called me on the telephone stating that at an executive session of your committee held that afternoon it was suggested that my views be obtained as to the possible good results that had come from the investigation of the Bureau of Internal Revenue. Senator Watson said he was offering me the opportunity of appearing and expressing myself on this subject if I so desired, but that the committee was not requesting that I do so.

From time to time during the past year at the hearings of your committee I have been questioned along the same line. I have on several occasions indicated that some beneficial purposes had been and could be served by a constructive inquiry into the bureau's activities. Isolated statements of this kind might no doubt be obtained from the record and if disassociated from the context would make it appear that I was in favor of the continuation of your investigation. If this were done, it would be obviously unfair because I am not, and never have been, in sympathy with the activities of your committee. In candor I have admitted that some of your criticisms of the bureau have been justified, but most, if not all, of the defects that are being pointed out, have been well known to all of us who are connected with the bureau. Conscientious and intelligent efforts have been and are being made to improve conditions. Perfection has not yet been attained, but surprinsingly good results have been accomplished when the tremendous task confronting the bureau is considered. Conceding that some good results might be brought about by a constructive investigation, I am convinced that the harmful effects of your committee's activities far outweigh any possible benefits that could be obtained.

If there has been a misunderstanding as to my attitude in this regard, I trust that what I have said will clear it away.

Sincerely yours,

NELSON T. HARTSON,

92919-25-PT 11-2

Solicitor.

The CHAIRMAN. Do you want to interrogate Mr. Nash now, Senator King?

Senator KING. No; I want to talk to Mr. Manson first, and then I want to cross-examine Mr. Nash on that letter, which I think is a very well, I will not characterize it now.

The CHAIRMAN. Mr. Manson, this meeting was primarily called for the purpose of going into the question of the method of handling oil wells and oil discoveries by the Bureau of Internal Revenue. As I understand it, you want to present that matter this morning?

Mr. MANSON. Yes; but I would like to say, in order to have it at the proper place in the record, that it is not my understanding that the representatives of the committee, either those engaged in engineering work or auditing work, are wandering around the bureau talking with employees of the bureau. The engineers are quartered in either two or three rooms, located in the engineering section of the bureau. If they desire records, they ask the person designated by the bureau for the records that they want.

Those records are brought to those rooms and if the committee's engineers desire to ask any questions of the engineer who worked up the case, they send for such engineer and question him about the case. My information is that that practice is not indulged in to any great extent, and, furthermore, it was my definite instruction to everybody working in the bureau and representing the committee, that they are to engage in no criticism of the bureau's method or practice in the handling of any case or in the doing of anything. The purpose of those instructions was not to keep from the bureau such criticisms as we might have until we could present them to the committee. The purpose was that I felt that to permit the expression of views on the part our agents would have a tendency to impair discipline in the bureau, and that the proper procedure was for our agents to get the information they are asked to get, and to report that information to me and permit me to lay it before the committee, to express such views as we might have upon the subject before the committee, and let the committee determine whether or not they had any criticism to make. I have every reason to believe that those instructions have been carried out.

Senator KING. This letter of Mr. Nash's seems to be aimed at a chloroforming, or, rather, the presenting of such obstacles as to compel a cessation of any inquiry into the activities of the bureau. The letter is of such a nature as would lead me now to demand a rigorous investigation of the Bureau of Internal Revenue.

Mr. MANSON. If I am at all wrong about what I have just stated, I would like to be corrected.

Senator KING. I think we had better get a statement from those who have been associated with you and put it in the record to show the unfair inference, if it be unfair, of Mr. Nash's letter.

Mr. MANSON. I would like to ask Mr. Parker at this time to state on the record whether I have stated the conditions correctly under which we are working there.

Mr. PARKER. I think you are very accurate, Mr. Manson.

Mr. MANSON. We desire now to call the committee's attention to the oil situation, and more particularly to the discovery depletion.