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BY

ROBERT H. MONTGOMERY
Attorney-at-Law. Certified Public Accountant.
Ex-President, American Association of Public
Accountants. Professor of Accounting, Columbia

University

New York
THE RONALD PRESS COMPANY

Copyright, 1920, by
ROBERT H. MONTGOMERY
PREFACE

Federal income and profits taxation is merely “one damn thing after another.” The average taxpayer is bewildered by a multitude of contradictory laws, regulations and decisions. He is not permitted to ask hypothetical questions but is told to proceed at his peril. What is needed is stability and confidence. The government needs money. Is it not possible for the taxpayer to pay and the government to receive money without a continuous, annoying and expensive disturbance of the entire business and financial fabric of the country?

The difficulties of the Treasury are infinitely greater than those of any taxpayer. The responsible officials now in office deserve great credit for standing by a thankless and almost hopeless task. Congress is responsible for the present universal feeling of dissatisfaction and Congress should be informed in no uncertain tone that taxpayers and the Treasury will stand so much and no more.

If I were asked to write a tax plank for a political party I would have it promise to : 1. Reduce the public debt, net, annually by a small sink

ing fund provision. 2. Reduce individual income tax rates on a sliding scale

—a little each year. 3. Repeal the inequitable excess profits tax law. 4. Increase the normal income tax rate on corporations to

correspond with the requirements of a budget. 5. Adopt a budget; cut down government expenses; cut

out many expensive, ill-advised and poorly adminis

tered governmental activities. 6. Avoid all Plumb or other costly class legislation. 7. Make no further changes in the tax law (except in

rates) for ten years.

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I think if either party adopted and lived up to the foregoing it would remain in power for ten years.

In support of my suggestion for a ten years' truce, I make the statement that a few more radical changes in our tax laws would create a panic. The 1909 law is still a nuisance. Many Treasury agents still insist on examining corporate records for the years 1909-1912 and it is necessary to keep informed on that peculiar law, which to this day is enforced, not according to its terms, but according to what its terms might or should have been.

We never did fully understand the 1913 law, but the courts are interpreting its sections one by one, and it will be a very live subject for many years to come.

The 1916 law was an improvement over the 1913 law, but there are many unsettled disputes arising from the Treasury's interpretations, and it will be three or four years before the more important disputes can be settled. The 1917 amendments to the 1916 law are too recent to have received much attention. There are many thousands of unexamined and unsettled returns. It would be an underestimate to predict that authoritative interpretations of probably a hundred major differences of opinion can be had in less than ten years.

The 1918 law is like a new baby—no one knows how it will turn out. The Treasury has issued many conflicting regulations and decisions and in the nature of things will reverse many of the existing regulations. It seems necessary to decide all doubtful points in favor of the government and thus throw the burden of interpretation upon the taxpayer, but the apparent necessity does not lighten the burden.

If it is impracticable to give the Treasury more discretionary power and to set up in Washington and throughout the country the equivalent of boards of arbitration, there will be thousands of cases under the 1918 law brought in the United States courts for the refund of taxes illegally or improperly. imposed. The settlement of such cases will require at least ten years.

S

The foregoing is not an exaggerated statement. It is the inevitable result of five radically different laws enacted within a few years. And now we are threatened with a new law for 1920. Taxpayers do not cry for a new law, they plead for a settled policy.

In view of the foregoing I have no apology to make for the size of this volume. If it were not for consideration for my publishers I would have included several hundred more pages of text.

The index is a very important adjunct to a book of reference and no efforts have been spared to make the index to this volume complete in every detail. Lawyers and accountants will find a useful special law index preceding the regular index. The purpose of the special index is to enable anyone interested in a specific section of the law to turn to all the pages of the book wherein such section is discussed.

The preparation of this volume and Excess Profits Tax Procedure would not have been possible except for a vast amount of help from others. I again acknowledge the invaluable assistance of my partner, Walter A. Staub, C. P. A., and my colleague at Columbia University, Professor Robert Murray Haig. I am also greatly indebted to my assistants, J. Marvin Haynes, of the Bar of the District of Columbia, Robert Buchanan, S. L. Heacock and Charles S. Duncany; to James Rattray of the Guaranty Trust Company who prepared the chapter on non-resident aliens, and to Frederick G. Herbst of the Columbia Trust Company who prepared the chapter on payment of tax at the source. I also express my appreciation of the authoritative material contained in the Income and War Tax Services of the Corporation Trust Company, N. Y., which I used very freely with the company's kind permission.

ROBERT H. MONTGOMERY.

55 Liberty St., New York,

January 19, 1920.

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