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Commissioner Caplin reviews his record as IRS chief.

Mortimer M. Caplin, just resigned Commissioner of Internal Revenue, has been "your friendly tax collector" for over 3 1/2 years. Unlike most Commissioners, he became a well-known figure to almost every taxpayer. He has also been a controversial figure, blamed often for law changes (like the travel and entertainment rules) over which he had no control and for bringing "Big Brother" into everyone's life in the form of the "Martinsburg Monster": the ADP Master File at Martinsburg, W. Va., which will consume taxpayer account numbers and information returns and produce audit notices for the dishonest or careless taxpayer.

Commissioner Caplin has always emphasized the human element in tax administration and the fundamental honesty of taxpayers who voluntarily pay in such a vast fund of tax money to the U.S. In the following exclusive review of the policies he has followed during his years with IRS, Mr. Caplin shows his complete understanding of the basic problems of the tax practitioner in his dealings with the Revenue Service.

Mr. Caplin has returned to private law practice in Washington D.C., and to teaching at the University of Virginia Law School.

The past 3 1/2 years have seen many important changes in tax administration. The label "new direction" has been widely used to describe our policies - which placed a new emphasis on improving voluntary compliance with our tax laws:

* We stressed the importance of the self-assessment concept and gave greater attention to informing taxpayers of their rights as well as their responsibilities

* At the same time, we instituted a vigorous enforcement program aimed at tax abuses which were serving to undermine confidence in our tax laws.

* We improved the quality of tax audits; we prepared tax audit guidelines to assist in attaining greater uniformity; and eliminated any semblance of a quota concept. Professional standards and professional conduct have become IRS bywords.

* One of the high spots of these years has been the installation of a nation-wide electronic computer system (ADP). A master file of taxpayers is now located at the National Computer Center in Martinsburg, West Virginia, and, today, each of our 7 regional service centers is in some phase of ADP (Automatic Data Processing) operations.

* IRS has taken a worldwide view of tax administration, cooperating with many nations, and working with A.I.D. (Agency for International Development) in providing technical assistance in Latin America and other parts of the world. We have made a real commitment towards seeking the taxation goals of the Alliance for Progress.

* Realignment of field offices brought a streamlining of IRS activities, a shortening of lines of communications and a more efficient Revenue Service. And, currently, IRS is in the middle of reorganization of its technical activities, with an elimination of duplication between Chief Counsel's office and Technical Divisions and a clearer demarcation of responsibility between rulings on one hand and legislation and regulations on the other.

* Balanced and reasonable tax administration is official policy, and Rev. Proc. 64-22 [[paragraph] 54,856] states these views unequivocally.

* And, throughout, IRS has been constant in efforts to maintain the integrity of tax administration at all levels - among taxpayers, tax practitioners and Service employees.

These were not new ideas. What we accomplished was to make these ideas official policy, and to apply them nationwide. We touched a responsive chord in Internal Revenue, and we uncovered a vast reservoir of creativity and drive. All of this has been in the best interest of the public, Internal Revenue and the nation.


The nationwide installation of ADP during the last 3 1/2 years warrants special mention.

The Service is over the hump on the basic groundwork. The National Computer Center in Martinsburg, West Virginia, was erected in 1961 and is now in full operation. Four of the 7 service centers are also operating today: Chamblee (Atlanta) for the Southeastern region; Philadelphia for the Mid-Atlantic region; Cincinnati for the Central region; and Austin for the Southwest region. In addition, 3 old area service centers, which have been so valuable over the years, are in the process of converting to ADP: Lawrence for the Northeast and New York regions; Kansas City for the Midwest region; and Ogden for the Western region. With the commencement of the January 1, 1965 filing season, every district in the country will be affected by ADP. Business entities across the nation will all be under ADP in 1965, while approximately one-third of the nation's taxpayers will be included in the individual master file by then. In approximately 2 more years of operation all business and individual returns should be on magnetic tape, operating fully under the master file system.

The ADP system has already demonstrated its worth. Duplicate filings of returns and multiple refund schemes have been uncovered. Past delinquencies are being offset against current refunds before checks are mailed to taxpayers. To square their accounts with their government, thousands of delinquent taxpayers have stepped forward to report past errors and omissions. Both physically and psychologically ADP is measuring up to its expectations.

There are many problems lying ahead as IRS attains nationwide use of the system. Installing the individual master file is a much more complex task than the business master file. And, if the experience of others is any guide, the Service will undoubtedly make many errors - despite all efforts. IRS will need the understanding and cooperation of taxpayer and tax practitioner as it moves forward to perfect the system.

The huge advantages of a master file of taxpayers - stored in a single, centralized location; clearly identified by separate taxpayer account numbers; each record containing a running 3-year tax history; all readily available on high-speed electronic tape - provide enormous new capabilities to the Internal Revenue Service. Taxpayers, too, will receive many advantages - accurate crediting of refunds, rapid processing, elimination of certain inquiries when the information is stored in the machine's memory, added assurance that their neighbors are paying their full share of tax, etc.

But to be faced are many problems and challenges. For one thing, some traditional concepts must be set aside. Regional service centers, for example, will assume greater importance in tax administration. Tax returns will be processed there as well as classified and selected for audit there. Inevitably, tax returns will be filed there. The present system of filing in 58 district offices - with trans-shipment to the 7 ADP service centers - is cumbersome, time-consuming and costly. As ADP becomes fully operational, the Service will be drawn closer and closer to centralized tax returns filings, and will have to call upon Congress for enabling legislation wherever it is needed to fully implement such a system.

The Service will even have to reevaluate the 58-district concept. Larger administrative unites serving one or more states may be more appropriate to future tax administration. To be sure, each state should have important local offices to provide assistance, to answer inquiries and to make contact with taxpayers. But the day may arrive when separate district, headquarters offices, on a state-by-state basis, will prove too costly and inefficient for the country.

I am confident that Service officials, backed by a wise Congress, will face up to these challenges and will recommend organizational changes suitable to any new system and with the individual taxpayer in mind.

Alluring new operating potentials are also before us. The automatic conversion of coded material on magnetic tape to readable microfilm - a process known as the "digiprinter"; the possible future use of optical scanning of tax returns and the possible elimination of costly key-punch operations; exchanges of magnetic tapes containing tax information with businesses, and also the possible elimination of print-outs of traditional tax returns - these and other far-reaching developments are coming within sight. But as these advances come into use, they will bring certain practical and human limitations. There may be a tendency to overcentralize operations, to overextend capabilities and, yes, to capitulate to overmechanization and underhumanization of tax administration. In brief, IRS must constantly weigh machine capability against the actual and psychic costs to the nation. It must carefully consider any additional burden imposed on individuals and the business community. It must be careful to monitor the output of our machines so that it will not be swamped beyond its own capability. In brief, the "Martinsburg Monster" must be domesticated; it must be kept as an office pet and not an uncontrolled Frankenstein.

Always to be kept in mind is the human element. The Revenue Service must think of the individual and must maintain local offices - regardless of what they are called - as the main focal point for day-to-day contacts with taxpayers. The offices will continue to be the Internal Revenue Service to the great mass of taxpayers. This is as it should be; and IRS must strive for better service and better individual treatment to the greatest possible extent.


Another important accomplishment of the past few years has been a determined effort to minimize and even eliminate the adversary nature of pre-litigation contacts with taxpayers. Such an attitude jeopardizes the self-assessment system. It introduces an abrasiveness and can lead to excessive claims and excessive proposed deficiencies. In its worst form, it can compromise the integrity of the tax administrator, the tax practitioner and the taxpayer himself.

IRS has been working closely with tax practitioner groups to attain 3 ends: first, to minimize the adversary climate and make clear that tax administration is not a game; second, to attain a full disclosure on both sides of the facts and the basic tax issues; and, third, where conflict exists, to get a fair and reasonable resolution of the differences. Progress has been made and tax lawyers, tax accountants and tax executives are today striving to articulate standards of conduct which should prevail in tax practice. Despite the difficulties of setting forth what is "good tax practice", it is encouraging to see the headway made by so many responsible individuals. This is an extremely important undertaking and should be given full backing by practitioners as well as by Service personnel.

Our own efforts to minimize the adversary attitude have been great. In instructions to field agents, we have emphasized a reasonable, practical and commonsense approach. Fairness and courtesy are fundamental. Agents are instructed to raise issues only on the merits, never for trading purposes. And careful consideration must be given to taxpayers' arguments in reaching a fair resolution of factual and legal issues.

As a follow-up, IRS broadened the District audit conference function. Impartial hearings by independent conferees have strengthened confidence in the administrative process. New changes to be announced shortly should go even further in assuring the public of balanced and reasonable treatment.

In May, 1983 the Chief Counsel and I sent a joint statement to all employees charged with the duty of interpreting the Code. We stressed their duty to carry out their function in a fair and impartial manner "with neither a government nor a taxpayer point of view." Interpretation of the Code is work of the highest order, and those engaged in this important task must be free of any bias to maximize revenue. Also, interpretative personnel have been urged to perform their duties with promptness to avoid injury to taxpayers and to avoid damage to the Service's reputation.

In this same spirit, the Chief Counsel issued a new litigation policy in February, 1964. He pointed out that the money involved in a case is not to be regarded as the sole point of focus. Rather, it is the "broad effect of the case which must govern our litigation attitude." Any position taken should "make the maximum contribution to a sound, wise tax system ... over the long run."

The Chief Counsel's litigation policy illustrates the "one-ness" of the Internal Revenue Service. It is directed to carrying out the best policy from the standpoint of the total Service performance. Every effort must be made to coordinate audit, appellate, technical and litigation positions. In litigation, we should be hand-picking our cases - again not for the direct revenue impact alone, but to help develop sound rules of law and to strengthen overall tax administration.

The Chief Counsel's policy has been approved by the Assistant Attorney General in charge of the Tax Division of the Department of Justice, Louis F. Oberdorfer. In the same spirit, he recently pointed out that "one of our major concerns is that our litigation strategy of developing a sound tax law not be undercut by the exigencies of a particular case."

The relationships between the Commissioner's office and the Chief Counsel office are at a high point. There is a mutual confidence and the absence of any sense of rivalry. As never before, Chief Counsel and his staff have been helping and participating in Service decisions. I am confident that this close relationship and this atmosphere will continue. They are vital to sound operations of the Service.


Internal Revenue has demonstrated a deep concern for efficiency and cost-cutting. In its operations, it has shown an ability for creativity, innovation and savings. In fiscal 1963, for example, management improvements were adopted which will result in permanent savings of $12 million a year. Included in this was our nationwide field realignment--reduction of our regions from 9 to 8, our service centers from 9 to 7, and our district offices from 62 to 58. This realignment alone is bringing annual savings of over $3.5 million without cutting into muscle.

The cutback in the number of service centers assured meeting our ADP timetable and demonstrated our ability of working together for smooth transition.


The current reorganization in Technical and Chief Counsel is further proof of what can be done. IRS has been anxious to eliminate overlapping of functions, to improve the reviewing procedure, and to speed up the entire rulings and regulations programs. To these ends, the Chief Counsel's office was recently given responsibility for representing the Commissioner both on legislative matters and in drafting of regulations. Regulations will be prepared for the Commissioner by Chief Counsel's office in consultation with Technical. Technical Planning will assist on the administrative considerations involved in regulations, and will review regulations for administrative feasibility. This review will be of a more limited nature than had occurred in the past.

Tax Rulings Division will continue its basic responsibility for the important rulings function. IRS must improve and accelerate the entire ruling process and this will require constant attention and good judgment in the Tax Rulings Division. Wherever possible advice will be requested from the Chief Counsel on an informal basis, and written GCM's and similar documents will be called for only when warranted. No effort is being made to "read out" the participation of Chief Counsel in rulings. Rather, the intent is to get speedy, informal legal assistance on a number of issues during the development process. On complex and precedent-making issues, formal legal opinions will be prepared as before. Again, good judgment and wise decisions by Tax Rulings will dictate the circumstances when Chief Counsel will participate.

In addition to these organizational changes, IRS has been reviewing the entire rulings process to see if it can expand the issues to be pass upon. Recently, IRS sharply modified the so-called "no rulings" list and will be announcing the new, liberalized policy shortly. The Service is trying to keep the "no rulings" list to a minimum and to involve Internal Revenue in the interpretative process wherever possible. The rulings program is one of the most effective tools for fostering confidence in our tax system and in its administration. To the extent possible, IRS must assist taxpayers and advise them in advance of the tax effect of contemplated transactions. The Service must make sure that this important program is coordinated with overall audit, appellate and litigation functions. Experience with data processing (ADP) and information retrieval will be of extensive help in these efforts.

All in all, not only must IRS eliminate duplication and achieve manpower savings, but it must also serve the taxpayer better.


Some 3 years ago IRS embarked upon a broad integrity program. It had the backing of President Kenney and Secretary Dillon and the full cooperation of the Attorney General. Currently President Johnson and many members of Congress have also given it their strong support.

Integrity is the sine qua non of our self-assessment tax system. It must be stressed at 3 levels - among IRS personnel, among tax practitioners and among taxpayers.

In IRS training programs, integrity has been emphasized in its broadest sense. The Service has sought cooperation both from employee organizations and practitioner groups. IRS issue special instructions on handling bribery attempts and established new procedures on reporting to Inspection. Primary jurisdiction has been given to the Inspection Service and they have performed in an outstanding manner, with a sense of balance for the rights of the individual.

Most of our employees have cooperated magnificently. The great bult of them are decent, honest, hardworking individuals who desire to root out frauds of all kinds wherever they find them. A new alertness to improprieties is apparent.


Rev. Proc. 64-22 [[paragraph] 54,856] sums up our philosophy of tax administration. Internally, this statement was a compilation of the series of instructions and policies disseminated among personnel during the past 3 1/2 years. Externally, the document stimulated widespread comment and great praise.

Rev. Proc. 64-22 was issued on May 1, 1964, exactly three years from the day of President Kennedy's historic visit to Internal Revenue. On that happier May 1, our late President said to us:

"I hope you will impress upon the agents of the Internal Revenue Service how much we are dependent upon them, on their courtesy, on their efficiency, on their integrity, on their fairness."

This is now set forth on a bronze plaque outside Conference Room 3313 of our National Office building in Washington. Its spirit is contained in Rev. Proc. 64-22.

This statement of principles emphasizes the need for objectivity and integrity in tax administration. Strained construction of the law must be avoided, and issues are to be raised only on merit - never for trading purposes, never merely to win cases. Administration should be both reasonable and vigorous. It should be conducted with as little delay as possible and with great courtesy and considerateness. It should, however, be firm in requiring compliance with law, and relentless in its attack on unreal tax devices and fraud.

These were my guideposts on administering the tax laws of our nation. Adherence to these precepts will strengthen confidence in tax administration and will help strengthen our tax system, the very underpinning of our democratic government.


During the past month, I have received numerous favorite comments on Rev. Proc. 64-22 and many inquiries about future policies. Taxpayers, lawyers, accountants, businessmen, Congressman and members of the Commissioner's Advisory Group - all have expressed the same views and asked the same question.

I've assured them that all of these policies will continue; that these are carefully considered policies; and that they are policies backed by the Secretary of the Treasury and by two Presidents. (1)


Revenue Procedure 64-22

Published: 1964

Statement of some principles of Internal Revenue tax administration.

The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue is determined by Congress.

With this in mind, it is the duty of the Service to carry out that policy by correctly applying the laws enacted by Congress; to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them; and to perform this work in a fair and impartial manner, with neither a government nor a taxpayer point of view.

At the heart of administration is interpretation of the Code. It is the responsibility of each person in the Service, charged with the duty of interpreting the law, to try to find the true meaning of the statutory provision and not to adopt a strained construction in the belief that he is "protecting the revenue." The revenue is properly protected only when we ascertain and apply the true meaning of the statute.

The Service also has the responsibility of applying and administering the law in a reasonable, practical manner. Issues should only be raised by examining officers when they have merit, never arbitrarily or for trading purposes. At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that care be exercised not to raise an issue or to ask a court to adopt a position inconsistent with an established Service position.

Administration should be both reasonable and vigorous. It should be conducted with as little delay as possible and with great courtesy and considerateness. It should never try to overreach, and should be reasonable within the bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it should be relentless in its attack on unreal tax devices and fraud.

(1) End of original article.

Mortimer M. Caplin *

* This article, "Commissioner Caplin Reviews His Record as IRS Chief" by Mortimer M. Caplin, originally published in the Prentice-Hall publication, Federal Taxes Report Bulletin, Volume XLV, July 16, 1964, has been reprinted by permission of Thompson Reuters (Tax & Accounting) Services Inc. [c] 1964 by Prentice Hall Inc., n/k/a Thompson Reuters/RIA. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system with the express written consent of Thompson Reuters/RIA.
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Author:Caplin, Mortimer M.
Publication:Virginia Tax Review
Date:Sep 22, 2009
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