A-19851, SEPTEMBER 24, 1927, 7 COMP. GEN. 232

A-19851: Sep 24, 1927

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THE APPROPRIATION UNDER THE TREASURY DEPARTMENT FOR COLLECTING THE INTERNAL REVENUE IS NOT AVAILABLE FOR THE COMPENSATION OR TRAVELING EXPENSES OF EXPERT WITNESSES NECESSARY TO TESTIFY IN A FEDERAL COURT ON BEHALF OF THE UNITED STATES IN DEFENSE OF A SUIT BY A TAXPAYER FOR RECOVERY OF INCOME TAXES PAID. THESE TAX DEFICIENCIES WERE BASED UPON ADDITIONAL INCOME DETERMINED TO HAVE RESULTED FROM THE SALE BY SAID STOCKHOLDERS IN 1919 OF THEIR STOCK IN THE FORD COMPANY. THE NINE APPEALS BEFORE THE UNITED STATES BOARD OF TAX APPEALS WERE CONSOLIDATED AND HEARINGS WERE HELD EXTENDING OVER A PERIOD FROM JANUARY 11 TO FEBRUARY 25. WERE PAID FOR BY THE TREASURY DEPARTMENT. SAID CONSOLIDATED APPEALS BEFORE THE BOARD WERE FINALLY SUBMITTED ON MAY 23.

A-19851, SEPTEMBER 24, 1927, 7 COMP. GEN. 232

WITNESSES, EXPERT, UNITED STATES COURTS - COMPENSATION AND TRAVELING EXPENSES IN VIEW OF THE SPECIFIC PROVISION FOR EXPERTS UNDER THE APPROPRIATION "MISCELLANEOUS EXPENSES, UNITED STATES COURTS," DEPARTMENT OF JUSTICE, THE APPROPRIATION UNDER THE TREASURY DEPARTMENT FOR COLLECTING THE INTERNAL REVENUE IS NOT AVAILABLE FOR THE COMPENSATION OR TRAVELING EXPENSES OF EXPERT WITNESSES NECESSARY TO TESTIFY IN A FEDERAL COURT ON BEHALF OF THE UNITED STATES IN DEFENSE OF A SUIT BY A TAXPAYER FOR RECOVERY OF INCOME TAXES PAID.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE TREASURY, SEPTEMBER 24, 1927:

THERE HAS BEEN RECEIVED YOUR LETTER OF SEPTEMBER 15, 1927, AS FOLLOWS:

IN MARCH, 1925, THE COMMISSIONER OF INTERNAL REVENUE DETERMINED DEFICIENCIES IN INCOME AND PROFITS TAXES FOR 1919 AGAINST THE THEN FORMER MINORITY STOCKHOLDERS OF THE FORD MOTOR COMPANY OF MICHIGAN, IN THE AGGREGATE AMOUNT OF $33,448,968.57. THESE TAX DEFICIENCIES WERE BASED UPON ADDITIONAL INCOME DETERMINED TO HAVE RESULTED FROM THE SALE BY SAID STOCKHOLDERS IN 1919 OF THEIR STOCK IN THE FORD COMPANY. NINE OF THE FORMER STOCKHOLDERS ELECTED TO APPEAL TO THE UNITED STATES BOARD OF TAX APPEALS UNDER THE PROVISIONS OF SECTIONS 274 (A) AND (D), AND 279 OF THE REVENUE ACT OF 1924. THE OTHER FORMER MINORITY STOCKHOLDER, ALICE G. KALES, ELECTED TO PAY THE TAX ASSESSED AGAINST HER AND TO BRING SUIT AGAINST THE COLLECTOR IN THE UNITED STATES DISTRICT COURT FOR RECOVERY. THE PRINCIPAL ISSUE UNDERLYING THE LEGALITY OF THE ADDITIONAL TAX ASSESSMENTS AGAINST ALL OF SAID TAXPAYERS RELATES TO THE VALUE ON MARCH 1, 1913, OF THE STOCK OF THE FORD MOTOR COMPANY OF MICHIGAN.

THE NINE APPEALS BEFORE THE UNITED STATES BOARD OF TAX APPEALS WERE CONSOLIDATED AND HEARINGS WERE HELD EXTENDING OVER A PERIOD FROM JANUARY 11 TO FEBRUARY 25, 1927. IN ORDER TO PROTECT THE INTERESTS OF THE GOVERNMENT IT BECAME NECESSARY FOR THE TREASURY DEPARTMENT TO EMPLOY EXPERTS TO MAKE PRELIMINARY STUDIES OF THE PECULIAR VALUATION PROBLEM INVOLVED AND TO TESTIFY AS WITNESSES AT THE HEARINGS BEFORE THE BOARD OF TAX APPEALS. THE SERVICES OF SUCH EXPERTS, INCLUDING THEIR TRANSPORTATION AND ORDINARY PER DIEM SUBSISTENCE EXPENSES, WERE PAID FOR BY THE TREASURY DEPARTMENT. SAID CONSOLIDATED APPEALS BEFORE THE BOARD WERE FINALLY SUBMITTED ON MAY 23, 1927, AND ARE STILL UNDER ADVISEMENT.

AS ABOVE INDICATED, THERE IS NOW PENDING IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN THE CASE OF ALICE G. KALES V. WOODWORTH, COLLECTOR. THIS SUIT INVOLVES THE LEGALITY OF AN INCOME AND PROFITS TAX ASSESSMENT AMOUNTING TO $2,627,309.05. THE ISSUES ARE IDENTICAL WITH THOSE WHICH WERE INVOLVED IN THE NINE CONSOLIDATED CASES BEFORE THE BOARD OF TAX APPEALS. THE SUIT IN THE DISTRICT COURT IS SET FOR TRIAL OCTOBER 3, 1927. SINCE THE CASES BEFORE THE BOARD ARE STILL UNDER ADVISEMENT AND SINCE AN ADVERSE DECISION IN THE CASE PENDING IN THE DISTRICT COURT MIGHT INFLUENCE THE FINAL DECISION OF THE BOARD WHERE THE AGGREGATE AMOUNT OF TAX INVOLVED IS IN EXCESS OF THIRTY MILLION DOLLARS, THE INTERESTS OF THE UNITED STATES MAKE IT IMPERATIVE THAT THE GOVERNMENT AGAIN SECURE THE SERVICES OF THE SAME OR SIMILAR EXPERTS WHO TESTIFIED IN THE HEARINGS BEFORE THE BOARD OF TAX APPEALS.

THERE IS NO ONE IN THE BUREAU OF INTERNAL REVENUE OR UNDER ITS JURISDICTION QUALIFIED TO PERFORM THE SERVICES DESIRED.

IN VIEW OF THE FOREGOING, YOUR OPINION IS REQUESTED AS TO WHETHER THE TREASURY DEPARTMENT HAS AUTHORITY TO OBTAIN EXPERTS TO MAKE THE NECESSARY PRELIMINARY STUDIES AND TO TESTIFY AS WITNESSES AT THE TRIAL IN A UNITED STATES DISTRICT COURT OF A CASE ARISING UNDER THE INTERNAL REVENUE LAWS AND TO PAY FOR SUCH SERVICES INCLUDING TRANSPORTATION AND ORDINARY PER DIEM SUBSISTENCE EXPENSES. IF NO FEE IS CHARGED, MAY THE TREASURY DEPARTMENT REIMBURSE SUCH EXPERTS FOR ACTUAL EXPENSES INCURRED?

THE COMPENSATION OF THE EXPERT WITNESSES WHO TESTIFIED BEFORE THE BOARD OF TAX APPEALS WAS PAID UNDER THE APPROPRIATION "COLLECTING INTERNAL REVENUE, 1927," WHICH PROCEDURE APPEARS TO BE IN ACCORDANCE WITH SECTION 909 OF THE REVENUE ACT OF FEBRUARY 26, 1926, 44 STAT. 108, WHICH PROVIDES THAT WITNESSES SUMMONED TO TESTIFY BEFORE THE BOARD, OR WHOSE DEPOSITIONS ARE TAKEN UNDER SECTION 908 OF SAID ACT, IN BEHALF OF THE COMMISSIONER OF INTERNAL REVENUE, SHALL BE PAID UNDER THE APPROPRIATION FOR COLLECTING THE INTERNAL REVENUE. THE APPROPRIATION FOR "COLLECTING INTERNAL REVENUE, 1928," ACT OF JANUARY 26, 1927, 44 STAT. 1033, PROVIDES:

FOR EXPENSES OF ASSESSING AND COLLECTING THE INTERNAL-REVENUE TAXES, INCLUDING * * * NECESSARY OFFICERS, COLLECTORS, DEPUTY COLLECTORS, GAUGERS, STOREKEEPERS, STOREKEEPER-GAUGERS, ATTORNEYS, EXPERTS, AGENTS, ACCOUNTANTS, INSPECTORS, CLERKS, JANITORS, AND MESSENGERS * * * PROVIDED FURTHER, THAT NO PART OF THIS AMOUNT SHALL BE USED IN DEFRAYING THE EXPENSES OF ANY OFFICER, DESIGNATED ABOVE, SUBPOENAED BY THE UNITED STATES COURT TO ATTEND ANY TRIAL BEFORE A UNITED STATES COURT * * * WHICH EXPENSE SHALL BE PAID FROM THE APPROPRIATION FOR "FEES OF WITNESSES, UNITED STATES COURT" * * *.

THE APPROPRIATION FOR COLLECTING THE INTERNAL REVENUE ABOVE QUOTED PROVIDES GENERALLY FOR THE COMPENSATION OF REGULAR OFFICERS AND EMPLOYEES OF THE INTERNAL REVENUE SERVICE AND THE PROVISO REQUIRING "EXPENSES OF ANY OFFICER DESIGNATED ABOVE" TO BE PAID UNDER THE APPROPRIATION FOR "FEES OF WITNESSES" WHEN "SUBPOENAED" TO TESTIFY IN A UNITED STATES COURT WOULD ALSO APPEAR TO BE CONFINED TO EXPENSES OF OFFICERS OR EMPLOYEES REGULARLY OR PERMANENTLY EMPLOYED RATHER THAN TO EXPERT WITNESSES EMPLOYED TO TESTIFY IN A PARTICULAR CASE OR CLASS OF CASES.

WHILE A "WITNESS" MAY BE SUBPOENAED AND COMPELLED TO TESTIFY CONCERNING FACTS WITHIN HIS KNOWLEDGE, AN "EXPERT" IS NOT NECESSARILY AND PROPERLY A WITNESS. HIS DUTIES MAY CONSIST IN AIDING COUNSEL IN THE PREPARATION OF THE CASE AND IN THE CROSS-EXAMINATION OF WITNESSES AS WELL AS TESTIFYING TO HIS OWN OPINION. IT HAS BEEN HELD, THEREFORE, THAT THE SERVICES, SKILL, OR KNOWLEDGE OF AN EXPERT CAN NOT BE ACQUIRED WITHOUT HIS CONSENT AND WITHOUT JUST COMPENSATION. IN RE MAJOR WILLIAM SMITH, 24 CT.CLS. 209; 6 COMP. GEN. 712.

THERE IS UNDER THE APPROPRIATION FOR "MISCELLANEOUS EXPENSES, UNITED STATES COURTS," ACT OF FEBRUARY 24, 1927, 44 STAT. 1197, A PROVISION FOR "EXPERTS AT SUCH RATES OF COMPENSATION AS MAY BE AUTHORIZED OR APPROVED BY THE ATTORNEY GENERAL * * * INCLUDING TRAVELING EXPENSES PURSUANT TO THE SUBSISTENCE-EXPENSE ACT OF 1926.' THERE APPEARS NOTHING IN THE APPROPRIATION FOR COLLECTING THE INTERNAL REVENUE TO INDICATE THAT IT WAS INTENDED TO BE USED FOR THE COMPENSATION OR EXPENSES OF WITNESSES OTHER THAN REGULAR EMPLOYEES IN ATTENDANCE BEFORE A UNITED STATES COURT AND IN VIEW OF THE SPECIFIC APPROPRIATION UNDER THE DEPARTMENT OF JUSTICE FOR EXPERTS, I HAVE TO ADVISE THAT THE APPROPRIATION FOR COLLECTING INTERNAL REVENUE IS NOT AVAILABLE FOR THE COMPENSATION OR TRAVELING EXPENSES OF EXPERT WITNESSES TO TESTIFY BEFORE A DISTRICT COURT. A-6928, APRIL 4, 1925, AND A-15814, OCTOBER 9, 1926.