greater in absolute amount than those with respect to dividends and interest. A systematic extension of the informational reporting system to other types of income, as well as to dividends and interest, and a more intensive, coordinated use of information returns from all sources, might well provide a more effective means of reducing the overall reporting gap than a limited extension of withholding to special areas.

I trust the foregoing supplement to my previous letters will be of assistance to the Committee in its work. I shall be glad to endeavor to amplify it in any respects the Committee might wish.

I should perhaps note once again that much of the information contained above consists of statistical and administrative data for which I cannot personally vouch but which represents my best understanding of the facts as I have gleaned them.

Sincerely yours,

Ewin S. CR

Edwin S. Cohen

Estimates of Dividends not Accounted for on Tax
Returns and of Dividend Underreporting in 1956,
by New York Stock Exchange, U.S. Treasury and
D.M. Holland in Tax Revision Compendium

1 Net figure which includes items deducted in line 2.

2/ Not separately stated, but presumably included in line 21.

3

13

463

543

356

- 236

133

2/

-8,892
1,026

- 8,892

- 8,892

1,064

1,576

(Not

Estim

120

(ated

400

60

$ 885

$1,176

030

Mr. KING (presiding). Does that complete your statement?
Mr. COHEN. Yes, it does, sir.

Mr. KING. The committee wishes to thank you for your discussion. with us this morning. Are there questions?

Mr. BYRNES. Mr. Chairman.

Mr. KING. Mr. Byrnes will inquire.

Mr. BYRNES. Mr. Cohen, I think you have rendered a very valuable service to the committee with some of the information you have brought out. Let me ask this. Referring on page 8 to your suggestion that the statute of limitations be extended with respect to certain elements of income, and you suggest that it be income that is found on the information return, can you explain a little further just what that would involve? What information return are you specifically referring to here?

Mr. COHEN. Well, Mr. Byrnes, at the present time, payers of dividend income are required to file with the Internal Revenue Service shortly after the close of each year, a statement of the dollar amount of dividends paid to any particular shareholder, if it exceeds $10 during the year.

Since it is impractical to separate out those of less than $10, the companies have been reporting on form 1099, almost without exception, every dividend payment.

Mr. BYRNES. May I interrupt there?

Mr. COHEN. Yes.

Mr. BYRNES. Would you suggest then that we might require the reporting without the $10 exemption?

Mr. COHEN. That would be a possibility. It has been more convenient to give all of them because these go through a machine, and the newer machines can distinguish better than the older machines can and those who have the new machines today probably could more easily throw out those dividends, say, that were at a rate of less than $2.50 a quarter. It might be easier to do it on a quarterly basis, because dividends are generally reported on a quarterly basis. It would cut down on the number of returns the Service had to process.

Interest payments must be reported on a similar form if they exceed in amount $600 during the quarter. If you assume 4 percent interest, that means that $600 is the interest on $15,000 of principal amount, and so the Service, it is generally understood, is getting relatively few form 1099's in the interest area because it involves payments generally only on accounts of more than $15,000.

When you consider that the Government guarantees only up to $10,000 on most accounts, there will be relatively few of those, and we have envisaged that consistent with the needs and requirements of payers in each area as they have to introduce machines you would reduce gradually the minimum amount. For example, if you reduced it to $10 a month or $120 a year, that would cover in general only accounts above $3,000.

The Service receives 100 million of these forms, and I have been up to the Service center in Lawrence, Mass., and seen at one time 63 million of these piled in the warehouse there, and it makes an effort to sort them and it sorts each of them, as I understand it, into 26 categories, first according to the first letter of the last name and then it selects about 10 percent-I heard figures as high as 17 percent,