sustain no loss. These figures attest the faithfulness and honesty of the officers to whom the collection of the internal revenues of the gov ernment has been intrusted, and I take pleasure in adding my testimony to the commendable esprit de corps which has generally marked their official conduct, and the willing disposition they have largely manifested to aid in the improvement of the public service. TERM OF OFFICE. I call your attention to the fact that the law creating the office of collector of internal revenue fixes no tenure to the office. In my opinion it is altogether desirable that the term of this office should be fixed at four years. It often occurs that when a collector has served for a longer period than four years, constant efforts are being made for his removal; and many officers, however well they may have discharged their duties, feel, after a four years service, uncertain as to the length of time they will be retained in office. Where an officer is appointed for a term of four years he has a right to expect that if he performs his duty diligently and faithfully he will not be disturbed until his term expires, and this feeling of security I regard as an important element in maintaining a good public service. From my limited observation in public life, I have come to the conclusion that when it can reasonably be done there should be a fixed tenure of all offices of the government. I have the honor to recommend that a law be passed fixing the tenure of office of all collectors of internal revenue hereafter appointed, at a term of four years. CHANGES IN ADMINISTRATION. Since my last report the following changes in administration have been made, to which I desire to call your attention: 1. By requiring gaugers to report the length and mean diameter of all packages of spirits gauged, errors in gauging can be more readily detected and corrected, and gaugers are induced to observe greater care in performing their work. 2. In the allowance of claims for abatement, refunding, drawback, or rewards for information, and in the consideration of applications for compromise, and of all contested questions as to claims of the government for taxes not assessed, and generally of all matters wherein testimony is required to be taken, a rule has been established that ex parte affidavits or depositions shall not be considered except in very special cases. Before testimony is taken, the party desiring to use the same is required to give reasonable notice to this office, so as to enable the Commissioner to arrange for the cross examination of the witnesses. 3. A circular has been issued, placing prohibitory restrictions upon the employment of officers in the same collection districts who are related to each other by blood or marriage. I am well convinced that the efficiency of the public service will be promoted by interesting a larger number of families throughout the country in the business of enforcing the internal revenue laws. 4. Provision has been made for a quarterly examination of the offices of collectors and of deputy collectors with a monetary responsibility, with a view of securing efficiency in all collectors' offices, and a strict accountability for all public funds. Four revenue agents, who are skillful accountants, have been assigned to this duty. 5. Provision has been made for a quarterly inspection of all the internal revenue officers throughout the country by districts. The scope of the inspection is sufficiently broad to ascertain the character, capacity, and fidelity of all officers, and the condition of distilleries, breweries, recti fying establishments, tobacco and cigar factories, and all other establishments producing or dealing in taxable articles. Seventeen revenue agents are constantly employed upon this work. By a quarterly examination of collectors' offices and the inspection of the officers of each district, a more strict accountability of the public funds will be maintained, and the efficiency of the force greatly promoted. By this system such full information will be obtained of the standing and capacity of collectors and their subordinates as will readily enable the appointing power to weed out the incapable and inefficient, and to recognize, to the fullest extent, honest, capable, and faithful officers. UNEXPENDED BALANCES. Of the appropriations for the past fiscal year the following sums remain unexpended: Salaries and expenses of collectors, say. Dies, paper, and stamps, say... $15,000 63,000 Total DEFICIENCY ESTIMATES. 78,000 The allowances for the current fiscal year on account of salaries of collectors, &c., have been made with a view of not creating a deficiency. The appropriation, however, is inadequate for a proper enforcement of the internal revenue laws. I therefore recommend a deficiency appropriation of $40,000 on this account. The appropriation for salaries and expenses of agents and surveyors, for fees and expenses of gaugers, for salaries of storekeepers, and for miscellaneous expenses, I am satisfied is entirely inadequate to the necessities of the service. The amount to be paid to gaugers and storekeepers is dependent upon the operations of the distilleries of the country; and the experience of past years warrants me in saying that the deficiency on this account for the current fiscal year will be $150,000. I recommend an appropriation of that amount. For salaries and expenses of ten additional revenue agents for the six months of the present fiscal year after December 31, 1877, I recommend an appropriation of $20,000. ESTIMATES FOR THE FISCAL YEAR ENDING JUNE 30, 1879. For salaries and expenses of collectors... For dies, paper, and stamps For detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws, including payment for information and detection... For expenses of the custody and sale of real estate obtained under the internal revenue laws, including expenses already incurred on that account.. $1,900,000 1,640,000 410, 000 100,000 6,000 SPECIAL RECOMMENDATIONS. I recommend legislation upon the following points: 1. That a retail liquor dealer be authorized to close out his stock with. out incurring a wholesale liquor dealer's tax. 2. That a bona fide mortgagee of spirits should be authorized to sell and deliver the same under the mortgage to any person qualified to buy them without incurring a wholesale liquor dealer's tax, and the person so receiving the spirits, without reference to the amount, should not be liable to any penalty therefor. 3. Where the members of a firm who have paid a special tax for pursuing any business are changed by the withdrawal or admission of a partner, the new firm thus created should be allowed to pursue business upon giving notice of such change to the collector of their district without the payment of a new tax. 4. That a person caught in the act of manufacturing or selling illicit spirits may be arrested on view without warrant by a marshal or deputy marshal, and forthwith taken before a proper tribunal for examination. 5. That the existing law be so changed as to authorize the employment of thirty-five revenue agents. ASSESSMENTS FOR EXCESSIVE USE OF MATERIAL BY DISTILLERS. On the 6th of September, 1875, after much careful consideration, Hon. D. D. Pratt, then Commissioner, issued circular No. 165, concerning the method of determining the quantity of grain actually used by a distiller. The matter under consideration was the proper construction to be given to the word "used" in section 3309 of the United States Revised Statutes, and said circular was based upon the idea that the proper construction of that word was that the material was to be considered used, not when it was mashed, but when alcoholic spirits, having been properly developed, were separated therefrom by distillation; and for the purpose of giving force to this construction, distillers were required to make return of the quantity of grain or molasses, in bushels and pounds or gallons, on hand in mash at the beginning of the month, to which was to be added that put into mash during the month, and from this total was to be deducted the quantity on hand in mash at the end of the month, the remainder being the quantity shown to be used during the month. After this regulation went into effect a number of distillers throughout the country, in due course of operating their distilleries, found it necessary to reduce the capacity of their distilleries, and, in doing so, omitted to maintain a sufficient amount of daily fermenting capacity to equal the quantity of beer to be distilled that was fermented on the days immediately prior to the date of the change of capacity, so that at the end of the month, when the Commissioner of Internal Revenue, under section 3309, proceeded to inquire and determine whether the distiller had accounted for all the grain or molasses used, it was discovered that the sum of the different daily capacities of the distillery for the several working days of the month was not equal to the sum of the various quantities distilled on the several working days of the month, so that a quantity of material had been used in excess of the total capacity of the distillery. In such cases assessments were made for an excessive use of material under the provisions of said section 3309. Abatement claims have been filed in these cases, and I have endeavored to give the subject very careful consideration. The distillers might have avoided the assessments by simply omitting to mash a quantity of grain equal to the proposed reduction of capacity from day to day during a fermenting period, retaining their surveyed capacity so that they might lawfully distill the full amount of material previously fermented by them, and then, at the end of said fermenting period, they might have reduced the capacity of their distilleries to the amount of the reduced quantity of grain daily mashed by them, but, instead of doing this, an immediate reduction of capacity was made, with the result named. I regard the payment of these assessments as a great hardship upon the distillers, and, if I had found warrant of law for doing so, I would bave abated them; but I have felt constrained to hold, and have held, that where a tax is legally assessed I could not, under the provisions of section 3220, take equitable jurisdiction of the case and remit it. I have authorized collectors to delay the collection of these assessments until the matter could be presented fairly to the consideration of Congress. At the last session of Congress a bill was introduced in the House of Representatives, numbered 4630, the second section of which made provision to remit and refund assessments of this character. I have the honor to respectfully recommend that an act similar in terms to said section be passed by the present Congress. RECEIPTS FROM ALL SOURCES. The following table shows the amount of taxes returned from all sources during the first quarter of the current fiscal year. The returns for the corresponding period in the last fiscal year, and a comparison of the receipts for the two periods, are also given. NOTE. [A few discrepancies will be observed between some of the amounts in the statements of receipts for the first quarter of the fiscal year 1877 as given above and as stated in the report for 1876, which are thus explained: (1.) It sometimes happens that sums are reported as having been collected from one source, when in reality they were collected from another, but the error is not discovered until some time after the report has been rendered. Thus, $80,000 were returned during the period named as collected on brandy, which, it was subsequently ascertained, were collected on whisky. All returns are subject to revision at any time during the fiscal year in which they were made, and all errors of this nature discovered are corrected. (2.) At the beginning and during the month of October, 1876, twenty collection districts were abolished. As soon thereafter as practicable, the accounts of the collectors of those districts were finally adjusted, and the correction of the difference, if any, between their actual and reported collections was made in one of the returns rendered during the first quarter of the fiscal year 1877, after the report for 1876 was printed.] From the above table it will be seen that the increase in the receipts from tobacco has been $544,837.91; from fermented liquors, $138,020.53; from banks and bankers, $11,041.39; and from taxes under repealed laws, $48,812.91. There has been a decrease in the receipts from spirits of $1,020,357.92; from adhesive stamps, $5,981.04; and from penalties, $93,480.15; making a net decrease, in the aggregate receipts, of $377,106.37. CAPACITY AND PRODUCTS OF DISTILLERIES AND WITHDRAWAL OF SPIRITS TAX-PAID. The following table shows the daily spirit-producing capacity of the distilleries in operation for the months of July, August, September, and October of the fiscal years 1874, 1875, 1876, and 1877: Statement of the quantity of spirits, in taxable gallons, produced and withdrawn, tax-paid, and for export, from distillery warehouses, with the amount of tax paid on the spirits withdrawn, during the months of July, August, September, and October, 1875, 1876, and 1877. |