dividual taxpayer for payment.120 The government is not compelled to resort to distraint and sale of chattels and personal effects of a taxpayer, before instituting proceedings to enforce a lien on the taxpayer's real estate and leaseholds,121 TIME WHEN LIEN ATTACHES. The statute expressly provides that a lien for unpaid taxes in favor of the United States shall attach from the time when the assessmentlist was received by the collector, except when otherwise provided.122 No other provision seems to be applicable to the income tax law. The Revenue Act of 1918 provides that "all administrative special or stamp provisions of law including the law relating to the assessment of taxes, so far as applicable, are hereby extended to and made a part of this Act." But under the method of collection prescribed by that law it is uncertain when the assessment list is intended to reach the collector.123 In the case of a corporation which has distributed its assets prior to the time when a lien would attach thereto, the government may proceed to collect the tax as a general creditor.124 Taxes Collectible by Distraint. If any person liable to pay any taxes neglects or refuses to pay the same within ten days after notice and demand, it shall be lawful for the collector or his deputy collector to collect the taxes, with the 5% penalty, and interest at the rate of 1% per month, by distraint and sale of the goods, chattels or ef fects, including stocks, securities, and evidences of debt, of the person delinquent.125 This section of the statute exempts certain property from distraint in the case of the head of a family.126 Extensive provision is made in the 120 U. S. v. Pacific R. R., 1 Fed. 97; U. S. v. Allen, 14 Fed. 263. 121 U. S. v. Curry. 201 Fed. 371; Mansfield v. Excelsior Refining Co., 135 U. S. 326; U. S. v. Blacklock, 208 U. S. 75. 122 R. S., § 3186. 123 Revenue Act of 1918, § 250. 124 See Chapter 12 on Corporations. 125 R. S., § 3187. 126 Only heads of families are entitled to this exemption. (T. D. statute for the mode of levying distraint and proceedings on distraint.127 Collectors are enjoined against unnecessary delays in making sales and postponing sales beyond statutory periods; they are also required to make reports. promptly.128 Surplus moneys must be deposited as internal revenue collections and cannot be returned to the legal owner of the property sold.129 In any case in which in order to enforce payment of a tax it is necessary for a collector to cause a warrant of distraint to be served, the sum of $5 is added as part of the tax.130 Procedure in Case of Taxpayers Contemplating Removal or Concealment of Property to Defeat Collection of Tax. If the Commissioner finds that a taxpayer designs quickly to depart from the United States or to remove his property therefrom, or to conceal himself or his property therein, or to do any other act tending to prejudice or to render wholly or partly ineffectual proceedings to collect the tax for the taxable year 131 then last past or the taxable year then current unless such proceedings be brought without delay, the Commissioner may declare the taxable period for such taxpayer terminated at the end of the calendar month then last past and cause notice of such finding and declaration to be given the taxpayer, together with a demand for immediate payment of the tax for the taxable period so declared terminated and of the tax for the preceding taxable year or so much of said tax as is unpaid, whether or not the time otherwise allowed by law for filing return and paying the tax has expired; and such 1499.) The state exemption laws are inapplicable to debts due the United States-U. S. v. Howell, 9 Fed. 674. 130 Revenue Act of 1918, § 250 (f). 131 The term "taxable year" means the calendar year or the fiscal year ending during such calendar year upon the basis of which the taxpayer's net income is computed. The first taxable year, to be called the taxable year 1918, shall be the calendar year 1918 or any fiscal year ending during the calendar year 1918. taxes shall thereupon become immediately due and payable. In any action or suit brought to enforce payment of taxes made due and payable by virtue of the provisions of this subdivision the finding of the Commissioner, whether made after notice to the taxpayer or not, shall be for all purposes presumptive evidence of the taxpayer's design. A taxpayer who is not in default in making any return or paying income, war profits, or excess profits tax may furnish to the United States, under regulations to be prescribed by the Commissioner with the approval of the Secretary, security approved by the Commissioner that he will duly make the return next thereafter required to be filed and pay the tax next thereafter required to be paid. The Commissioner may approve and accept in like manner security for return and payment of taxes made due and payable by virtue of the above finding and declaration, provided the taxpayer has paid in full all other income, war profits, or excess-profits taxes due from him. If security is approved and accepted and such further or other security with respect to the tax or taxes covered thereby is given as the Commissioner shall from time to time find necessary and require, payment of such taxes shall not be enforced by any of the above proceedings prior to the expiration of the time otherwise allowed for paying such respective taxes.132 Under this provision it seems to be within the power of the Commissioner to declare the taxable period of a corporation terminated at the end of the calendar month preceding the month in which it is dissolved and to demand immediate payment of the tax for such taxable period and the tax for the preceding year or to require security for the payment thereof. 132 Revenue Act of 1918, § 250 (g). CHAPTER 36 PENALTIES AND COMPROMISES Several penalties are contained in the law for failure to comply with its provisions and for making false and fraudulent returns. The penalties take two forms: (a) specific penalties of fines with maximum limits and imprisonment, and (b) penalties of either 5%, 25% or 50% based upon the tax. In the case of individuals specific penalties are held to attach to the person and are unenforceable after the death of such person. Ad valorem penalties (those based upon the tax) are enforceable regardless of the death. of the owner of the income by which the penalty is measured.1 Suit to Enjoin Collection of Penalties. While the prohibition of suits to enjoin the collection of internal revenue taxes, does not specifically include "penalties" as such, yet where penalties are authorized by the statute to be added to the tax and collected as a part of the tax, the courts will hold that the penalty is a part of the tax, and its collection cannot be enjoined.3 Failure to File Return. If an individual, corporation or partnership fails to file a return, the specific penalty, where the failure is not wilful, is not more than $1,000.4 In the case of such failure to file a return or list within the time prescribed by law, or by the Commissioner or collector, 1 Reg. 33 Rev., Art. 51. See U. S. v. Theurer, 213 Fed. 960; U. S. v. Pomeroy, 152 Fed. 279, reversed on different ground, 164 Fed. 324. 2 R. S., § 3224. 3 Kohlhamer v. Smietanka, 239 Fed. 408. 4 Revenue Act of 1918, § 253. the Commissioner also adds to the tax 25% of its amount,5 except as set forth in the next paragraph. EXCEPTION. When a return is filed after the time prescribed by law, and it is shown that the failure to file it was due to a reasonable cause and not to wilful neglect, the addition of 25% of the tax is not made. The words "reasonable cause" have been held to be such a condition of fact as, had the taxpayer in default exercised ordinary care and prudence it would have been impracticable or impossible for him to have filed his return in the prescribed time. Delinquent returns must be accompanied by a showing of the fact alleged as reasonable cause for excuse from the 25% penalty. This showing must be made in the form of an affidavit, under oath, and should be attached to the return." Returns of Withholding Agents. Failure to make and file withholding returns on or before March 1st renders a withholding agent liable to the specific penalty of not more than $1,000 unless the tax is paid by the recipient of the income. If the failure of the withholding agent was fraudulent and for the purpose of evading the tax, however, he will be guilty of a misdemeanor and fined not more than $10,000 or imprisoned for not more than one year, or both, together with the costs of prosecution, irrespective of whether or not the tax is paid by the recipient of the income.10 The 25% addition to the tax for failure to make a return and the 50% addition for a wilfully false and fraudulent return are not assessed against withholding agents."1 Intentional Neglect or Refusal to Make Returns. Any individual, corporation or partnership wilfully refusing to make a return is guilty of a misdemeanor and subject to a 5 R. S., § 3176, as amended by the Revenue Act of 1918. 6 R. S., § 3176, as amended by the Revenue Act of 1918. 7 Reg. 33 Rev., Art. 54. 8 Revenue Act of 1918, § 253. 9 Revenue Act of 1918, § 221 (e). 10 Revenue Act of 1918, § 253, 221 (e). 11 Mimeograph letter to Collectors, No. 1,265. |