amount of the internal-revenue tax on so much of such spirits so withdrawn as was so used. Provision is made, as in existing law, that every producer of wines who withdraws brandy or wine spirits for use in the fortification of wines shall give bond to fully cover at all times the payment of the internal-revenue tax at the rate imposed by law on the brandy or wine spirits, and that the bond shall be in such form as the Commissioner, with the approval of the Secretary, shall, by regulations, prescribe. Provision is also made, as is not now the case, that when brandy or wine spirits withdrawn for use in the fortification of such wines are not lawfully used in the fortification of wines, or when such brandy or wine spirits are not so accounted for in the manner provided by law and regulations as to warrant remission of the tax, the internal-revenue tax on such brandy or wine spirits, at the basic rate, shall be assessed against the wine producer who withdrew them. Section 3031 (a) now provides that when fortified wines are destroyed or sold or removed for the manufacture of vinegar or the production of dealcoholized wines containing less than one-half of 1 percent of alcohol by volume, the tax under the section on the brandy or wine spirits in such wines so destroyed, sold, removed, or used shall, under such regulations as the Secretary may prescribe, be abated or refunded. Since there will be no 10-cent tax if the bill is enacted, section 3 proposes to amend section 3031 (a) to delete the provision just referred to.

The net result of abandoning the 10-cent tax on fortifying spirits and imposing an additional 5-cent tax on the wines will be to increase the revenue of the United States and to provide eventually for quicker and more sure collection of the taxes on such wines. It is estimated that an average of one-third of a proof gallon of brandy or wine spirits is used to produce a standard gallon of fortified wine. The cost in tax of that one-third of a proof gallon of spirits is 3 cents. The tax on the wine being raised 5 cents, it is apparent that on the average the Government will receive 13 cents more on each gallon of fortified wine withdrawn on payment of tax. During the past 4 fiscal years the yearly average of brandy used in fortifying amounted to 14,710,501 proof gallons, and the yearly average of wine over 14 percent alcohol withdrawn tax-paid amounted to 39,367,155 wine gallons. Under the proposed bill, the yearly wine-tax collections would have been $497,308 greater than under the present wine and fortifying tax rates.

Under existing law the wine maker has 18 months within which to pay the fortification tax. Therefore, there may not be a default declared on the part of the wine maker on the payment of such tax until the 18-month period has expired. Hence, under the internal-revenue laws, there can be no lien against the wine maker's property until the 18-month period has expired and there has been a default. In the meantime, the wine may have been tax-paid and sold, and the Government must look for payment to the wine maker's assets other than the wine in which the spirits were used, and to his bond. If H. R. 9117 becomes law this will all be changed, and whenever fortified wine is removed from bond and the tax paid, the Government will receive its fortification tax which, as outlined above, is to be included in the wine tax. It seems to us that the entire tax situation will be clarified and there will be considerably less prospect of litigation and controversy with bonding companies concerning the fortification tax. We have been informed that the wine industry considers that the placing of the fortification tax on the wine itself and abandonment of the 18-month period of tax postponement will result in sounder business practices within the industry and thereby benefit the industry.

Section 4 of the bill is designed to take care of the situation which will result as of the effective date of the act which, we have been informed, is desired to be made July 1, 1940. If the 10-cent fortification tax is to continue in effect until and including June 30, 1940, and all wines which come out of bonded wineries and bonded storehouses on July 1 and thereafter are to be taxed at the higher rate, it will mean that as to all wines removed from bond on July 1, 1940, and thereafter, such wines will be paying not only the increased tax which is supposed to be a substitute for the present fortification tax, but they will be bearing the fortification tax also. This, of course, would be in effect double taxation, which is neither intended by the proponents of the bill nor desired by the Treasury Department. It appears to be good administrative procedure, therefore, to give to the proprietor of every bonded winery and bonded storeroom a credit of 5 cents for each gallon of wine on his premises which, when removed, will be subject to the higher tax. The fortification taxes accruing before July 1, 1940, will be payable as under existing law; that is to say, within 18 months from the date of the notice of the assessment thereof. It is obvious that if the new law is to be effective as of July 1, 1940, on the basis of an inventory as of June 30, 1940, a

proprietor who tax-pays wine of an alcoholic content from 14 to 24 percent of absolute alcohol by volume on or after July 1, 1940, will necessarily have to pay the tax at the new rate, even though the fortification tax on the spirits in such wine has been or will be paid. Under section 4 the credit given to the proprietor will be usable by him in the purchase of wine stamps. In the view of the Treasury Department it is immaterial whether he uses 5 cents' worth of credit and 10 cents of his own money in paying a 15-cent wine tax, or if he uses 15 cents' worth of credit in payment of the 15-cent wine tax. The purpose of the credit being to compensate for the fortification tax which has been, or may be, paid, it is immaterial to the Treasury Department how the proprietor uses it, or even if he should transfer his credit to another proprietor.

In view of all of the above, especially considering the advantage in sureness of tax collection and increased revenue, the Treasury Department offers no objection to the passage of the bill. However, we do offer the following suggestions for

changes in the bill.

Section 3030 (a) (1) (A) of the Internal Revenue Code, which is proposed to be amended by section 1 of the bill, at the present time imposes taxes upon all still wines, including vermouth, and all artificial or imitation wines or compounds sold as still wine, produced in or imported into the United States after "February 24, 1919, or which on February 25, 1919," were on any winery premises or other bonded premises or in transit thereto, or at any customhouse. The Revenue Act of 1918 was approved on February 24, 1919. In that act taxes on still wines, etc., were imposed by section 611. Legislation subsequent to February 24, 1919, in respect to these taxes always proceeded by way of amendment of section 611, and when the code was enacted the old dates were retained. It is suggested that in lieu of the dates "February 24, 1919," and "February 25, 1919," appearing in lines 8 and 9 on page 1 of the bill there be inserted the dates "June 30, 1940," and "July 1, 1940," so that that portion of the section will read "after June 30, 1940, or which on July 1, 1940."

The language in lines 1, 2, and 3 on page 2 of the bill indicates that the taxes we have been discussing are to be levied, collected, and paid when the objects of the taxation are sold or removed for consumption or sale. It appears obvious that if the dates which have just been suggested are inserted in the bill there will actually be little change in the net result if the new tax is effective on July 1, because it is the date on which the wines are removed for consumption or sale which governs the rate of tax to be paid. If there should be on bonded winery premises after June 30, 1940, that is to say, on July 1, 1940, or thereafter, or in transit from one bonded place of storage to another bonded place of storage on July 1 wines which were in bonded storage after February 24, 1919, or in transit to a place of bonded storage on February 25, 1919, no attention would be paid to the various rates of tax which had been imposed between 1919 and 1940, for the reason that it is the tax imposed by law on the date of removal which governs. In the present section 3030 (a) (2) of the Internal Revenue Code, and in that section of the code as it is proposed to be amended by section 2 of the bill (in line 11, p. 3) appears the date "June 26, 1936.' This date is traceable to the effective date of the Liquor Tax Administration Act, which was approved on June 26, 1936. Section 319 (d) of that act amended section 613 (a) of the Revenue Act of 1918 in respect of the tax on champagne, sparkling wine, artificially carbonated wine, etc. It is suggested that this date, and the immediately following language reading "or which on the day after such date" be eliminated and that there be substituted therefor "June 30, 1940, or which on July 1, 1940." This will harmonize section 3030 (a) (1) (A) and section 3030 (a) (2) of the Internal Revenue Code in respect of the effective dates of the tax.

Section 3031 (a) of the Internal Revenue Code, as proposed to be amended by section 3 of the bill, does not contain an effective date. Such effective date must, of course, under the policy and the theory of the bill, be July 1, 1940. It is suggested that on line 23, page 4 of the bill, following the designation of the section (sec. 3) there be inserted the words "Effective July 1, 1940," so that the language of lines 23 and 24 will read as follows: "Sec. 3. Effective July 1, 1940, section 3031 (a), Internal Revenue Code, is amended to read as follows:" If that change be made, there should be a change in line 6, page 6. The words "the effective date of this Act" in that line should be replaced by "July 1, 1940."

In lines 5, 6, and 7 on page 7 of the bill (in sec. 4) appears this language: "and containing 14 per centum or more of absolute alcohol by volume, but not more than 24 per centum or more." Since the quoted language is intended to be descriptive of the lower and upper limits of the two classes of wines with which the bill deals, i. e., wine containing "more than 14 per centum and not exceedin 21 per centum, and wine containing more than 21 per centum and not exceeding S. Repts., 76-3, vol. 3-66

24 per centum," it is obvious that such limits have not been properly described. The lower limit should have been described as "more than" 14 per centum, and the words "or more" in line 7 should be eliminated from the description of the higher limit. It is suggested that there be substituted for the language quoted from lines 5, 6, and 7 the words and figures "and containing more than 14 per centum of absolute alcohol by volume, and not exceeding 24 per centum."

It is suggested that an additional section, to be numbered 5, be inserted in the bill to guard against the possibility that there is not sufficient authority in existing law and in the bill for the issuance of all necessary regulations. We suggest that

the added section read as follows:

"SEC. 5. The Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe and publish all needful rules and regulations for the enforcement of this Act."

In view of the urgency of this report, it has not been possible to secure advice from the Bureau of the Budget as to the relationship of H. R. 9117 to the program of the President.

Very truly yours,

HERBERT E. GASTON, Acting Secretary of the Treasury.

о

JUNE 14 (legislative day, MAY 28), 1940.-Ordered to be printed

Mr. O'MAHONEY, from the Committee on the Judiciary, submitted the following

REPORT

[To accompany H. R. 7343]

The Committee on the Judiciary, to whom was referred the bill (H. R. 7343) to amend certain laws governing Federal prisoners, and for other purposes, after consideration, report the same with the recommendation that it do pass.

This bill proposes to make certain changes, mostly of an administrative nature, in Federal penal laws. It was sponsored by and has the approval of the Attorney General.

Section 1 relates to defendants who, having been paroled, are arrested for violation of their parole. The section proposes to change existing law so that it will not be required to return such defendants to the institution from which they were paroled, as this process has often been found unnecessary and expensive. The existing law is set forth below, with proposed additions in italics and parts to be stricken out in brackets:

SEC. 3. The said Board, or any member thereof, shall hereafter have the exclusive authority to issue warrants for the retaking of any United States prisoner who has violated his parole. The unexpired term of imprisonment of any such prisoner shall begin to run from the date he is returned to the [institution] custody of the Attorney General under said warrant, and the time the prisoner was on parole shall not diminish the time he was originally sentenced to serve.

Section 2, in order to conform to changes made by the first section, proposes to amend the law so as to make it possible for any penal officer to serve a warrant for the rearrest of a prisoner so violating parole.

Changes in the law are shown below:

SEC. 5. That any officer of [said prison] any Federal, penal, or correctional institution or any Federal officer authorized to serve criminal process within the United States, to whom such warrant shall be delivered, is authorized and required to execute such warrant by taking such prisoner and returning him to [said prison within the time specified in said warrant therefor] the custody of the Attorney General. All necessary expenses incurred in the administration of this

Act shall be paid out of the appropriation for the [prison] institution in connection with which such expense was incurred, and such appropriation is hereby made available therefor.

Section 3 relates to hearings in cases in which a parole is to be revoked. The existing law provides that when a prisoner has been retaken on a charge of violating his parole, he shall receive a hearing at the next meeting of the parole board held at the prison to which he has been returned. The bill proposes to amend this requirement so as to provide that the prisoner shall be given an opportunity to appear before the parole board or a member thereof, or an examiner designated by the board. Such flexibility is desirable in the interest. of administrative efficiency and economy.

This section proposes to change existing law as follows:

SEC. 6. [That at the next meeting of the board of parole held at such prison after the issuing of a warrant for the retaking of any paroled prisoner, said board of parole shall be notified thereof, and if said prisoner shall have been returned to said prison,] When a prisoner has been retaken upon a warrant issued by the Board of Parole, he shall be given an opportunity to appear before said [b]Board of [p]Parole, a member thereof, or an examiner designated by the Board. [and] [t]7 he said [b]Board may then, or at any time in its discretion, revoke the order and terminate such parole or modify the terms and conditions thereof. If such order of parole shall be revoked and the parole so terminated, the said prisoner shall serve the remainder of the sentence originally imposed; and the time the prisoner was out on parole shall not be taken into account to diminish the time for which he was sentenced.

Section 4 relates to "poor convicts" who are incarcerated for the nonpayment of a fine. Under existing law, any person who is sentenced by any court of the United States to imprisonment and fine, or to fine alone, may, after he has served 30 days solely for nonpayment of the fine, request a hearing before a United States Commissioner on the question as to whether he is able to pay such fine. If at such hearing it appears that he is unable to pay such fine and has no property exceeding $20 in value, except such as is exempt from execution, the commissioner administers to him the so-called poor convict's oath. Thereupon, the prisoner is discharged from imprisonment for nonpayment of the fine, although the fine itself remains a civil judgment until satisfied or otherwise disposed of.

There are cases, however, in which the prisoner may have money somewhat in excess of $20, but to require him to deliver all of his money or property in excess of that amount may cause his family to go on relief. In order to prevent such a consummation in meritorious cases, the bill adds a provision to the existing law to the effect that if, in such a case, the Attorney General finds that the retention by such convict of all of such property is reasonably necessary for his support or that of his family, he shall be released without further imprisonment solely for nonpayment of the fine. Likewise, if the Attorney General finds that the retention by such convict of a part of his property is reasonably necessary for such purpose, the prisoner is to be released without further imprisonment solely for the nonpayment of the fine upon payment of that portion of his property as is in excess of the amount so found. This provision will also make it possible to make an appropriate disposition of cases, which at times occur, in which a defendant may be without funds to pay a fine, but may own real estate, such as a farm, which is either nonsalable or which could not be sold except at a great sacrifice. Cases of this kind have at times. given rise to considerable hardship. The new provision is found in