Memorandum of Disapproval of Bill for the Relief of Mary K. Ryan and William A. Boutwell.

I AM WITHHOLDING my approval of S. 489, "For the relief of Mary K. Ryan and William A. Boutwell."

The bill would permit the two named taxpayers to file claims for refund of overpayment of income taxes for the taxable years 1949 and 1950, .based on excludable cost-of-living allowances, notwithstanding that the statute of limitations has barred the filing of such claims.

The two taxpayers named in the bill filed joint income tax returns from Alaska for the years 1949 and 1950. On these returns the taxpayers included as income certain "territorial cost-of-living allowances". The Internal Revenue Service had ruled, in 1948, that such allowances were includible in gross income. Subsequently, however, in October 1953, the Internal Revenue Service ruled that such allowances were excludable. In late March 1954, some five months after the publication of this second ruling, one of the taxpayers named in the bill filed claims for refund for the years 1949, 1950, and 1951. Refund was granted for the year 1951, but the three-year period of limitations prescribed by the Internal Revenue code of 1939 barred refund for the years 1949 and 1950.

While it is true that, at the time the second ruling of the Internal Revenue Service was published, refund for the year 1949 already was barred by the statute of limitations, the taxpayers did have from October 1953 until March 15, 1954, in which to file a timely claim for 1950. The record on this bill affords no explanation for the delay in filing such a claim until after March 15, 1954, but it does disclose that the taxpayer who filed for the refund learned of the revised ruling in November, 1953. As for the taxable year 1949, bills introduced in the 84th and 85th Congresses would have provided general relief from the application of the statute of limitations to refunds of income tax paid on the cost-of-living allowances here in question. Such legislation, however, has never been enacted.

Congress has determined it to be sound policy to include in the revenue system a statute of limitations which, after a period of time, bars taxpayers from obtaining refunds of tax overpayments and bars the Government from collecting additional taxes. Such a provision is essential to finality in tax administration. The basic justification for a statute of limitations is that, after the passing of a reasonable period of time, witnesses may have died, records may have been destroyed or lost, and problems of proof and administration of tax claims become too burdensome and unfair for both taxpayers and the Government. The basic purposes underlying the statute of limitations continue in force even in cases where, after payment of a tax, the interpretation of the law is changed by a judicial decision or by a modification in regulations and rulings.

Several thousand taxpayers received "territorial cost-of-living allowances" during the period of the Internal Revenue Service ruling that such allowances were not excludable from gross income. This bill, by singling out two of these taxpayers for special relief from the statute of limitations, would unjustly discriminate against other taxpayers similarly situated.

DWIGHT D. EISENHOWER