Sampling 1949 Corporation Income Tax Returns

Abstract

T HE Bureau of Internal Revenue and the Federal Trade Commission are both interested in corporation data, the former for purposes of taxation, the latter for financial reporting. In 1949 there were about 600,000 active corporations filing income tax returns with the Bureau. To tabulate all of these returns annually is a large undertaking; to audit all of them is an even larger undertaking. Hence these agencies have turned their attention more and more to sampling as a solution to the problem of quickly getting useful operating and research data on corporations. The Bureau of Internal Revenue has used probability sampling in connection with tabulations of individual income tax returns and partnership returns of income for some time. It has used sampling of corporations only for special studies and not as a continuous policy. It was decided to draw a sample of corporation income tax returns for 1949 for three reasons: a sample of the corporations with assets under $250,000 could be used as the basis of an audit program to throw light on an area of tax audit about which the Bureau has incomplete information; a sample could be used to test the feasibility of shifting the tabulation of corporation statistics, now reported in Statistics of Income, Part 2, from a tabulation based on all returns, as at present, to a tabulation based upon a designed probability sample; a sample could be used as the basis of periodic special studies which the Bureau is called upon to make. The Federal Trade Commission, in connection with the Securities and Exchange Commission, publishes the Quarterly Industrial Financial Report based upon a sample of corporations engaged in manufacturing in 1943. It was highly desirable that this sample be revised and drawn from the most current and complete list of corporations available. It was important also that the total assets and industrial classification of every corporation be known so that these two factors could be used for stratification of the population. These requirements pointed to the income tax returns of the Bureau of Internal Revenue as the most logical frame for the sample. An executive order was obtained giving the Federal Trade Commission access to the income tax returns;