By act of Congress approved March 3, 1875, it became necessary, on the first of July, for me to recommend the dropping of three clerks of the third class, two clerks of the second class, five lady clerks, and two laborers. I accordingly called upon my several heads of division to inform me in writing relative to the efficiency of the individuals employed in their respective divisions, that I might be enabled with justice to dispense with the services of those who were least efficient. These reports, in my judgment, warranted a greater reduction than was contemplated by the act referred to; and consequently I recommended the dropping of the names of twenty persons from the rolls of the Office, and the appointment of eight persons vice those dropped in excess of the requirements of the law. The entire number of persons now employed in the Bureau is two hundred and forty-one, including oflicers. This force is divided under the law into seven divisions, as follows, to wit:

1. DIVISION OF LAW, in charge of Charles Chesley, esq., solicitor of internal revenue, assisted by William H. Armstrong. This division is subdivided into four sections, to wit:

Section 1.-O. F. Dana, chief; in charge of frauds, seizures, suits, &c. Section 2.-E. H. Breckenridge, chief; in charge of abatement and refunding claims.

Section 3.-Henry A. Blood, chief; in charge (excepting as hereinafter stated) of questions relating to special taxes, documentary stamp-taxes, taxes on incomes, legacies, and successions, and on dividends, &c., lands purchased for the United States on distraint, and the extension of time on distraints.

Section 4.-Israel Kimball, chief; in charge of matters (including special taxes) relating to tobacco, snuff, and cigars, not in suit or in bond, and stamp-taxes on medicines and preparations under Schedule A of Revised Statutes.

2. DIVISION OF ACCOUNTS, in charge of II. C. Rogers, esq., first deputy commissioner, assisted by Edward Tompkins. This division is subdivided into the following sections:

Section 1.-Edward Tompkins, chief; in charge of the examination and reference of the revenue and disbursing accounts, and estimates of collectors, and of their applications for special allowances, and of all matters relative to advertising and the purchase of blank-books, newspapers, and stationery for supervisors, collectors, revenue-agents, &c.

Section-Samuel H. Goodman, chief; in charge of the examination and reference of the monthly bills of supervisors, revenue-agents, gaug ers, and distillery-surveyors, and of all miscellaneous claims presented to this Bureau arising under any appropriation made for carrying into effect the various internal-revenue laws, (excepting claims for abatement, refunding, and drawback,) and the preparation of estimates for appropriations by Congress.

3. DIVISION OF STATISTICS AND DIRECT TAXES, in charge of James M. Ray, esq., second deputy commissioner. This division is subdivided into the following sections, to wit:

Section 1.-J. B. Taylor, chief; in charge of statistics.

Section 2.-C. W. Eldridge, chief; in charge of direct taxes.

4. DIVISION OF DISTILLED SPIRITS, in charge of T. A. Cushing. This division is charged with the supervision of all matters pertaining to distilleries, distilled spirits, fermented liquors, wines, rectification, gangers' fees and instruments, approval of bonded warehouses, and the assignment of store-keepers. This division is subdivided into two sections, as follows:

Section 1.-E. S. Holmes, chief; in charge of fermented liquors, rectifiers' returns, gaugers, gaugers' instruments, and locks and seals.

Section 2.-Samuel L. Stephenson, chief; in charge of registering of stills, notices and returns of distillers' reports of surveys, plans of distilleries, approvals of warehouses, assignments of store-keepers, storekeepers' monthly reports of materials used and spirits produced, and gaugers' reports of gauging done at fruit-distilleries.

5. STAMP DIVISION, in charge of E. R. Chapman. This division is charged with the supervision of the preparation, safe-keeping, issue, and redemption of stamps for distilled spirits, tobacco and cigars, fermented liquors, special taxes, documentary and proprietary stamps, and the keeping of all accounts pertaining thereto.

This division also has supervision of all business with Adams Express Company, the preparation, custody, and issue of steel dies for canceling stamps; also the custody of official postage-stamps, and the stamping and dispatch of the mails.

6. DIVISION OF ASSESSMENTS, in charge of C. A. Bates. This division is charged with the preparation of the assessment-lists, and with the consideration of all reports and returns, except those received from distillers, rectifiers, and brewers, affording data from which assessments may be made; also, with keeping the bonded account, and with the consideration of claims for the allowance of drawback.

7. DIVISION OF APPOINTMENTS, ETC., Alexander H. Holt, chief clerk, in charge, assisted by Samuel J. Butterfield. This division is charged with all matters pertaining to appointments, commissions, leaves of absence, office-discipline, assorting and disposition of the mail, registry and keeping of all letters, with the care of the general files; and all matters relating to messengers, laborers, office-stationery, printing, adver tising, and the preparation of blanks and blanks-books for the Bureau. This division is subdivided into five sections:

Section 1.-Miss J. M. Seavey, chief; in charge of copying, preparation and charge of press-copies, and recording the same.

Section 2.-Miss Annie E. Adams, chief; in charge of the registry of letters.

Section 3.-R.D. Swingle, chief; in charge of printing, circulars, specials, regulations, and blank forms.

Section 4.-George C. Kirby, chief; in charge of messengers and laborers, opening and disposition of the mail, and stationery for the Bureau.

Section 5.-Richard A. Charles, chief; in charge of the general files. The foregoing constitute the internal working-force of the Bureau. The external machinery for the collection of the revenue, including an enumeration of leading classes of manufacturers, from whom largest amount of revenue is derived, is as follows:

At present there are two hundred and nine collection-districts in the

United States, with a corresponding number of collectors; these collectors employ to assist them twelve hundred and five deputies. Within their districts were six hundred and eighty-nine grain-distilleries regis tered, six hundred and fifty-six of which were operated during the fiscal year ended June 30, 1875, and four thousand and forty fruit-distilleries registered, three thousand nine hundred and forty-five of which were operated during the same fiscal year; also, twelve hundred and fortyseven rectifiers, five thousand three hundred and forty-eight wholesale, and one hundred and sixty-three thousand four hundred and fifty-five retail, liquor-dealers. During the fiscal year ended June 30, 1875, there were two thousand seven hundred and eighty-three brewers engaged in the manufacture of fermented liquors. There are employed ten hundred and seventy-eight gaugers, and twelve hundred and thirty-three storekeepers. There are nine hundred and eighty-three manufacturers of tobacco and snuff, and fifteen thousand and seventy-three cigar manufacturers; and there are employed thirty-two inspectors of tobacco, snuff, and cigars.

There are also employed ten supervisors and twenty-five revenue agents. At the time of my taking charge of the Bureau the latter were assigned to duty under the direction of the supervisors. There were also employed special clerks to supervisors, who acted under their direction, and performed substantially the same duty as revenue agents.

The frands which were developed just previous to my assuming the office of Commissioner led to a change in the organization and direction of this force of agents, and on the 18th day of May I issued an order organizing a division of revenue agents, with Homer T. Yaryan, esq., as chief in charge, relieving supervisors of all responsibility in relation to directing the movements of said agents, transferring the same to Mr. Yaryan under my direction.

Subsequently, upon a careful examination of the law, I became convinced that there was no authority conferred therein for the employment of the special clerks to supervisors above referred to, and, in conformity therewith, an order was issued on the 31st day of August, informing supervisors that from and after that date the services of special clerks would be discontinued.

This action necessitated the assigning to duty, under the direction of each supervisor, two revenue agents, thereby leaving but five revenue agents, including the chief, to act under the immediate direction of this Oflice. There have been employed in the division of revenue agents, under the direction of Mr. Yaryan, twenty-five persons, in examining the returns of distillers and rectifiers, and comparing the same with transcripts of the books of wholesale liquor-dealers, covering the period from July 1, 1874, to the present time. These examinations have resulted in furnishing evidence by which the Government will be able to recover large amounts of tax upon spirits fraudulently manufactured by distillers, and have developed fraud in places not heretofore sus pected, resulting in important seizures of distilleries and rectifyinghouses. It may be safely stated that at least $1,000,000 in taxes and condemned property will be recovered through the agency of this divis. ion, which otherwise would probably have been lost to the Government. The force of revenue agents is entirely inadequate to perform the duties contemplated by law, and I therefore earnestly recommend that Congress, at its approaching session, be requested to authorize by law the employment and payment of fifteen agents in addition to the present number. With such a force, I am confident that the country can be so thoroughly policed as to prevent the perpetration of frand and greatly increase the revenue.

Report of work done in section 1, division 7, from July 1, 1874, to June 30, 1875,

Total number of pages of press-copy unrecorded July 1, 1875

100, 000-equal to 100 record-books.

It must be borne in mind that out of the seventy lady clerks employed in this Bureau only twenty are employed in this section, and that this number are engaged not only in recording press-copies, but on much miscellaneous work for other divisions, as will appear from the above statement. It will also be observed that there are one lundred thousand pages of press-copies unrecorded at the beginning of the present fiscal year. These are constantly fading, and should at once be recorded, and for the purpose of accomplishing this work I would recommend that Congress be requested to authorize the employment and payment, at the rate of nine hundred dollars ($900) per annum, of twenty-five additional lady clerks, for the period of six months from the 1st of January, 1876, at the end of which time, I trust, their services can be dispensed with.

There are now employed in this Bureau five messengers and fifteen laborers. The former receive a salary of eight hundred and forty dollars ($840) and the latter seven hundred and twenty dollars ($720) per annum. I would recommend that Congress be requested to authorize the employment and payment, at the rate of eight hundred and forty dollars ($840) per annum, of twenty-five messengers, instead of the five messengers and fifteen laborers at present authorized. I do this for the reason that they all perform similar labor, and the present force is inadequate.

Since the report of my predecessor, thirteen collection-districts have been abolished-that is, consolidated with those at present existingthereby saving to the Government an annual expense of about $40,000. I am convinced that further consolidations can be made, thereby greatly reducing expenses without injuriously affecting the collection of the revenue.

AMENDMENTS OF THE LAW RECOMMENDED.

Experience has developed the necessity of some changes in the internal-revenue laws, which I proceed to state.

1. As to the forfeitures of distilleries.-The present law (section 3332 Revised Statutes) provides that when a judgment of forfeiture in any case of seizure is recovered against any distillery having a regis tered producing capacity of less than one hundred and fifty gallons a day because no bond has been given, every still, doubler, worm, &c., therein shall be so destroyed as to prevent the use of the same, or any part thereof, for the purpose of distilling; and the material shall be sold as in case of other forfeited property.

This contemplates a judgment of forfeiture.

In the mountainous districts of several of the Southern States a great deal of illicit distilling of spirits, in remote and out-of-the-way localities, is carried on, to the great detriment of the revenue. The distillingapparatus is of a simple and inexpensive nature, easily removed, and, when broken up, of little or no value. A proceeding in rem against such property is a mere farce, or would be so but for the costs which the United States must pay, which is a very serious matter, since nothing can be realized from the sale of the broken materials.

The practice has been in such cases for the revenue official making the seizure to destroy the property at once, taking the responsibility of being sued for the damages. No suit of the kind has been brought so far as this Office is advised, and for the reason, I suppose, that no one is willing to avow himself the owner or operator of the illicit still. But the proceeding is irregular, and authority should be conferred by law